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An Era of Counterfeiting “We estimate that, based on 2008 data, the total global economic value of counterfeit and pirated products is as much as $650 billion every year… …estimates imply that the global value of counterfeit and pirated products could be up to $1.77 trillion by 2015.” Frontier Economics, February 2011 4
Supply Chain Risk is High SC BENCHMARK STUDYWhat do counterfeits do Increase warranty/maint. costs 65% Reduce expected product life 64% Inhibit sales / customer satisfaction 62% Add to individual unit costs 51% Increase development time/costs 38%What do counterfeits cause? Product quality/reliability failures 84% Customer returns/recalls 67% Production line stoppages 57% Product launch delays 36%What do counterfeits impact? Damage brand / reputation 71% Product safety / legal liability 55% Expose contractual liability 42% Compromise security 37% Undermine compliance claims 44% “Jeopardize our missions Source: “Benchmarking Counterfeit & Inferior Grade Components”, Supply & Demand Chain Executive, 2009 and soldiers safety.”
Industry Fights BackSAE International forms G-19 Committee that leads to AS5553 Purpose This SAE Aerospace Standard standardizes practices to: maximize availability of authentic parts, procure parts from reliable sources, assure authenticity and conformance of procured parts, control parts identified as counterfeit, and report counterfeit parts to other potential users and Government investigative authorities.
GIDEP and ERAI Counterfeit Reports90% of all incidents reported by ERAI SAE AS5553 Names Two Primary Sources: ERAI and Reported Counterfeit Incidents GIDEP
Congress Investigation Launched“The presence of counterfeitelectronic parts in the DefenseDepartment’s supply chain is agrowing problem that governmentand industry share a commoninterest in solving.” Carl Levin, D-Michigan, and Sen. John McCain, R-Arizona March 2011
Effects of the Japan CrisisPanic Buying, Shortages, and Pricing Issues? Source: IHS iSuppli 2011
Brokers Gone Wild… Already? Already, calls into brokers are finding big increases in pricing, with pricing increases of more than 100% seen by several of the sourcing pros I spoke to this past week. One of the challenges in using brokers in these emergency situations is that the initial calls themselves can serve to intensify pricing pressure. As such, VPs and Directors of Direct would be very wise to control, aggregate, and actively manage all calls to brokers in an attempt to avoid what could be called “self- competition.” Brokers Wild – Pressure on Japanese Supply Chain Intensifies Posted by Andrew Bartolini on April 1st, 2011 CPO Rising
Today’s Speakers Mark Snider President ERAI, Inc Daniel Bronstein Solution Engineer, Electronic Products & Solutions Group IHS11
Predictive Obsolescence Danny Bronstein Solution Engineer - Direct Parts Electronic Products & Solutions Phone: +1 909 481 4150 Email: firstname.lastname@example.orgINFORMATION + INSIGHT = KNOWLEDGE
Best Practices in Supplier andParts Risk MitigationMark Snider, PresidentERAI
My Commitment is PersonalSolving counterfeits is critical to our family
About ERAI Inc.A World of Information at Your Fingertips• Founded in 1995, ERAI is an information services organization that monitors, investigates and reports issues affecting the global electronics supply chain.• ERAI provides tools to mitigate risks on substandard parts, counterfeit parts, vendors and even customers.• Subscribers include OEMs, CMs, Distributors, OCMs, government agencies and industry associations.• Actively involved in a number of committees and task forces addressing the counterfeit issue.• Founding participant in SAE International G-19 Counterfeit Electronic Components Committee and several sub-groups
IHS and ERAI are Exclusive Partners One provider of counterfeit alerts and supply chain risk mitigation36
Over 50 Incidents in the last 14 Days (page 1 of 2)
Over 50 Incidents in the last 14 Days (page 2 of 2)
Example: Infineon TLE5205-2GReported Parts Detail
How difficult are these to detect?Let’s look at another: Asiliant Technologies M69000
Very difficult… and getting worse.“it wouldn’t take much more to make it perfect”
How Risk Enters Your Supply ChainIntended and unintended ports of entry for counterfeits1. Many unsafe part & supplier “sources” • Online Broker Search Engines • Maverick procurement methods or spending limits • Google2. These are counterfeit ports of entry • Rapid access to millions of parts • Minimal membership requirements • Quick & easy access to a large audience of buyers Request for Quote Request for Quote3. Are you creating your own shortages? Request for Quote … … • Multiple RFQ’s create false demand signals … … Request for Quote • Leads to price increases and incentive for counterfeiting
Best Practices to Avoid RiskStay Within Your Trusted Supply Chain1. Direct from the Factory2. Your Approved Vendor / Manufacturer (AVL / AML)3. Other Franchised and Authorized Sources4. Approved Independent Distributors5. ERAI Members6. Valid Alternate Parts or Sources • Distributors, Aftermarket Sources • Alternate Parts - Upgrades, Downgrades, Equivalents… • Manufacturers and Products sanctioned by qualifying authorities • Government QML/QPL Contractually define your expectations. Test accordingly.
Vet the Open MarketExample ERAI Member Details
Vet the Open MarketQualify your suppliers ASK YOUR SUPPLIERS… Industry Membership and Reporting? Quality System and Processes? Warranty and Insurance? Supplier Qualification and Purchasing Process? Non-Conforming Material Control? Inspection and Test? Efforts made to verify a Parts’ Authenticity before use?
Vet Real Stock from “Available” PartsIt limits risk exposure from fake sources and price games
Many Types of Supplier Risk OccurA wide range of incidents pose serious business problems
“Where there’s a will, there’s a way.”Past due invoices, wire fraud, faulty product for example…
“Where there’s a will, there’s a way.”Company aliases are changing all the time
“Where there’s a will, there’s a way.”Relationships exist across “new” supplier entities as well
BOM analysis is where our clients beginIt’s where “the rubber meets the road” to assess risk exposure
Risks are detected and monitoredProblems are immediately flagged and the BOM can be monitored thereafterActual Medical Devices Bill of Material (4 of 94 electronic components) “ICs were failing to boot up.” “Maxim stated in writing that they did not manufacture the product shown in the below noted photographs. The lack of a country of origin and other visual nonconformities suggest the parts in question have been remarked by an unauthorized third party.” “Test report shows parts not performing up to spec, incorrect voltage.”
Conclusion: Address How You BuyExplicitly tackle the difficult decisions head on1. Are all open market sources the same? No2. Does real stock versus “available stock” matter? Yes3. Will a blanket policy preventing open market source eliminate risk? Some4. Do vetted open market suppliers require less testing? No5. Is buying only from authorized distribution practical or technically feasible? Not always Stay within your trusted supply chain.
Free Offer for Attendees: Risk Analysis We will do a BOM risk assessment for webcast attendeesFill Out Our Survey and Specify “YES” to Free Analysis Or Send Email with Subject Line “April 7th Webcast Offer” to ProductMarketing@ihs.com Limited to qualified electronics value chain entities.