Most discussions of counterfeit components usually include a warning to avoid buying from nonfranchised sources, but even members of the franchised distribution channel recognize the improbability of this proposal. “I think it is naïve to suggest that the solution is to just stop buying from brokers,” says Bryan Brady, vice president and director of the defense aerospace business unit for Avnet Electronics Marketing Americas. “The bottom line is that for hard-to-find, obsolete or long-lead-time product, OEMs, particularly in the military-aerospace sector, will go to the broker market when they need a part.”
Franchised distributors can do their part to mitigate the counterfeiting issue by striving to keep their supply chains “pure,” says Brady. “If a part is at the end of life, or experiencing a particularly long lead time, it is not uncommon for an OEM to ask its distribution partners to procure from wherever they can.” In these instances, Avnet, for example, will find the product for the customer, then point the customer to the source with the caution that the “pedigree” of the product cannot be guaranteed, so a stringent engineering review is recommended.
This arrangement enables the distributor to minimize the chances of counterfeit or substandard parts getting into the franchised channel, so that when a company buys directly from Avnet, it doesn't need to apply an expensive review process to ensure the pedigree of the parts, says Brady. “This way the customers can be clear as to where they need to focus their attention in terms of verifying pedigree.” To ensure the continued integrity of its processes, Steve Schultz, director of strategic planning and communications for Avnet Logistics, adds that the Phoenix-based distributor is audited by major suppliers on a regular basis. “They look at how we control our processes and deal with returns, etc.,” he notes.
Michael Kirschner, president of Design Chain Associates LLC, San Francisco, urges members of the supply chain to cooperate to establish a better system for tracking components, regardless of the source. “For example, if an OEM has excess stock and sells it to a nonfranchised distributor or broker, the broker needs to be able to verify the original source of the product — did it come from the manufacturer, from a franchise distributor or from another broker?” he says. “If the supply chain can establish a common system that would allow the ‘pedigree’ of a part to follow it, that would go a long way toward resolving this issue.”
Kirschner also recommends that if companies have to procure parts from unfamiliar sources, they should try to establish an escrow account for payment. “Desperation can sometimes mitigate common sense,” he says. “If you are in the position where you absolutely need parts, the safest course of action is to put the payment in escrow, get samples for testing and then release payment only if the parts are found to be acceptable.”
Maintaining Quality Standards
Warwick, R.I., independent distributor SemiXChange, Inc., Founder and President Daniel DiMase notes that "not all independents are created equal," and urges buyers not to judge the entire industry by the actions of one or two players whose quality or reliability standards may fall short. DiMase notes that SemiXchange adheres to a rigorous internal quality standard, which is based on a stringent 94-point visual inspection program on all incoming parts. The process includes documenting date and lot codes and photographing all product to maximize traceability if a product is found to be counterfeit or substandard, he reports. DiMase says that SemiXchange works diligently to qualify its suppliers. It is ISO-certified and maintains close, long-term relationships with many of its customers, which include OEMs, contract manufacturers and even some franchised distributors. He is also a founding member of the Independent Distributors of Electronics Association (IDEA), a nonprofit organization that represents quality-oriented independent distributors.
SemiXchange has also adopted the “IDEA-STD-1010-A” standard for visual component inspections from IDEA. STD-1010-A presents acceptance requirements for components to determine with a high degree of confidence that parts under examination are in new/unused condition and that they have been stored, handled, packaged and identified in a manner consistent with applicable industry standards, according to IDEA. By supplying pictorial information based on technical facts and visual quality characteristics, the standard provides more easily recognizable inspection traits than text alone can convey to the reader, DiMase explains. "Tens of thousands of industry transactions occur daily. There is a lot of opportunity here, so IDEA is embarking on a necessary campaign to tackle the problem of trafficking substandard and counterfeit products, as well as fraudulent business practices that may be taking place," says DiMase, who has served as chairman of IDEA’s Substandard and Counterfeit Parts Committee.
Knowledge Is Power
Despite the efforts of individual companies like Avnet, SemiXchange and Rochester Electronics, the counterfeit/substandard problem will continue to grow, says Design Chain Associates’ Kirschner, unless all members of the supply chain — manufacturers, distributors and OEMs — band together to battle the problem. This effort is complicated, however, by companies that fear their reputation might be blemished or their shareholder value compromised. As a result, most are reluctant to admit to the discovery of counterfeits, which only serves to perpetuate the problem, Kirschner says. “Without the open communication, product is being recirculated throughout the supply chain, and those without proper inspection standards can end up using these parts in end products.”
Avnet’s Schultz agrees that open communications between supply partners is a critical step in resolving the issue. “Organizations need to have good, solid working relationships with their suppliers, so that they can understand when there are issues with particular parts,” he argues. “The earlier we are made aware of a problem, the more proactive we can all be in addressing it.”
For more information on counterfeiting in the supply chain, read Part One of this two-part series.
