Counterfeit components on the downtrend?

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Counterfeit goods cost the American economy more than $460 billion annually. More than just fake Rolexes and Louis Vuitton bags, business owners and regulators must also grapple with the prevalence of counterfeit components circulating among international distribution channels.

Counterfeit components are an ongoing concern for defense contractors, tech companies, and more. Just one counterfeit incident can jeopardize a company’s future.

Buying “American” doesn’t necessarily protect you from counterfeits

Purchasing exclusively from domestic distributors, or distributors ‘in the West’, does not immunize you from receiving counterfeit parts.  In 2010, a Florida pair was charged with distributing counterfeit computer chips to the U.S. Navy and military, along with another pair in California trafficking the same product.

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Contrary to popular belief, the OCM, or Original Component Manufacturer, is not always the initial source in a component fraud.

Mike England, Vice President of Quality and Logistics for Sourceability North America, elaborates further by stating that oftentimes the OCM is not even aware that any counterfeiting has occurred until a distributor contacts them for part authentication. “Counterfeiters are usually interested in moving sub-standard product that is primarily either blacktopped (changing the date code of a part to reflect different MSL requirements) or remarked (changing temperature tolerance to reflect industrial grade, etc.).”

Once a distributor passes along counterfeit parts to its customers, these counterfeits can then flow into other companies’ supply chains, and a fraudulent butterfly effect is established.

As an industry best practice for distributors, tools geared toward vetting part inflows and outflows can help detect fraud. England says that Sourceability uses in-house Supplier Qualification Processes, which work to this end.

For data integrity, systems security, and defense apparatuses, confidence in a product’s origins is essential. Counterfeit part detection thus remains at the forefront of supply chain managers’ concerns today.

Before a 2011 U.S. government initiative to stem the flow of counterfeit parts, then coupled by industry awareness initiatives, the issue of misrepresented parts was more common among government contractors.

In Feb. 2016, the U.S. Government Accountability Office – the government’s ethics watchdog – published a 49-page report suggesting that the number of counterfeit parts is on the decline.

The number of suspected counterfeit part reports among government contractors has dramatically declined since 2011, the GAO said at the time, “partly the result of better practices to prevent the purchase of counterfeit parts.”

Are counterfeit parts even a concern, then? If the issue is going away, why worry?

The issue isn’t going away

The same GAO report referenced, which seems to suggest less counterfeit parts today, was nevertheless titled “COUNTERFEIT PARTS: DOD Needs to Improve Reporting and Oversight to Reduce Supply Chain Risk.” Much of its 49 pages are spent critiquing what may be a complacency to report today.

The U.S. government views counterfeit parts as a national defense issue. Consider this testimony from the Dept. of Defense: “Almost anything is at risk of being counterfeited, including microelectronics used in fighter jets and missile guidance systems, fasteners used in aircraft, and materials used in engine mounts.” For some, counterfeit parts are a life-and-death issue.

With China’s joining the WTO in 2001, private Chinese companies were allowed for the first time to export internationally. China, and the world at-large, were unprepared for the dramatic increase in counterfeit goods that followed. Global market actors have matured since then, but the risk of counterfeit parts looms large.

Top independent distributors

Distributors have since made outsize improvements in the detection of counterfeit parts.  Top-rated independent distributors, in adapting to the new global framework, have become a particularly cost-effective and reliable source of good parts.

Independent distributors were originally used in the early days of tech commercialization for filling in supply holes, especially for obscure electronics. The industry know-how of these industrial distributors would go on to serve as the foundation to the dynamic distribution services we know today.

The independent distributor industry is highly competitive, but six companies round out above the $100 million mark in global sales per year, as of 2010: Advanced MP Technology; N.F. Smith & Associates, LP; America II Electronics, Inc.; Fusion Trade Inc.; Classic Components Corp., and; Rand Technology.

Many of the aforementioned distributors specialize in defense contracting. In the realm of components sourcing, Sourceability offers a global network of supply chain and quality assurance professionals.

To avoid costly counterfeits, industry know-how is essential. Using reliable independent contractors can be a major first step in protecting against part counterfeits.

The Small Business Administration published a helpful guide online to outline counterfeit detection best practices.