Lead times on components of all types, from passives to semiconductors, are stretching out with no end in sight. As OEMs scramble to get the parts they need, they are increasingly likely to turn to less reliable sources, providing an opportunity for counterfeiters.
“Shortages go in cycles,” said Robin Gray, chief counsel of the Electronic Component Industry Association (ECIA). “For years, it was tantalum capacitors but not its many types of passives, including multilayer ceramic capacitors (MLCCs), as well as certain semiconductors. A key takeaway is that when times are good, lead times are always pushed out. When that happens, it’s more of an opportunity for counterfeiters to step in and [counterfeit a] product.”
The problem of fake parts is massive. “Current estimates for the annual loss to the electronics industry due to counterfeit components is north of $5 billion,” said Bill Cardoso, CEO at Creative Electron, in an article on EE Times’s sister publication EBN. “With rewards that high, it’s no surprise that criminal enterprises are getting more and more sophisticated in their efforts to cash in on counterfeit parts.”
In the past, when components were in short supply, component makers scrambled to add capacity. “A lot of manufacturers added capacity,” said Gray. “The forecast on demand didn’t pan out, so they overbuilt and flooded the market, and everybody got burned by excess inventory.”
Once burned is twice shy for many component makers and distributors. “This time around, you see more reluctance on the part of manufacturers to expand capacity,” explained Gray. “Furthermore, you’ll see average selling prices (ASPs) go up.”
Component makers should be aware of the dangers of short-stock situations. “One mistake involves not properly identifying where or how products are leaking,” said Kasia Maciola, communications committee chair for the Alliance for Gray Market and Counterfeit Abatement (AGMA). “Don’t simply focus your business on selling, selling, selling by dumping everything into the market as cheaply as possible — instead, try to establish healthy sales and high margins.”
Engineers, then, are faced with a dilemma: Should they stick with known parts and sources and put up with delays, or look for a different route to get the product they need? Gray advises that OEMs stick with franchised sources.
“The new standard, particularly for aerospace, is that they have to buy authorized sources first. We tell people that you have to plan for obsolescence, which is another cause of shortages. Work with key manufacturers to understand their technology roadmap as much as possible. If a product is going away, make a one-time buy or partner with a distributor or authorized aftermarket manufacturer. Requalification is expensive and causes time delays, and even a new part upgrade requires that.”
Buyers should encourage their organization to put a compliance program in place in consultation with corporate attorneys who understand the issues and challenges involved, said Maciola. “It’s also crucial to educate distributors — and to hold them accountable if they should engage in any gray market activity. In addition, there is a role for regulators — to create laws that protect both consumers and brand owners. While there are some laws in place, there is work to be done in this area.”
If using a non-franchised source, testing is also important. It is not, however, foolproof. In one test, which occurred several years ago, a major component manufacturer picked five testing houses and sent out a mix of counterfeit and genuine parts, explained Gray. These testers missed one out of five counterfeits.
However, much work is being done to improve these technologies. “As an industry, we must step up our efforts and meet this problem head-on,” said Cardoso. “We need to leverage more sophisticated solutions. X-ray is one of several tools that can be deployed to combat the counterfeiters.”
Click on the image below to start a slideshow on EBN, authored by Cardoso, of 10 ways that X-ray technology can help OEMs identify counterfeit parts in their supply.
10 X-Ray Techniques That Identify Counterfeit Parts