Our supply chains operate within a “dynamic context” which incorporates many things that are beyond our individual control. Some of the challenging items making up the dynamic context includes regulations, part trends, product trends, Market pressures, Corp stewardship, economy, supply constraints & cost pressures to name a few. For exampleEU RoHS regulations can drive reductions to the supply of leaded parts thus driving prices up for users of these componentsPart obsolescence has significant consequences to OEM component selection & forces expensive product redesign or last time buy purchases Product technology improvements from Apple & other market leading companies, as they upgrade their display or use more energy efficient components drive others in the supply chain to look at these newer technologiesCorporate policies can also drive supply chain constraints – for example if a company chooses to use only halogen free materials will drive new business processesNatural disasters like the Japanese earthquake reduced the availability of silicon, thus reducing the availability of memory devices Although we do not control most of these external influences on our supply chain, we can gain better visibility and management to them.Quite often our goal as is to manage these issues in the most cost-effective way and use effective and reasonable strategies that put us in leadership position compared to our peer group while adhering to our company stakeholders.
IHS’s Design & Supply Chain portfolio of solutions help companies gain better visibility to triggers that impact their supply chains. From gaining insight to predicted component obsolescence to getting early visibility to End of Life notices to exposure to counterfeit components to tracking updates to new global regulations or technology & price trends, IHS can help companies improve their insight on events that can drive significant disruptions to their supply chainIn this presentation I am going to talk specifically about Counterfeit Risk mitigation. I am happy to talk about any of the other items list on this slide during the cocktail reception this evening.
I would like to start off by providing you with visibility into the correlation btwn counterfeit notices and obsolete components. By reviewing the last 10 years of published counterfeit incidents, IHS found that over 50% of the counterfeit notices were for components that were obsolete. The insight here is to ensure you have a robust obsolescence program to ensure you have less exposure to counterfeit parts in your supply chain.
To confirm the hightened Visibility that counterfeit risk is getting this slide summarizes the recent actions by the Senate Armed Services CommitteeThis past March, 2011, the top senators on the Senate Armed Services Committee announced a congressional investigation into counterfeit electronics being used in military equipment. Specifically this committee sent letters to the CEOs of a dozen major DOD suppliers asking them for the counterfeit incidents they have had over the past 2 years along with their company Counterfeit Risk Mitigation policy. Furthermore this committee has been verifying the reported counterfeit occurrences with the individual company test labs to verify the validity of the information they are being provided. This committee believes that there have been significant increase in counterfeit activity and the possible risks ranging from reliability failure, threats to the health and safety of our armed forces, and the potential sabotage or security breaches within the DoD supply chain due to counterfeit components.I have personally spoken with a number of the companies that received these letters and let me tell you they are scrambling to tighten up their own counterfeit mitigation corporate strategy and that of their suppliers.
The costs of getting this wrong can be enormous. I can confirm based on my talks with suppliers who have been burned by counterfeits that these costs can range as high as $1M to $2M for procuring and installing counterfeit components in their products.
Industry has been actively updating or creating new standards to help companies mitigate the risks of counterfeit.SAE AS5553 was one of the first standards to provide guidance on how OEMs can best mitigate counterfeit risks. This standard is being updated and due out for balloting by end of this year. Other new standards for Test Providers, and Distributors are also expected soon.One of the processes outlined in these standards is for companies to Ensure Component Source Selection includes review previously documented counterfeit problems. This is where IHS can assist companies.
Lets step back for a minute and review where the counterfeits are coming from and what is driving this.China has been recognized as the primary source for counterfeits. The side effect of all the e-Waste that has been shipped to China has been the driver of the counterfeit problem. In cities such as Shenzhen China, armies of individuals are extracting used electronic components and misrepresenting them as new or higher grade then what they truly are.
Counterfeits over the past 6 years have been primarily Integrated Circuits but certainly not limited to this category of parts
So where can companies go to get communication on counterfeit issues? The major sources for information on counterfeit incidents have come from GIDEP and ERAI, with ERAI delivering almost 80 percent of the communications over the past 10 years. If you look at 2011 YTD, ERAI’s dominance in this communication has gotten even stronger, at 97%.
IHS is very fortunate to have an exclusive agreement with ERAI to provide visibility to counterfeit incidents to our electronic parts customers. As I revealed earlier, with a strong correlation between counterfeits and obsolescence, IHS was the first to incorporate this type of data in our component obsolescence tools and is the only tool provider that contains the extensive collection of ERAI counterfeit part content.
Online Broker Search Engines Ease & convenience of Googling potential valid parts Well intentioned engineers who make maverick purchasesProfessional looking websites Rapid access to millions of partsMinimal supplier validationQuick & easy access to a large audience of buyers
I encourage you to purchase the SAE AS553 standard or other new counterfeit mitigation standards for a detailed review of industry best practices. Here is a very short summary of recommendations:Buy direct from the FactoryPurchase from Approved Vendor / ManufacturerProcure from Franchised and Authorized SourcesLeverage only Approved Independent DistributorsERAI MembersValidate Parts and SourcesAftermarket SourcesAlternate PartsLeverage U.S. Government QML/QPLLeverage other qualifying authoritiesEqually importantly:Test appropriately Contractually define your expectations..
Acetone test revealed parts counterfeit
Counterfeit risk mitigation 06 21 2011 (2)
Counterfeit Risk Mitigation <br />Bob Braasch, Sr Director Technical Support, IHS <br />June 22, 2011<br />
Dynamic Nature of Supply ChainsSupply chains operate in the dynamic context of external forces…<br />Part Trends<br /><ul><li>Technology
Obsolescence & Counterfeit Correlation Where we see Counterfeits we see Discontinued Parts <br />
Senate Armed Services Committee is seeking information from defense contractors and subcontractors regarding the extent of suspect counterfeit electronic parts…<br /><ul><li>Spreadsheet listing each suspect counterfeit part identified in 2009 & 2010 intended for use by DOD…
Policies related to record keeping, handling, reporting & disposition of suspect counterfeit electronic parts…</li></ul>“The presence of counterfeit electronic parts in the Defense Department’s supply chain is a growing problem that government and industry share a common interest in solving.”<br />Carl Levin, D-Michigan, and Sen. John McCain, R-Arizona<br />March 2011<br />Congress Investigation LaunchedMarch of 2011 top senators launch investigation <br />
Manufacturers ResponsibilityFake Parts in U.S. Military<br />June 16th 2011, CNN broadcast<br />Counterfeit parts impact 40% of Pentagon’s Supply Chain according to U.S. Commerce Dept study<br />Senator Brown (OH) recommends DOD cancel supplier contracts when counterfeits are found in their supply chain <br />http://www.cnn.com/video/#/video/bestoftv/2011/06/16/exp.nr.seg.fake.military.parts.cnn?iref=allsearch<br />
Costs can be ExtremeHard & soft costs add up<br />Hard costs in millions are not uncommon<br />Unrecoverable supplier payments<br />Entire product immediately taken off line or out of service<br />Soft costs can include<br />Brand damage<br />Product rollout delays<br />Rework delays<br />Urgent reprioritization<br />Possible loss of life<br />
Industry Standards & ReportsNew & updated standards expected in 2011<br />IDEA 1010B update <br /><ul><li>Standard for electronic part inspection
Released April 2011</li></ul>AS5553A update intended for OEMs<br /><ul><li>Expected in balloting by end of 2011</li></ul>AS6171 intended for Test Providers<br /><ul><li>Standardize practices to detect counterfeits & ensure consistency of test techniques
Expected in balloting by end of 2011</li></ul>AS6081 intended for Distributors<br /><ul><li>Counterfeit avoidance requirements
ARP6178 tool to access counterfeit risk of Distributors
Expected in 2011</li></ul>SAE AS5553 issued April 2009<br />
Where does it come from?E-Waste<br />The vast majority of product being sold in the China Open Market originates from e-waste. <br />Unknown quantities of e-waste are exported from China to component buyers around the world.<br />Nearly 75 million dollars in revenue is generated for the local Chinese Government in the city of Shantou alone. <br />What incentive does the government have to control the import or export of this product?<br />Much of the e-waste is remarked and counterfeited.<br />Most of the distributors operating in and around Shenzhen have no experience in handling, storing or selling electronic components.<br />
Source: % of reported counterfeits from ERAI, 2004 to present<br />What’s Being Counterfeited?All types of components are being counterfeited, even passives...<br />
Industry Standards & ReportsGIDEP and ERAI are the counterfeit reporting entities<br />
Exclusive Partner to Only IHSOne provider of counterfeit alerts and supply chain risk mitigation <br />12<br />
Who is ERAI Inc?<br />Founded in 1995<br />ERAI is an information services organization that monitors, investigates and reports issues affecting the global electronics supply chain<br />ERAI provides tools to mitigate risks on substandard parts, counterfeit parts and vendors<br />Subscribers include OEMs, CMs, Distributors, OCMs, government agencies and industry associations<br />Founding & active participant in SAE International G-19 Counterfeit Electronic Components Committee and several sub-groups<br />
How Risk Enters Your Supply Chain Intended and unintended ports of entry for counterfeits<br />Many unsafe part & supplier “sources”<br />Online Broker Search Engines <br />Ease & convenience of Googling potential valid parts <br />Engineers who make maverick purchases<br />Counterfeit Suppliers have large audience of clients<br />Professional looking websites <br />Rapid access to millions of parts<br />Minimal supplier validation<br />Quick & easy access to a large audience of buyers<br />Request for Quote<br />Request for Quote<br />Request for Quote<br />…<br />…<br />…<br />…<br />Request for Quote<br />
15<br />But No Supplier is Immune from RiskLack of accountability and traceability allows counterfeits to enter<br />“It is not uncommon, however, for authorized distributors to purchase parts outside of the OCM supply chain in order to fulfill customer requirements – 58 percent purchase parts from other sources. <br />Specifically, 47 percent of authorized distributors procure parts from independent distributors, 29 percent procure from brokers, and 27 percent procure from Internet-exclusive sources.”<br />Source: U.S. Department of Commerce, <br />Office of Technology Evaluation,<br />Counterfeit Electronics Survey, <br />November 2009.<br />
Best Practices to Avoid RiskStay Within Your Trusted Supply Chain<br />Buy direct from the Factory<br />Purchase from Approved Vendor / Manufacturer<br />Procure from Franchised and Authorized Sources<br />Leverage only Approved Independent Distributors<br />ERAI Members<br />Validate Parts and Sources<br />Aftermarket Sources<br />Alternate Parts<br />Leverage U.S. Government QML/QPL<br />Leverage other qualifying authorities<br />Test appropriately<br /> Contractually define your expectations.. <br />
How do IHS and ERAI help?Market Intelligence to Mitigate Counterfeit Risk<br />AUTHORIZATION REQUIRED<br />AUTHORIZATION REQUIRED<br />ERAI notices<br />GIDEP notices<br />
Example: Infineon BTS716G Alerts are accessible via the IHS product<br />
Example: Infineon BTS716G Customers alerted to counterfeit incident<br />Alert!<br /><ul><li>Subscribers of IHS 4DOnline BOM Manager, COMET, and Parts Universe have access to alerts from ERAI, GIDEP, and other sources.
Subscribers to the IHS-ERAI solution provides ERAI membership, giving them access to ERAI’s comprehensive market intelligence community, tools, and services.</li></li></ul><li>Provides Access to Complete DetailsMembership provides comprehensive market intelligence<br />
Example: Rockwell R6502APReported Parts Detail<br />
Example: Rockwell R6502APAll Available Images, Test Reports, Inspection, etc.<br />
Ability to View Supplier Report CardExample<br />
Example: AAOK ElectronicsPast due invoices, wire fraud, faulty product for example…<br />
View Real Stock on Available PartsLimit risk exposure from fake sources and price games<br />