Watch out for bogus RoHS parts
RoHS is creating confusion in the electronics marketplace, making it ripe for counterfeiters.
By James Carbone -- Purchasing, 5/18/2006 2:00:00 AM
The threat of counterfeit parts is not a new problem for electronics buyers, but it could take on a new wrinkle as the deadline for the European Union's Restriction of Hazardous Substances (RoHS) directive approaches.
Buyers could soon see counterfeit RoHS parts hit the open market. These would be parts that are billed as RoHS compliant, but in fact are not. RoHS bans the use of lead and five other substances from being used in electronics equipment sold in Europe beginning in July.
Industry analysts and nonfranchised independent distributors say RoHS is creating confusion in the marketplace. Manufacturers are switching over to RoHS-compliant components and have different ways of identifying parts as compliant.
'When there is an event that creates confusion, there is an opportunity for someone with unscrupulous tendencies to take advantage,' says John Irving, executive vice president of Fusion Trade, an independent distributor in Andover, Mass. He says Fusion and other reputable independent distributors are on alert for the potential problem and are taking steps to make sure the parts they buy and sell are RoHS compliant.
Thomas Valliere, senior vice president of consulting firm Design Chain Associates in San Francisco, says the opportunity for counterfeit RoHS parts will increase as the deadline approaches and as demand shifts to noncompliant parts to compliant ones.
'No one knows how quickly the shift in demand will occur. But as it does, it will create shortages of parts,' he says. 'That is a huge incentive for unscrupulous people to counterfeit, especially when it is hard to identify counterfeit parts just by looking at them.' He says traceability and accountability will be difficult with the new RoHS-compliant parts.
'Component suppliers are all over the map in terms of how they are managing the transition. Some are changing part numbers, some are not, some have date-code controls,' says Valliere.
Honest mistake
There will also be some honest mistakes resulting in a mixed stock of compliant and noncompliant parts. Some manufacturers are making both kinds of parts and some older noncompliant parts are still in inventories. Valliere says many—but not all—counterfeit RoHS parts will find their way into the supply via electronics brokers.
Independent distributors say they have not experienced any problems with counterfeit RoHS parts and are using similar screening procedures that they use for other parts to assure authenticity.
'We've been spending a lot of time building a RoHS database based on the stated specifications from manufacturers,' says Irving. Fusion checks the parts it buys and sells against the database to make sure the parts match the manufacturer's specs. The database includes information on date codes, lot codes and packaging.
Buyers may be at more risk of buying counterfeit RoHS passive components rather than bogus RoHS semiconductors. Counterfeiters tend to focus on lower value parts.
'Passives are more apt to be counterfeited because they are easier to copy,' says Valliere. 'It takes less technology to copy them than a semiconductor. It takes a huge amount of capital to create a counterfeit semiconductor,' he says.
Small package, big problem
Passives in small package sizes are especially susceptible to counterfeiting because 'there is no marking on the part itself. You lose the identity when the parts come off the reel,' says Valliere.
While RoHS may present a new opportunity for counterfeiters, the issue is a continuing one, especially during times of shortages.
'During shortages there is an obvious economic incentive for counterfeiters,' he says. 'During shortages a buyer may have a tantalum capacitor supplier under contract for 10¢ a part, but has to pay a broker $1 a part to keep lines going. That is an incentive by unscrupulous people to sneak in counterfeit parts,' says Valliere
He says buyers are more vulnerable during times of shortages because that's when they 'go outside their normal supply chain for parts. It is easy for counterfeit parts to enter your supply chain.'
To avoid counterfeit components, buyers should keep their supply chain as short and direct as possible. He says it is best to buy direct from a manufacturer, 'but that is not an option for many companies. The second best thing is to deal only with franchised distributors,' says Valliere.
Franchised distributors buy most of their parts directly from the manufacturer. Some parts are purchased from other distributors and in some cases from independent distributors.
Valliere says the risk is not zero when buying from franchised distributors, but it is very low. 'I've known situations where counterfeit parts were purchased and sold by franchised distributors.'
However, Robin Gray, executive vice president of the National Electronic Distributors Association, says most counterfeit parts aren't sold by authorized distributors, but come from 'sources in the gray market who don't have a clear idea where the components came from.'
Valliere agrees the highest risk for counterfeit parts is buying from brokers. 'I don't want to paint the independent distribution industry with a broad negative brush. There are many highly reputable nonfranchised distributors who screen product very closely to make sure products are not counterfeit,' he says. 'They also perform a valuable service in disposing of surplus inventories. But there are also some boiler room operations,' whose managers don't care if they sell counterfeit products.
'When I was at Compaq, we had an approved suppler listing for brokers. We had a handful of nonfranchised brokers we trusted to deal with in times of shortages and with disposing of products,' says Valliere, who worked in Compaq Computer's supply chain management organization for 14 years.
The need to screen
Leading independent distributors say they screen parts carefully before they sell them.
'We have a robust receiving process that picks up any discrepancy on any inbound shipment against a purchase order,' says Irving. 'For instance, if the parts were supposed to arrive in a tube and they arrived in a tray, they would be flagged. If a shipment is suspect we notify the customer and the majority of them won't take the parts,' he says.
Suspect parts go into a nonconforming shelf and are locked out of the system so they can't be shipped to a customer, says Irving. The parts are logged into Fusion's database. Information includes the part number, lot and date code, packaging and vendor. The information is shared with the Independent Distributors Electronics Association (IDEA) and is available to other IDEA members, he says.
Sometimes the parts will be destroyed and sometimes they will be sent back to the vendors, he says. In some cases, a customer may want the parts tested by Fusion. If they pass inspection, the customer will take the parts. If they prove to be bogus, they are destroyed.
Valliere adds that outsourcing can make a company more vulnerable to purchasing counterfeit parts. He says many OEMs have adopted a 'laissez faire attitude' toward sourcing their passive components and they have relaxed their approved vendor lists and allowed their subcontractors to source passives for them. 'They need to reassert control. The critical component is the one you don't have or the one that is not performing for you,' he says. 'That counterfeit resistor or capacitor can take down your whole line.'
He says counterfeiting can come in different forms. In some cases, parts are substandard parts, but are functional, but not to the specification of an authentic part. Sometimes parts are shells and are totally not operational.
The old switcheroo
In other cases, labels of parts are switched to misidentify manufacturers. 'I had a case with a resistor manufacturer where someone counterfeited a label of a manufacturer and put it on a label of reels of parts that were made by other companies,' says Valliere. He said the parts were good resistors, just not made by the company on the label.
The issue of counterfeit parts does not appear to be getting any worse, but it isn't getting any better either. Valliere says it remains a problem although most companies don't publicize when they get stuck with counterfeit parts. Many companies work quietly to correct the problem.
'Dell took a financial hit because of a counterfeit electrolyte that was used in aluminum electrolytic capacitors causing field failures,' he says.
He adds that when he worked at Compaq, counterfeit tantalum capacitors found their way into servers during the 2000 tantalum capacitor shortage.
Many say the counterfeiting problem became more acute when China started to emerge as a force in the electronics industry, but Valliere contends it is a global problem not limited to China.
'There is a lot of counterfeiting and intellectual property theft in China, but it would be unfair to say it's a 100% Chinese issue,' he says. 'China is the lighting rod. They are taking the heat, but China is the victim as well. A lot of counterfeit components that get into products originate in Eastern Europe and India and find their way to China,' says Valliere.
For buyers, traceability is key to avoiding bogus parts. 'If you are going to buy a lot of parts from nonfranchised distributors, you have to know where they came from,' Valliere says. 'They may have been quality rejects, or legitimate excess inventory parts. You should get lot code, date codes and label information and trace it back.'
He says it's a good idea to get certificates of compliance, because it puts the buyer in a better position if litigation is necessary.
Despite taking all appropriate measures there is no way to completely guarantee that parts are not bogus even if the parts are purchased directly from a component maker.
Valliere says there were several aluminum electrolytic capacitor companies who 'got burned because they unwittingly bought counterfeit chemicals.' They ended up building counterfeit parts. Fortunately, such instances are rare.
Valliere says the issue of counterfeit parts will not go away anytime soon and likens the problem to identity theft. 'You don't know you have a problem until it is too late,' he says. Most of it goes undetected. Hopefully, the counterfeit parts are discovered in the factory before you have a field issue or customer issue.'
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