Supply & Demand Chain Executive Magazine

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  • Good Morning (actually make that Good Afternoon if you are joining us from across the pond) It’s a pleasure to be with you today. Thank you Andrew Reese - Supply & Demand Chain Executive magazine and Rory King and his team at I H S for organizing this worthwhile event and for inviting ERAI to participate. And a warm Thank YOU to all of you who have dialed in.
  • Today I want to bring you up to speed on what is going on out there in the supply chain that will help your organization avoid a counterfeit incident.
  • Before we begin let me tell you about myself and ERAI ERAI is a privately held global information services organization that monitors, investigates and reports issues that are affecting the global supply chain of electronics. Since 1995, ERAI has been the industry's primary reporting and investigation service, providing information and risk mitigation solutions to electronics professionals worldwide. We investigate issues ranging from past due invoices, credit card fraud and identity theft to today’s most prevalent risk which is the purchase and or sale of counterfeit parts. ERAI maintains the worlds largest database of known Suspect Counterfeit and High Risk Parts. Our objective is to help you mitigate risk. We give our Members the market intelligence they need to make the best decisions possible when selecting vendors and procuring allocated or obsolete parts. I am the company’s co-founder and currently serve as Vice President. I am directly in charge of and oversee all day-to-day operations relative to complaints processing, counterfeit avoidance, dispute resolution, contract review and the ERAIescrow department.
  • When I provide a training I like to start at the root of a problem.. Here’s what we know. 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. This graph demonstrates the rapid rise of Chinese Exports between 2000 - 2006
  • Because I know most of you here today are Members of GIDEP I am going to use their data to demonstrate how the rise of counterfeit incidents directly correlates to Chinas increase in exports.
  • Unfortunately counterfeiting is not viewed as a serious problem on its own; It’s really only when public health and safety are endangered that the threats of counterfeiting are taken seriously.
  • You’re probably all seen these pictures. Circuit boards being heated up. Solder melting Components being removed.
  • This is the reality of today’s open market.
  • This could be where your parts came from if there is no product traceability.
  • This could be the “Independent Distributor” your supplier just used to fill your purchase order.
  • Online trading platforms like these open the doors for anyone to sell anything with few or no rules or regulations. China has taken full advantage of these open trading portals and as a result the counterfeit component trade has flourished. Establishing a rigorous approved vendor process MUST be an essential part of your counterfeit avoidance program. If your organization is a Government Prime Contractor, you should have a firm policy prohibiting your procurement agents from making ANY purchases outside of your approved vendors list when obtaining parts from the Open Market (i.e.: Independent Distributors)
  • Anything and everything is counterfeited. While this graph demonstrates that the majority of counterfeit incidents involve integrated circuits, ERAI has proven virtually nothing is off limits.
  • Counterfeit have been identified in Critical Safety and High Reliability applications. The rise of counterfeit parts in the supply chain is exacerbated by demonstrated weakness in inventory management, procurement procedures, recordkeeping, reporting practices, inspection and testing protocols, and communication within and across industry and government organizations.
  • Failure to overcome today’s procurement challenges is not an option.
  • According to the survey conducted by the US Department of Commerce: all elements of the supply chain have been directly impacted by counterfeit electronics; • there is a lack of dialogue between all organizations in the U.S. supply chain; • companies and organizations assume that others in the supply chain are testing parts; • lack of traceability in the supply chain is commonplace; • there is an insufficient chain of accountability within organizations; • recordkeeping on counterfeit incidents by organizations is very limited; • most organizations do not know who to contact in the U.S. Government regarding counterfeit parts; • stricter testing protocols and quality control practices for inventories are required; and • most DOD organizations do not have policies in place to prevent counterfeit parts from infiltrating their supply chain
  • In September 2007, in response to the increasing volume of counterfeit electronic parts entering the aerospace supply chain, Brian Hughitt formed the SAE International G-19 Committee. The committee was tasked with developing a document that would standardize requirements, practices and methods related to counterfeit parts risk mitigation. The standards are suitable for use in aeronautic, space, defense, civil and commercial electronic equipment applications The standard will document recognized best practices in component management, supplier management, procurement, inspection, test/evaluation methods and response strategies when suspect or confirmed counterfeit components are detected.
  • The committee is comprised of Industry Associations, Independent Distributors, Authorized Distributors, OEM’s, Test labs and Government Prime Contractors. The Chairman of the G-19 Committee is Phil Zulueta of JPL / California Institute of Technology.
  • Here is a representative sample of the Committees Members.
  • G-19 is multilayered counterfeit risk mitigation initiative. The group is addressing counterfeit Avoidance, Detection, Mitigation and Disposition at all possible points of entry. AS5553 = OEM AS6081 = Independents AS6171 – Testing/Inspection Facilities
  • AS5553 was created in response to a SIGNIFICANT and INCREASING volume of counterfeit electronic parts entering the supply chain.
  • AS5553 requires the organization to develop AND implement a counterfeit electronic parts control plan that documents its processes for: risk mitigation disposition reporting of counterfeit parts The control plan must address Parts Availability Purchasing (Vendor Analysis/Selection) Purchasing Information (i.e. Contract Requirements) Verification of Purchased Product (Inspection/Testing) Material Control(Confiscation/Destruction) Reporting (ERAI/GIDEP)
  • During design, proposal and program planning efforts, organizations should assess the long term availability of authentic parts and part sources for production and support of systems. When assessments indicate availability risks, organizations should take the steps necessary to reduce exposure to counterfeit parts, including, for example: Obsolescence can increase the risk of acquiring counterfeit electronic parts. To reduce the likelihood of purchasing counterfeit parts, electronic equipment manufacturers should proactively manage the life cycle of their products through the use of a Diminishing Manufacturing Sources and Material Shortages (DMSMS) management plan.
  • It was quickly adopted by the Department of Defense August 31, 2009.
  • Supply & Demand Chain Executive Magazine

    1. 1. Best practices and techniques for mitigating risks Date: Wednesday, February 23, 2011 Time: 8:00 am PT | 11:00 am ET | 4:00 pm London | 16:00 <ul><li>Counterfeit Avoidance - Yesterday, Today, Tomorrow... </li></ul>Kristal Snider Member, SAE G-19 Committee Vice President, ERAI Inc. 3899 Mannix Drive, Ste. 421-422, Naples, FL 34114 Tel: 239-261-6268, Fax: 239-261-9379 Email: ksnider@erai.com
    2. 2. Meeting Objective <ul><li>Review available solutions/resources that can reduce the potential of acquiring a counterfeit electronic component. </li></ul>
    3. 3. ERAI -Overview <ul><li>Founded in 1995 </li></ul><ul><li>Mitigate Risk of Parts, Customers & Vendors </li></ul><ul><li>Provide up to date information on Counterfeit, Faulty & High-Risk Parts </li></ul><ul><li>Real-time Industry Monitoring & Reporting Services </li></ul><ul><li>Real-time High-Risk and Counterfeit Part Reporting </li></ul><ul><li>Bill of Material / Assembly Cross Checking against High-Risk Parts Database </li></ul><ul><li>Vendor & Customer Analysis </li></ul><ul><li>Proactively Prevent Losses & Reoccurring Problems </li></ul><ul><li>Access to Search Risk Mitigation Tools </li></ul><ul><li>Fair & Impartial Investigation Services </li></ul><ul><li>Stay Informed on Current Issues Affecting the Supply Chain </li></ul>© 2011 ERAI Inc.
    4. 4. Counterfeit -Origin <ul><li>2001 – China Admitted to WTO </li></ul>
    5. 5. Counterfeit -Origin
    6. 6. Counterfeit --Origin
    7. 7. Counterfeit -E-Waste <ul><li>Laborer de-soldering circuit boards over a coal-fired grill.  Rock in the box is where boards are hit to remove solder.  Pliers are used to pluck off chips which go into various buckets.  The boards are then tossed into a pile for open burning. </li></ul><ul><li>© Basel Action Network 2006. </li></ul>
    8. 8. Counterfeit -E-Waste
    9. 9. Counterfeit -E-Waste
    10. 10. Counterfeit -Portals of Entry
    11. 11. Counterfeit -Portals of Entry <ul><li>Rapid access to millions of parts </li></ul><ul><li>Minimal membership requirements </li></ul><ul><li>Quick & easy access to a large audience of buyers </li></ul>© 2011 ERAI Inc.
    12. 12. All types of components are being counterfeited, even passives. % of reported counterfeits from ERAI database, 2004 to present Counterfeit -What is Being Counterfeited?
    13. 13. Counterfeit -Impact
    14. 14. Counterfeit - Impact <ul><li>Impact of using counterfeit parts or materials </li></ul><ul><li>Potential loss of life </li></ul><ul><li>Espionage </li></ul><ul><li>Monetary loss </li></ul><ul><li>Liability </li></ul><ul><li>Lack of availability of products for customer use </li></ul><ul><li>Loss of customer/public trust </li></ul><ul><li>Brand damage </li></ul>© 2011 ERAI Inc.
    15. 15. Counterfeit -Where the industry has fallen short • Lack of dialogue between all organizations in the U.S. supply chain. • Companies and organizations assume that others in the supply chain are testing parts. • Lack of traceability in the supply chain. • Insufficient chain of accountability within organizations. • Recordkeeping on counterfeit incidents by organizations has been limited. • Stricter testing protocols and quality control practices for inventories are required. • DOD organizations have not had policies in place to prevent counterfeit parts from infiltrating their supply chain. © 2011 ERAI Inc.
    16. 16. G-19
    17. 17. Formation of G-19 (Sept. 2007) -Industry Working Together To Craft A Solution © 2011 ERAI Inc. Orbital Sciences Arrow Electronics Northrop Grumman Integra Technologies Honeywell Boeing Jabil SMT AERI ERAI IDEA AIA NASA JPL G-19
    18. 18. SAE G-19 Committee Members & Liaisons <ul><li>US Government Members … </li></ul><ul><li>DCMA </li></ul><ul><li>Defense Logistics Agency, DSCC </li></ul><ul><li>MDA </li></ul><ul><li>NASA/JPL </li></ul><ul><li>Navy-Crane </li></ul><ul><li>NSWC Crane </li></ul><ul><li>SUBMEPP </li></ul><ul><li>Tinker Air Force </li></ul><ul><li>US Army – AMRDEC </li></ul><ul><li>Industry Members … </li></ul><ul><li>3M </li></ul><ul><li>Boeing </li></ul><ul><li>General Dynamics </li></ul><ul><li>Honeywell </li></ul><ul><li>L-3 Communications </li></ul><ul><li>Lockheed Martin </li></ul><ul><li>PerkinElmer </li></ul><ul><li>Plexus </li></ul><ul><li>Raytheon </li></ul><ul><li>Participating Industry Associations … </li></ul><ul><li>AIA </li></ul><ul><li>ERAI Inc. </li></ul><ul><li>Independent Distributors of Electronics Association (IDEA) </li></ul><ul><li>Participating Test Laboratories … </li></ul><ul><li>Center for Advanced Life Cycle Engineering (CALCE) </li></ul><ul><li>Evans Analytical Group </li></ul><ul><li>Hi-Reliability Microelectronics </li></ul><ul><li>Integra Technologies </li></ul><ul><li>Premier Semiconductor Services </li></ul><ul><li>Process Sciences </li></ul><ul><li>Silicon Cert Laboratories </li></ul><ul><li>White Horse International </li></ul>Representation from Government, Aerospace, Military, & Commercial
    19. 19. Brokers Independent Franchise Commercial Defense Space Inspection Test G-19 - A Multilayered Counterfeit Risk Mitigation Initiative © 2011 ERAI Inc.
    20. 20. AS5553 Rationale
    21. 21. AS5553 -Requirements: 4.1 Counterfeit Electronic Parts Control Plan <ul><li>Risk Mitigation </li></ul><ul><li>Disposition </li></ul><ul><li>Reporting </li></ul>
    22. 22. <ul><li>Design, Proposal, and Program Planning </li></ul><ul><li>Obsolescence Management (DMSMS) </li></ul> AS5553 -Requirements: 4.1.1 Parts Availability
    23. 23. <ul><li>Assess potential sources of supply to determine the risk of receiving counterfeit parts </li></ul><ul><li>Has the organization/part been reported by ERAI </li></ul><ul><li>Maintain a register of approved suppliers </li></ul><ul><li>Do not buy from sources not identified on your AVL </li></ul><ul><li>Specify a preference to procure directly from OCMs or authorized suppliers </li></ul><ul><li>Audit suppliers to ensure they are maintaining effective processes for mitigating risk </li></ul><ul><li>Coming Soon: ARP6178 </li></ul><ul><li>Ask for supply chain traceability </li></ul><ul><li>Be Careful - Paperwork can also be counterfeited </li></ul><ul><li>Flow down your requirements. </li></ul><ul><li>In the event that one or more supply chain intermediaries do not have a counterfeit part control plan compliant to this document, a risk analysis shall be required for every application of the part. </li></ul>AS5553 - Requirements: 4.1.2 Purchasing
    24. 24. AS5553 -Requirements: 4.1.3 Purchasing Information & 4.1.4 Verification of Purchased Product <ul><li>APPENDIX D - PROCUREMENT CONTRACT REQUIREMENTS </li></ul><ul><li>APPENDIX E - PRODUCT ASSURANCE </li></ul>
    25. 25. AS5553 -Requirements: 4.1.5 In Process Investigation & 4.1.6 Material Control <ul><li>… shall address the detection, verification, and control of suspect counterfeit parts. </li></ul><ul><li>… shall prevent suspect counterfeit parts from entering the supply chain / use. </li></ul><ul><li>… shall preclude suspect counterfeit parts from re-entering the supply chain. </li></ul>
    26. 26. AS5553 -Requirements: 4.1.7 Reporting <ul><li>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. </li></ul><ul><li>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. </li></ul>
    27. 27. Reporting
    28. 28. G-19
    29. 29. AS5553 Adopted By DoD
    30. 30. G-19 -ERAI Involvement <ul><li>ERAI Serves On : </li></ul><ul><li>Original Member of G-19 (AS5553) </li></ul><ul><li>Member of G-19D (AS6081) </li></ul><ul><li>Member of G-19DR </li></ul><ul><li>Member of G-19CI (Continuous Improvement/AS5553 Rewrite to ensure document is applicable in both US and foreign markets) </li></ul><ul><li>Meeting Schedule: </li></ul><ul><li>Tuesday 10:00am–12:00pm EST </li></ul><ul><li>G-19CI – AS5553 Re-write </li></ul><ul><li>Bi-Weekly </li></ul><ul><li>Thursday 11:00am-1:00pm EST </li></ul><ul><li>G-19D – AS6081 Development Team </li></ul><ul><li>Weekly </li></ul><ul><li>Other </li></ul><ul><li>G-19DR – Distributor Assessment Manual/Survey Team </li></ul><ul><li>As Required </li></ul>
    31. 31. Summary <ul><li>Employees need clear direction from management on combating counterfeits as well as written guidance on how to: avoid purchasing counterfeit parts; test, handle and track incoming and outgoing parts; and manage and dispose of suspected counterfeit components. </li></ul>
    32. 32. <ul><li> </li></ul><ul><li>Thank You </li></ul><ul><li>Kristal Snider </li></ul><ul><li>Member, SAE G-19 Committee </li></ul><ul><li>Vice President, ERAI Inc. </li></ul><ul><li>3899 Mannix Drive, Ste. 421-422, Naples, FL 34114 </li></ul><ul><li>Tel: 239-261-6268, Fax: 239-261-9379 </li></ul><ul><li>Email: ksnider@erai.com </li></ul><ul><li>www.erai.com </li></ul>

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