With 2,700 member companies in the electronic interconnect industry, including original equipment manufacturers (OEMs), electronic manufacturing services (EMS) providers and component suppliers, IPC is well aware of the problems caused by the proliferation of counterfeit parts. Dave Torp, IPC vice president of standards and technology, discusses the impact of counterfeit components on the industry.
Q: When did you start to see an increase in counterfeit parts activity?
We started to see a noticeable increase in incidents in the military sector with the screening of components. Different components are screened at different levels—which indicates characteristics such as quality and reliability for uses in industrial, commercial and military applications. At the military level, for instance, there are markings applied to nuclear-hardened components that mean that they can withstand a certain amount of nuclear radiation and still do their jobs. Early on, we started to notice counterfeits where markings were added to inferior-grade components to suggest that the component had been through additional testing, whereas that was not the case. It was very profitable for people to apply those markings and sell the parts as screened components when they were only commercial or industrial grade.
But as the supply chain has moved from other parts of the world into the Asia Pacific theater over the last 10 years, counterfeiting has become more prevalent, and it’s not just complex components that are being upgraded through their markings. Now we’re seeing counterfeiting of lower-level components, such as chip resistors and chip capacitors. Often counterfeits can pass a basic level of inspection and perform well enough to get through initial product testing, and it’s not until there’s a failure and the failure analysis is done that companies are realizing that they’re using counterfeits. The frequency of occurrence with counterfeit components is up at least eight or nine times from where it was five years ago.
Q: Why are there more counterfeits in the supply chain?
I think it’s due to profitability. Most component OEMs will sell them through authorized distributors, but there’s a secondary market for components that clouds the supply chain. If an EMS loses a contract with a major OEM, it’ll sell that inventory to a broker. A broker buys it for a certain price, and then another EMS that is looking for certain components will buy them up. When that happens it starts to get hard to trace the components. Brokers tend to offer components at a steep discount, which is attractive to would-be customers. Many are operating on very thin margins, so they’re always looking to procure components for the lowest possible price. That’s a predominant area where counterfeit components can enter the supply chain. Brokers aren’t necessarily required to demonstrate the origins or history of their parts, while many are looking to buy them at the lowest possible price and resell them at the highest possible price. Some brokers have established traceability for components, however many are operating under open market kinetics, making the buyer responsible for the final product that is produced.
Q: Why are people drawn to the secondary market?
Besides price, components that are on allocation or have long lead times are typically the ones that have the greatest demand in the secondhand market. Manufacturers are under pressure to deliver. The longer that you have inventory sitting on the shelf not going anywhere, the more money you lose. Let’s say you don’t have enough components to do your complete build. You’re holding onto inventory and that inventory is costing you money. It links directly to the bottom line, and the longer you have to put off a customer on a delivery, the more likely it is that the customer is going to cancel that order on you. So manufacturers are doing everything in their power to get those components in house, get those assemblies built and get them to their end customer as quickly as possible.
Q: How do counterfeits relate to IPC and its recognized industry standards?
There are elements embedded in the standards such as the requirement that component marking shall be permanent. One way to detect suspected counterfeits is that they have markings that wash off with certain solvents such as isopropyl alcohol. Also embedded in some of our standards are quality requirements that the counterfeiters don’t necessarily meet. But the counterfeiters are getting better. It’s requiring greater levels of due diligence by customers to figure out what to do during their receiving inspections to make sure the counterfeits aren’t received and processed the way a normal component would be.
Q: What else is IPC doing to help its members?
We understand that a lot of our members are struggling with this issue. It’s one thing to identify a problem; it’s another thing to determine what to do to solve it. Until recently, the advice was to know your supplier. But we’re trying to dig a little deeper to identify how you determine if a component is or is not genuine, and then what you do after you’ve determined that it is a counterfeit component. IPC has been actively engaging members and the industry with programs such as seminars and forums on key concerns like the legal issues associated with counterfeits. We’re also building direct programs that help our members understand how to prevent and detect suspected counterfeits, as well as answering the question of what to do if you encounter one.
Q: What would you like to tell companies dealing with this issue?
What’d I’d like to tell them is that we’re here as a resource, we’re here to help them, we have subject matter expertise in all facets of the electronics industry. So if you need help, we can provide guidance. angehangas