Securing supply chains through data transparency and better market design.
The rise of counterfeiting in recent years has been astounding. The U.S. economy loses some $250 billion annually with some three--‐quarters of a million jobs lost every year to what the Wall Street Journal has labeled as “nothing Short of an economic crisis.” The Pain reaches in to all corners of the economy, and the high technology manufacturing is no exception. Counterfeit electronic components can be found in all corners of high tech chain, from basic light switches and games to advanced medical scanners and telecommunications infrastructure. As electronic components find their way into more and more parts of modern life, the risk of counterfeit will threaten economic growth and consumer safety the world over. For the industry to successfully protect against this risk, we must understand its causes and how finds its way into the legitimate supply chain.
Counterfeit components can take many forms, as criminals exploit the latest weakness in manufacturers’ defenses. Quality inspections may adapt and deploy new tests to filter out fake parts, but the counterfeiters will always remain a step ahead.
Companies may spend months improving their inspection processes, but counterfeiters can deploy new techniques within weeks, or even days. Given the substantial financial incentives at stake, counterfeiters will throw resources at hacking a firm’s defenses by almost any means necessary, be that by redesigning a fake part’s manufacturing or simply bribing a junior employee for access to the plant.
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Fakes may come in many shapes and sizes, but at the simplest level, there are only a few different ways to misrepresent a component’s authenticity: outright knock-offs, refurbished parts, mislabeled parts, and scrap. Some corner cases, such as intentionally malicious parts, are unique to products related to national security and are beyond the scope of this paper. Likewise, comprehensive detailed forensic analyses can be found elsewhere.
Knock-Off’s
Outright knock-offs used to be the easiest to spot: poorly printed logos, misspelled, and incorrect fonts. Just like fake watches are no longer humorously weak attempts to mimic a genuine Rolex, many component knock-offs look very much like the real thing.
In fact, some plant managers have been known to run a “ghost shift”. Occurring late at night when legitimate employees have gone home, ghost shifts use the same equipment and packaging as legit ones do, but will substitute inferior grade materials into the manufacturing process.
Refurbished Parts
Criminal elements, both inside and outside the secondary market, can make extremely large profits by purchasing discarded circuit boards and “pulling” certain high value components to resell.
The process for removing these components from the circuit board and preparing them for resale includes direct exposure to extreme heat in loosening the solder, the physical stress of being tugged off the board, and the multiple strains of exposure to the hot oil used to clean off the last parts of solder. A little polishing and straightening of bent leads can make an old component look almost like new.
Mislabeled
The easiest technique a criminal can use is to falsify the documentation describing what a part is. Besides simply printing a meaningless ‘certificate of compliance’, counterfeiters can print a false label on the outside of a reel, tray, or tube, or they can alter the labeling on the surface of the component itself.
Almost as soon as it was implemented, the European Union’s Restriction on Hazardous Substances (RoHS) became a golden opportunity for counterfeiters who discovered that simply by relabeling the package in which components were stored, they could increase the resale value of those parts many times over.
Speed-steps, false RoHS status, modified part numbers and inaccurate certificates of traceability and compliance are perhaps some of the easiest and most profitable methods of misrepresenting a part.
‘Scrap’
Component manufacturers need to pay special heed to their disposal partners as it is a frequent occurrence that components rejected at the fabrication facility for subtle quality defects can be diverted from the scrap yard and find their way into brokers’ hands and then into the legitimate supply chain.
Given that these are legitimate components manufactured and packed at the legitimate facility, they can pose a special risk to their brand owners. Component makers should take extra precautions to ensure that every quality-rejected component is accounted for and certified as destroyed.
Many firms will employ webcams and onsite personnel to monitor this process, though a low wage worker overseeing a scrap process could very easily be swayed with bribes.
Author John P. Brown is co-founder and VP of Marketing and Strategy at Verical, an emerging online electronic components marketplace. He brings a wide range of marketplace design and anti-counterfeiting. A term member of the Council on Foreign Relations, John focused on information management and infrastructure protection at the Department of Homeland Security and holds a BA, MPA and an MBA from Harvard. Learn more about Verical at http://www.verical.com/, blog: http://blog.verical.com, Twitter: @Verical, and email John at jbrown@verical.com.