Supply Chain Collaboration: The First Step in Anti-Counterfeiting

Implementing effective and successful anti-counterfeiting strategies begins well before the actual receipt of an electronic component or product. Confirming genuine, quality parts requires more than a technological endeavor, although highly sophisticated labs with specialized technicians are a necessity.

Before a company begins to screen and analyze components, it must implement business processes that can effectively minimize the risk of opportunistic counterfeit entry into our supply chains. This requires collaboration between suppliers and end-product manufacturers in developing and following best practices for product sourcing.

We could dramatically reduce the level of counterfeiting in our industry if everyone along the supply chain was diligent in sourcing (confirming that suppliers are implementing stringent quality control and testing measures), testing and monitoring parts (incoming, warehoused, and outgoing), and reporting problems and requiring certifications of destruction for non-conforming and counterfeit parts. This is an ideal standard. Certainly the best-case scenario is for everyone to test and validate everything, but logistical and expense issues prevent companies from doing so. 

Instead, the key to a successful and effective anti-counterfeiting strategy is diligent and transparent collaboration between end-product manufacturers and independent distributors. At the heart of the solution is supply chain visibility with stringent sourcing and screening that is key to thwarting substandard, suspect, fraudulent, and counterfeit components from entering or being passed along the supply chain. 

Sourcing From An Independent Distributor

On any given day, an end-product manufacturer may need to place a purchase order for one or many component parts to meet production requirements. These orders are typically placed with the original component manufacturer or a franchised/authorized distributor. When these sources cannot meet delivery requirements—often due to excessive lead times, part obsolescence, or last-time buy run-outs—the manufacturer will use an independent distributor.

Risk mitigation must be a top priority when doing so, particularly when it comes to counterfeit, quality, or reliability issues. The reason for the added risk mitigation is that independent distributors can run the gamut from low-tech, single-person companies with no checks and balances to highly sophisticated, multi-national organizations. End users must qualify and select them with the utmost scrutiny. In response to this need and to achieve top quality, end users such as Rockwell Automation have developed processes and procedures for approving and ordering from independent distributors, as described below.

Qualifying An Independent Distributor

Within the end-product manufacturer’s organization, representatives from various disciplines (component engineering/engineering, supplier quality assurance (QA), and strategic sourcing/purchasing) must be involved in the qualification process. Furthermore, independent distributors should go through the same approval and stratification process that any other supplier would go through—along with additional criteria.

In considering best practices for qualifying an independent distributor, a thorough review of certifications is a good place to start. At a minimum, end users should require independent distributors to have the following certifications: ISO 9001 (quality management), ISO 14001 (environmental management), ESD 20.20 (component handling), and for aerospace industries, AS9120.

In addition, independent distributors should be members in good standing with the Independent Distributors of Electronics Association (IDEA) and adhere to IDEA’s inspection standards or their equivalent—specifically IDEA-STD-1010—and have IDEA-certified inspectors conducting anti-counterfeiting testing.

Process Requirements: On-Site Assessments

On-site quality assessments are also highly recommended—and this should be done for any supplier. This step will yield a more thorough examination of policies, procedures, and capabilities because the end-user can make first-hand assessments and complete a supplier approval check list.  

The following is a good place to begin or update a supplier approval checklist. In addition to the quality requirements listed in the ISO 9001 standard and the IDEA-STD-1010 (or its equivalent), an independent distributor should have processes and programs that address the following areas:

• A stringent supplier selection, screening, monitoring, and rating system
• A documented multi-point inspection process to assess labels, packaging, and components, along with the proper equipment to thoroughly perform such activities
• Quality control (QC) inspectors certified to the most recent IDEA requirements (IDEA-ICE-3000 or its equivalent)
• An ongoing training program to keep up with the latest manufacturing trends, industry best practices, and knowledge of the latest counterfeiting techniques
• A controlled environment stockroom with the capability to segregate and quarantine substandard and suspect product until its disposition is determined
• A customer notification and recall process for any suspect, non-compliant, fraudulent, or counterfeit parts
• A formal return policy
• Value-added services such as tape and reel, kitting, dry pack and bake, among other services
• A documented and effective counterfeit avoidance management program; good resources include the CCAP-101 document, ERAI (Electronic Resellers Association International) and GIDEP (Government-Industry Data Exchange Program).

Beyond industry standards for anti-counterfeit procedures and processes, distributors, whether franchised or independent, should have a quality inspection lab on premises. Today’s quality inspection labs are highly sophisticated and able to perform a battery of tests, from visual inspections through destructive sampling tests. 

Buying From An Independent Distributor

Screening suppliers and following supplier approval checklists is not enough, however. Another important part of the process is confirming that suppliers also have meticulous internal quality control processes and procedures in place. To mitigate risk when sourcing, suppliers must follow just as stringent a set of screening processes for their sourcing as end users do for theirs. Among those internal processes and procedures are the following requirements for a supplier.

For every purchase order placed with the approved independent distributor, suppliers should:

• Have complete traceability back to the original source
• Communicate that their source is a preferred, secured, and historically good supplier
• Provide details on the parts (such as original factory sealed, date code, taped and reeled, new or refurbished, and so forth)
• Have a set procedure for immediately contacting the customer with any questionable or suspect findings
• Complete an inspection report and checklist (with photos of the components and labels) that is maintained for a specified period of time; the contents of the report, checklist, and time period are adhered to, as agreed upon, between the customer and the independent distributor
• Provide a certificate of conformance, per terms agreed upon between the customer and the independent distributor.

Responsibilities Of Suppliers: Vendor Screening

Suppliers are not equal, and that is the first tenet of good risk and supply chain management strategies. Screening suppliers is essential, both for new suppliers and as part of ongoing evaluation metrics to confirm quality standards. 

Supplier evaluations center around the types of data required for due diligence as well as performance evaluations, multi-level management reviews (of the supplier and by various managers within their organization), audits, and other business data that ensure the supplier is who you think it is, and consistently so.

Once a supplier has been approved, internal company education is essential to ensuring that orders are only placed with and received from those suppliers on an approved vendor list (AVL), and furthermore that the AVL is regularly and routinely updated, ranked, and made available to reduce the risk of incorrect ordering/sourcing. 

Smith & Associates integrates its supplier evaluation data into its internal trading and operations platforms to provide consistent adherence to the AVL. This data integration provides global access for all of the distributor’s teams to the rankings of its vendors for high-quality supply chain and secure sourcing in the independent distribution marketplace.

Anti-Counterfeiting Requires Meticulous Inspection

Components must undergo extremely rigorous evaluations that begin before entering a company’s distribution hubs. When it comes to counterfeit detection, coupling professional inspectors with extensive databases, the latest technical knowledge, and sophisticated laboratory equipment is the secret to successful and effective anti-counterfeiting operational procedures.  Visual inspection and component testing are vital parts of the equation. Both processes require qualified, trained, and certified inspectors and the latest in testing equipment and technology.

Beyond visual and physical inspections, functionality tests help confirm tolerance levels and ensure that specifications match and/or meet manufacturer and customer requirements. Functionality tests also reveal whether a legitimate component is being illegitimately substituted for a similar part that has different fault tolerances. For example, industrial parts commonly require tighter tolerance levels and greater operating ranges than consumer parts because of the different physical demands of the component under more extreme use situations.

Collaboration And Meticulous Processes

A strategy is only as good as the team’s ability to execute it appropriately and effectively. To confirm that all steps are correctly followed, the teams implementing the anti-counterfeit strategies must be well-trained, and their knowledge must be kept current through training. Even the best designed and thorough strategic plans will fail if anti-counterfeit procedures and processes are not adhered to as required. 

This requirement is equally true for each supply chain colleague’s internal processes as well as the requirements that supply chain collaborators ought to place on each other. Information sharing is critical, both within and across companies and organizations so that if a counterfeit product is found, the proper reporting is submitted, the suspect product is permanently removed from the supply chain, and investigations are made into how the breach occurred. 

It is important to understand that the heart of counterfeiting is opportunism. By diligently collaborating on and supporting proactive, meticulous, and effective anti-counterfeiting procedures and strategies, we can collectively minimize the opportunity that counterfeiters require to succeed.  The cornerstone of a successful anti-counterfeiting strategy is found in the proactive and collaborative steps taken to detect and deter counterfeit product in the supply chain. 

Authors:

Robert (Bob) W. Chesla, Senior Project Engineer at Rockwell Automation

Robert (Bob) W. Chesla is a Senior Project Engineer and has been with Rockwell Automation for 38 years.  He earned a BEET degree and is a Certified PMP as well as a Certified ISO 9000 Quality Lead Assessor. Bob’s current Rockwell responsibilities include supplier and component approvals, technology roadmaps, life cycle management, strategic sourcing initiatives, lab failure analysis, and global project management.

Lisa Ann Cairns, Ph.D., Senior Market Analyst

Lisa Ann Cairns joined the Smith network of businesses in 2001 as a Technology Strategist and became the Chief Strategy Officer for a Smith subsidiary the following year. More recently, Lisa has been involved with various strategic marketing projects for the Smith network and is the Senior Contributor for MarketWatch. Prior to joining Smith, Lisa was an Assistant Professor at Texas A&M University. Lisa received her Ph.D. (1998) and A.M. (1992) from The University of Chicago, during which time she was awarded a National Science Foundation Doctoral Dissertation Research Improvement Grant. She holds a B.A. from Hofstra University, 1988, where she was the first woman undergraduate to receive a Fulbright Scholarship.