Semiconductor manufacturers are the most directly affected by counterfeiters. Not only do they lose direct sales, their credibility and brand image can be compromised. In addition, they must incur additional expenses for maintaining the security of their intellectual property if they use subcontractors; for developing and implementing security policies and procedures; and for hiring and training personnel to carry them out. It is also expensive, but necessary, for companies to follow up on confirmed or suspected counterfeit incidents and report them to the proper industry and government agencies. Some companies are working on developing sophisticated identification technologies that can be included in the production of components, but these are also extremely costly.
Franchised and authorized distributors, who procure their entire product from the original manufacturer or their authorized sources, are the least affected by the counterfeiting issue. In addition to utilizing authorized sources, these distributors also control their warehousing and shipping security. Because of these practices, their entire inventory is traceable. As a further protection, many authorized distributors provide their staff with counterfeiting awareness training. Unauthorized distributors, however, purchase from many different sources. The inventory that is acquired this way is not traceable to the original manufacturer, and is oftentimes compromised, mishandled, or even counterfeit. Unfortunately, these faulty components are not set aside or properly disposed of, and make their way into the semiconductor supply chain.
Electronics equipment manufacturers must spend money on ongoing training programs for purchasing staff. They often have to conduct or outsource expensive testing. Counterfeits that somehow make their way to the production line can cost money in manufacturing downtime. If the counterfeits make their way into manufactured product and cause failure, losses stack up because of returns and replacements. Company reputation and brand image also suffer.
When products manufactured with counterfeit components fail when they are finally in the hands of the end user, whether private or commercial, more costs stack up.
But the negative impact of counterfeits is obviously not just about losing money. Many of the components sold in the recently prosecuted case were intended for systems that have a direct impact on human safety, the most obvious being systems used by the US military. Military failures also may threaten US national security.
The continuing escalation in the number of counterfeit parts making their way into the US supply chain – particularly the military supply chain – has prompted the US government to take a closer look. In March 2011, Sens. Carl Levin (D-Mich.) (chairman) and John McCain (R-Ariz.) announced a Senate Armed Services Committee investigation into counterfeit electronic parts in the Department of Defense’s supply chain. In November, the committee held a hearing on the investigation. In his testimony at the hearing, committee witness Brian Toohey, president of the US Semiconductor Industry Association, said, "A counterfeit semiconductor is a ticking time bomb." Among other suggestions, Senator Levin proposed changes to the Defense Department’s acquisition procedures that would put more responsibility for the costs of counterfeit parts on the contractors.
"...it is estimated that 2 percent of all the semiconductors sold last year were counterfeit. That doesn’t sound too threatening.." Who with half a brain would think 2% counterfeit parts is not threatening?
If you were in a helicopter that went down owing to a faulty counterfeit part, or the victim of a faulty counterfeit medical appliance, I'm sure you would see things differently. Sure, 2% doesn't sound like a lot to you... but it's a lot to the people it affects. And it's also just an estimate.
It is just simple calculation. Everyone is calculating the risk of failure, in a bicycles, cars and helicopters. Do you believe there are products 100% safe at any possible situation? If I was a victim of such situation, it will be big loss for me, but for manufacturer I am only number on the paper. Busines is cruel, sometime is cheaper to take some bigger risk and buy insurence in case of problems.
No mention of the DLA's Generalized Emulation of Microcircuits (GEM) program which can provide a form, fit, and function replacement for non-available microcircuits using current design and processing technologies? The GEM contract was awarded to SRI International (Cage Code / 03652), perhaps an oversight ?
With regard to "Some companies are working on developing sophisticated identification technologies that can be included in the production of components, but these are also extremely costly." That's hogwash. The DLA recently Mandated the use of botanical DNA marking for high risk chips. It works and it is not "extremely costly".
All in all, a very self-serving article if you ask me.
No oversight at all. Rochester Electronics is well aware of the GEM program and most of the people running it. A part is not "GEM'-ed" and is not available to be "GEM-ed" if it is available by industry. That's a fact. It is only if a part is totally unavailable by an authorized source will the possibility of doing GEM be undertaken.
Regarding your comment about DNA.....Get your facts straight, then come out to talk. Stop quoting the marketing hype and go get a quote for implementation. Figure out how expensive it would be to implement when your part marking is all laser in your current assembly process as it is for many OCM's. Hogwash indeed - ANY part marking strategy mandated onto the OCM's by the 1% market is half-baked at best.
Rochester Electronics is doing something entirely unique here working with the OCM's on our Recreation/Replication strategy. It is an authorized method to get hard-to-get parts like ASICs where the only other choice is to redesign....in a newer technology....and that's not always a good thing to do.
By the way, the GEM program is a good program, but is limited on how far it can go with technology. At some point, having no design archive makes GEMs impossible.
Yippity - your comments show some additional research on your part was needed. Have at it.
Methinks Thou Dost Protest Too Much. It was I who said that the GEM program was an alternative for "non-available"microcircuits, that's "the fact" as you say.
With regard to the Applied DNA Sciences solution, I am not relying on "hype". I know the facts and suggest to you and your competitors call them, or the DLA, and then tell me it's not worth the money to protect our warfighters.
You have magically equated DNA tagging with protecting our warfighters. There is no connection here at all. Tagging known good product penalizes the good guys who can ship pure authorized product. Why didn't DLA insist upon tagging non-Authorized product? Doesn't that make more sense? Tag the product that comes from non-Authorized sources. Tag the material that has the highest odds of being counterfeit. Half the counterfeits reported this year are on active product. HALF! There is a huge procurement problem FIRST. If "protect our warfighters" is getting tossed around, go talk to the CM's and DLA themselves about procurement practices trying to squeeze the last dime out of every system. We should all be focused on the biggest problem first - using the Authorized sources FIRST if available. This alone cuts out half the reported counterfeit product in 2012.
And the lack of mentioning that the min cost will be in the 10's if not 100's of thousands of $$ for the remanufacture !!. There are benefits to both !!.. Military and others need to make contigency for min 25-50% replacement (service) parts adn possibly even 100% relative to the cost of the product !!. Brokers will always have benefits but hte decision to use Broker (Grey Market) need to be made by experienced/educated decision makers not just the bottom of the run purchasing officer who does not understand the consequences of bad decisions !.
You make a very important fact, and it rarely gets implemented well. That is ordering enough spares/repairs capability baked into the funded portion of the program. It's a very difficult program for program managers on long-life programs (20+ years). They are only funded for so many years, but must somehow do all the last time buys to secure enough product. We have seen that the only way for this to change on those types of programs requires a very different mindset at the time of program award.
While the author didn't mention pricing, let's assume your pricing ranges are correct. It can still be significantly cheaper to remanufacture product than redesign and qualify a product.
I am not sure whether I found the article or the comments more interesting. I can say that while at LSI (along with Dan), I was contacted several times by a company, an agency, or DSCC (DLA) needing more parts. When a quote was given, the usual answer was that they would buy salvaged parts because that was cheaper than another wafer run. And yes we were charging a premium ($10K to $100K as most of processes had to be restarted, recreated and re-qualified. Having the assurance of knowing where the part originated can be better than a part with an unknown pedigree? I believe that many of these issues are a result of NOT controlling the supply chain as the article highlights.