D.C. Counterfeit Microelectronics Working Group
-The Enemy Within
Kristal Snider
Vice President, ERAI Inc.
www.erai.com
ks...
Why we are here

http://defense-update.com/20120603_counterfeit-electronics-in-dod-are-widespread-and-threaten-national-se...
Training Outline
Why we are here
Supply Chain Basics
Counterfeit Timeline
Allocation, Obsolescence & Opportunistic Procure...
Supply Chain Basics

© 2012 ERAI Inc.
Industry Terms
*ORIGINAL COMPONENT MANUFACTURER (OCM)
An organization that designs and/or engineers a part and is pursuing...
Industry Terms
*FRANCHISED DISTRIBUTOR
A distributor with which the OCM has a contractual agreement to buy, stock, re-pack...
Industry Terms
*ORIGINAL EQUIPMENT MANUFACTURER (OEM)
A company that manufactures products that it has designed from purch...
Industry Terms
Contract manufacturer ("CM")
A manufacturer that contracts with a firm for components or products. It is a ...
Industry Terms
*INDEPENDENT DISTRIBUTOR
A distributor that purchases new parts with the intention to sell and redistribute...
Discuss
OCM
Original Component Manufacturer
Franchise Distributor
a/k/a Authorized Distributor
OEM
Original Equipment Manu...
Counterfeit Timeline
• 1986 – China’s quest began for admission to WTO
• 1993-1994 - Pilgrim Components
1.) Broker/Stockin...
Counterfeit Timeline
• 1995 - Electronic Resellers Association Inc. (ERA)
– How’s that for perfect timing?
1st Trade Assoc...
Counterfeit Timeline
• 1998 – Google was incorporated as a privately held
company
The company's mission statement: “To org...
Counterfeit Timeline

November 9, 2000 – ERAI launches eraiESCROW

Two primary challenges for distributors
• Wire Fraud
• ...
Counterfeit Timeline
November 2001 – China Admitted to the WTO
“A monumental change to the world trading system”
“An event...
Counterfeit Timeline

© 2012 ERAI Inc.
Counterfeit Timeline

© 2012 ERAI Inc.
Counterfeit Timeline

© 2012 ERAI Inc.
Counterfeit Timeline

© 2012 ERAI Inc.
Counterfeit Timeline
November 29, 2001 – ERAI receives
1st nonconforming part complaint against a
China based distributor
...
Counterfeit Timeline
January 2002 – ERAI Launches High Risk /
Suspect Counterfeit Part Database
April 19, 2002
-ERAI Indus...
Counterfeit Timeline
March 1, 2003 – IDEA – Public Launch
ERAI Executive Conference, Las Vegas NV
Objectives:
1)

Promote ...
Counterfeit Timeline
January 2004 – ERAI travels to China to investigate
2004 - U.S. Chamber of Commerce's Global Intellec...
Counterfeit Timeline

June 2006 SIA launches
the Anti-Counterfeiting
Task Force (SIA ACTF)

© 2012 ERAI Inc.
Counterfeit Timeline
October 2006- IDEA releases
IDEA-STD-1010-A-Acceptability of
Electronic Components Distributed
in the...
Significance of the IDEA-STD-1010-A
•
•
•
•
•
•

Counterfeit is defined
Wide spread awareness
In-depth training for detect...
Counterfeit Timeline
November 29, 2006 – Counterfeit Components
Detection & Prevention Symposium hosted by
Component Techn...
A Time For Change Revealed
•
•
•

•
•
•

The vast majority of product being sold
in the China Open Market originates
from ...
Estimated units of E-Waste in the US
The significance of the
escalating volumes of
e-waste:
•
•

We need to control e-wast...
Significance of A Time For Change

Where’s the excess?
Argument:
I have to do business with Chinese
Brokers…manufacturing ...
Significance of A Time For Change

Where’s the excess?

32
© 2012 ERAI Inc.
Portals of Entry
•
•
•
•
•
•
•

Low barrier of entry; “Quick &
Easy to Apply”
Anyone can participate in the
open market
Ra...
Counterfeit Timeline
May 2007 – Electronic Resellers Association International Inc. to ERAI

Inc. (the term “resellers” re...
Counterfeit Timeline
September 2007 - The L-3 Counterfeit Parts Team was
established to define and provide guidelines for
...
April 2008- AIA forms the Counterfeit Parts Integrated
Project Team
AIA Counterfeit Parts IPT Plan of Action
To address th...
Counterfeit Timeline
October 2, 2008 - Dangerous Fakes: How counterfeit,
defective computer components from China are gett...
Counterfeit Timeline
April 2009 –
AS5553 released

© 2012 ERAI Inc.

August 2009 –
AS5553 adopted by the DoD
Counterfeit Timeline

October 9, 2009 –
Mustafa Aljaff – MVP Micro /Indictment
November 2009 –
Counterfeit Electronics Sur...
Counterfeit Timeline
January 2010 Defense Industrial Base
Assessment
Counterfeit Electronics report was released by
the U....
Counterfeit Timeline
March 2010- GAO Study: DOD Should Leverage Ongoing Initiatives in
Developing Its Program to Mitigate ...
Counterfeit Timeline
March 2011 - Senators Levin & McCain announced a Senate Armed
Service Committee (SASC) investigation ...
Counterfeit Timeline
July 2011- Supply & Demand Chain Executive Special Edition- The
Counterfeit Crisis
November 8, 2011- ...
December 31, 2011 – Measure signed by President Obama
2012 National Defense Authorization Act (Sec. 818)
Detection and Avo...
Amendment Timeline
Contractor

All contractors, subcontractors and Department of
Defense employees must provide a written ...
Counterfeit Timeline
February 2012 – Suspect
Counterfeit electronic Parts Can
Be Found on Internet Purchasing
Platforms
Wh...
Counterfeit Timeline

Q: What is the significance of the timeline?

© 2012 ERAI Inc.
A: Awareness

© 2012 ERAI Inc.
Counterfeit Statistics

© 2012 ERAI Inc.
“Just One” Incident Can Cost Millions
Design interruptions can cost $0 to over $1M+
“According to the Missile Defense Agen...
Defense A Small Slice of the Pie
Military / Aerospace Application = Approximately 1.9% of market

© 2012 ERAI Inc.

Source...
The Past Decade Has Seen A Steady
Rise in Counterfeit Incidents Reported

Source: IHS Parts Management 2012

Reports of co...
2011
Record Number of Incidents Reported

Source: IHS Parts Management 2012

Over 1,000 verified counterfeit part incident...
Short Term Outlook –
2012 Counterfeit Incident Levels to Keep Pace with 2011
Global Reports of Counterfeit Parts
Q1 2011 a...
Long Term Outlook
- A Steady Rise in Counterfeit Activity from 2012 to 2016

?

?

?

?

?

56

Reported (and Unreported) ...
What is Being Counterfeited
In a typical recent two weeks of ERAI provided data (Reported
Companies)
Five suspect counterf...
What is Being Counterfeited
June-July 2011 ERAI reported
186 suspect counterfeit parts
–

Integrated Circuits – 81%
•
•
•
...
The Top 5 Most-Counterfeited Components in 2011 Were…

#5 Transistors (7.6%)

#4 Programmable Logic Integrated Circuits (8...
Companies Accused of 2011 Incidents Were in
Largely Within Two Countries
According to ERAI, of recorded 2011 losses,
compa...
Why Purchase from the Open Market?
Allocation, Obsolescence & Opportunistic Procurement = Opportunity

© 2012 ERAI Inc.
How Counterfeits Enter The Supply Chain

© 2012 ERAI Inc.
Why Purchase from the Open Market?
• Why Do People Go To Open Market?
–Two reasons only
(1) Price
(2) Shortage
How is Chan...
Why is the U.S. Government at Risk?
Obsolescence (Shortage)
• Air
– B-52 Extended from 2025 to 2040 in 2002 - Boeing
– F-1...
No Supplier is Immune to Counterfeit Risk
Open market suppliers are not the only victims of risk
Why are counterfeit parts...
Counterfeit Defined

© 2012 ERAI Inc.
Definition of Counterfeit
-The controversy
Counterfeit Part
A suspect part that is a copy or substitute without legal righ...
Definition
Suspect, Fraudulent & Counterfeit
3.1

Suspect Part

A part in which there is an indication that it may have be...
H.R. 1540: National Defense Authorization Act For
Fiscal Year 2012 - Sec. 818 Detection and Avoidance of Counterfeit Elect...
Verification of Product
-Counterfeit Identification Methods

© 2012 ERAI Inc.
4.1.4 Verification of
Purchased Product
Question:
At what stage are
most counterfeit parts
Identified?

Source: AS5553
© 2...
Most suspect counterfeit parts are identified
during basic inspection

© 2012 ERAI Inc.
Discuss
Question:
Based on today’s level of awareness is an
organization that chooses not to screen
incoming shipments a v...
Supplier Selection

© 2012 ERAI Inc.
Discuss
Question:
What is a “Trusted Supplier”
TRUSTED SUPPLIERS.—The revised regulations issued pursuant to paragraph (1) shall—
(A) require that, whenever possible, th...
Discuss
Question:
How does an Independent Distributor identify a
trusted source?
Screening Potential Un-Trusted Suppliers
Validated market activity of high risk suppliers

© 2012 ERAI Inc.
ERAI’s Potential Trusted Suppliers
Mechanism to avoid blind open market purchases
Shown: SMT Corporation

Shown: World Mic...
Discuss
Question:
What are the most effective ways to screen a
potential source of supply?
Discuss
Question:
Should a distributor disclose “risk” to a
customer?
Discuss
Question:
Why might a distributor NOT disclose risk?
H.R. 1540: National Defense Authorization Act For
Fiscal Year 2012 - Sec. 818 Detection and Avoidance of Counterfeit Elect...
Discuss
Question(s):
(1)

When should a source of supply be removed from an AVL | ASL?

(2) If a supplier continues to pro...
Discuss
Question(s):
Is it time to return to a relationship driven business model?

TRUST & Trusted Supplier
Material Control

© 2012 ERAI Inc.
H.R. 1540: National Defense Authorization Act For
Fiscal Year 2012 - Sec. 818 Detection and Avoidance of Counterfeit Elect...
4.1.6 Material Control
4.1.6 Material Control
The documented processes shall
specify methods to:
a. Control excess and non...
Discuss
Why is suspect counterfeit material
returned despite the risk of this material
re-entering the chain of supply?
Ex...
Reporting

© 2012 ERAI Inc.
1,800 Counterfeit Cases at SASC Hearing
Total Over 1 Million Individual Parts

“Failing to report suspect counterfeits and...
H.R. 1540: National Defense Authorization Act For
Fiscal Year 2012 - Sec. 818 Detection and Avoidance of Counterfeit Elect...
AS5553
-Requirements: 4.1.7 Reporting
The documented processes shall assure that all
occurrences of counterfeit parts are ...
How Has ERAI Aligned Itself to Industry’s
Needs and This New Legislation?
ERAI provides proven tools to mitigate risks on
...
ERAI Member Benefits
ERAI = Risk Mitigation Tools for Parts, Customers & Vendors
• Searchable Database of Counterfeit, Fau...
ERAI Has a Proven Model Whereby Anyone
Can Report Suspect Counterfeit Parts

© 2012 ERAI Inc.
What can reporting tell us?
In Seconds A Parts List Can Be Analyzed
Industry Average: 0.5% – 5% Match to Reported ERAI Inc...
Discuss
Why do organization’s fear or are they
reluctant to report?
Examples:
(1)
(2)
(3)
(4)

Brand damage
Don’t want pro...
ERAI Collaborating with Enforcement
-Free access to ERAI data

© 2012 ERAI Inc.
Discuss
Make no mistake….the enemy IS within….
Examples
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)

Supplier does not qualify sou...
Resources
-Industry Standards

Brokers
Independent
Franchise

Inspection
Test

Distribution
AS6081

© 2012 ERAI Inc.

Comm...
Resources
Educational Opportunities
•

SAE International

•

SMTA

•

Aerospace Industries Association
(AIA)

•

TechAmeri...
For More Information

Send questions and requests for information to:
ksnider@erai.com

Join- ERAI: Counterfeit Part Avoid...
D.C. Counterfeit Microelectronics Working Group - The Enemy Within
D.C. Counterfeit Microelectronics Working Group - The Enemy Within
D.C. Counterfeit Microelectronics Working Group - The Enemy Within
Upcoming SlideShare
Loading in …5
×

D.C. Counterfeit Microelectronics Working Group - The Enemy Within

4,470 views

Published on

Published in: Technology, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
4,470
On SlideShare
0
From Embeds
0
Number of Embeds
9
Actions
Shares
0
Downloads
36
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • Cost Savings – Companies save on their cost of capital because they do not have to pay for a facility and the equipment needed for production. They can also save on labor costs such as wages, training and benefits. Some companies may look to contract manufacture in low-cost countries, such as China, to benefit from the low cost of labor.
    Advanced Skills – Companies can take advantage of skills that they may not possess, but the contract manufacturer does. The contract manufacturer is likely to have relationships formed with raw material suppliers or methods of efficiency within their production.
    Quality – Contract Manufacturers are likely to have their own methods of qualitycontrol in place that helps them to detect counterfeit or damaged materials early on.
    Focus– Companies can focus on their core competencies better if they can hand off base production to an outside company.
    Economies of Scale – Contract Manufacturers have multiple customers that they produce for. Because they are servicing multiple customers, they can offer reduced costs in acquiring raw materials by benefiting from economies of scale. The more units there are in one shipment, the less expensive the price per unit will be.
    Cost Savings – Companies save on their cost of capital because they do not have to pay for a facility and the equipment needed for production. They can also save on labor costs such as wages, training and benefits. Some companies may look to contract manufacture in low-cost countries, such as China, to benefit from the low cost of labor.
    Advanced Skills – Companies can take advantage of skills that they may not possess, but the contract manufacturer does. The contract manufacturer is likely to have relationships formed with raw material suppliers or methods of efficiency within their production.
    Quality – Contract Manufacturers are likely to have their own methods of qualitycontrol in place that helps them to detect counterfeit or damaged materials early on.
    Focus– Companies can focus on their core competencies better if they can hand off base production to an outside company.
    Economies of Scale – Contract Manufacturers have multiple customers that they produce for. Because they are servicing multiple customers, they can offer reduced costs in acquiring raw materials by benefiting from economies of scale. The more units there are in one shipment, the less expensive the price per unit will be.
  • After 15 years of diplomatic struggle, China became a fully-fledged member of the international trading system in 2001.
    The amount of counterfeit electronic components has arisen alongside the rise of international trade.
    Organized and petty criminals alike have taken advantage of open trade agreements to move money and goods freely across borders in a minimum amount of time by moving illegal goods through the same channel as legal goods.
    Both developed and developing countries have been unable to sufficiently monitor their borders to combat counterfeit trade.
    Counterfeiting is not viewed as a serious problem on its own; it is only when public health and safety are endangered that the threats of counterfeiting are taken seriously.
    Public awareness of the dangers of counterfeiting needs to be combined with improved efforts to enforce trade policies.
    This graph demonstrates the rapid rise of Chinese Exports between 2000 - 2006
  • Established in
  • Seg Market Place
    Material Sorting – Prepping for resurfacing / refurbishing / resale
  • Online trading platforms like these open the doors for anyone to sell anything with few rules or regulations. China has taken full advantage of these open trading portals and as a result the counterfeit component trade has flourished.
  • Congress has clearly articulated the growing threat that counterfeit electronic parts pose to the safety of armed services personnel, national security, and the economy, but what about the short- and long-term costs to defense systems? Here’s one example from the Senate Armed Services Committee Hearings whereby “just one example” was provided by Senator Carl Levin. The cost to fix a THAAD missile incident was nearly $2.7 million dollars, illustrating the significant cost to address these difficult issues. Generally, major redesigns of our systems can cost in excess of a million dollars and specifically it’s well documented that avoidance of obsolescence disruptions, in addition to counterfeit mitigation, can save between $0 and $1m per incident. Companies can use these figures to create the business case for improved obsolescence and counterfeit tools.
    Background Information from Transcript of SASC Hearing opening remarks: CARL LEVIN: “And in terms of the cost, just one example, to the government now: In September of 2010, the Missile Defense Agency learned that mission computers for THAAD missiles contained suspect counterfeit memory devices. According to the Missile Defense Agency, if the devices had failed, the THAAD missile itself would likely have failed. The cost of that fix was nearly $2.7 million. Who paid for it? The American taxpayer. We must change our acquisition rules to ensure that the cost of replacing suspect counterfeit parts is paid by the contractor, not the taxpayer -- no ifs, no ands, no buts, and regardless of the type of contract involved.”
  • In 2008 China was the primary source of counterfeit product.
  • In the year 2011
    We have had total 185 submitted incidents of the following types:
    ·         Suspect Counterfeit Product
    ·         Suspect Counterfeit Label
    ·         Substandard Product
    ·         Faulty Product
    ·         Remarked Product
    ·         Programmed Product
    Out of those 185 we have total of 152 that have Loss Data entered.
    The loss data is a total of the following items (where applicable)
    ·         COST OF GOODS
    ·         SHIPPING
    ·         ESCROW FEES
    ·         REWORK CHARGES
    ·         TESTING FEES
    ·         BANK CHARGES
    ·         LEGAL FEES
    These 152 incidents where the Loss Data was recorded include incidents that were reported as Alerts, Dismissed for whatever reason, or reported as Disputes.
    TOTAL LOSS from these 152 incidents is $ 1,312,909.74
    Total number of REPORTED incidents was 95
    Total loss from these 95 REPORTED (Alerts or Disputes) incidents was $898,820.06
    If we were to estimate total Loss for all 185 incidents recorded for these "types" the number would have been $1,597,947 for the year of 2011
    Incidents for companies from China were responsible for $423,430.94 of the loss
    Incidents for companies from USA were responsible for $432,848.02 of the loss
    Incidents for companies from the rest of the world were responsible for $456,630.78 of the loss
    China (32.3%)
    United States (33.0%)
    Rest of World (34.8%)
  • D.C. Counterfeit Microelectronics Working Group - The Enemy Within

    1. 1. D.C. Counterfeit Microelectronics Working Group -The Enemy Within Kristal Snider Vice President, ERAI Inc. www.erai.com ksnider@erai.com T: 239-261-6268 F: 239-261-9379 © 2012 ERAI Inc.
    2. 2. Why we are here http://defense-update.com/20120603_counterfeit-electronics-in-dod-are-widespread-and-threaten-national-security.html
    3. 3. Training Outline Why we are here Supply Chain Basics Counterfeit Timeline Allocation, Obsolescence & Opportunistic Procurement = Opportunity E-Waste Portals of Entry Verification of Product-Counterfeit Identification Methods Supplier Selection Material Control Reporting Counterfeit Statistics Industry Standards Pending Legislation Industry Initiatives Education & Networking Resources © 2012 ERAI Inc.
    4. 4. Supply Chain Basics © 2012 ERAI Inc.
    5. 5. Industry Terms *ORIGINAL COMPONENT MANUFACTURER (OCM) An organization that designs and/or engineers a part and is pursuing or has obtained the intellectual property rights to that part. Notes: 1. The part and/or its packaging are typically identified with the OCM’s trademark. 2. OCMs may contract out manufacturing and/or distribution of their product. 3. Different OCMs may supply product for the same application or to a common specification. © 2012 ERAI Inc. *AS5553 - Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition
    6. 6. Industry Terms *FRANCHISED DISTRIBUTOR A distributor with which the OCM has a contractual agreement to buy, stock, re-package, sell and distribute its product lines. Franchised distributors normally offer the product for sale with full manufacturer flow-through warranty. Franchising contracts may include clauses that provide for the OCM's marketing and technical support inclusive of, but not limited to, failure analysis and corrective action, exclusivity of inventory, and competitive limiters. © 2012 ERAI Inc. *AS5553 - Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition
    7. 7. Industry Terms *ORIGINAL EQUIPMENT MANUFACTURER (OEM) A company that manufactures products that it has designed from purchased components and sells those products under the company’s brand name. © 2012 ERAI Inc. *AS5553 - Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition
    8. 8. Industry Terms Contract manufacturer ("CM") A manufacturer that contracts with a firm for components or products. It is a form of outsourcing. Benefits •Cost Savings •Advanced Skills •Quality •Focus •Economies of Scale © 2012 ERAI Inc. Risks •Lack of Control •Relationships •Quality concerns •Intellectual Property Loss •Outsourcing Risks •Capacity Constraints
    9. 9. Industry Terms *INDEPENDENT DISTRIBUTOR A distributor that purchases new parts with the intention to sell and redistribute them back into the market. Purchased parts may be obtained from original equipment manufacturers (OEMs) or contract manufacturers (typically from excess inventories), or from other independent distributors. Re-sale of the purchased parts(re-distribution) may be to OEMs, contract manufacturers, or other independent distributors. Independent distributors do not have contractual agreements or obligations with OCMs. *STOCKING DISTRIBUTOR A type of independent distributor that stocks large inventories typically purchased from original equipment manufacturers (OEMs) and contract manufacturers. The handling, chain of custody, and environmental conditions for parts procured from stocking distributors are generally better known than for product bought and supplied by broker distributors. *BROKER DISTRIBUTOR A type of independent distributor that works in a “Just in Time” (JIT) environment. Customers contact the broker distributor with requirements identifying the part number, quantity, target price, and date required. The broker distributor searches the industry and locates parts that meet the target price and other customer requirements. © 2012 ERAI Inc. *AS5553 - Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition
    10. 10. Discuss OCM Original Component Manufacturer Franchise Distributor a/k/a Authorized Distributor OEM Original Equipment Manufacturer CM Contract Manufacturer After Market Manufacturer Independent Distributor a/k/a Broker © 2012 ERAI Inc.
    11. 11. Counterfeit Timeline • 1986 – China’s quest began for admission to WTO • 1993-1994 - Pilgrim Components 1.) Broker/Stocking Independent Distributor 2.) Buying, Selling 3.) Relationship driven business environment • 1995 - The Internet was commercialized March 1, 1995 – Yahoo was incorporated © 2012 ERAI Inc.
    12. 12. Counterfeit Timeline • 1995 - Electronic Resellers Association Inc. (ERA) – How’s that for perfect timing? 1st Trade Association specifically for the Independent Distributor Community Primary Objectives: – Information Sharing – Education Most Common Complaint types: – Cancelled Purchase Orders – Past Due Invoices – NSF Checks © 2012 ERAI Inc.
    13. 13. Counterfeit Timeline • 1998 – Google was incorporated as a privately held company The company's mission statement: “To organize the world's information and make it universally accessible and useful.” Mission Accomplished! • 1998 - Electronic Resellers Association International Inc. (ERAI) Name changed to reflect ERA had become an internationally recognized organization. Google made the world a much smaller place International trade became readily available for everyone; not just large corporations © 2012 ERAI Inc.
    14. 14. Counterfeit Timeline November 9, 2000 – ERAI launches eraiESCROW Two primary challenges for distributors • Wire Fraud • New customers © 2012 ERAI Inc.
    15. 15. Counterfeit Timeline November 2001 – China Admitted to the WTO “A monumental change to the world trading system” “An event of historic proportions for the world trading system” - Kofi Annan, UN Secretary General "I believe that as this century unfolds and people look back on this day, they will conclude that in admitting China to the WTO we took a decisive step in strengthening the global economic trading system." - Robert Zoellick, US Trade Representative "Just like every member of the WTO, China will have to deliver on its commitments, and we will be watching this very carefully," -Pascal Lamy, EU trade commissioner © 2012 ERAI Inc.
    16. 16. Counterfeit Timeline © 2012 ERAI Inc.
    17. 17. Counterfeit Timeline © 2012 ERAI Inc.
    18. 18. Counterfeit Timeline © 2012 ERAI Inc.
    19. 19. Counterfeit Timeline © 2012 ERAI Inc.
    20. 20. Counterfeit Timeline November 29, 2001 – ERAI receives 1st nonconforming part complaint against a China based distributor 3A Century aka Gold Advanced aka JXJ Part number: TCM3105DW Description of the product nonconformance: Parts arrived in Samsung tubes (ordered TI parts). Numerous mixed date codes arrived in a single tube. Solder splash present on part leads. There were 'wash marks' and smears on the upper surface of the chip. Within a few months China distributors began refurbishing and remarking parts to have consistent date and lot codes in order to pass used parts off as new. © 2012 ERAI Inc.
    21. 21. Counterfeit Timeline January 2002 – ERAI Launches High Risk / Suspect Counterfeit Part Database April 19, 2002 -ERAI Industry Advisory Committee formed We saw it coming…. • • • • • • Ethical standards in the industry Counterfeit/Substandard parts ISO ESD ERAI Role now and in the future Negative advertising campaigns launched by AGMA & NEDA © 2012 ERAI Inc.
    22. 22. Counterfeit Timeline March 1, 2003 – IDEA – Public Launch ERAI Executive Conference, Las Vegas NV Objectives: 1) Promote the independent distribution industry through a media advocacy campaign 2) Improve the quality of products and services through a quality certification program, educational seminars and conferences. 3) Promote the study, development, and implementation of techniques and methods designed to improve the business of independent distributors © 2012 ERAI Inc.
    23. 23. Counterfeit Timeline January 2004 – ERAI travels to China to investigate 2004 - U.S. Chamber of Commerce's Global Intellectual Property Center, organized itself through a broad-based business coalition, the Coalition Against Counterfeiting and Piracy (CACP). January 27, 2004 – Secretary of Defense releases Memo for Service Acquisition Executives Subject: Encouraging Industry Participation in the Trusted Foundry Pilot Program Back door threats realized….counterfeits not the only problem! © 2012 ERAI Inc.
    24. 24. Counterfeit Timeline June 2006 SIA launches the Anti-Counterfeiting Task Force (SIA ACTF) © 2012 ERAI Inc.
    25. 25. Counterfeit Timeline October 2006- IDEA releases IDEA-STD-1010-A-Acceptability of Electronic Components Distributed in the Open Market Standard specifically written to identify nonconforming/suspect counterfeit parts Counterfeits have a name and a face! © 2012 ERAI Inc.
    26. 26. Significance of the IDEA-STD-1010-A • • • • • • Counterfeit is defined Wide spread awareness In-depth training for detection and avoidance Minimum inspection criteria Inspection check list Documented examples of suspect counterfeit parts Ignorance is not an excuse! © 2012 ERAI Inc.
    27. 27. Counterfeit Timeline November 29, 2006 – Counterfeit Components Detection & Prevention Symposium hosted by Component Technology Institute a/k/a CTI(attended by Phil Zuluetta who later becomes SAE Aerospace G-19 Chairman.) December 2006 – ERAI – 2nd trip- Investigation specific to the handling of OEM excess by Chinese based OEMs and CMs. April 16, 2007 – ERAI Special Report Released– A Time For Change © 2012 ERAI Inc.
    28. 28. A Time For Change Revealed • • • • • • The vast majority of product being sold in the China Open Market originates from e-waste. Unknown quantities of e-waste are exported from China to component buyers around the world. Nearly 75 million dollars in revenue is generated for the local Chinese Government in the city of Shantou alone. What incentive does the government have to control the import or export of this product? Much of the e-waste is remarked and counterfeited. Most of the distributors operating in and around Shenzhen have no experience in handling, storing or selling electronic components. © 2012 ERAI Inc.
    29. 29. Estimated units of E-Waste in the US The significance of the escalating volumes of e-waste: • • We need to control e-waste but doing so does not resolve the problem! Even if the US prevented the export of all of its e-waste China produces enough of its own to fuel this epidemic. Counterfeits are here to stay! © 2012 ERAI Inc.
    30. 30. Significance of A Time For Change Where’s the excess? Argument: I have to do business with Chinese Brokers…manufacturing has shifted to this region…along with it OEM excess. Reality: OEMs/CMs in China reportedly do not do business with a company/distributor that does not have a current Chinese VAT License. ERAI’s investigation revealed the majority of the product being offered in Shenzhen is more likely to have originated from e-waste Than from legitimate OEM surplus. © 2012 ERAI Inc.
    31. 31. Significance of A Time For Change Where’s the excess? 32 © 2012 ERAI Inc.
    32. 32. Portals of Entry • • • • • • • Low barrier of entry; “Quick & Easy to Apply” Anyone can participate in the open market Rapid access to millions of parts Minimal membership requirements Quick & easy access to a large audience of buyers Burn customer and re-register using a new name If you choose to participate you assume high risks The open market is inherently risky “caveat emptor” © 2012 ERAI Inc.
    33. 33. Counterfeit Timeline May 2007 – Electronic Resellers Association International Inc. to ERAI Inc. (the term “resellers” removed as ERAI moves to share services with the entire supply chain. Membership no longer restricted to distributors only. Database opened to OEMs, CMs, US Government Agencies, Enforcement, etc. June 2007 - the U.S. Department of the Navy, Naval Air Systems Command (NAVAIR) asked the Bureau of Industry and Security’s (BIS) Office of Technology Evaluation (OTE) to conduct a defense industrial base assessment of counterfeit electronics. NAVAIR suspected that an increasing number of counterfeit/defective electronics were infiltrating the DoD supply chain and affecting weapon system reliability. September 2007 - SAE G-19 Committee Charter Counterfeit Electronic Components Committee The committee was tasked with developing a document that would standardize requirements, practices and methods related to counterfeit parts risk mitigation. © 2012 ERAI Inc.
    34. 34. Counterfeit Timeline September 2007 - The L-3 Counterfeit Parts Team was established to define and provide guidelines for managing and controlling the risks associated with Counterfeit Parts OEMS ramping up awareness and avoidance efforts Late 2007 - U.S. and European customs launched “Operation Infrastructure” resulting in the seizure of over 360,000 counterfeit ICs that were destined for U.S. and European markets. Enforcement is engaged © 2012 ERAI Inc.
    35. 35. April 2008- AIA forms the Counterfeit Parts Integrated Project Team AIA Counterfeit Parts IPT Plan of Action To address the challenges of the today’s supply chain environment, AIA has established a Counterfeit Parts Integrated Project Team (IPT). The AIA Counterfeit Parts IPT is working in concert with government agencies, original manufacturers, industry associations and independent distributors. Objectives of the IPT are to: 1. Engage the U.S. government in discussions concerning acquisition and procurement policies to avoid introducing counterfeit parts and materials into aerospace, space and defense products 2. Create a set of standards for government and industry to ensure that the risk of introducing counterfeit parts and materials is minimized, is consistent with risks accepted by the customer and implementable without sacrificing the benefits of buying commercially available products 3. Engage the U.S. government in discussions concerning enforcement of policies to avoid the introduction of counterfeit products into the U.S © 2012 ERAI Inc.
    36. 36. Counterfeit Timeline October 2, 2008 - Dangerous Fakes: How counterfeit, defective computer components from China are getting into U.S. warplanes and ships Significance = National | International Media Coverage © 2012 ERAI Inc.
    37. 37. Counterfeit Timeline April 2009 – AS5553 released © 2012 ERAI Inc. August 2009 – AS5553 adopted by the DoD
    38. 38. Counterfeit Timeline October 9, 2009 – Mustafa Aljaff – MVP Micro /Indictment November 2009 – Counterfeit Electronics Survey initiated by the U.S. Dept. of Commerce, the Bureau of Industry and Security (BIS), and the Office of Technology Evaluation (OTE). © 2012 ERAI Inc.
    39. 39. Counterfeit Timeline January 2010 Defense Industrial Base Assessment Counterfeit Electronics report was released by the U.S. Dept. of Commerce, the Bureau of Industry and Security (BIS), and the Office of Technology Evaluation (OTE). Purpose: The purpose of this study is to provide statistics on the extent of the infiltration of counterfeits into U.S. defense and industrial supply chains, to provide an understanding of industry and government practices that contribute to the problem, and to identify best practices and recommendations for handling and preventing counterfeit electronics. The veil was fully lifted © 2012 ERAI Inc.
    40. 40. Counterfeit Timeline March 2010- GAO Study: DOD Should Leverage Ongoing Initiatives in Developing Its Program to Mitigate Risk of Counterfeit Parts April 2010- GAO Study: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods September 14, 2010 - Shannon Wren and Stephanie McCloskey (VisionTech) Press Release / Indictment December 2010 – Supply & Demand Chain Executive Special EditionSupply Chain RISK March 20, 2011: AIA releases white paper titled: Counterfeit Parts: Increasing Awareness and Developing Countermeasures © 2012 ERAI Inc.
    41. 41. Counterfeit Timeline March 2011 - Senators Levin & McCain announced a Senate Armed Service Committee (SASC) investigation into counterfeit electronic parts and the risks they pose to the Department of Defense (DoD) supply chain. April 2011- IDEA-1010-B Released June 2011- Senator Whitehouse, proposed his own counterfeit bill, the Combating Military Counterfeits Act of 2011, to crack down on criminals who traffic in counterfeit military goods/services. June 16th 2011- CNN broadcast http://www.cnn.com/video/#/video/bestoftv/2011/06/16/exp.nr.seg.fake.military.parts.cnn?iref=allsearch • Counterfeit parts impact 40% of Pentagon’s Supply Chain according to U.S. Commerce Dept study • Senator Brown (OH) recommends DOD cancel supplier contracts when © 2012 ERAI Inc. counterfeits are found in their supply chain
    42. 42. Counterfeit Timeline July 2011- Supply & Demand Chain Executive Special Edition- The Counterfeit Crisis November 8, 2011- the SASC held a hearing with DoD contractors, industry associations and others in Washington, DC after which Senator Levin promised a swift government response. It was revealed that 1,800 incidents and over 1M parts have been reported. November 29, 2011- The Whitehouse measure was amended to the McCain / Levin bill and then unanimously approved by the Senate. It moved to the House for discussion. December 1, 2011- Senate passage of the Defense Authorization Act for Fiscal Year 2012 December 20, 2011 - ARP6178 - Fraudulent/Counterfeit Electronic Parts; Tool for Risk Assessment of Distributors has been published. © 2012 ERAI Inc.
    43. 43. December 31, 2011 – Measure signed by President Obama 2012 National Defense Authorization Act (Sec. 818) Detection and Avoidance of Counterfeit Electronic Parts © 2012 ERAI Inc. 45
    44. 44. Amendment Timeline Contractor All contractors, subcontractors and Department of Defense employees must provide a written report on suspect or detected counterfeit parts to the Inspector General of the Department of Defense within 30 DAYS Secretary of Defense shall implement a program for the improvement of contractor systems for the detection and avoidance of counterfeit electronic parts and suspect counterfeit electronic parts 270 Days Department of Defense Secretary of Defense shall revise the Department of Defense Supplement to the Federal Acquisition Regulation to address the detection and avoidance of counterfeit electronic parts 180 Days Day 0 The Secretary of Defense shall take steps to address shortcomings in Department of Defense systems for the detection and avoidance of counterfeit electronic parts and suspect counterfeit electronic parts 270 Days Promulgate the guidelines, policy statements, or amendments provided for in this Act Day 180 Day 270 46 © 2012 ERAI Inc.
    45. 45. Counterfeit Timeline February 2012 – Suspect Counterfeit electronic Parts Can Be Found on Internet Purchasing Platforms Who heard about this investigation? May 21, 2012- Senate Armed Services Report released: Inquiry Into Counterfeit Electronic Parts In The Department of Defense Supply Chain © 2012 ERAI Inc.
    46. 46. Counterfeit Timeline Q: What is the significance of the timeline? © 2012 ERAI Inc.
    47. 47. A: Awareness © 2012 ERAI Inc.
    48. 48. Counterfeit Statistics © 2012 ERAI Inc.
    49. 49. “Just One” Incident Can Cost Millions Design interruptions can cost $0 to over $1M+ “According to the Missile Defense Agency, if the devices had failed, the THAAD missile itself would likely have failed. The cost of that fix was nearly $2.7 million” Senate Armed Services Committee Hearing Opening Remarks Senator Carl Levin (D-MI) , Committee Chairman THAAD Photo courtesy of Raytheon Company Source: http://www.raytheon.com/newsroom/rtnwcm/groups/public/documents/image/rtn_missile_defense_gal_06.jpg
    50. 50. Defense A Small Slice of the Pie Military / Aerospace Application = Approximately 1.9% of market © 2012 ERAI Inc. Source: IHS iSuppli 2011
    51. 51. The Past Decade Has Seen A Steady Rise in Counterfeit Incidents Reported Source: IHS Parts Management 2012 Reports of counterfeit parts have quadrupled since 2009 © 2012 ERAI Inc.
    52. 52. 2011 Record Number of Incidents Reported Source: IHS Parts Management 2012 Over 1,000 verified counterfeit part incidents were reported. © 2012 ERAI Inc.
    53. 53. Short Term Outlook – 2012 Counterfeit Incident Levels to Keep Pace with 2011 Global Reports of Counterfeit Parts Q1 2011 and Q1 2012 Source: IHS Parts Management 2012 © 2012 ERAI Inc. Trending At 2011 Levels with Signs of Growth in 2012
    54. 54. Long Term Outlook - A Steady Rise in Counterfeit Activity from 2012 to 2016 ? ? ? ? ? 56 Reported (and Unreported) Counterfeit Incidents Trend Along with Semiconductor Market Cycles © 2012 ERAI Inc.
    55. 55. What is Being Counterfeited In a typical recent two weeks of ERAI provided data (Reported Companies) Five suspect counterfeit shipments (3 integrated circuits, 1 transistor, 1 capacitor), $55,169.00 • • • • 6,233 ICs at $44,154 = $7.08 per 500 transistors at $1,015 = $2.03 per 200,000 capacitors at $10,000 = $0.05 per These are just the companies that were reported by ERAI members, usually due to disputes • These instances are seldom reported to GIDEP Slide compliments of Fred Schipp-MDA
    56. 56. What is Being Counterfeited June-July 2011 ERAI reported 186 suspect counterfeit parts – Integrated Circuits – 81% • • • • • • • • – – – – Processors/Controllers – 14% Memory – 12% (mostly FLASH) Transmitter/Receivers – 7% Operational Amplifiers – 6% Programmable Logic Devices – 5% Digital Switches – 5% Converters – 4% Field Programmable Gate Arrays (FPGA) – 4% Discrete Transistors – 8% Discrete Diodes – 4% Capacitors – 4% (mostly aluminum electrolytic) Inductors – 1% Slide compliments of Fred Schipp-MDA
    57. 57. The Top 5 Most-Counterfeited Components in 2011 Were… #5 Transistors (7.6%) #4 Programmable Logic Integrated Circuits (8.3% #3 Memory Integrated Circuits (13.1%) #2 Microprocessor Integrated Circuits (13.4%) #1 Analog Integrated Circuits (25.2%) Source: IHS Parts Management 2012 © 2012 ERAI Inc. 59
    58. 58. Companies Accused of 2011 Incidents Were in Largely Within Two Countries According to ERAI, of recorded 2011 losses, companies located in two countries alone accounted for nearly two thirds of all worldwide incidents reported. The rest of the world accounted for 35%. The two countries were… Faulty Product Remarked Product Substandard Product Programmed Product Suspect Counterfeit Label Suspect Counterfeit Product … #2 China (32%) #1 United States (33%) Make No Mistake, The “Enemy” Also Comes from Within © 2012 ERAI Inc. 61
    59. 59. Why Purchase from the Open Market? Allocation, Obsolescence & Opportunistic Procurement = Opportunity © 2012 ERAI Inc.
    60. 60. How Counterfeits Enter The Supply Chain © 2012 ERAI Inc.
    61. 61. Why Purchase from the Open Market? • Why Do People Go To Open Market? –Two reasons only (1) Price (2) Shortage How is Channel Integrity Compromised? Returns Procedures Inventory Buys from CM/EMS/OEM Supply Chain / Forecast Breakdown Materials Obtained Through Acquisition © 2012 ERAI Inc.
    62. 62. Why is the U.S. Government at Risk? Obsolescence (Shortage) • Air – B-52 Extended from 2025 to 2040 in 2002 - Boeing – F-15 A-D USAF could extend by 15 years – Aviation Week – UH-60A/L Blackhawk extends life to 2025 – Sikorsky – C-17 likely be extended from 2025 to 2050 • Land – Equipment used at higher operational rates than peacetime requiring more repairs & overhauls – Sep 2007 CBO study • Sea – DDG-51s & Trident subs extended from 30 years to over 40 – DDG-51 class ships extended from 35 to 40 years – CBO – Trident D-5 missile system extended from 30 to 40 years – Enterprise carrier built to last 30 years is 50+ years old © 2012 ERAI Inc.
    63. 63. No Supplier is Immune to Counterfeit Risk Open market suppliers are not the only victims of risk Why are counterfeit parts also sold by authorized sources? “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. Specifically, 47 percent of authorized distributors procure parts from independent distributors, 29 percent procure from brokers, and 27 percent procure from Internetexclusive sources.” Source: U.S. Department of Commerce, Office of Technology Evaluation, Counterfeit Electronics Survey, November 2009. © 2012 ERAI Inc.
    64. 64. Counterfeit Defined © 2012 ERAI Inc.
    65. 65. Definition of Counterfeit -The controversy Counterfeit Part A suspect part that is a copy or substitute without legal right or authority to do so or one whose material, performance, or characteristics are knowingly misrepresented by a supplier in the supply chain. Examples of counterfeit parts include, but are not limited to: a. Parts which do not contain the proper internal construction (die, manufacturer, wire bonding, etc.) consistent with the ordered part. b. Parts which have been used, refurbished or reclaimed, but represented as new product. c. Parts which have different package style or surface plating/finish than the ordered parts. d. Parts which have not successfully completed the Original Component Manufacturer’s (OCM)’s full production and test flow, but are represented as completed product. e. Parts sold as upscreened parts, which have not successfully completed upscreening. f. Parts sold with modified labeling or markings intended to misrepresent the part’s form, fit, function, or grade. Parts which have been refinished, upscreened, or uprated and have been identified as such, are not considered counterfeit. © 2012 ERAI Inc. Source: AS5553
    66. 66. Definition Suspect, Fraudulent & Counterfeit 3.1 Suspect Part A part in which there is an indication that it may have been misrepresented by the supplier or manufacturer and may meet the definition of fraudulent part or counterfeit part provided below. 3.2 Fraudulent Part Any suspect part misrepresented to the Customer as meeting the Customer’s requirements. NOTE: “Previously used parts, not altered, but represented as new” is a subset of all potential “Fraudulent Parts”. In addition to counterfeit parts, this document addresses only this particular category of Fraudulent Part. 3.3 Counterfeit Part A fraudulent part that has been confirmed to be a copy, imitation, or substitute that has been represented, identified, or marked as genuine, and/or altered by a source without legal right with intent to mislead, deceive, or defraud. © 2012 ERAI Inc. Source: AS6081
    67. 67. H.R. 1540: National Defense Authorization Act For Fiscal Year 2012 - Sec. 818 Detection and Avoidance of Counterfeit Electronic Parts) …”establish Department-wide definitions of the terms ‘‘counterfeit electronic part’’ and ‘‘suspect counterfeit electronic part’’, which definitions shall include previously used parts represented as new” Questions: -Why? -When might this be a problem? © 2012 ERAI Inc.
    68. 68. Verification of Product -Counterfeit Identification Methods © 2012 ERAI Inc.
    69. 69. 4.1.4 Verification of Purchased Product Question: At what stage are most counterfeit parts Identified? Source: AS5553 © 2012 ERAI Inc.
    70. 70. Most suspect counterfeit parts are identified during basic inspection © 2012 ERAI Inc.
    71. 71. Discuss Question: Based on today’s level of awareness is an organization that chooses not to screen incoming shipments a victim?
    72. 72. Supplier Selection © 2012 ERAI Inc.
    73. 73. Discuss Question: What is a “Trusted Supplier”
    74. 74. TRUSTED SUPPLIERS.—The revised regulations issued pursuant to paragraph (1) shall— (A) require that, whenever possible, the Department and Department contractors and subcontractors at all tiers— (i) obtain electronic parts that are in production or currently available in stock from the original manufacturers of the parts or their authorized dealers, or from trusted suppliers who obtain such parts exclusively from the original manufacturers of the parts or their authorized dealers; and (ii) obtain electronic parts that are not in production or currently available in stock from trusted suppliers; (B) establish requirements for notification of the Department, and inspection, testing, and authentication of electronic parts that the Department or a Department contractor or subcontractor obtains from any source other than a source described in subparagraph (A); (C) establish qualification requirements, consistent with the requirements of section 2319 of title 10, United States Code, pursuant to which the Department may identify trusted suppliers that have appropriate policies and procedures in place to detect and avoid counterfeit electronic parts and suspect counterfeit electronic parts; and (D) authorize Department contractors and subcontractors to identify and use additional trusted suppliers, provided that— (i) the standards and processes for identifying such trusted suppliers comply with established industry standards; (ii) the contractor or subcontractor assumes responsibility for the authenticity of parts provided by such suppliers as provided in paragraph 2); and (iii) the selection of such trusted suppliers is subject to review and audit by appropriate Department officials.
    75. 75. Discuss Question: How does an Independent Distributor identify a trusted source?
    76. 76. Screening Potential Un-Trusted Suppliers Validated market activity of high risk suppliers © 2012 ERAI Inc.
    77. 77. ERAI’s Potential Trusted Suppliers Mechanism to avoid blind open market purchases Shown: SMT Corporation Shown: World Micro, Inc. © 2012 ERAI Inc.
    78. 78. Discuss Question: What are the most effective ways to screen a potential source of supply?
    79. 79. Discuss Question: Should a distributor disclose “risk” to a customer?
    80. 80. Discuss Question: Why might a distributor NOT disclose risk?
    81. 81. H.R. 1540: National Defense Authorization Act For Fiscal Year 2012 - Sec. 818 Detection and Avoidance of Counterfeit Electronic Parts) NDAA requires a process for debarring sources of supply: (3) issue or revise guidance applicable to the Department on remedial actions to be taken in the case of a supplier who has repeatedly failed to detect and avoid counterfeit electronic parts or otherwise failed to exercise due diligence in the detection and avoidance of such parts, including consideration of whether to suspend or debar a supplier until such time as the supplier has effectively addressed the issues that led to such failures;
    82. 82. Discuss Question(s): (1) When should a source of supply be removed from an AVL | ASL? (2) If a supplier continues to procure from a supplier that provides nonconforming material is that supplier a victim?
    83. 83. Discuss Question(s): Is it time to return to a relationship driven business model? TRUST & Trusted Supplier
    84. 84. Material Control © 2012 ERAI Inc.
    85. 85. H.R. 1540: National Defense Authorization Act For Fiscal Year 2012 - Sec. 818 Detection and Avoidance of Counterfeit Electronic Parts) NDAA requires a process for ensuring suspect counterfeit parts NOT reenter the supply chain: (e) IMPROVEMENT OF CONTRACTOR SYSTEMS FOR DETECTION AND AVOIDANCE OF COUNTERFEIT ELECTRONIC PARTS.— (2) ELEMENTS—The program implemented pursuant to paragraph (1) shall— (A) require covered contractors that supply electronic parts or systems that contain electronic parts to establish policies and procedures to eliminate counterfeit electronic parts from the defense supply chain, which policies and procedures shall address— (i) the training of personnel; (ii) the inspection and testing of electronic parts; (iii) processes to abolish counterfeit parts proliferation; (iv) mechanisms to enable traceability of parts; (v) use of trusted suppliers; (vi) the reporting and quarantining of counterfeit electronic parts and suspect counterfeit electronic parts;
    86. 86. 4.1.6 Material Control 4.1.6 Material Control The documented processes shall specify methods to: a. Control excess and nonconforming parts to prevent them from entering the supply chain under fraudulent circumstances. b. Control suspect or confirmed counterfeit parts to preclude their use or reentry into the supply chain. Guidelines for control of parts are provided in Appendix F, Material Control. Source: AS5553 Appendix F F.1.4 Control of Suspect or Confirmed Counterfeit Parts In the event that product assurance actions, in-process inspections/tests, or product failure experiences indicate that parts may be counterfeit, the following steps should be implemented: a. Physically identify the parts as suspect/counterfeit product (e.g., tag, label, mark). b. Physically segregate the parts from acceptable non-suspect parts and place in quarantine. Quarantine should consist of physical barriers and controlled access. c. Do not return the parts to the supplier for refund, replacement, etc., except under controlled conditions which would preclude resale of the suspect counterfeit parts into the supply chain, and to allow the supplier to conduct internal investigation. d. Confirm the authenticity of the parts. This may include further part-level testing, communications with the part’s supposed OCM, third-party analysis, etc. e. Upon confirmation that a part is counterfeit, identify and place on “Hold” all potential additional counterfeit parts in storage and installed in product pending disposition by appropriate authorities. f. Report counterfeit parts in accordance with guidelines provided in Appendix G, Reporting.
    87. 87. Discuss Why is suspect counterfeit material returned despite the risk of this material re-entering the chain of supply? Examples: (1) Escrow providers require the return of material if parts are not confiscated by enforcement. (6051S) (2) Wire Transfer in advance payment terms (3) Threat of legal action © 2012 ERAI Inc.
    88. 88. Reporting © 2012 ERAI Inc.
    89. 89. 1,800 Counterfeit Cases at SASC Hearing Total Over 1 Million Individual Parts “Failing to report suspect counterfeits and suspect suppliers puts everybody at risk. We need to make sure our regulations require contractors who discover suspected counterfeit parts in a military system to report that discovery to the military right away.” Senate Armed Services Committee Hearing Opening Remarks Senator Carl Levin (D-MI) , Committee Chairman © 2012 ERAI Inc. 92
    90. 90. H.R. 1540: National Defense Authorization Act For Fiscal Year 2012 - Sec. 818 Detection and Avoidance of Counterfeit Electronic Parts) NDAA requires incidents be reported: REPORTING REQUIREMENT.—The revised regulations issued pursuant to paragraph (1) shall require that any Department contractor or subcontractor who becomes aware, or has reason to suspect, that any end item, component, part, or material contained in supplies purchased by the Department, or purchased by a contractor or subcontractor for delivery to, or on behalf of, the Department, contains counterfeit electronic parts or suspect counterfeit electronic parts report in writing within 60 days to appropriate Government authorities and the GovernmentIndustry Data Exchange Program (or a similar program designated by the Secretary). (5) CONSTRUCTION OF COMPLIANCE WITH REPORTING REQUIREMENT.—A Department contractor or subcontractor that provides a written report required under this subsection shall not be subject to civil liability on the basis of such reporting, provided the contractor or subcontractor made a reasonable effort to determine that the end item, component, part, or material concerned contained counterfeit electronic parts or suspect counterfeit electronic parts. © 2012 ERAI Inc.
    91. 91. AS5553 -Requirements: 4.1.7 Reporting The documented processes shall assure that all occurrences of counterfeit parts are reported, as appropriate, to internal organizations, customers, government reporting organizations (e.g., GIDEP), industry supported reporting programs (e.g., ERAI), and criminal investigative authorities. ERAI maintains a database of counterfeit and high-risk items. Data can be submitted by anyone on the public domain of their website (www.erai.com). Companies do not need to be members to report counterfeit and high-risk items. Submitting companies remain anonymous in the reporting of counterfeit/high-risk items. Companies must be ERAI members to view this database. However, virtually all electronics-related companies/organizations, not just resellers, are candidates for membership. © 2012 ERAI Inc. Source: AS5553
    92. 92. How Has ERAI Aligned Itself to Industry’s Needs and This New Legislation? ERAI provides proven tools to mitigate risks on substandard parts, counterfeit parts, vendors and even customers. Trusted Suppliers © 2012 ERAI Inc. High Risk Suppliers Suspect Counterfeit & High Risk Parts
    93. 93. ERAI Member Benefits ERAI = Risk Mitigation Tools for Parts, Customers & Vendors • Searchable Database of Counterfeit, Faulty & High-Risk Parts. • Searchable Database of High-Risk Suppliers & Customers. • Bill of Material /Assembly Cross Checking against Hi-Risk Parts Database. • Vendor Analysis Tools and Information • Customer Analysis Tools and Information • Real Time Complaint Alerts • Real Time Dispute Alerts • Real Time Hi-Risk Parts Alerts • High Risk and Counterfeit Part Reporting • Reduce Financial Losses Through our Escrow and Mediation Services. • Proactively Prevent Losses and Reoccurring Problems. • Complaint Processing • Dispute Resolution Services • Import / Export Compliance Tools • Review Member Profiles for Membership Status and Accolades. • Fair & Impartial Investigation Services • Stay Informed on Current Issues Affecting the Supply Chain. © 2012 ERAI Inc.
    94. 94. ERAI Has a Proven Model Whereby Anyone Can Report Suspect Counterfeit Parts © 2012 ERAI Inc.
    95. 95. What can reporting tell us? In Seconds A Parts List Can Be Analyzed Industry Average: 0.5% – 5% Match to Reported ERAI Incidents © 2012 ERAI Inc.
    96. 96. Discuss Why do organization’s fear or are they reluctant to report? Examples: (1) (2) (3) (4) Brand damage Don’t want procurement habits to be realized Liability Lost revenue © 2012 ERAI Inc.
    97. 97. ERAI Collaborating with Enforcement -Free access to ERAI data © 2012 ERAI Inc.
    98. 98. Discuss Make no mistake….the enemy IS within…. Examples (1) (2) (3) (4) (5) (6) (7) (8) (9) Supplier does not qualify sources or buy from the safest source of supply Procure from high risk regions Supplier risk not disclosed to customer Misrepresents the origin of material or supply chain traceability Quote product available 3-5 days Supplier does not perform obligatory inspection prior to resale Misrepresents office type and/or location (google earth, mail boxes etc) Misrepresents Memberships to ERAI / IDEA, etc. Demands material be returned and refuses to allow third party confirmation of nonconformance (10) Numerous Customs Seizures © 2012 ERAI Inc.
    99. 99. Resources -Industry Standards Brokers Independent Franchise Inspection Test Distribution AS6081 © 2012 ERAI Inc. Commercial Defense Space Distribution AS5553 Distribution AS6171
    100. 100. Resources Educational Opportunities • SAE International • SMTA • Aerospace Industries Association (AIA) • TechAmerica - G12 Counterfeit Parts Subcommittee • Independent Distributors of Electronics Association (IDEA) • IPC: IPC Surface Mount Equipment Manufacturers Association (SMEMA) • Best Manufacturing Practices Center of Excellence (BMPCOE) • Government Electronics & Information Technology Association (GEIA) © 2012 ERAI Inc.
    101. 101. For More Information Send questions and requests for information to: ksnider@erai.com Join- ERAI: Counterfeit Part Avoidance, Detection, Disposition and Reporting Follow ERAI on Twitter (@ERAI_Inc) Like ERAI on Facebook Follow ERAI on Slideshare © 2012 ERAI Inc.

    ×