The legislation put forth in the 2012 and 2013 National Defense Authorization Acts (NDAA) has gradually solidified into law resulting in the Defense Federal Acquisition Regulation Supplement (DFARS) which is now considered the standard for counterfeit prevention. While these measures have reduced the risk of counterfeit parts flooding the supply chain, the specific terminology in the published DFAR regulations have caused confusion and misinterpretation because they lack some common industry terminology. To address this and other concerns, there is a current revision in process. However, the proposed revision introduces the term “authorized dealer” to refer to the parties with which OEMs must work to prevent counterfeiting. Unfortunately, “dealer” is not a common term within our industry and therefore makes the definition ambiguous. In the case of a regulatory documentation, semantics really do matter.
Another issue with the “authorized dealer” term is that nearly any player in the industry can produce documentation that deems them authorized in some manner and OEMs don’t have a standard to define what qualifies as authorized. With the confusion in the industry, leaders such as ECIA and TTI petitioned for terminology that would more clearly define the “authorized” provider by using phrases such as “authorized distributor” in lieu of “authorized dealer.” This term was introduced in the current open DFAR revision, DFARS 2014-D005 (252.246-7007). The amendment that will officially change this terminology is still under final review.
The other contentious terminology in the DFAR refers to software or firmware installed on components. The terms were likely included to discourage or uncover potential spyware or malware activity against US enterprises by foreign entities. However, given the breadth of functionality and specificity of the manufacturing specs regarding software and firmware, the regulations cause confusion rather than remedy the counterfeit component risk. The current proposal calls for the removal of “embedded software or firmware” from the definition of “electronic part.”
Quality control testing is another area where specificity and standardization are necessary. Because test labs can vary greatly in their services and fees, it was previously difficult for an OEM to understand the extent of testing they were getting. Fortunately, SAE AS6171 provides standardized techniques and requirements. This documentation has leveled the playing field for OEMs that can now use standard practices when sourcing their component testing.
As anti-counterfeit measures are becoming standardized, counterfeiters are also evolving. Some have moved beyond remarking, blacktopping and microblasting wherein used parts are altered and sold as new, to actually manufacturing their own counterfeit components. Due to the short lifecycle of many electronics these days and the expense of manufacturing even sub-quality components, counterfeiters are going after the more expensive parts and that is changing the ballgame for OEMs that frequently source from the open or independent markets.
Another risk in the supply chain is unexpected: the over-reporting of suspected counterfeit parts. While OEMs that place a priority on sourcing only authentic components should keep a keen eye on their supply chain, they should be careful when ascribing a part as counterfeit. There have been cases where an individual has jumped the gun and purported an electronics component counterfeit when it was really a misunderstanding of a simple thing such as a supplier’s lot coding. When a flag is raised about a part being counterfeit, it involves many people and reputations are on the line. By the time the issue is resolved, it is likely that damage is already done.
While standardization of terminology is key, the most critical anti-counterfeiting tool for OEMs continues to be traceability. Risk is substantially reduced when you can identify every step in an electronic component’s supply chain. Purchasing from the authorized supply chain - the manufacturer and their authorized distributors - makes this process significantly easier for OEMs. The supply chain within authorized distributors is short and includes oversight and contractual requirements to handle, store and ensure traceability of parts. So, even as definitions and regulations help to minimize risk, the industry must continue to think defensively and restrict purchases to the safest channels.
A version of this article appeared in Electronics Sourcing North America, July/August 2016, www.electronics-sourcing.com/north-America.