Avoid buying counterfeit parts from China
James Carbone -- Purchasing, 7/15/2004 2:00:00 AM
With the electronics industry recovering and component demand growing, many buyers will likely be buying more parts from non-franchised distributors.
After all, independent distributors often have an inventory of hard to find parts or know where the parts can be purchased, Buyers often have to pay a premium for scarce parts, but paying a higher price is better than having a production line shut down.
With demand rising, many independent distributors are warning buyers to be careful with whom they do business. Reason: More counterfeit components are finding their way to the supply chain as many less reputable parts brokers are selling substandard, defective or bogus parts.
The problem of counterfeit parts is new. However, more fake parts are introduced into the supply chain during boom times when demand for components is strong and buyers are desperate to find parts. While the industry is not yet booming, it is recovering and many distributors and component manufacturers say the counterfeit problem is building.
Independent distributors say the source of most substandard or counterfeit parts is China. A recent study by researcher Electronic Data Resources found that sales of counterfeit parts built in China ranged from between $1-10 billion in 2002.
"All the counterfeiting taking place is not from Japan, Hong Kong, Singapore or Taiwan. It is mainland China," says Chuck Magee, executive vice president of America II, an independent distributor in St. Petersburg, Fla. "A while back we sent a team of managers to China to determine if we should have a logistics center there. Our people went into factories and saw workers pulling parts off boards and remarking them. It was an assembly line of counterfeiting."
Nick Davis, president of Independent Distributors of Electronics Association (IDEA), agrees that China is the source of most counterfeiting.
"Most if not all counterfeit parts have been traced back to China so far this year," he says. "The parts originated there. You may procure a counterfeit part from a distributor in Europe who bought the part in China."
Some Chinese counterfeiters have very sophisticated operations. Davis says at a recent conference dealing with the counterfeiting issue, there was a display of counterfeit ethernet boards. "Besides the boards, the factory labels, boxes and literature that came with the boards were counterfeited. They just aren't counterfeiting the chips anymore," says Davis.
There are several forms of counterfeit or substandard components. There are knockoff houses that make bogus parts. "In other cases the parts are made by a legitimate component manufacturer, but the parts don't meet the spec," says Davis. The manufacturer may scrap the parts, but the parts are not destroyed.
"Maybe the guy who was supposed to destroy it puts it in his car and sells them to someone. A buyer may get a batch of 10,000 parts that are in factory tubes that have all the all the factory labels," says Davis. "They have factory date codes and markings, but when the parts are sent to a test house or an OEM, it's discovered the parts don't meet spec."
In some cases parts are pulled from boards and resold as new parts.
What to do?
What can buyers do to avoid getting stuck with counterfeit parts? Magee of America II says the best thing is not to buy parts that originate in China.
"We have a no-China policy that has been in place for three years," he says. We won't secure products from China. If you stay away from there, you will not get hurt. Chinese sources always seem to have the hard to get parts at the best price and they can get them to you overnight. It's the old adage: If it seems too good to be true it probably isn't," says Magee.
America II instituted its no-China policy after the tantalum capacitor shortage of 2000. America II unwittingly purchased bogus capacitors from a Chinese supplier.
"The integrity and quality of the product is the only thing that keeps your name in a good light with a customer," says Magee. "Counterfeiting is a major issue in the channel, but not for us because of our policy."
Davis says other independent distributors also have a no-China policy. But other major non-franchised distributors have opted to do business with Chinese sources and have adopted strict supplier screening processes and won't do business with unknown, unproven suppliers.
Besides a tight screening process, most major independents guarantee their parts no matter where they originate so buyers won't be stuck with parts that turn out to be counterfeit.
For instance Fusion, a non-franchised distributor in Beverly, Mass. will replace a product if it is counterfeit plus 5% of the purchase price. "Fusion carefully screens and qualifies all of our suppliers and has never been a victim of counterfeiting," says John Irving, executive vice president sales and marketing.
Other distributors have in-depth screening processes for suppliers.
"We have a vigilant supplier certification program," says Frank Cavallaro, CEO of independent distributor Converge in Peabody, Mass. "You need to know the sources and you need to have experts in each of the region who know the products," he says. "When you choose a supplier in China you have to have a robust inspection process."
Cavallaro says Converge screens products and returns them to the source if there is any problem with them. "We also share information with the customer base so if they aren't going to use us every time they know what to look out for."
He says Converge has always inspected products, but has beefed up that capability in quality control in recent years.
Choose wisely
Davis says IDEA has issued a best practices document for independent distributors concerned about counterfeit parts.
"The first thing we recommend to IDEA members is to do business with a trading partner who has been around for awhile, who has a good reputation and stands by their product," he says.
If a counterfeit part is suspected, IDEA recommends that distributors run an acetone test on chips. "All you do is put acetone on a Q-tip and rub it on the part numbers. If the numbers come off, the part is fake," he says.
Davis says distributors can also look at the coloration in the die between the top and bottom of the chip, "If the top of the chip is light brown and the bottom a dark brown, the part is counterfeit."
He says distributor should also look for anything that indicates the part may have been pulled off a board such as scratched or bent leads.
Fusion has a rigorous component testing processes. In fact, it recently opened a $5 million 6,000 square foot testing facility for suspected counterfeit parts. The facility will test a variety of components including microprocessors, memory ICs storage devices and passives.
Irving says Fusion will automatically test all suspect products and will provide buyers with the option, at no charge, to have any product inspected here prior to taking receipt of the parts.
Davis says IDEA also recommends that distributors call manufacturers directly about suspect parts. However, component manufacturers sometimes are uncooperative with non-franchised distributors concerning counterfeit parts because the component manufacturers want its parts to be sold only through franchised distributors.
"They pretend like we don't exist,' he says. That is unfortunate, according to Davis, because "we are the ones who have the most visibility into substandard parts. We can provide the manufacturers the most information about what parts are being counterfeited, what parts are substandard and who is distributing them. We have the information and they don't. That is why we need to work with them closely," he says.
Davis adds that, for their part, buyers also need to exercise a little common sense when buying parts, especially if they are trying to make opportunistic buys.
"If a $10 Analog Devices part costs $1 you have to ask questions. Unfortunately greed often steps in and takes over. Buyers go in and take the risk," says Davis.
While counterfeiting is a problem for products in China, the country will continue to be a growing source for electronic components. You can get good parts—and good deals—on parts in China, "but you have to be careful with whom you are dealing," says Davis."
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