Volume 3, Issue 2

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Survey Benchmarks Impact of Counterfeit Parts on Companies

Electronics Industry Tackles Counterfeit Parts Issue

New Tool Available to Combat Counterfeit Electronic Parts

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Survey Benchmarks Impact of Counterfeit Parts on Companies

In March, IHS teamed with Supply & Demand Chain Executive magazine on a survey designed to delve into the risks companies face with counterfeit and inferior grade components, which some estimate to represent 10 percent of technical products worldwide. More than 1,000 people responded, giving IHS and the magazine a greater understanding of the very real impact of these fake parts on product and operational performance and regulatory compliance.

Clearly, counterfeit parts have a wide reach: The survey respondents represented a wide range of manufacturer sectors, such as electrical, electronic and communications equipment; medical devices; aerospace and defense; and semiconductors. A number of people in other fields responded, including employees of distributors and wholesalers and government, educational, professional, scientific and technical services professionals. The majority of respondents indicated considerable concern about counterfeits, with 61 percent saying they believed the frequency of counterfeit components is increasing. Yet nearly half—42 percent—said their companies had not established a budget line item for mitigating counterfeit risks.

According to 47 percent of people who participated in the survey, most counterfeits enter the supply chain through the grey market or non-franchised distributors. Other suspected sources include manufacturing partners, customers (when they’re providing materials), customer returns and—surprisingly—authorized distributors and suppliers.

With four out of five respondents saying their companies’ products must conform to high reliability specifications such as life-critical or medical requirements or be able to withstand extreme environments or temperatures, it’s no wonder that their single top concern was by far product quality, reliability and liability. People wrote in other concerns about counterfeits, such as:

• “Counterfeiting jeopardizes our missions and soldiers safety."
• “They ground aircraft and impact airplane safety.”
• “Flood market and create unjust competition with reliable sources.”
• “Counterfeiting causes a loss of revenue due to equipment down time.”
• “They cause failure of safety related components in nuclear plants.”
• “Force multiple, costly QA in destructive and non-destructive examinations.”
• “They harm patients and pose a significant risk of death.”
• “They increase risk of legal action and product failure.”

When asked what types of activities their companies employ to mitigate counterfeit risk, 58 percent said they used part sampling and inspections. The second most used tactic was product/design failure analysis, simulation or testing, followed closely by purchasing the manufacturer’s last-time-buy inventory to cover production and spare parts requirements for the expected life of the equipment. In addition, a popular process for avoiding counterfeit parts cited by respondents was to source directly from manufacturers or authorized distributors. Respondents also said they avoid counterfeits by refusing to purchase components from the grey market and by using contractual language with suppliers to return or settle suspected counterfeit claims.

A small group of respondents—21 percent—indicated their companies had taken legal action against sources of counterfeit parts. But most say legal or punitive action or even worldwide regulations will not make a difference when it comes to halting counterfeit activity.

To learn more about the results of the counterfeit and inferior-grade components survey and to hear some advice from industry experts about this issue, listen to the webcast “Benchmarking Counterfeit and Inferior Grade Components.”