Volume 3, Issue 2

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Electronics Industry Tackles Counterfeit Parts Issue

New Tool Available to Combat Counterfeit Electronic Parts

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Electronics Industry Tackles Counterfeit Parts Issue

One of the groups hardest hit by counterfeit parts is the electronics industry. Dave Torp, vice president of standards and technology for IPC, which represents 2,700 member companies in the electronic interconnect industry, including original equipment manufacturers (OEMs), electronic manufacturing services (EMS) providers and component suppliers, says his organization has seen a significant increase in counterfeit parts activity. He believes the frequency of counterfeits in the supply chain is at least eight times greater than what it was five years ago.

“As the supply chain has moved from other parts of the world into the Asia Pacific theater over the last 10 years, counterfeiting has become more prevalent, and it’s not just complex components that are being upgraded through their markings. Now we’re seeing counterfeiting of lower-level components, such as chip resistors and chip capacitors,” says Torp.

Much of the growth of counterfeit parts can be attributed to the secondhand or gray market, through which manufacturers can buy parts they can’t source directly from the supplier or an authorized dealer. As Torp puts it, these types of transactions “cloud” the supply chain.

“If an EMS loses a contract with a major OEM, it’ll sell that inventory to a broker,” Torp explains. “A broker buys it for a certain price, and then another EMS that is looking for certain components will buy them up. When that happens it starts to get hard to trace the components.”

Because brokers typically offer their products at a steep discount and operate on thin margins, they don’t question when they get an opportunity to buy cut-rate parts. Brokers are therefore an ideal entry point for counterfeiters looking to get their products into the supply chain.

Given the risks manufacturers face when buying through the gray market, why do they even do it? According to Torp, it all comes down to the pressure to deliver.

• “The longer that you have inventory sitting on the shelf not going anywhere, the more money you lose. Let’s say you don’t have enough components to do your complete build. You’re holding onto inventory and that inventory is costing you money. It links directly to the bottom line, and the longer you have to put off a customer on a delivery, the more likely it is that the customer is going to cancel that order on you. So manufacturers are doing everything in their power to get those components in house, get those assemblies built and get them to their end customer as quickly as possible,” Torp says.

• Manufacturers also look to the gray market for help when they need replacement parts for their products and can no longer source them from the original supplier. That’s why industry experts recommend working with the original supplier as much as possible by keeping a sufficient number of replacement parts in inventory or by checking to see if there’s an alternative source of authentic parts.

• Of course, tackling the problem of counterfeit parts goes far beyond simply working with known entities.

• “Until recently, the advice was to know your supplier. But we’re trying to dig a little deeper to identify how you determine if a component is or is not genuine, and then what you do after you’ve determined that it is a counterfeit component,” Torp says. “IPC has been actively engaging members and the industry with programs such as seminars and forums on key concerns like the legal issues associated with counterfeits. We’re also building direct programs that help our members understand how to prevent and detect suspected counterfeits, as well as answering the question of what to do if you encounter one.”

To learn more about IPC, visit: www.ihs.com