the wrong way and right way of retaining a testing laboratory

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Keith GregoryGreenberg & Bass

kgregory@greenbass.com

Kristal SniderERAI Inc.

ksnider@erai.com

December 1, 2010

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Counterfeit Overview

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Counterfeit Overview

2001 – China Admitted to WTO

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Counterfeit Overview

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Counterfeit Overview

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Counterfeit Overview-Portals of Entry

• Rapid access to millions of parts

• Minimal membership requirements

• Quick & easy access to a large audience of buyers

• Burn customer and re-register using a new name

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Counterfeit Overview-Impact

Impact of using counterfeit parts or materials• Potential loss of life• Espionage• Monetary loss• Liability• Lack of availability of products for customer use• Loss of customer/public trust• Brand damage

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Accountability is not an option

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What We Know

• There is a lack of dialogue between all organizations in the U.S. supply chain.

• Companies and organizations assume that others in the supply chain are testing parts.

• Lack of traceability in the supply chain is commonplace.

• There is an insufficient chain of accountability within organizations.

• Recordkeeping on counterfeit incidents by organizations is very limited.

• Stricter testing protocols and quality control practices for inventories are required.

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Communication is Key

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Communication is Key

Parts Availability

Purchasing Process

Supply Chain Traceability

Procurement Contract Requirements

Product Assurance

Material Control

Reporting

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Product Assurance

It should be established prior to procurement which party is responsible for product authenticity verification – Burn-In!

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What NOT to Do

The Wrong Way: Distributors and their customers should ensure that none of the following five methods are followed by them when choosing a testing facility:

The Distributor alone selects the testing facility;

The tests that are conducted are not sufficient to ensure whether the parts are valid;

The testing facility limits its liability;

The testing facility that is used is the only one that is used by the Distributor or its customer; and

The Distributor agrees to the testing facility’s terms and conditions without first reviewing them and then not trying to negotiate changes to them.

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What TO DoThe Right Way: In order to ensure that Distributors and their customers are protected from a testing facility’s negligence and to further reduce the possibility of consummating a transaction involving counterfeit or mismarked components, Distributors and their customers should adhere to the following five rules:

Distributor and Customer work together to select the testing facility and the type of testing;

The Customer is advised upfront that the costs of the components are at least somewhat dependent upon the cost of the testing;

Multiple testing laboratories are considered;

Terms of agreement with testing laboratory are negotiated and no limitations of liability are agreed upon; and

Discover the type of insurance maintained by testing laboratory and its level of certification.

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REVIEWProcurement contract language should include requirements which will help ensure that conforming, authentic material be provided!

• Traceability• Inspection and Test• Liability• Insurance requirements• Warranty• Specific product

specifications• Penalties• Confiscation/destruction

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Thank You!

QUESTIONS?

Keith GregoryGreenberg & Basskgregory@greenbass.com

Kristal SniderERAI Inc.ksnider@erai.com