ihs webcast - counterfeiting, obsolescence, and risk

Welcome to Today’s Webcast

Counterfeiting, Obsolescence, and Risk

Solutions to mitigate cost, risk, theft and security disruptions in your supply chain

April 7, 2010

Copyright © 2011 IHS Inc. All Rights Reserved. 2

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An Era of Counterfeiting

4

“We estimate that, based on

2008 data, the total global

economic value of counterfeit

and pirated products is as

much as $650 billion every

year…

…estimates imply that the

global value of counterfeit and

pirated products could be up to

$1.77 trillion by 2015.”

Frontier Economics, February 2011

What do counterfeits do

Increase warranty/maint. costs 65%

Reduce expected product life 64%

Inhibit sales / customer satisfaction 62%

Add to individual unit costs 51%

Increase development time/costs 38%

What do counterfeits cause?

Product quality/reliability failures 84%

Customer returns/recalls 67%

Production line stoppages 57%

Product launch delays 36%

What do counterfeits impact?

Damage brand / reputation 71%

Product safety / legal liability 55%

Expose contractual liability 42%

Compromise security 37%

Undermine compliance claims 44%

Supply Chain Risk is High

Source: “Benchmarking Counterfeit & Inferior Grade Components”,

Supply & Demand Chain Executive, 2009

“Jeopardize our missions

and soldiers safety.”

SC BENCHMARK STUDY

Industry Fights Back SAE International forms G-19 Committee that leads to AS5553

Purpose

This SAE Aerospace Standard standardizes practices to: maximize availability of

authentic parts,

procure parts from reliable sources,

assure authenticity and conformance of procured parts,

control parts identified as counterfeit,

and report counterfeit parts to other potential users and Government investigative authorities.

GIDEP and ERAI Counterfeit Reports90% of all incidents reported by ERAI

Reported Counterfeit Incidents

SAE AS5553 Names Two

Primary Sources: ERAI and

GIDEP

“The presence of counterfeit

electronic parts in the Defense

Department’s supply chain is a

growing problem that government

and industry share a common

interest in solving.”Carl Levin, D-Michigan, and

Sen. John McCain, R-Arizona

March 2011

Congress Investigation Launched

Effects of the Japan CrisisPanic Buying, Shortages, and Pricing Issues?

Source: IHS iSuppli 2011

Brokers Gone Wild… Already?

Already, calls into brokers are finding big increases in

pricing, with pricing increases of more than 100% seen

by several of the sourcing pros I spoke to this past week.

One of the challenges in using brokers in these emergency

situations is that the initial calls themselves can serve to

intensify pricing pressure.

As such, VPs and Directors of Direct would be very wise

to control, aggregate, and actively manage all calls to

brokers in an attempt to avoid what could be called “self-

competition.”Brokers Wild – Pressure on Japanese Supply Chain Intensifies

Posted by Andrew Bartolini on April 1st, 2011

CPO Rising

Today’s Speakers

11

Mark Snider

President

ERAI, Inc

Daniel Bronstein

Solution Engineer, Electronic

Products & Solutions Group

IHS

INFORMATION

+

INSIGHT

=

KNOWLEDGE

Predictive

Obsolescence

Danny Bronstein

Solution Engineer - Direct Parts

Electronic Products & Solutions

Phone: +1 909 481 4150

Email: [email protected]

mailto:[email protected]

http://www.ihs.com/


What is Predictive Obsolescence?

Predictive Obsolescence refers to the steps taken to

mitigate the effects of obsolescence by applying predictive

forecasters to component selection decisions.






It is not….• Using a Crystal Ball






It is not….• Using a Crystal Ball• Tarot Card Readings






It is not….• Using a Crystal Ball• Tarot Card Readings• Reading Tea Leaves



Applying objectively derived information

to assist with making informed decisions.

It is.…


Predictive Forecasters

• Life-cycle Code (LCC) and Years to End of Life (YTEOL)



• Life-cycle Code (LCC) and Years to End of Life (YTEOL)

• Life-cycle Code

• Similar to mortality tables used by the insurance

industry which predict human life expectancy.

• The LCC provides a numeric representation of the

estimated position of a component within its defined

Life-cycle.


Life-cycle Code

An electronic part typically advances through

six life cycle stages:

1.0 – 1.99

Introduction

2.0 – 2.99

Growth

3.0 – 3.99

Mature

4.0 – 4.89

Decline

4.9

Phase-out

5.0

Discontinued

Time



• YTEOL (Years to End of Life)



• YTEOL (Years to End of Life)

• An estimated number of years before a component

becomes obsolete.

• Real world factors such as the number of

manufacturers producing the component, the type of

manufacturer, OEM versus Aftermarket, and market

consumption data are taken into account.

• Other considerations which are used can be

changes in global availability of raw materials or

manufacturing disruptions due to geo-political

considerations and natural catastrophes.


YTEOL

Current

Availability

1 – 2

Years

3 – 4

Years

5 – 6

Years

7 – 8

Years

Available Available Available Available Available

Available Available Available Available Available

Discontinued Discontinued Discontinued Discontinued Discontinued

EOL Discontinued Discontinued Discontinued Discontinued

Available Available Discontinued Discontinued Discontinued

Available Available Available Discontinued Discontinued

Available Available Available Available Discontinued



End item

Parts

End item

RequirementYears


Incorporating Predictive Obsolescence

Engineering and Logistics

• Work with engineering, logistics, and or subcontractors to get accurate part lists on a recurring basis.

Subcontractors

• Establishing a relationship with subcontractors is critical. May need to create contracts, so don’t forget about funding requests.

Electronic Component Database

• Need an Electronic Component Library that is comprehensive, complete, and provides predictive forecasters.


Lessons Learned

Supply Chain Disconnect

In addition to incurring additional costs

and losing revenue, not practicing in a

predictive obsolescence mode can

cause you to lose sight of your supply

chain.


Lessons Learned






chain.

Price Increases and Counterfeits

Having to source parts after they are

discontinued can add 2,000% to the

purchase price, and can lead you to

the Gray Market and counterfeit parts.


Lessons Learned






chain.

Reliability

Certain countries are salvaging

discarded computer equipment and

removing individual components. These

parts are put back into the supply chain

as “new”.







Lessons Learned






chain.

Reliability

Certain countries are salvaging

discarded computer equipment and

removing individual components. These

parts are put back into the supply chain

as “new”.

Testing Required

Expensive and time consuming testing

might be the only way to tell if the parts

you purchased from some non-

franchise distributors and brokers are

the real thing.







Lessons Learned

Additional Costs

$14M spent on procuring obsolete

parts. Decisions were not made in time

to buy these parts from the OEM or

franchise distributors.


Lessons Learned

Additional Costs





Competing for Parts

Out in the Gray Market, part pricing

became a bidding war when more than

one program wanted the same parts.


Lessons Learned

Additional Costs





Competing for Parts




Unneeded Inventory

Perceived benefit of making several

EOL purchases to support an end item

may be negated if obsolescence drives

a redesign before the purchased parts

are needed.


Lessons Learned

Additional Costs





Competing for Parts




Cost Avoidance

Employing Predictive Obsolescence

practices would have lowered the cost

to only $4M had the parts been

purchased before they went obsolete.

Unneeded Inventory

Perceived benefit of making several

EOL purchases to support an end item

may be negated if obsolescence drives

a redesign before the purchased parts

are needed.

Best Practices in Supplier and Parts Risk MitigationMark Snider, President

ERAI

My Commitment is PersonalSolving counterfeits is critical to our family

About ERAI Inc.A World of Information at Your Fingertips

• Founded in 1995, ERAI is an information services organization that

monitors, investigates and reports issues affecting the global

electronics supply chain.

• ERAI provides tools to mitigate risks on substandard parts, counterfeit

parts, vendors and even customers.

• Subscribers include OEMs, CMs, Distributors, OCMs, government

agencies and industry associations.

• Actively involved in a number of committees and task forces

addressing the counterfeit issue.

• Founding participant in SAE International G-19 Counterfeit Electronic

Components Committee and several sub-groups

IHS and ERAI are Exclusive PartnersOne provider of counterfeit alerts and supply chain risk mitigation

36

Over 50 Incidents in

the last 14 Days(page 1 of 2)

Over 50 Incidents in

the last 14 Days(page 2 of 2)

Example: Infineon TLE5205-2GReported Parts Detail

Example: Infineon TLE5205-2GScreenshot - Blacktopping

Example: Infineon TLE5205-2G Screenshot - Blacktopping

How difficult are these to detect?Let’s look at another: Asiliant Technologies M69000

Very difficult… and getting worse.“it wouldn’t take much more to make it perfect”

How Risk Enters Your Supply Chain Intended and unintended ports of entry for counterfeits

1. Many unsafe part & supplier “sources”

• Online Broker Search Engines

• Maverick procurement methods or spending limits

• Google

2. These are counterfeit ports of entry

• Rapid access to millions of parts

• Minimal membership requirements

• Quick & easy access to a large audience of buyers

3. Are you creating your own shortages?

• Multiple RFQ’s create false demand signals

• Leads to price increases and incentive for counterfeiting

Request for QuoteRequest for Quote

Request for Quote…

…

…

…

Request for Quote

Best Practices to Avoid RiskStay Within Your Trusted Supply Chain

1. Direct from the Factory

2. Your Approved Vendor / Manufacturer (AVL / AML)

3. Other Franchised and Authorized Sources

4. Approved Independent Distributors

5. ERAI Members

6. Valid Alternate Parts or Sources• Distributors, Aftermarket Sources

• Alternate Parts - Upgrades, Downgrades, Equivalents…

• Manufacturers and Products sanctioned by qualifying authorities

• Government QML/QPL

Contractually define your expectations. Test accordingly.

Vet the Open MarketExample ERAI Member Details

Vet the Open MarketQualify your suppliers

ASK YOUR SUPPLIERS…

Industry Membership and Reporting?

Quality System and Processes?

Warranty and Insurance?

Supplier Qualification and Purchasing Process?

Non-Conforming Material Control?

Inspection and Test?

Efforts made to verify a Parts’ Authenticity before use?

Vet Real Stock from “Available” PartsIt limits risk exposure from fake sources and price games

Many Types of Supplier Risk OccurA wide range of incidents pose serious business problems

“Where there’s a will, there’s a way.”Past due invoices, wire fraud, faulty product for example…

“Where there’s a will, there’s a way.”Company aliases are changing all the time

“Where there’s a will, there’s a way.”Relationships exist across “new” supplier entities as well

BOM analysis is where our clients beginIt’s where “the rubber meets the road” to assess risk exposure

“IC's were failing to boot up.”

“Maxim stated in writing that they did not manufacture the product shown in the below noted

photographs. The lack of a country of origin and other visual nonconformities suggest the parts in

question have been remarked by an unauthorized third party.”

“Test report shows parts not performing up to spec, incorrect voltage.”

Risks are detected and monitoredProblems are immediately flagged and the BOM can be monitored thereafter

Actual Medical Devices Bill of Material (4 of 94 electronic components)

1. Are all open market sources the same? No

2. Does real stock versus “available stock” matter? Yes

3. Will a blanket policy preventing open market source

eliminate risk? Some

4. Do vetted open market suppliers require less

testing? No

5. Is buying only from authorized distribution practical

or technically feasible? Not always

Conclusion: Address How You BuyExplicitly tackle the difficult decisions head on

Stay within your trusted supply chain.

Free Offer for Attendees: Risk AnalysisWe will do a BOM risk assessment for webcast attendees

Fill Out Our Survey and Specify “YES” to Free AnalysisOr Send Email with Subject Line “April 7th Webcast Offer” to [email protected]

Limited to qualified electronics value chain entities.



We want your feedback!

Win prizes for completing today’s webcast survey

At the end of today’s survey…

Everyone who completes the survey at the conclusion

of today’s live event will be entered into a drawing for

to win an Amazon Kindle*

Reminder

*Offer valid through April 8th, 2011

You’re InvitedSupply Chain and Design Strategies

58

Live Webcast:

April 21, 2011 | 8:00 AM PDT


Questions?

Send questions and requests for information to:

[email protected]


ihs webcast - counterfeiting, obsolescence, and risk

Education

predictive obsolescence

effects of obsolescence

supply chain risk

japanese supply chain

supply managementprofessionals

supply chainapril

component selection

crystal ball copyright