Don't get burned by bogus parts
How you can minimize your exposure to counterfeit goods
Barbara Jorgensen -- EDN, January 1, 2004
Every company has been burned by counterfeit components, says one industry insider. "If they tell you they haven't, they're probably lying," says Ken Stanvick, who worked 25 years in electronics manufacturing before cofounding consultancy Design Chain Associates.
Stanvick himself faced such a problem when working for a leading computer maker. "At the time, we were facing a shortage of logic chips in a particular type of packaging. Our purchasing folks found some in the gray market. We were using an offshore assembly facility that used a lot of these components, and the boards had a high failure rate—like 100 percent. We got samples of these components, opened them up, and found there were no chips inside."
With help from the manufacturer of the chips, Stanvick determined that his company—which had strict internal quality controls—had purchased parts slated for the scrap heap. "The parts had been pirated," he says.
Counterfeit and substandard products are circulated in the market all the time, but problems tend to peak during shortages. Rather than face idling a manufacturing facility for lack of a single part, buyers procure components in any way they can. In many cases, that means from nonfranchised (independent) distributors, brokers or Internet auctions, which buy largely excess inventory.
But even during periods of excess, low open-market prices can encourage purchases outside of authorized channels. The best way to minimize your company's exposure to bum parts, Stanvick and others say, is to purchase directly from suppliers or through authorized (franchised) distributors. "If you buy through authorized channels, the chances are 99.9 percent that you won't get a counterfeit part," says Frank Robertazzi, vice president of worldwide distribution for Agilent. Franchised distributors, explains Mike Morton, senior vice president for product marketing at TTI, buy products exclusively from the factory and retain the vendor's warranty. "If a customer returns a product to us," he adds, "we make sure it has traceability, and it goes through rigorous testing and inspection before it becomes salable inventory."
But the problem isn't just with counterfeit parts: Defective or outdated products get circulated as well. Some parts made by branded manufacturers are deemed either defective or substandard and are destined for the scrap heap. But they never make it there: They're stolen, re-marked, repackaged and resold. Other components simply expire and are slated for scrap but instead are sold as excess. Suppliers such as Agilent—which had a counterfeit part snafu last year—are more closely monitoring their scrap processes. "People were actually stealing parts from dumpsters before they got into the crusher," says Robertazzi. Agilent is also limiting the amount of product it allows its distributors to scrap. What suppliers can't control, Robertazzi says, are parts that are bought by legitimate customers but resold as excess.
"If the price is too low or the lead time too short and you can't get samples, red flags should go up."
—Ken Stanvick, cofounder, Design Chain Associates
These, as well as suspect parts, are most often bought and sold by organizations not bound by franchise or contract-purchase agreements-independent distributors, brokers and auction houses. This outlet—also known as the gray market—has given companies a bad rap. Independents that have implemented strict incoming and outgoing quality-control processes are trying to polish their image through membership in the Independent Distributors of Electronics Association (IDEA). "We have developed a substandard-parts committee, and we are asking all our members to submit their receiving processes so the organization can come up with best-practices guidelines," says Dan DiMase, president of independent reseller SemiXchange and an IDEA board member. "So far the first line of defense is a visual and microscopic inspection. You can fairly easily spot counterfeit and refurbished parts if you have good incoming inspection." The IDEA is also developing an Internet billboard where members can alert one another about suspect parts. Finally, it is developing a set of standard business practices, such as requiring members to stand behind the products they resell.
It appears that no brand is immune. The Electronic Resellers Association Inc. (ERAI), an independent distribution watchdog agency, lists on its Web site components identified as counterfeit or defective. Among the vendors listed are Altera, AVX, Atmel, Agilent, Hitachi, International Rectifier, Kemet, Motorola, NEC and Vishay.
So when purchasing outside authorized channels, Stanvick recommends, you should implement a strict "exception management" process, enforced by upper management. Such a process should include making sure the part can be tracked through date codes, lot codes, or other means. Don't assume that the part is good; insist on samples, and test them. Find out who will stand behind these components—the manufacturer whose name is on the product or the party you buy them from. And be perceptive about warning signs: "If the price is too low or the lead time too short and you can't get samples," Stanvick warns, "red flags should go up."
