A novel database and alert system help keep fake parts out of the supply chain.

On April 16, 2005, a delivery truck in the Philippines was hijacked and robbed of $2.2 million in Maxim parts, many of which had been untested and had a possible failure rate of up to 30%. Maxim disclosed the theft to the public on April 21. In a matter of minutes, all users of a special ERAI alert system were notified.

With counterfeit or otherwise bad parts entering the supply chain at possibly unprecedented rates, the need for global information exchange has never been greater. This month, we spoke with two executives from ERAI Inc. (erai.com), a 1,000-member strong for-profit trade group made up of all flavors of component distributors, EMS firms, OEMs and even government agencies.

With the proliferation of questionable materials, ERAI finds itself heavily involved in risk assessment and mitigation on vendors, customers and parts. The group investigates allegations of bad components and analyzes the risk of using certain vendors. The results are then entered into a vast, growing database, accessible to its members.

Bad parts are like colds: They can come from anywhere, and no one is immune. “We’ve seen material that has come back to the manufacturer through stock rotations – a lot of distributors have non-franchised buying arms – and re-listed for sale,” explains ERAI president Dan DiMase. This can happen, he says, when the OEM component manufacturer fails to verify the parts are theirs or the counterfeiter is good.

In some cases, problems can be traced to the foundry. A lot of original component manufacturers are fabless. The lack of control over the physical part leads to all kinds of mischief. DiMase ticks off a few: “A defective product that should be smelted makes its way outside the factory floors. We’ve seen instances with recycling efforts, particularly with WEEE, where parts are sent out, refurbished and resold. Die that should be destroyed are being stolen. Reverse engineering."  

Be it expensive processors or half-penny passives, no part types are immune to counterfeiting, says DiMase. “We’ve seen an Analog Devices part that has a Texas Instruments cross-match – not pin for pin, maybe not as tight as a tolerance, but not as expensive – re-marked to look like the AD part in order to make more money.” Or one component OEM acquires another and the ability to trace a part becomes convoluted.

Often, but not always, the parties responsible are based in China. “Some of these individuals are making $600 a year. If they stick someone for $10,000, that’s several years of wages,” says DiMase. Locals often get away with it because litigating is expensive.

In response, ERAI has developed a proprietary database for compiling and alerting members to fakes. Each listing contains the part number, date and lot code, country of origin, a description of nonconformance (and images, as available), and the money shot: Is it counterfeit? Says DiMase, “We’re trying to create a backstop so [users] can put the appropriate measures in place, so maybe the assembler will send it off to test rather than just slapping it on the board.” While the information contained in each entry is more relevant to manufacturers, distributors applaud the effort because it reduces the instance of counterfeit items, ERAI director of marketing Bob Turner adds. "OEMs don’t want customers to lose faith in the brand because of counterfeit items being sold.”

In the past three years, use of the database has exploded, Turner claims, as ERAI became “much more proactive in telling members we need more information, and users much more forthwith in bringing us that information.”

Subscribers to the database also qualify for the ERAI’s dispute and complaint alerts. In the former, companies submit reports on disputed components, along with any supporting documentation. The case is assigned to an investigator, called a case manager. “Anything we report has been thoroughly investigated by our case manager,” Turner assures. “This isn’t a gossip column.”

Under the complaint alert procedure, complainants can out suppliers or customers for shipping faulty or substandard parts or wrong products, past due invoices, cancelable orders, checks written on closed accounts, bankruptcy, foreclosure, fraud and so on. The complainant is not disclosed, to avoid being identified with the problem reported. Nor does the ERAI attempt to restrict business with the fingered company. “We don’t say, ‘Don’t do business,’ ” says DiMase. “It’s a caveat emptor, and [says] perhaps you want to set up the appropriate backstops.”

It’s an important distinction, as the company is neither legal arbitrator nor enforcement agency. The group offers mediation services, but in the majority of cases, members ask for investigative help. Many members opt to use ERAI in lieu of legal arbitration, or will use its findings as a summary to bring to a judge or arbitrator.

While no program can insure absolute protection against loss, DiMase recommends electronics companies build a quality risk mitigation policy into their procurement and quality procedures. ERAI members, he says, are “going up the supply chain to ensure they are following the practices.”

Mike Buetow is editor-in-chief of Circuits Assembly; mbuetow@upmediagroup.com. This column appears monthly.

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