Caveat Lector
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Fake Parts Still a Real Problem

I

f there is one takeaway from the Symposium on Counterfeit Parts and Materials sponsored by SMTA and CALCE that took place in August, it is that the problem is getting worse. This should be alarming, given the amount of attention that has been paid to the presence of “fake” parts in the supply chain.

Discussion of counterfeits in the supply chain usually starts with the military. It’s the one sector that has both the budget and the concentration of sourcing to effect change.

It was less than a decade ago that the US found fake electronic parts in military aircraft. The discovery spurred a yearlong investigation resulting in bipartisan legislation (remember what that is?) establishing new policies and practices for counterfeit avoidance.

Today, the annual US defense budget bills contain language requiring the Department of Defense, the Department of Homeland Security and their contractors monitor supply-chain risks for counterfeit parts, although previous language requiring buyers to “detect and avoid counterfeit parts in the military supply chain” has been softened.

Still, we’ve been battling the problem for at least two decades now, yet most experts feel 1) the volume of fake parts has increased, and 2) the counterfeiters are better than ever.

Methods for detecting fake parts over the years have included visual and optical inspection, XRF, chemical or laser etching, and even DNA marking. Our cover story this month centers on MLCCs, whose lack of markings and presentation, the authors note, “give unscrupulous vendors opportunities for fraud.” The authors offer electrical (bias) testing, capacitance temperature characteristics, high voltage testing of dielectric withstand voltage and insulation resistance, and electron microscope (EDS) material analysis as possible nondestructive tests for separating authentic from fake.

The latest DoD proposals, submitted in August, focus on the Supplier Performance Risk System (SPRS), essentially an analytical tool for reviewing quality and delivery data from government systems. The proposed policy would tighten language above “item risk” to use SPRS to determine the probability that a product or service, based on intended use, will introduce counterfeit or nonconforming material to the DoD supply chain. In short, the Defense Department wants to continue down its path to basing supplier conformance on empirical data instead of subjective assessments.

There’s nothing wrong with modeling risk; we do it all day long. But wouldn’t a trusted supply chain, one inherently domestic, be a more predictable and authentic route?

And does Covid-19 pose an opportunity? Most experts finger China (who else?) as the source for the vast majority (70% or more) of counterfeit electronics and related materials. Yet China remains the go-to for electronics materials.

Certainly, while the pandemic has brought about the most drastic global disruptions in memory to the supply chain, regional disruptions are commonplace. A new report from McKinsey Global Institute, the policy arm of the consulting agency, says there’s inherent risk on so many depending on so few: “Interconnected supply chains and global flows of data, finance, and people offer more ‘surface area’ for risk to penetrate, and ripple effects can travel across these network structures rapidly.” Their analysis of 37 industries ranks communications equipment as the one most exposed to value chain risks. Computers and electronics are seventh, and semiconductors are tenth. What these sectors’ value chains have in common is their high value and relative concentration.

We are all aware how the supply chain became so concentrated in a single geography. The economies of scale only heighten the near-term costs involved in breaking China’s grip on the electronics value chain. And it may be a stretch to overlay MGI’s research into abrupt disruptions on a chronic pain point like counterfeits.

But the similarities are there. The presence of counterfeit parts is an ongoing disruption to an efficient chain. No one really knows how much is spent in mitigation and field returns, but all agree the figure is huge.

A McKinsey survey of supply chain executives conducted in May found some 93% plan to take steps to make their supply chains more resilient. Steps under consideration include building in redundancy across suppliers, nearshoring, reducing the number of unique parts, and supply chain regionalization.

If we are moving supply chains, we open the door to change. Western governments – and industries – should capitalize on the moment to beef up their local supply chains.

Mike Buetow
P.S. The PCB West Virtual 2020 technical conference is available on-demand through the middle of this month. Visit pcbwest.com for access.