SAN FRANCISCO – High-tech products make up four of the top 10 border seizures, while one of every 10 IT products is counterfeit.

So says Design Chain Associates senior vice president Tom Valliere, in a Webinar today on counterfeiting in the electronics supply chain. Direct losses, he estimates, are currently more than $100 billion because of recalls, increased warranties and rework, to name a few. A $2 fake component costs $20 if detected at the manufacturing board level, and $200 or more at the field level, he said.
 
In the Webinar, Valliere discussed counterfeiting as a “deliberate misrepresentation of manufacturer, quality or performance of an electronic component, component item or product,” and stressed the insidiousness and prevalence of the problem, likening it to identity theft.
 
He also emphasized that the vast majority of component counterfeiting stems from purchases through independent distributors, and said all industries are affected, including avionics, computers, automotive and telecommunications.
 
He said, on Feb. 22, the US and EU seized 360,000 counterfeit parts in its first joint effort; these parts had 40 different trademarks.
 
Indirect losses, more difficult to calculate, include product safety, security, image and customer confidence.
 
Increasingly, Valliere noted, counterfeiters are tied to organized crime, making it a sophisticated operation. Origins include reverse-engineered copies, which occurs mostly with lower technology; reclaimed scrap from legitimate manufacturers, or “dumpster diving,” which happens “a lot”; re-marked or re-branded legitimate parts – a “big area,” and “bonus lots”: production overruns or extra batches of legitimate parts that are probably okay to use, but represent theft of individual property rights.
 
“Why China?” Valliere asked. He called China the “perfect storm” for counterfeiting because the country surpasses the US in foreign investment; IP ownership is relatively new; China graduates many engineering students; their enforcement laws are ineffective, and electronics manufacturing and design are moving quickly there.
 
Contributing factors, according to Valliere, are a fragmented supply chain; aggregation of EMS providers; the rise of Internet trading; longer product lifecycles; economic pressures (“Who can resist a bargain?” – although, if it’s too cheap to be true, it probably is, he said); evolving environmental restrictions, and the lack of OEM resources (quality and source inspectors of the 1980s are not available anymore).
 
He also noted environmental drivers, like RoHS compliance, create a supply chain imbalance and, consequently, “opportunities for crooks.”
 
What can be done to help curb counterfeiting? Valliere believes preventative actions take the form of design center business processes; supply chain “hardening”: buying directly from the manufacturer or an authorized distributor; manufacturing partner selection and business processes; lifecycle logistics planning, and antitheft techniques, such has labels, RFID, intelligent/embedded numbers, and tracers/nanoparticles/microtaggants.
 
Unfortunately, antitheft techniques can be cost prohibitive, adding about 10% to costs, he said; however, they are worth looking into.
 

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