counterfeit components: understanding the weak links in your supply chain
DESCRIPTION
The infiltration of counterfeit components is a serious and growing risk in the electronics industry. Long lifecycle, mission critical products, such as those found in military and aerospace applications, are particularly at risk because limited redesign options typically translate over time to an increased number of components at or near end-of-life. The costs of counterfeit components can be difficult to fully calculate because issues driven by counterfeiting can include production defects that lower yields increasing rework rates, infant mortality in the field and partial failures which can impact the unit’s functionality. In 2010, a study by the U.S. Department of Commerce Bureau of Industry and Security’s Office of Technology Evaluation (OTE) found that, “the procurement process has become a main entry point for counterfeits due to the use of unapproved suppliers, lack of part authentication procedures, lack of communication and cooperation between suppliers and customers, insufficient inventory control procedures, and limited counterfeit avoidance procurement practices.” How does this impact contract manufacturing relationships? Is simply flowing down requirements enough? The reality is that the regulations will likely remain in a state of fine-tuning for the next few years as unintended consequences arise and are corrected. This paper looks at some of the recommended best practices and potential issues associated with counterfeit components. For more whitepapers and articles on PCBA design and manufacturing, visit http://blog.optimumdesign.comTRANSCRIPT
Counterfeit Components
Are There Any Weak Links in Your Supply Chain?
By Raymond Falkenthal
www.optimumdesign.com
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Executive Summary .................................................................1 Overview........................................................................................2Impact on the Sourcing Process ..............................................5 What System Elements Are Listed in The Proposed Rule?......6 Risk Mitigation from A Contractor’s Perspective .....................8 Identifying Issues Early in the Product Development Cycle…..8 Identifying Counterfeit Risk as Part of NPI...............................9 Working with Trusted Suppliers............................................. 10 Screening Counterfeit Components.......................................11 Reporting Counterfeit Parts .................................................. 13 Production Test and Inspection............................................. 13 Conclusion ............................................................................ 14
The infiltration of counterfeit components is a serious and growing risk in the electronics industry. Long lifecycle, mission critical products, such as those found in military and aerospace applications, are particularly at risk because limited redesign options typically translate over time to an increased number of components at or near end-of-life. The costs of counterfeit componentscan be difficult to fully calculate because issues driven by counterfeiting can include production defects that lower yields increasing rework rates, infant mortality in the field and partial failures which can impact the unit’s functionality. There is also a growing administrative cost associated with identifying counterfeit components.
In 2010, a study by the U.S. Department of Commerce Bureau of Industry and Security’s Office of Technology Evaluation (OTE) found that, “the procurement process has become a main entry point for counterfeits due to the use of unapproved suppliers, lack of part authentication procedures, lack of communication and cooperation between suppliers and customers, insufficient inventory control procedures, and limited counterfeit avoidance procurement practices.”1
The OTE study led Senate hearings on the danger counterfeit components pose to the military supply chain and modifications in the Defense Federal Acquisition Regulation System (DFARS) as a result of changes tothe National Defense Authorization Act (NDAA) in Fiscal Year (FY) 2012 and 2013. The proposed modificationsto DFARS set to take effect in early 2014 are a response
to changes in the NDAA in 2012 which put the burden for preventing counterfeit components from entering the supply chain on military contractors. Under the proposed revision, the burden for counterfeit prevention will now be shared with the Department of Defense, provided the defense contractor has internal safeguards in place andprocures parts from original component manufacturers or authorized distributors.
How does this impact contract manufacturing relationships? Is simply flowing down requirements enough? The reality is that the regulations will likely remain in a state of fine-tuning for the next few years as unintended consequences arise and are corrected.Industry groups have raised questions about requirements which could raise internal costs for incoming inspection and testing without allowing for added compensation. There are also questions about whether or not long- lifecycle products can be effectively supported via a strategy that allows for procurement only from original component manufacturers (OCMs) or franchised/ authorized distributors. From a sourcing standpoint, there is one major question to consider: is your contractor committed enough to the defense segment of its business to make the investments in personnel and process development to provide adequate screening and reporting mechanisms under a changing set of regulations or will the changing requirements and increased costs drive them out of this segment of the business? This paper looks at some of the recommended best practices and potential issues.
Executive Summary
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The reality is that the regulations will likely remain in a state of fine-tuning for the next few years as unintended consequences arise and are corrected.
The January 2010 study by the U.S. Department of Commerce Bureau of Industry and Security’s Officeof Technology Evaluation (OTE) did an excellent job of identifying both trends in counterfeiting and the issues contributing to proliferation of counterfeits in the supply chain. The study looked at five supply chain segments:
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• Original component manufacturers (OCMs)• Distributors and brokers• Circuit board assemblers• Prime contractors and subcontractors• Department of Defense (DOD) agencies.
The survey’s objectives were to assess levels of counterfeiting, what types of devices were being counterfeited, what practices were used in procurement and management of electronic parts, what types of practices were in place for recordkeeping and recording identified instances of counterfeiting, what techniques were used to detect counterfeits and what best practices were employed to control the infiltration of counterfeits.
The assessment encompassed 387 companies and organizations who participated in the study during the 2005 to 2008 reporting period. During the four year reporting period, the OTE data indicated that 39percent of those participating in the survey encountered counterfeit components. The data further indicated a trend of increasing incidents ranging from 3,868 in 2005 to 9,356 in 2008. 2
The OTE study listed the following findings:
• All elements of the supply chain have been directly impacted by counterfeit electronics
• 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
• Most organizations do not know who to contact in theU.S. Government regarding counterfeit parts
• Stricter testing protocols and quality control practices for inventories are required
• Most DOD organizations do not have policies in place to prevent counterfeit parts from infiltrating their
supply chain3During the four year reporting period, the OTE data indicated that 39 percent of thoseparticipating in the survey encountered counterfeit components.
Overview
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Following Senate hearings in November 2011, on the dangers posed by counterfeit components within the military supply chain, the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2012 was passed and signed by President Obama. For the first time, this legislation included penalties related to counterfeit parts and their suppliers. It also placed the burden for more effectively preventing counterfeits on military contractors. This was considered excessive, since government agencies often dictated which components would be used or extended the life of programs beyond the lifetime of the product’s components. In January 2013, the2013 NDAA was signed into law. The NDAA for FY 2013 partially remedies the issues of the prior year’s legislation by providing mechanisms for allowing accountability to be shared. In May 2013, the Defense Federal Acquisition Regulation Supplement: Detection and Avoidance of Counterfeit Electronic Parts (DFARS Case 2012-D055) was introduced as a proposed rule. The comment period ended in July 2013 and the final rule is scheduled to go into effect in February 2014.
According to the documentation, “this revision to the DFARS is intended to partially implement section 818 (paragraphs (c) and (f)) of the NDAA for FY 2012. Paragraph (c) of section 818 requires the issuance ofDFARS regulations addressing contractor responsibilities for detecting and avoiding the use or inclusion of counterfeit electronic parts or suspect counterfeit electronic parts, the use of trusted suppliers, and
requirements for contractors to report counterfeit electronic parts and suspect counterfeit electronic parts. Paragraph (f) defines “covered contractor” and “electronic part.” In addition, this revision addresses the amendments to section 818 that were made by section 833, entitled “Contractor Responsibilities in Regulations Relating to Detection and Avoidance of Counterfeit Electronic Parts,” of the NDAA for FY 2013.”4
According to the proposed rule documentation, the intent of section 818 is to hold contractors responsible for detecting and avoiding the use or inclusion of counterfeit or suspect counterfeit electronic parts. The DFARS is being modified or enhanced in three specific areas: definitions, contractor responsibilities and the government’s role.
Under definitions, DOD is proposing to add a definition of “legally authorized source” to the definition of “counterfeit part.”
In the area of contractor responsibilities, a new policy on counterfeit parts is proposed to be added DFARSsubpart 246.8, Contractor Liability for Loss of or Damage to Property of the Government and will include a clause at DFARS 252.246-7007, Contractor Counterfeit Electronic Part Avoidance and Detection system. In addition,this rule will modify the existing requirements for the contractor’s purchasing system by adding compliance, with requirements for identifying, avoiding and reporting
Overview
counterfeit parts. The clause at DFARS 252.244-7001, Contractor Purchasing System Administration, has also been modified to add system criteria for a less comprehensive review of the contractor’s purchasingsystem that targets review of those elements relating to the detection and avoidance of counterfeit electronic parts and suspect counterfeit electronic parts, in some solicitations and contracts depending on the clauses they contain.
A new subsection, DFARS 231.205-71, prohibits contractors from claiming the cost of counterfeit or suspect counterfeit electronic parts or the cost of associated rework or corrective action as a reimbursable cost. However, section 833 of the NDAA for FY 2013 provides exceptions which enable cost reimbursementif a contractor has a DOD-approved operational system to detect and avoid counterfeit parts or the suspect counterfeit parts were provided as Government-furnished property, and the contractor provided timely notice tothe government.
The Government’s role in reviewing and monitoring the contractor’s process and procedures for detecting and avoiding counterfeit or suspect counter electronic parts covered as part of the contractor’s purchasing system review section in the proposed DFARS 244.303(b). 5
Overview
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The proposed rule links liability for the costs of counterfeits and reimbursement for the cost of rework to veryspecific actions on the part of the Defense contractor related to procurement practices, implementation of a DOD-approved operational system to detect and avoid counterfeit parts and timely reporting.
Procuring through OCMs or franchised or authorized distributors who either maintain a direct business relationship with the OCM or can guarantee traceability back to the OCM is the best way to avoid counterfeit parts. The ability to provide transparency within the supply chain has become a key point of value-add in most distributor business models.
However, given that contract manufacturers typically handle procurement, incoming parts inspection, assembly and test, it is also important their systems should be closely aligned with the contractor’s procedures toensure both a system of checks and balances, and timely reporting. This can be particularly important in the event that availability issues dictate that a part is only available from a non-franchised source.
Impact on theSourcing Process
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Section 252.246-70XX Contractor Counterfeit Electronic Part Avoidance and Detection System defines the system criteria as policies and procedures that address:
• The training of personnel• The inspection and testing of electronic
parts, including criteria for acceptance and rejection
• Processes to abolish counterfeit parts proliferation
• Mechanisms to enable traceability of parts to suppliers
• Use and qualification of trusted suppliers• The reporting and quarantining of counterfeit
electronic parts and suspect counterfeit electronic parts
• Methodologies to identify suspect counterfeit parts and to rapidly determine if a suspect counterfeit part is, in fact, counterfeit
• The design, operation, and maintenance of systems to detect and avoid counterfeit electronic parts and suspect counterfeit electronic parts
• The flow down of counterfeit avoidance and detection requirements to subcontractors6
What System ElementsAre Listed in The Proposed Rule?
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At the date this paper has been written, the DFARS proposed rule has not been made final. As a result, there are no examples of approved systems to highlight. That said,SAE International has developed standards for counterfeit electronics part risk mitigation which have been adopted by NASA and DOD. These offer a benchmark in designing compliant systems.
SAE AS5553 Counterfeit Electronic Parts; Avoidance, Detection, Mitigation standardizes methods for electronic counterfeit part mitigation and outlines processes for electronic design/parts management, supplier management, procurement, part verification, materials control and response strategies when suspect parts are found.
SAE ARP6178 Counterfeit Electronic Parts; Tool for Risk Assessment of Distributors provides a supplier evaluation tool.
SAE AS6081 Counterfeit Electronic Parts; Avoidance Protocol, Distributors describes a program which can be used to certify distributors/suppliers to the requirements of AS5553.
SAE AS6171 Test Methods Standard; Counterfeit Electronic Parts defines test methods for counterfeit electronic part detection. This can be used for accreditation of distributors with in-house test capabilities or independent third-party test facilities verifying parts in compliance to AS6081.
What System ElementsAre Listed in The Proposed Rule?
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While Optimum Design Associates will continue to modify its system to conform to industry best practices as this proposed rule is finalized and the legislation continues to evolve, currently it focuses on six key steps in mitigating obsolescence component risk:
• Identifying obsolescence issues as early in the product development cycle as possible• Identifying known counterfeiting risk in each product as part of the new product
introduction (NPI)/project launch process• Working primarily with franchised distributors and trusted suppliers• Carefully screening parts which must be purchased from non-franchised distributors• Immediately reporting suspected counterfeit parts• Ensuring an adequate test and inspection methodology is present in production
Identifying Issues Early in the Product Development Cycle
Risk Mitigation fromA Contractor’s Perspective
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Unfortunately, even with thorough planning in the design stage, obsolescence happens eventually in most long lifecycle products. Silicon Expert does provide a history of whether or not a component has a high incidence of being counterfeited. This can help identify what types of component modifications are most prevalent and support development of an inspection strategy for parts which must be procured from non-franchised sources. Other tools for this risk identification include:
• The Government Industry Data Exchange Program (GIDEP)
• FAA’s Suspect Unapproved Parts Program• ERAI and the Independent Distributors Electronics
• Association (IDEA)
A bill of materials (BOM) risk analysis that addresses both obsolescence and incidence of counterfeiting risk, as well as any availability issues, should be performed as part of the NPI process.
Identifying Counterfeit Risk as Part of NPI
Silicon Expert does provide a history of whether or not a component has a high incidence of being counterfeited.
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As mentioned earlier, OCMs, franchised distributors and trusted electronic parts suppliers represent the best option for mitigating counterfeit component risk. These companies’ reputations and business relationships are based on their ability to supply high quality parts. Comparatively, non-franchised distributors and electronic component suppliers in lower cost labor markets can vary widely in their commitment to identifying and purging counterfeit components from the supply chain.
Optimum Design Associates works with trusted suppliers, when possible. As with most contract manufacturers, customer approved vendor lists (AVLs) dictate which electronic component suppliers are used. When component availability issues dictatethe use of non-franchised sources, the customer is advised. Any data Optimum Design Associates obtains on counterfeit component risk related to the actual component or proposed source is shared with the customer. This partnering process provides customers with the data they need to make informed decisions on best options for mitigating obsolescence issues and counterfeiting risk.
Working withTrusted Suppliers
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Component counterfeiting can take many forms. Date codes on parts nearing end of shelf life can be altered. Part labeling on commodity parts can be changed to reflect a high performance part. Actual counterfeit parts with substandard or non-working elements are manufactured in volume. In short, the job of detecting counterfeits has become increasingly difficult, as shown in Figure 1 and 2 below.
Compared side-to-side, the difference in the finish and dimensions of the leads are obvious, but without the comparison to the known good part, the excess solder may not be noticed.
Fortunately, legitimate suppliers have created strong infrastructure to protect their brands. Most component manufacturers have a counterfeit division. When suspect parts are received, component manufacturers are willing to provide information and/or samples for a cross comparison of body styles, markings and logos. They will also review
photos for visual evidence of modifications, when provided by the company making the inquiry.
Figure 1. Counterfeit Component
Figure 2. Known good component
ScreeningCounterfeit Components
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Receiving inspection departments should be trained to look for potential issues as material is received.
Key visual indicators include:
• Broken seals or damaged outer packaging• Packaging inconsistent with or insufficient for that brand
of part• Variance with part number, manufacturer or quantity listed
in documentation• Variance in country of origin or date codes listed
in documentation• One or more components reversed in tubes or
trays• Logos that vary from that typically used by the
manufacturer• Smudged markings or evidence of re-marking• Damaged, malformed or bent leads• Cracks or chips in body of component• Inconsistencies in component body formation• Evidence of burn, blister marks, flux or other
chemical residue• Oxidation, corrosion or solder on leads• Smashed or discolored BGA balls• Variance in package dimensions from known
good parts• If inconsistencies are found, destructive testing of samples
should be performed either at the component manufacturer or via a third-party testing firm. These tests may include a mineral spirit and alcohol wipe for evidence of re-marking, acetone wipe for evidence of blacktopping, scrape test, or de-capping to view the die.
ScreeningCounterfeit Components
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The reporting databases listed earlier such as GIDEP, FAA’s Suspect Unapproved Parts Program, ERAI and IDEA only remain strong if users report all counterfeiting incidents. One of the key findings of the OTE 2010 study mentioned earlier was that many companies either chose not to report counterfeits or were unaware of reporting databases.The proposed DFARS modifications will likely drive stronger flow down reporting requirements.
Production Test and Inspection
Production test and inspection represents the final level of due diligence in mitigating counterfeit risk. A robust test and inspection methodology which includes automated optical inspection and/or x-ray, electrical and functional testing can help identify components that vary from either dimensional or performance specifications. In truly mission critical
applications, environmental stress screening may also be necessary.
ReportingCounterfeit Parts
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The counterfeit component ‘industry’ will continue to grow and poses a grave risk to national security. The U.S. Government has taken a regulatory approach to driving greater supply chain accountability that is likely to continue to evolve as costs and benefits are weighed. These requirements will flow down through the supply chain and likely drive some companies to choose to focus business in less regulated industries. Contract manufacturer selection should evaluate a contractor’s understanding of regulatory trends and its management team’s willingness to invest in compliant systems and processes.
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Citations
1. U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation, Defense Industrial Base Assessment: Counterfeit Electronics, January 2010, 207.
2. U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation, Defense Industrial Base Assessment: Counterfeit Electronics, January 2010, i-ii.
3. U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation, Defense Industrial Base Assessment: Counterfeit Electronics, January 2010, ii.
4. Defense Acquisition Regulations System, “Defense Regulation Supplement: Detection and Avoidance of Counterfeit Electronic Parts (DFARS Case 102-D055),” Federal Register, sec. II, 5 May 2013 [journal online], accessed 27 February 2014; available at https://www.federalregister.gov/ articles/2013/05/16/2013-11400/defense-federal-acquisition-regulation-supplement-detection- and-avoidance-of-counterfeit-electronic.
5. Defense Acquisition Regulations System, “Defense Regulation Supplement: Detection and Avoidance of Counterfeit Electronic Parts (DFARS Case 102-D055),” Federal Register, sec. II, 5 May 2013 [journal online], accessed 27 February 2014; available at https://www.federalregister.gov/ articles/2013/05/16/2013-11400/defense-federal-acquisition-regulation-supplement-detection- and-avoidance-of-counterfeit-electronic
6. Defense Acquisition Regulations System, “Defense Regulation Supplement: Detection and Avoidance of Counterfeit Electronic Parts (DFARS Case 102-D055),” Federal Register, sec. 252.246-70XX, 5 May 2013 [journal online], accessed 27 February 2014; available at https://www. federalregister.gov/articles/2013/05/16/2013-11400/defense-federal-acquisition-regulation- supplement-detection-and-avoidance-of-counterfeit-electronic.
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Raymond Falkenthal is Optimum Design Associate’s Quality
Manager. He can be reached at [email protected]
About Optimum Design Associates
Optimum Design Associates (ODA) is a leading provider of award winning printed circuit board (PCB) layout, engineering, and in-house turnkey electronics manufacturing services (EMS). Established in 1991, ODA continues to meet the challenge of creating complex, high-density printed PCB layouts for some of the world’s leading high-tech original equipment manufacturers (OEMs). ODA has offices in California and Australia. Its California facility is ITAR-registered and certified to ISO 9001:2008.
