Traceability: A Counterfeiting Panacea or a Cure?

Discussions regarding counterfeit electronics components almost inevitably come around to finger-pointing: if a bogus part enters the supply chain it is distribution’s fault; or independent distribution’s; or the buyer’s; or a situation that require buyers to go outside the authorized channel; or COTS programs; or an EMS. Original component manufacturers (OCMs) and OEMs are rarely involved in the debate because no self-respecting component manufacturer builds a counterfeit product. And no self-respecting OEM would buy one.

The electronics supply chain unanimously agrees counterfeiting is a bad thing for the industry. But many of the proposed solutions to the problem are more about mitigating risk than they are about eliminating counterfeits.

Most of the solutions being examined today use some form of tracking mechanism for components. The Defense Logistics Agency (DLA) is currently using a unique ink-based DNA marker that’s applied directly to the device. DNA detractors have a problem with this method. Components are marked after they leave the factory. In spite of numerous safeguards, there are still some holes in the procedure. OCMs are not required to use this method.

As it stands now, the distribution channel is the focus of most anti-counterfeiting efforts. This makes sense given the vast amount of components that pass through the channel, and the existence of distributors that buy and sell inventory from suppliers, other distributors, and OEM/EMS factories. If end-users are able to track components as they pass through the supply chain they have a record that should lead back to the OCM factory. Yet distributors will be the first to admit they don’t manufacture the products. Any traceability solution logically should start with the OCM.

Many in the supply chain assume that an OCM can account for every single device it manufacturers. While some OCMs do identify individual parts, there are just as many that don’t. Lot numbers and date codes identify volume-production runs, not individual items. Requiring a factory-level marking standard for every single device would require the buy-in of all manufacturers in the supply chain and likely would add costs. If OCMs use a custom technique, they’d have to provide customers with a means to verify the product. If a would-be counterfeiter were able to get their hands on the OCM ID process, the process itself could be counterfeited.

For authorized distributors, a guarantee of authenticity is implied. Franchise agreements ensure that authorized distributors buy exclusively and directly from suppliers. However, distributors also accept product returns. In spite of inspection and traceability efforts, counterfeits parts have been known to enter the authorized supply chain through returns.

The traceability issue also does not account for a practice called COTS, which allows OEMs in the aerospace and defense industries to use commercial off the shelf parts rather than mil-spec devices. This was implemented in part as cost savings (commercial parts are less expensive than mil-spec); expanding the supply base; and prompting competition amongst suppliers. But a COTS part with the same form fit and function as a mil-spec part may have subtle differences and may not tolerate the extremes required of a military part. Existing Department of Defense procurement rules put anti-counterfeiting responsibility on subcontractors. If a counterfeit ends up in a defense product, the contractor is responsible for the costs of fixing the product. But if the contractor used a COTS part that was specified by the OEM, should the contractor be held accountable?

At the heart of every anti-counterfeiting effort is the ability to trace and examine every step in the supply chain to enable continuous improvement. Identifying the source of a counterfeit has to be part of the solution. But as it stands now, existing efforts put the burden of “proving” a part is authentic on distribution channels and subcontractors. Traceability can increase the likelihood that counterfeit parts are identified and stopped before they get to an end-product. But it does not eliminate the problem of counterfeiting.

Next week’s ERAI Executive Conference features programs on component testing, inspection and certification. It covers counterfeit seizures and standards targeted at eliminating counterfeits. It also covers risk mitigation. It is perfectly understandable all members of the supply chain want the ability to prove they did not introduce a counterfeit into the mix. Traceability provides that option. But is it the answer to the counterfeiting problem? And if not, what is?