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Setting the Supply Chain Standard: Avoiding Cost and Mitigating Risk while Maximizing the Effectiveness of Global Standards Designed to Thwart Counterfeits Approximately 40% of the U.S. Department of Defense supply chain is believed to consist of fake or defective parts. However, global counterfeiting of electronics is not just a military problem. The fight is on to put a stop to counterfeit parts throughout all industries. SAE International has led a G-19 group of worldwide leaders to combat this growing concern. By developing a family of standards (AS5553, AS6081 and AS6171), SAE will provide uniform requirements, practices and methods to mitigate the risks of purchasing and supplying counterfeit electronic parts.
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Setting the Supply Chain StandardDate: Thursday, September 15, 2011Time: 8:00 am PT | 11:00 am ET | 4:00 pm London
Kristal SniderVice President, ERAI Inc.
Member, SAE G-19 Committee3899 Mannix Drive, Ste. 421-422, Naples, FL 34114
Tel: 239-261-6268, Fax: 239-261-9379Email: [email protected]
Setting the Supply Chain StandardAvoiding Cost and Mitigating Risk while Maximizing the Effectiveness of Global Standards Designed to Thwart Counterfeits
Who is ERAI?
WHO ERAI IS…….
• Founded in 1995
• Mitigate Risk of Parts, Customers & Vendors
• Provide up to date information on Counterfeit, Faulty & High-Risk Parts
• Real-time Industry Monitoring & Reporting Services
• Real-time High-Risk and Counterfeit Part Reporting
• BOM / Assembly Cross Checking against High-Risk Parts Database
• Vendor & Customer Analysis
• Proactively Prevent Losses & Reoccurring Problems
• Access to Search Risk Mitigation Tools
• Fair & Impartial Investigation Services
• Stay Informed on Current Issues Affecting the Supply Chain
WHO ERAI IS NOT…….
• ERAI is not a distributor or parts broker
• ERAI is not a sourcebook or online catalog
• ERAI is not a component manufacturer or OEM
• ERAI is not a test lab or inspection service
• ERAI is not a quality standards organization
What is Being Counterfeited
• In a typical recent two weeks of ERAI provided data (Reported Companies)– Five suspect counterfeit shipments (3 integrated
circuits, 1 transistor, 1 capacitor), $55,169.00• 6,233 ICs at $44,154 = $7.08 per• 500 transistors at $1,015 = $2.03 per• 200,000 capacitors at $10,000 = $0.05 per• These are just the companies that were reported by ERAI
members, usually due to disputes • These instances are seldom reported to GIDEP
Slide compliments of Fred Schipp-MDA
What is Being Counterfeited
June-July 2011 ERAI reported 186 suspect counterfeit parts
– Integrated Circuits – 81%• Processors/Controllers – 14%• Memory – 12% (mostly FLASH)• Transmitter/Receivers – 7%• Operational Amplifiers – 6%• Programmable Logic Devices –
5%• Digital Switches – 5%• Converters – 4%• Field Programmable Gate Arrays
(FPGA) – 4%– Discrete Transistors – 8%– Discrete Diodes – 4%– Capacitors – 4% (mostly
aluminum electrolytic)– Inductors – 1%
Slide compliments of Fred Schipp-MDA
Extrapolation Exercise
186 suspect part purchases in two months = 1,116 parts per year
– 906 Integrated Circuits– 138 Discrete Active Components– 72 Discrete Passive Components
Using the average reported costs from Slide 3…
The total estimated annual sale price of ERAI-reported high risk or suspect counterfeit parts is $14.7 million. This does NOT include the cost of repair, rework, failed testing, failed systems, and potentially lost lives.
Slide compliments of Fred Schipp-MDA
Strengthen Supply Chain Vulnerabilities
STRENGTHS WEAKNESSES
The Common Thread
According to the U.S. GAO, 40% of the U.S. DOD supply chain is adversely impacted by fake or defective parts.Virtually all the suspect
parts originated from contractors in China.
50% – 80% of e-waste collected “for recycling” is exported to developing countries; China being the largest recipient.
E-WASTE
The vast majority of product being sold in the China Open Market originates from e-waste.
Our trash is China’s treasure-We’re letting this happen!
China is blamed four times more than any other nation for selling counterfeit parts to the DoD.
Legislation
HR 2284 and S1270 : The Responsible Electronics Recycling Act
Objective: Cut off supply of e-waste from U.S. to China
Summary of Bill:• Creates a new category of waste: Restricted Electronic Waste • Restricted electronic waste cannot be exported to developing
nations with limited exceptions• New licensing requirement for electronics exporters• Criminal penalties for violations
Who in industry will support or oppose this?• Already supported by Apple, Dell, Samsung, Best Buy• Main opposition will be from recyclers industry association (ISRI) on
behalf of the exporters• Many individual recyclers support it• Defense industry support would be very significant
Legislation Expected results from legislation
• Prevent US E-waste from being shipped back to the US in the form of Counterfeit Parts
• Bring electronics recycling jobs to the U.S.
• Stimulate investment by U.S. recyclers in capacity and technologies
• Stops dumping toxics on developing nations – U.S. acts as good global citizen
Action Item What you can do today
READ: HR 2284 and S1270 : The Responsible Electronics Recycling Act
VISIT: www.electronicstakeback.com
WRITE: Letters to the SENATE & the HOUSE
SENATE
Honorable Sheldon Whitehouse U.S. Senate 717 Hart Senate Office Building Washington, D.C. 20510
Honorable Sherrod Brown U.S. Senate 455 Russell Senate Office Building Washington, DC 20510
Honorable Lisa Murkowski U.S. Senate 709 Hart Senate Office Building Washington, D.C. 20510
HOUSE
Honorable John Shimkus Chair Subcommittee on Environment and the Economy House of Representatives 2452 Rayburn House Office Building Washington, DC 20515
Honorable Gene Green Ranking Member Subcommittee on Environment and the Economy U.S. House of Representatives 2372 Rayburn House Office Building Washington, DC 20515
StandardizationNew Developments
SAE G-19 Committee CharterCounterfeit Electronic Components Committee
November 2007
Scope:The G-19 Counterfeit Electronic Components Committee is chartered to address aspects of preventing, detecting, responding to and counteracting the threat of counterfeit electronic components.
Objective:The objective of the SAE G-19 committee is to develop standards suitable for use in aeronautic, space, defense, civil and commercial electronic equipment applications to mitigate the risks of counterfeit electronic components. In this regard, the standard will document recognized best practices in component management, supplier management, procurement, inspection, test/evaluation methods and response strategies when suspect or confirmed counterfeit components are detected.
SAE G-19 Organization ChartWho is involved?
BrokersIndependent
Franchise
CommercialDefense
Space
InspectionTest
StandardizationWhy we need AS5553/AS6081/AS6171
DistributionAS6081
DistributionAS5553
DistributionAS6171
StandardizationWhy we need AS5553/AS6081
StandardizationWhat are the Requirements?
AS5553
4.1-Counterfeit Electronic Parts Control Plan4.1.1-Parts Availability4.1.2-Purchasing
a. Asses sources of supplyb. Maintain a register of approved suppliersc. Procure from OCM’s or Authorized sources firstd. Assure source of supply are maintaining effective processes for mitigating riske. Assess and mitigate risks of procuring counterfeit parts…f. Specify supply chain Traceabilityg. Specify flow down of contract requirements
4.1.3-Purchasing Information4.1.4- Verification of Purchased Product4.1.5- In Process Investigation4.1.6-Material Control
a. Control parts to prevent supply chain reentry4.1.7- Reporting
AS6081
4.2- Counterfeit Electronic Parts Control Plan
4.2.2- Purchasinga. Assess sources of supplyb. Maintain a register of approved suppliersc. Assessment / removal of suppliersd. Require to disclose if of if not authorized (assess risk)e. Verify supplier risk (authorized or open market)f. Require notification of changes in sources of supply
4.2.3-Purchase Order Requirements (includes the review and acceptance of Customer contract requirements)
4.2.4- Supply Chain Traceability- Customer approval required if supply chain traceability is not available.
4.2.6- Verification Purchased Product4.2.8- Material Control4.2.9- Reporting
Standardization: Purchasing 4.1.2. Assess Sources of Supply
17
Recently Reported Parts & Suppliers
Standardization: PurchasingSupplier Risk Assessment with ERAI
Standardization: Purchasing Part Risk Assessment with ERAI
Standardization: PurchasingAssess and Maintain “Approved Suppliers”
Standardization: Reporting / Data Sharing 4.1.7 Reporting
DOD Adoption: August 31, 2009 Incidents: 91% of reports via ERAI
Standardization: Reporting / Data Sharing 4.1.7 Reporting
Standardization: PurchasingBOMs have 0.5 - 5% match to ERAI-reported incidents
Standardization: Material Control 4.1.6 / F.1.4
Action Item Material Control Plan
-Counterfeit parts have NO value
-Provide Supplier with verification of the nonconformance
-Allow Supplier the opportunity to verify findings & launch internal investigation
-Counterfeit parts should be placed in quarantine***The parts are evidence and should not be immediately destroyed***
-Counterfeit parts will not be returned
-Supplier has the right to verify Buyer’s findings
-Report the incident to ERAI or GIDEP
Action Item Buy AS5553
WWW.SAE.ORG
Action Item Prepare for Certification
• Already Certified to ISO or AS Standard– Review AS5553 (and soon AS6081) for Applicability– Gap Evaluation to Determine Areas of Focus– Modify Current QMS to Integrate Changes– Prepare for Sanctioned Certification Program for AS
6081
• Not Currently Certified– Start the Process Soon for ISO 9001– Upgrade to AS5553/6081 when Program is Available
Action Item Monitor Updates
@ERAI-IncERAI, Inc.
Join Relevant DiscussionsJoin Relevant Discussions
Industry NewsIndustry News
Find out about upcoming Educational Opportunities
Find out about upcoming Educational Opportunities
Education- Get Involved
• SAE International
• SMTA
• Aerospace Industries Association (AIA)
• TechAmerica - G12 Counterfeit Parts Subcommittee
• Independent Distributors of Electronics Association (IDEA)
• IPC: IPC Surface Mount Equipment Manufacturers Association (SMEMA)
• Best Manufacturing Practices Center of Excellence (BMPCOE)
• Government Electronics & Information Technology Association (GEIA)
Complimentary Offer for Attending Today:ERAI BOM Analysis to Identify Part Risks
How to receive this offer?How to receive this offer?
1)1)Complete event Complete event SurveySurvey & Specify “YES” to & Specify “YES” to the ERAI BOM analysis trial offerthe ERAI BOM analysis trial offer
2)2)Or sendOr send Email Email with Subject Line “Sept 15with Subject Line “Sept 15thth BOM Scrub” to BOM Scrub” to [email protected]*
How to receive this offer?How to receive this offer?
1)1)Complete event Complete event SurveySurvey & Specify “YES” to & Specify “YES” to the ERAI BOM analysis trial offerthe ERAI BOM analysis trial offer
2)2)Or sendOr send Email Email with Subject Line “Sept 15with Subject Line “Sept 15thth BOM Scrub” to BOM Scrub” to [email protected]*
Thank YouKristal SniderVice President, ERAI Inc.Member, SAE G-19 Committee3899 Mannix Drive, Ste. 421-422, Naples, FL 34114Tel: 239-261-6268, Fax: 239-261-9379Email: [email protected]
