Distributors need a plan for counterfeit parts
By James Carbone -- Purchasing, 12/13/2007 7:00:00 AM
Counterfeit parts are a plague on the electronics industry and more must be done to stop their proliferation in the supply chain, according to the president of Sparton Corp., an electronics manufacturing services provider.
Addressing the recent annual meeting of the National Electronic Distributors Association (NEDA) in Chicago, David Hockenbrocht said the problem of counterfeit parts is getting worse and threatens "to take down portions of this industry."
He says typically counterfeit parts are made by third-party manufacturers that use substandard materials and processes. Some are old parts that have been relabeled with more recent date codes, while others are components that have been scrapped by OEMs, but then passed off as acceptable.
Hockenbrocht says counterfeit parts have their origin in China "among some really nefarious people. The question is what as an industry do we do about it?"
He says electronics companies need to have processes in place to identify counterfeit parts. "If you and your customers don't have a process, it will come around the corner and you'll never see and it will take down you or your customer. You're at an enormous risk," he says.
He says Sparton, which builds boards and systems for defense and medical companies among others, has developed a process to screen and test parts. The process has caught a number of bogus parts.
The company electrically tests parts. Electrical tests will determine if the parts meet functional requirements, but cannot verify the authenticity of the part. In some cases Sparton, based in Jackson, Mich., will have an outside laboratory "de-lid" a part and check with the component manufacturer to verify the dye identification inside.
"This is a destructive test and performed on a random sample basis where suspicion is already present," he says.
Besides testing, buyers must develop "trust and verify" relationships with suppliers, he says, and conduct periodic audits of distributors' and brokers' practices and processes to determine competency.
Buyers should also evaluate distributors' and brokers' supply chain regularly to determine if they are purchasing in high-risk markets.
Hockenbrocht says Sparton has caught a number of counterfeit parts and 85% of the time they were sourced from an authorized distributor or component manufacturer. "Typically we don't buy from unauthorized brokers," he says.
Many in the audience were shocked to hear that authorized distributors were unwittingly selling bogus parts and questioned the 85% figure.
Hockenbrocht says authorized distributors unknowingly sell counterfeit because some customers return parts to a distributor which they did not buy from the distributor.
Some of the returned parts are counterfeits. "You can't tell they are counterfeits just by looking at them. They come back and get into your inventory and you resell them. It is not your fault," he says.
Hockenbrocht says it would be too costly to electrically test every part that is returned.
"We all know parts move around this industry all the time. Counterfeiters know that and play on that weakness," he says.
One conference attendee, Craig Conrad, senior vice president, chief marketing and strategic planning officer for distributor TTI, says that if authorized distributors are reselling counterfeit parts it is a problem for the industry that needs to be addressed.
"If there is a likelihood that you're going to get counterfeit parts from an authorized vendor, I would offer that this group has a problem that we need to fix, but I question that," he says.
"When you buy from an unauthorized source, you're taking a risk. But the bottom line is, the real answer is we have to clean up our houses if there is any counterfeit product that comes in," says Conrad.
Attendees also heard an economic outlook for 2008 from William Strauss, senior economist and economic advisor for the Federal Reserve Bank of Chicago. He says manufacturing in the U.S. is "doing OK. The perception is in the U.S. we don't make anything any longer," says Strauss. "In fact, manufacturing output in the U.S. has never been higher. The value of what is produced in manufacturing is over $2.2 trillion. That's larger than the entire Chinese economy," he says.
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