Counterfeit Parts Impacting the Global Supply Chain
By Kevin Beard, NQA-USA President
For years we have heard and seen signs of counterfeit products in the form of 'Knock-Off' handbags, watches and other retail goods. Now imagine a scenario were counterfeit parts are unknowingly being purchased by your company and integrated into the product you deliver to your customer. This scenario may seem unlikely for your company, but it is becoming a bigger threat than many organizations realize.
Organizations around the world continue to look for ways to market their products to their customers at a competitive price. This effort quite often involves a strategy of utilizing the global supply chain to creating beneficial relationships that allow organizations to acquire good quality parts at the best price. As organizations start outsourcing some aspects of their product development and/or manufacturing, as well as stretching out the distances of their supply chains across the globe, the organization may be incurring certain risks associated with 'supply chain integrity gaps' that are allowing counterfeit parts to enter their products supply chain. Many organizations are unaware of the risk with these 'supply chain integrity gaps', and the efforts that less than reputable organizations are going to, to exploit these gaps and pass off counterfeit parts as original.
This cause for concern is not isolated to a single industry or product type. Numerous industries (Aerospace/Defense, Telecommunications, Automotive, Power Generation, Medical Devices, etc.) have all reported experiences with some form of counterfeit product threat. The types of counterfeit product threats are broad ranging as well. From raw materials & fasteners to electronic parts & RoHS compliant products, counterfeiters are attempting to circumvent Regulatory, Legal and good Quality System practices to deceive customers and make money for themselves.
The Problem The most significant area of focus for counterfeiting seems to be in the area of EEE parts (Electronic, Electrical and Electromechanical). Due to the global appetite for products that involve EEE parts, a majority of the counterfeiting community seems to be focused on capitalizing on sheer volume of EEE parts needed to meet the global demand. The points of injecting counterfeit parts into the supply chain are varied, but the main area of focus is tending towards distributors.
In January 2010, the US Department of Commerce (Bureau of Industry and Security, Office of Technology Evaluation) issued a report that resulted from a 3 year survey of numerous organizations regarding the potential risks to Governmental and Industry organizations regarding counterfeit part impacts.
This report developed the following general findings:
- All elements of the supply chain have been directly impacted by counterfeit electronics
- There is a lack of dialog between all organizations in the US Supply chain
- Companies and organizations assume that others in the supply chain are testing parts
- Lack of traceability in the supply chain is commonplace
- There is insufficient chain of accountability within organizations
- Recordkeeping on counterfeit incidents by organizations is very limited
- Stricter testing protocols and quality control practices for inventories are required
- Most DOD organizations do not have policies in place to prevent counterfeit parts from infiltrating their supply chain.
As you contemplate the risks to having counterfeit parts in your company's supply chain, you may be wondering:
- What is a counterfeit part?
- What does a counterfeit part look like?
- How does a counterfeit part get into my company's' Supply Chain?
Counterfeit parts are entering the supply chain in a variety of manners. Most often this starts with knowingly marking or labeling an item with a part number that is not representative of the items true form, fit or function. This could involve marking a new item with alternate identification. One of the more prevalent methods involves the recycling industry. Tons of products that have electronic components are discarded by industry and consumers each year. In the recycling process the EEE parts within these products are removed, reconditioned and relabeled with inappropriate identification. In an attempt to pass these counterfeit parts off as real parts being requested by unsuspecting purchasers, the organizations that perform these processes then try to insert these counterfeit parts into the supply chain in a variety of manners, typically, through some form of a distributor or stockist and most using the internet.
The techniques for counterfeiting are many, and continue to change as the industry adapts. As new inspection and test methods and other risk mitigation processes are established, the counterfeiters are developing new methods to try to bypass these safeguards. Where many companies use Certificates of Conformance (C of C) as a method to ensure the adequacy of the purchased product, there are cases that have been identified where the C of C has also been fabricated.
See Related Articles
Government - www.gao.gov
Aerospace - Closing the Door on Counterfeit Parts in Aerospace Applications Space - www.bloomberg
Power Industry - EPRI
RoHS Compliance - Counterfeit Symposium Paper
What are Industry Leaders Doing?
There are numerous industry efforts that are active in developing solutions for this counterfeit part issue. The SAE, who is a well known technical standards sponsor has developed working group, G-19, that have brought together many global subject matter experts to develop a series of standards to help create Guidance and Certification based standards for the prevention of counterfeit parts in the supply chain. AS 5553 (Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition) is currently a published standard that provides guidance in this area. The G-19 working group is developing other standards such as AS6081 (Counterfeit Electronic Parts Avoidance - Distributors) that will address other aspects of Counterfeit Parts prevention. The International Aerospace Quality Group (IAQG) is developing a Supply Chain Management Handbook, which is a collection of industry best practices on numerous Management System attributes. (http://www.iaqg.sae.org/iaqg/handbook/scmhtermsofuse.htm) But most importantly many of your customers are creating contractual requirements that are being imposed on their suppliers that are meant to address this increasing threat in the supply chain.
What Should My Company Do?
The ultimate question you may be contemplating is 'What should my company look for to protect the integrity of our product'?
Where Counterfeiters are using a variety of methods and techniques to infiltrate the supply chain, companies must develop a broader strategy to combat this risk. No one approach can prevent counterfeit parts from impacting your company. Your strategy can and should involve most of the disciplines and departments within your organization. Keys to keeping Counterfeit Parts out of your supply chain involves two aspects 'Proactive Avoidance' within your companies management system and 'Reaction to Exceptions.'
Proactive Avoidance - Preventing counterfeit parts from impacting your company involves many parts of your organization including Design, Purchasing, Manufacturing, Inspection and others. AS 5553 defines many of the processes and techniques that these departments should consider in their product development processes. These processes include Parts selection in Design, inclusion of specific contract language in purchase orders, Vendor Selection and Management as well as many other potential process enhancements.
Reaction to Exceptions - In inevitable cases where your company must buy parts from sources in which the supplier does not have a well known history of performance, your organization will incur certain risks. The reaction process involves understanding these risks, and taking the appropriate mitigations by using appropriate types of inspection, verification or test. Again, AS 5553 discusses in detail the approaches that should be considered by your organization for this scenario.
Organizations that are certified to ISO 9001 or other Quality Management system standards typically have these processes, but AS5553 brings about unique and specific approaches that should be considered for counterfeit parts prevention.
As certified organizations with goals & objectives of meeting your customer's requirements and maintaining a Product Integrity image, you may face challenges associated with counterfeit parts. You should make sure you understand the risks to your organization in this area, and develop methods to mitigate these within your company and your supply chain.
What is NQA doing?
NQA, USA is currently involved in the industry efforts to combat counterfeit parts and is involved in the SAE G19 technical committee developing Certification and Guidance standards for use by companies like yours and by the industries that you support. NQA, USA is also active in education of organizations and auditors regarding information on Counterfeit Parts Prevention methods. We look forward to helping you in your efforts to ensure that the problem with Counterfeit Parts doesn't affect your customers.
As the industry progresses down the path of creating certification based standards that will enhance your Management System's ability to prevent counterfeit parts from affecting your organization, NQA, USA will ensure that you are up to date. If you'd like to receive information specifically related to Counterfeit Parts, please contact NQA at (800) 649-5289.