EDS, day two: The number one threat the distribution industry faces

Day two at the Electronic Distribution Show started very early this morning when I dragged myself out of bed for the NEDA (National Electronic Distributors Association) breakfast.

Doing so proved worth my bloodshot eyes and zombie-like pace, as the presentation given by Robin B. Gray, Jr., NEDA executive VP, highlighted three of the distribution industry’s most important trends: legislative, environmental and IP/counterfeiting. Of the three, Gray focused most heavily on IP/counterfeiting, saying that in his opinion, “this will be the number one threat the industry faces.”

I agree with Gray on that counterfeiting is the top “threat,” as not only do phony parts damage electronics, but also damage business reputations when returns to suppliers could be, unbeknownst to them, counterfeit parts. Gray exampled a customer purchasing 5,000 parts from an authorized distributor, then turning to unauthorized distributors for another 5,000 parts. If the customer uses only 7,000 parts and returns the remaining 3,000 parts — a collection of parts from both the authorized and unauthorized distributors — to the authorized distributor, that distributor could face counterfeit parts in its electronics supply chain. The dollar amount to test all return parts would be astronomical, and, as Gray noted, testing a handful could produce false results, as counterfeiters often mix in good parts with the bad.

Oddly enough, counterfeiting doesn’t seem to be on the electronics supply chain’s mind. NEDA, pointing to a recent survey, reported this morning that price concerns, increasing operations costs, and finding more qualified employees are the top three concerns for distributors. In fact, counterfeiting and IP concerns are very rarely noted when I speak with members of the industry about what keeps them up at night, with the exception of China RoHS (China will be cracking open products as part of the process, giving them easy access to design and IP information).

NEDA referenced research that claimed some $3.5 billion in counterfeit products in the United States alone. Interestingly, NEDA said that the majority of counterfeiting is done by organized crime.  Too bad the Sopranos is going off the air, this would have made a good episode.

Stay tuned for more reporting on counterfeiting in the electronics supply chain and more from EDS this week. In the meantime, what are your thoughts on counterfeiting; is it an underestimated issue or are you already aware of the dangers?