Protect Yourself: Five Tips Against Counterfeit Components

In 2007, a medical device manufacturer was hit with a serious business crisis. One of its products failed just as the customer was about to use it. The problem was ultimately traced to a chip that had been purchased from a broker; upon closer examination, the chip turned out to be counterfeit, a poor quality knock-off of the actual part specified. The impact of this minor discrepancy was huge: multiple assemblies were affected, and latent failures occurred at other hospitals. To rectify the matter, the OEM recalled the product, purged the counterfeit part, and reworked the product. The management team learned a major lesson from the experience, and subsequently scrutinized its supply chain far more closely to know the provenance of every single component. 

Counterfeit components are increasingly prevalent in today's market. Industry analysts estimate that they account for more than $100 billion of global electronics sales annually. Any part that can be sold profitably is at risk of being copied, from high-demand, inexpensive commodities to more specialized, valuable devices. Fakes include current versions and those no longer in production; in fact, counterfeits of rare or obsolete components for the medical and military industries are particularly rampant. 

Paramit's perspective on this troubling situation is clear. There is absolutely nothing you can do to stop counterfeiting. What you can do—what you need to do—is take all measures possible to prevent counterfeit components from entering your manufacturing operation.

Below, we present specific recommendations to help you control the parts you receive from non-franchised suppliers. Paramit has followed these guidelines within our own organization. In the first six months, we caught seven instances of counterfeit or refurbished parts that would have cost more than $500,000 to recall and rework had they made it into production. By identifying and blocking them, we not only prevented a significant unplanned expense, but also maintained high customer confidence and goodwill. 

Read below how to protect your own business against counterfeit components, or contact us directly for a consultation.

Tip 1: Appoint a Counterfeit Czar

The first step towards protecting your business from counterfeit components is to select and empower an internal champion. Your "Counterfeit Czar" will be responsible for creating and maintaining the program. The ideal candidate will have strong technical knowledge, supply chain experience, and be a bulldog when it comes to details and standards. Send your Czar to the Counterfeit Electronic Components Avoidance Workshop (CCAW) to learn how to identify and select reliable brokers, train new receivers, and determine the origin and authenticity of questionable parts. 

Tip 2: Create an Approved Broker Program

The foundation of your fight against counterfeit components is an approved broker program. Establishing an effective one requires commitment and some human and financial resources, but once you make this up-front investment, you'll face far lower costs and risks in the future. The first step for your Counterfeit Czar to undertake is a thorough audit of all of your second-tier suppliers' business practices and facilities. Paramit's own process entailed 48 steps, including on-site visits, a detailed survey sent to suppliers, and a competitive matrix highlighting their respective strengths and weaknesses. Inherent in this process is a test: suppliers who actively participate in the evaluation will demonstrate their desire to continue working with you; those who can't be bothered to complete your survey or answer your follow-up questions either have something to hide or don't really want your business. Or both.

Once you have identified the most promising brokers, we strongly recommend selecting no more than two or three of them as your authorized, second-tier suppliers. Educate your internal team on the reasons for channeling all non-franchised purchases through them. In our experience, this is a brilliant move for incentivizing brokers to honor their no-counterfeit obligations: they benefit significantly from receiving a major portion of your business, which they stand to lose if they violate the terms of your agreement.

Tip 3: Inspect Components Religiously

All the paper planning in the world won't make a difference if you don't actually look carefully at the components you receive. Paramit's inspection process is comprised of more than a dozen tests to determine the legitimacy of every non-franchised part--from the cheapest resistor to the most expensive semi-conductor--when it enters our facility. Here's a sample of our tests:

• Black Top Test: Use acetone and a Q-tip on black top and silkscreen images. If smearing or discoloration is found on the Q-tip, the part is counterfeit. See Figure 1, right sidebar.

• X-Ray Test: Compare the suspect part against a reference legitimate sample. If you see evidence of a bad die, the part is counterfeit. See Figure 2.

• Lead Condition Test: Inspect the leads on suspect parts; counterfeits typically show overspray or evidence of alteration. See Figure 3.

We conduct these tests on both parts that Paramit purchases and those that our customers purchase themselves and ship to our facility. In the latter case, we also require that our customers sign-off on any non-franchise parts they send us. In doing so, we heighten awareness of the problems associated with fakes and encourage our customers to participate more actively in the fight against them.

Tip 4: Hold Your CMs to the Same Standards

If you outsource some aspects of your business to Contract Manufacturers, start asking questions about what they do to prevent counterfeit components from entering their facilities. While requiring your partners to adopt stringent protection measures may cause you to reevaluate some of those relationships, not taking this step will certainly jeopardize your own program. Although Paramit regards our counterfeit program as a major customer benefit, we also hold it up as a model for our competitors to emulate; as more companies in our space take a zero tolerance stand against counterfeit components, we all will benefit.

Tip 5: Plan for Fakes that Slip Through

In case you receive a shipment of counterfeit components, be prepared with an action plan for remediation. We recommend that you suspend all broker purchasing immediately, and then conduct an investigation into the suspect pieces. Until you have identified the cause and source, and demanded and received corrective and preventive action, do not resume purchasing from the broker in question. If the broker cannot adequately explain the reasons for the incident, it may be time to select a new authorized broker.

In conclusion, we'll reiterate the simple mantra that's made our own counterfeit component program so successful: 

There is nothing you can do to stop counterfeiting. The only thing you can do is prevent such parts from entering your facility. 

Folllow the five tips above, and you'll be on the right path towards protecting your business, your bottom line, and your reputation from counterfeit components. To learn more about creating your own counterfeit component program, please contact us for a consultation.