The true cost of counterfeit

January 26, 2008

The problem of component counterfeiting is an increasingly serious and complex  issue, and one which affects virtually every manufacturer or assembler of electronic equipment.

The commercial pressures of international competition and increasingly tough legislative environments have created a fertile environment for the unscrupulous to profit at the expense of legitimate business. Far from being a “victimless crime”, the cost  – both human and commercial – of counterfeiting can be devastating. With so many companies now sourcing on the international market, counterfeiting is an issue that nobody can ignore. Companies need to be aware of the problem and the steps that can be taken to avoid falling victim.

Worldwide, it is estimated that counterfeit goods account for between 5% and 7% of all world trade, worth a colossal $450-$500 billion a year. While fake clothing, consumer durables and automotive components account for a large part of that, counterfeit electronic components are a significant and growing proportion of the total.  An estimated 10% of all technology products sold worldwide now contain fake components. That equates to a staggering $100 billion annually. The cost to industry in terms of product failures, loss of reputation or litigation is potentially much more.

The origins of the majority of these forged and counterfeit components lie in South Asia and the Far East. The EU imports €10.6 billion of goods every year from China alone – mainly computers, electronic components, mobile phones & cameras. While the vast majority of trade is entirely legitimate, with such volumes even a few percent of counterfeiting represents a significant quantity of substandard components arriving into the EEA every year.

In contrast to fake designer clothing or consumer goods, counterfeit components used in electronic sub-assemblies are often very difficult to spot. Today’s counterfeiters have become very adept at producing convincing forgeries and have developed sophisticated techniques for introducing them into the legitimate supply chain. Given the difficulties of enforcing contracts and international intellectual property rights legislation in China and India, the unscrupulous agent or manufacturer has very little to lose from being caught, and everything to gain. The complex ways in which components and sub-assemblies are traded and sourced can work to the advantage of forgers, enabling them to hide their tracks behind a complex series of transactions. The international outsourcing of procurement means that components can often pass through the hands of several procurement agents before delivery; agents that in some cases actually “own” the components for a matter of minutes before selling them on.

The problem is compounded by the number of ways that components can be faked and the sophisticated ways in which unscrupulous suppliers introduce them into the market. Deliberate forgeries are perhaps the most obvious way in which companies can fall victim to the counterfeiters. Bearing a recognised makers name and trademark, an encapsulated component may look – superficially – very convincing. Often, the forged component may even perform to specification, at least initially. Internally, of course, it is a very different matter: Sub-standard materials and production techniques, and lax quality control mean components that can fail suddenly with potentially disastrous consequences.

The remarking of components is more difficult to spot. In this case, genuine components will have their markings modified to denote a component of a higher specification from the same manufacturer. For example, a faster processor or greater memory capacity. In the post RoHS world, remarking can also be one way that non-compliant components can be passed off as legitimate. The unexpected discovery of non-compliant components could easily spell disaster for an equipment manufacturer or sub-contractor, even if no actual failures occur in service. Even without re-marking, non-compliance at component level is very difficult to spot without costly and thorough analysis by specialist companies.

The passing-off of recycled components as new is also a growing trend. Low labour costs coupled with the legislative requirements for the disposal of hazardous waste means that the shipping of obsolete equipment to China and India for disposal and recycling is an increasingly profitable enterprise. In a few cases, parts salvaged in this way can sometimes find their way back into the market as new parts. Although genuine, components are stressed during the salvage process and are often at the end of their useful lives anyway resulting in short-lived and unpredictable performance.

Sourcing only from reputable suppliers is an obvious way in which companies can protect themselves from forged components. But in an increasingly competitive world, the temptation to look to the so-called grey-market for components may well prove an overwhelming one for hard-pressed businesses. But in doing so, companies expose themselves to risk.

Some manufacturers operate a scrap allowance scheme, by which they pay distributors to scrap overstocked inventory. However as this scrapping process is itself often outsourced, these components may well find their way back onto the grey market rather than being destroyed. Although genuine, as far as the manufacturer is concerned they do not exist and so will not be covered by any guarantee.

Even by dealing only with authorised suppliers does not necessarily ensure fake-free components. If an authorised supplier operates a returns policy, this may provide the means for fake components to enter the legitimate supply chain. For example, if a company sources components through both authorised and grey market sources, it is entirely possible that “fakes” from the grey market sources can end up getting mixed in, either deliberately or unwittingly, with genuine returned components. Once a batch of genuine components is contaminated in this way, the fakes become almost impossible to spot.

In combating the menace of component counterfeiting, the best defence that businesses have is to arm themselves with knowledge. For the first time, the subject of component counterfeiting will be addressed at Southern Electronics 2008 (February 6th-7th, Farnborough) as part of the free seminar programme. Hosted by Bob Willis of the SMART group, the presentation on February 6th will take a detailed look at the problem of forged and counterfeit components together with the practical measures businesses can take to ensure they do not fall victim to this pernicious trade.  

 


Creative Commons License

This work is licenced under a
Creative Commons Licence.

Advertisements

Rocket car fires the imagination of show visitors

December 18, 2007
The two things guaranteed to arouse the interest of engineers everywhere are high speed and loud noise. Visitors to Auto Aero 08 (FIVE, Farnborough, February 6-7th) have the chance to get up close to a piece of homespun engineering brilliance that features both in plentiful measure.
On display at Auto Aero 08 will be an incredible experimental rocket-powered drag racer, Laffin Gas. Powered by four hybrid rocket motors, Laffin Gas was developed and built by a UK-based team of engineers and self-confessed speed freaks, headed by husband and wife Carolynne Campbell and David Knight, along with Fred Thomas and a dedicated team of specialists and helpers. The hybrid rocket motor developed by the Laffin Gas team uses the unlikely combination of cardboard and cooking oil, which is burnt in a high-pressure stream of Nitrous Oxide gas to create a hypersonic exhaust flow. Using the unique bio-fuel solution developed by the team, Laffin Gas’s four engines are theoretically capable of developing an incredible 12,000lbs of thrust – more than enough to propel the car to record-breaking velocities.

Hybrid rocket technology employs a combination of liquid and solid fuels, and is the technology which powers SpaceShipOne  – the world’s first privately built space vehicle. Styling themselves the “Fred Dibnah’s of rocket science”, the Laffin Gas team have made impressive progress in developing hybrid rocket technology to the point where it is a highly effective, clean-burning and comparatively safe propulsion system, ideally suited to drag racing. Phil Valentine, managing director of show organiser ETES, says, “The combination of ingenuity, vision and engineering skill shown by the Laffin Gas team is a perfect illustration of all that’s best in UK engineering. We are really pleased to welcome the team to Auto Aero, and we expect their presence to generate a lot of interest.”
Auto Aero 2008 is part of the highly successful Southern Manufacturing & Electronics Show, an event which historically draws a high percentage of its visitors from the aerospace and autosport engineering community. Running alongside the Southern Manufacturing Show, Auto Aero delivers a highly-focused marketplace for these businesses. Key product areas on display at Auto Aero will include surface engineering and coatings, composites, low cost tooling, digital manufacture, engine components and assembly integration.
Auto Aero 08 runs on 6th and 7th of February 2008 at the new FIVE exhibition facility alongside Farnborough International Airport in Hampshire. FIVE offers plentiful free car parking, superb access by road, rail or air, and an excellent selection of local hotels and restaurants. Entry to the show, and the seminar programme, is free. To register online for tickets, or to find out about exhibiting at the show, simply visit http://www.industry.co.uk or call 01784 880 890.

Creative Commons License
This work is licenced under a
Creative Commons Licence.


Southern Manufacturing announces free seminar programme

December 2, 2007

The Southern Manufacturing show (February 6th-7th 2008, FIVE, Farnborough) has announced its free seminar programme for 2008. The show’s new venue at Farnborough will provide a superb setting for a busy two-day programme of sessions aimed at anyone involved in manufacturing or engineering sub-contracting.

Always hugely popular, the Southern Manufacturing Show free seminar programme is a fantastic opportunity for visitors and exhibitors alike to take part in a wide-ranging programme of presentations, each delivered by experts in their respective fields. No other show offers free access to such high-calibre technical and commercial expertise, and is one reason why the Southern Manufacturing Show enjoys such strong support from engineering and industrial businesses across the South.  

This year’s seminar programme combines practical advice and guidance on topics which affect business today, with an insight into the trends and ideas that will shape engineering business in the future. Wayne Davies of the Manufacturing Advisory Service-SE will present an innovative approach to adapting the ideas of Six Sigma to an SME environment. Wayne’s colleague from the MAS-SE, Stewart Barrass, will present a similar insight into Lean Thinking for engineering SMEs.

Mike Foster of the CE Marking Association will present an update of the latest legislative requirements to affect business, together with practical steps businesses can take towards compliance. John Grieves of Continuous Improvement Services gives an appraisal of the benefits of sustainable improvement programmes to smaller organisations, and the skills necessary to implement them effectively, while Michael West from BeStrategic will examine some of the techniques which can help businesses succeed in new product development.

Graham Tromans of the Rapid Manufacturing Research Group at LoughboroughUniversity will present an illuminating look at the development of rapid prototyping and tooling technologies and the effect they may have on manufacturing in the future. Finally, an absorbing session hosted by the Components Bureau will take an objective and frank look behind the headlines to examine the quality assurance issues affecting sub-contracting in Asia. Illustrated by case studies, representatives from Chinese manufacturing industry and professional organisations will give advice on practical measures than can be taken to improve supply chain management.  

Attendance at all the seminars is free and open to all visitors and exhibitors at Southern Manufacturing and Electronics. Despite Farnborough’s more spacious surroundings, places are limited and demand is expected to be exceptionally high so pre-booking is essential. Visitor pre-registration for the event and seminars, together with full event information, is available online at  http://www.industry.co.uk/southern/

Farnborough International Venue and Events (FIVE), the new home of Southern Manufacturing and Electronics, offers superb facilities, plentiful free car parking, easy access by road, rail or air, and an excellent selection of local hotels and restaurants. Running alongside the Southern shows will be a new attraction, Auto Aero 2008, a show aimed at specialist aerospace and automotive engineering suppliers. With 25% more exhibition space, better facilities and more attractions, there has never been a more compelling case to visit Southern Manufacturing and Electronics, the biggest and most established manufacturing and engineering show in the South. For more information, call 01784 880890 or visit http://www.industry.co.uk/southern/