Distributors fight counterfeit components
As counterfeiting increases the electronics industry develops counter strategies.
By Rob Spiegel, Contributing Editor -- EDN, April 6, 2010
The problem of counterfeit components is getting worse, even as OEMs, suppliers, and distributors improve their identification tactics. The Department of Commerce released a report earlier this year that showed incidents of counterfeiting rose 240 percent from 2005 to 2008. The department’s Office of Technology Evaluation studied 387 companies from five segments of the electronic supply chain from 2005 though 2008. OTE revealed that 39 percent of companies in the survey encountered counterfeit electronics during the four-year period.
The companies on the forefront of the counterfeit battle—independent distributors—uniformly report that problem is getting worse. “I believe the threat posed by counterfeit parts should be elevated from orange to red,” says Steve Calabria, president of PC Components Company, an independent distributor in Seaside Park, NJ. “OEMs are combing the market for raw materials. We’ve been selling parts in the open market since 1964, and we’re seeing record sales.”
The record sales in the open market are a result of the downturn. The global recession and nascent recovery have magnified the incidence of counterfeiting. Suppliers sliced inventory levels during the recession. When demand picked up, lead times stretched out. In response, OEMs and EMS providers went out to the open market to find components to feed production. What they found was a lot more counterfeit parts than before the downturn. “Low inventory levels in component manufacturer factories and franchised distributors have increased the need to use the open market,” says Calabria. “Allocations and shortages provide an opportunity for criminals.”
To compound the problem, counterfeiters are getting better at disguising fake parts. As one distributor commented, “They can spell Texas Instruments now.” Counterfeiters are cleverly finding new disguises as distributors get better at detection. “Counterfeiters are getting more sophisticated, so it’s getting difficult to spot counterfeit products,” says Robin Gray, executive vice president of the National Electronic Distributors Association (NEDA) in Alpharetta, GA. “Visual inspection might not be enough to detect counterfeits. Even if you random-test, they salt real product in with the bad product.”
The big independent distributors have become vigilant about identifying counterfeit parts. Their very existence depends are their ability to keep their inventory clean and honest. “Some counterfeiters are sanding the part, then recycling the resulting dust and combining it with resin. They reapply it to the top of the part, which makes it difficult to identify as counterfeit. It’s resistant to some of the solvents we use for identification,” says Debra Eggeman, executive director of the Independent Distributors of Electronics Association (IDEA) in Buena Park, CA. “So we’ve had to find other ways to identify these parts.”
The reports from the field show that most counterfeit parts continue to originate in Asia, particularly China. There are a number of sources. Some component factories run midnight “ghost” shifts where they run parts off contract while substituting cheaper materials. Other parts are pulled off e-waste products showing up in China from all over the world. “More than 90 percent of the world’s counterfeit parts are coming from China,” says Calabria from PC Components. “They may look great to the untrained eye, but a seasoned inspector can see that this part was made in China and this part was made in Mexico.”
The authorized or franchised distribution world is not immune to the flow of counterfeit parts. Distributors and suppliers have to be vigilant about returns, their point of vulnerability to counterfeit parts. “One of our biggest concerns is EMS companies who buy huge quantities from a variety of sources and co-mingle the inventory,” says Gray from NEDA. “They could have bought 10,000 parts, 5,000 from authorized distributor A, 2,000 from authorized distributor B, and 3,000 on the open market. So, when the parts are returned, it could be open-market parts getting returned to an authorized distributor.”
Avnet Inc is well aware of the vulnerability and takes measures to ensure the returns they receive are actually components they sold. “We have a strict return policy,” says Chuck Delph, SVP of sales in the Americas for Avnet Electronics Marketing Americas. “We do visual inspection to make sure what we got back is something we shipped out.”
The defense and aerospace industries have put enormous effort into identifying counterfeit parts. They have a lot at stake, since bad parts could lead to missile failure or a plane dropping out of the sky. “Defense and aerospace are keeping counterfeit parts out by training people how to spot counterfeits,” says Tom Sharpe, VP at SMT, an independent distributor in Sandy Hook, CT. “I think their mitigation strategies are going to rapidly flow down to the commercial industries, since counterfeiting is just as bad in commercial at it is in defense.”
IDEA has aggressively developed identification strategies to help its independent distributor members keep their inventory free of counterfeit parts. “It isn’t realistic to buy only from authorized sources, since it’s impossible to predict demand,” says Kristal Snider, VP at ERAI Inc, a company that analyzes rick in the electronics industry. “But some of the independent distributors are investing tens of thousands of dollars to take care of the risk of counterfeit parts.”
IDEA encourages companies in the commercial sector to take a lesson from defense in keeping inventory clean. “Independents buy from franchise distributors and franchise distributors buy from independents, so no one should be ignoring this problem,” says Eggeman from IDEA. “The military has really stepped up to develop mitigation policies so they don’t get counterfeit parts buy accident. Now we need to see the commercial side of the industry develop policies in their own organizations.”
Ultimately, the best strategy for avoiding bad parts is working with trading partners you can trust. “We work in a trusted environment where we feel we can protect our customer,” says Avnet’s Delph. “If you’re going to buy something outside a franchised partner, do some due diligence on who you’re buying from.”
The Department of Commerce stresses that companies need to create lists of trusted and “untrusted” organizations in the components industry. While associations such as IDEA continue to develop identification strategies, trust is the strongest currency to ward against counterfeit parts. “As counterfeit and substandard parts continue to enter the market at an accelerated rate, it is important to buy from sources you can trust,” says Glenn Smith, president and CEO of Mouser Electronics Inc in Mansfield, Texas.
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V&C Technology Inc.
15250 Flight Path Dr
Brooksville FL 34604
PH 352-796-0060
FAX 352-796-0790
and
Visiontech Electronics Florida
have sold 60000 fake military chips in America under ERAI network and ISO certification.
Nick Jesson - 2011-5-9 12:43:51 PDT -
If companys like Broker Forum would not allow these counterfeiting company's to list their inventory then we could cut WAY down on the counterfeiter's. We had one company that shipped up two orders back to back that were counterfeit parts. We called TBF and nothing was done!! We finally emailed a friend in china and sent him all the information, which he turned over to the police in china. We found out later that three other company's had been sold counterfeit parts for the same source that we purchased from. Again TBF did nothing. This company was Osaka. Finally after many calls from our company and the other three companys, TBF did take Osaka off their list, but not until four of use that I know of lost $5,000.00 and upward!!
Nick Jesson - 2011-18-4 14:32:20 PDT -
Shannon Wren of Visiontech and Kristal Snider, Mark A. Snider helped each other in selling millions of worth military counterfeits. Sniders were well known about National Semi Military counterfeits produced and retailed by Shannon. Since Sniders of ERAI were equally beneficiary, this business grew leaps and bounds. Even today most of ERAI members are doing same, it is wise to say not guilty until proven. and it will be proven only after major disaster. Many helicopters , choppers and flights are down , the major reason behind is counterfeiting. Most American and Chinese counterfeit brokers are directly affiliated to Snider family.
Snider-unreliable - 2011-18-2 00:55:10 PST -
To Whom It May Concern:
For the last several years, ERAI, its principals and employees have been the target of an intense smear campaign orchestrated by an individual who seeks to bring harm to ERAI, its principals, employees and any person or business who interferes with the perpetrator’s ominous cyber attacks. For a long period of time, ERAI was more or less exclusively the primary target of these libelous broadcasts. Now, numerous businesses are among the victims of these often-times unprovoked outbursts.
ERAI is frequently asked why these posts have been and continue to be made. Simply put, due to the nature of our organization which involves monitoring, investigating, reporting, and mediating issues affecting the global supply chain of electronics, it is not uncommon to have companies that have been reported by ERAI attempt to discredit our organization. The hundreds of posts that are currently visible on the Internet have been made by one individual using dozens of Internet screen names. Because the Internet provides bloggers with a cloak of anonymity, a person can create the illusion of numerous disgruntled or concerned individuals when that is simply not the case. The author of these posts is an individual that was reported by ERAI for selling faulty material. He made numerous threats against ERAI and its employees both during the investigation and after he was reported.
It helps to have a better understanding of our organization in order to understand the motivation of these types of criminals. Founded in 1995 and incorporated in 1996, ERAI is a privately held trade organization that has been the industry's primary reporting and investigation service supplying information, mediation and risk mitigation solutions to electronics professionals worldwide. Membership to ERAI is open to franchised and independent distributors, OEMs, OCMs, CMs, test houses, government agencies and associations serving the industry. ERAI is actively involved in a number of committees and task forces that are addressing the issue of counterfeit parts in the global supply chain of electronics.
There are a number of reasons why counterfeiting has become so rampant in the last few years, such as the breakdown of trade barriers among countries with less restrictive IP laws, the green initiatives that have led to more e-waste and easy access through the Internet to market and sell material easily. Counterfeiting has become a global issue affecting multiple industries from electronics to golf clubs, pharmaceuticals and tobacco, among others. It is particularly troubling to ERAI since counterfeit electronics can not only affect individuals’ health and safety, but could even be a threat to national security. Every industry has been affected and ERAI is working diligently to address the problem in the electronics sector and to offer solutions to this very serious issue. Unfortunately, we have to accept the fact that the Internet creates an audience for individuals to post information that is entirely false, inaccurate and without merit.
ERAI is uniting the industry in addressing issues that are plaguing the market and we hope you can be part of the solution with us.
ERAI deeply regrets the frustration and/or confusion these cyber attacks have caused. Despite the difficult obstacles ERAI must sometimes face, it will continue to provide the valuable information and services its Members have come to rely upon to make the most informed business decisions possible. ERAI remains committed to serving its customers with the integrity and professionalism the semiconductor industry has come to expect.
Sincerely,
Kristal Snider
ksnider@erai.com
Vice President
ERAI Inc.
Kristal Snider, ERAI Inc. - 2011-20-1 09:45:02 PST -
ERAI and its allies in China along with Many known counterfeit vendors in Chinese flea markets have joined its membership base. It is for everyone to realise that today most independent brokers who trade counterfeits are ERAI members in china and ERAI buyer members in America. Kristal Snider is moreless only interested in making her company big profits using the present situation. She has nothing to do with real virus. Can't really trust her.
American3 - 2010-16-4 17:07:00 PDT
