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ENERGETIC MATERIALS CO. Form 2498A 04/07 1 Counterfeit Parts Awareness Avoidance, Detection, Mitigation, and Disposition Requirements Are Based On: SAE.

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Presentation on theme: "ENERGETIC MATERIALS CO. Form 2498A 04/07 1 Counterfeit Parts Awareness Avoidance, Detection, Mitigation, and Disposition Requirements Are Based On: SAE."— Presentation transcript:

1 ENERGETIC MATERIALS CO. Form 2498A 04/07 1 Counterfeit Parts Awareness Avoidance, Detection, Mitigation, and Disposition Requirements Are Based On: SAE AS5553 (Aerospace Standard) IDEA-STD-1010-B (Distribution Industry Standard) DODI 4140.01 (DOD Supply Chain Material Management Policy) LMSSC TFUF-002599 (PMP Supplier Requirement) PSEMC SQC 100 (Counterfeit Prevention) PSEMC DI-ENG-322(HL) (PMP Engineering) Last Revised March 19, 2014

2 ENERGETIC MATERIALS CO. Form 2498A 04/07 2 Topics To Be Covered 1.What is a counterfeit part? 2.Is counterfeiting really a problem? 3.The real impacts of counterfeiting 4.Why are parts counterfeited? 5.Description of the supply chain 6.How do counterfeit parts get into the supply chain? 7.How are parts typically counterfeited? 8.Re-marking methods and changes 9.Indicators of reclaimed parts 10. How can counterfeit risks be reduced?

3 ENERGETIC MATERIALS CO. Form 2498A 04/07 3 What Is A Counterfeit Part? DODI 4140.01: “Material whose identity or characteristics have been deliberately misrepresented, falsified, or altered without legal right to do so.” Examples: 1.Improper internal construction (dies, mounting, wire bonds, etc.) 2.Used, refurbished, or reclaimed but represented as new 3.Different package style, surface plating / finish 4.Did not successfully complete the OCM process and test 5.Up-screened parts (MIL, Hi-Rel, etc.) but not fully tested 6.Modified labeling or marking (manufacturer, country of origin, form, fit, function, grade, or date of manufacture)  Note: Parts that have been refinished, up-screened, or uprated, and have been represented and documented as such are not counterfeit.  Parts are considered “suspect” until proven counterfeit by the OCM and/or suitable advanced methods.

4 ENERGETIC MATERIALS CO. Form 2498A 04/07 4 Is Counterfeiting a Problem? From a U.S. Department of Commerce, Office of Technology Evaluation (OTE) Survey Report, January, 2010: “OTE data revealed that 39 percent of 387 companies and organizations participating encountered counterfeit electronics during the four-year period (2005 – 2008). Moreover, information collected highlighted an increasing number of counterfeit incidents being detected, rising from 3,868 incidents in 2005 to 9,356 incidents in 2009.” Specific findings from the survey:  46% of surveyed discrete component manufacturers and 55% of surveyed microcircuit manufacturers encountered counterfeit versions of their products.  Counterfeit products were discovered in all 14 discrete electronic component and six microcircuit product categories listed in the survey.  QPL and QML known counterfeits increased by >10X in four years.  The large majority of reported counterfeit parts were in the $1.00 - $100.00 retail price range. The full range was $10,000.

5 ENERGETIC MATERIALS CO. Form 2498A 04/07 5 Is Counterfeiting a Problem? From a 2012 U.S. Senate Committee on Armed Services Report: Conclusion 1: China is the dominant source country for counterfeit electronic parts infiltrating the defense supply chain. Conclusion 2: The Chinese government has failed to take steps to stop counterfeiting operations that are carried out openly. Conclusion 3: The DOD lacks knowledge of the scope and impact of counterfeit parts on critical defense systems. Conclusion 4: The use of counterfeit parts in defense systems can compromise performance and reliability, risk national security, and endanger the safety of military personnel. Conclusion 5: Permitting contractors to recover costs incurred as a result of their own failure to detect counterfeit components does not encourage the adoption of aggressive counterfeit avoidance and detection programs. Conclusion 6: The defense industry’s reliance on unvetted independent distributors … results in unacceptable risks. Conclusion 7: Weaknesses in the testing regime for electronic parts create vulnerabilities that are exploited by counterfeiters. Conclusion 8: The defense industry routinely fails to report cases of suspect counterfeit parts, putting the integrity of the defense supply chain at risk.

6 ENERGETIC MATERIALS CO. Form 2498A 04/07 6 Is Counterfeiting a Problem? General findings:  All elements of the supply chain were directly impacted.  Nobody in the U.S. supply chain talks to anybody else.  Common assumption: somebody else is testing the parts.  Lack of traceability and accountability in the supply chain.  Recordkeeping is very limited – or non-existent.  Who do you report counterfeit parts to?  Inventories need better testing and controls. YES, there IS a problem!

7 ENERGETIC MATERIALS CO. Form 2498A 04/07 7 Impact of Counterfeiting Given: Counterfeit parts exist in the supply chain. So what?  Safety concerns – military systems, satellites, medical devices / healthcare systems, aerospace, and automotive  Erosion of business confidence:  Intellectual property & brand damage  Loss of sales  Reduces ability to sustain technology development  Adds costs to compensate for loss of trust in suppliers  Costly rework, corrective actions, and full legal liability. No government contract funding may be used to repair or replace products found to contain counterfeit parts.

8 ENERGETIC MATERIALS CO. Form 2498A 04/07 8 Why Are Parts Counterfeited? Because it is profitable!  Source material is cheap – production scrap, reclaimed salvage (“E-Waste”), obsolete revisions, or out-of-date for use.  High product demand is created by:  Out of stock (high short-term demand, lack of availability),  Out of production (obsolescence),  Manufacturer-limited (poor yields, allocation to select customers),  Restrictions on country of origin, and  Pressure to reduce costs.  Ready sources of low-cost labor and lack of legal and environmental oversight – China, Taiwan, Malaysia, Singapore  Under-utilized and low-cost manufacturing facilities in developing countries – wafer fabs, device packaging lines, etc.  Ability to steal, buy, or reverse-engineer designs for high-value components.  Low risk – poor record of detection, identification, and prosecution.

9 ENERGETIC MATERIALS CO. Form 2498A 04/07 9 The Supply Chain  OCM – the Original Component Manufacturer, the top of the supply chain. Sales are made to all the organizations below.  Authorized (Franchised) Distributors – Authorized by contract with the OCM to stock and sell the OCM’s product, often including marketing and technical support from the OCM.  Independent Distributors – Do not have OCM agreements, purchase inventory on the open market, maintain stock, and resell back into the open market and to end users. They may or may not have the technical ability to evaluate components.  Brokers – An agent with market knowledge who arranges transactions between two parties usually unknown to each other. Brokers are sometimes also called independent distributors, but do not typically carry inventory.  Sub-tier Suppliers – PWA and contract assembly houses with turnkey procurement programs.  Outside Service Providers – Testing labs, special process houses, chemical processing, lead forming, repackaging

10 ENERGETIC MATERIALS CO. Form 2498A 04/07 10 How Do Counterfeit Parts Get In? As many as 20% of the counterfeit electronic component incidents reported have involved the OCM/authorized distribution channels. There are multiple ways this can happen:  47% of authorized distributors buy parts from independent distributors, 29% from brokers, and 27% from Internet-exclusive sources. (OTE Report)  OCM or distributor employee fraud. Rejected wafers, dice or assembled parts are diverted from scrap containment and sold to counterfeiters for completing.  OCM’s accept returns or buy back “surplus parts” without adequate safeguards. Counterfeit parts are linked to legitimate traceability for previously purchased parts and are restocked.  Lack of verification of OCM shipments by legitimate authorized distributors because of the assumed integrity of the source.  Most OCM’s still will not verify suspected counterfeit parts for independent distributors or end users.  U.S. front companies are set up to fraudulently sell mismarked Chinese-made parts as made in the U.S.

11 ENERGETIC MATERIALS CO. Form 2498A 04/07 11 Good, Bad, Really Ugly…

12 ENERGETIC MATERIALS CO. Form 2498A 04/07 12 How Are Parts Counterfeited?  The most common is re-marking:  Legitimate parts to a newer date code.  Down-rev parts to a higher or current level.  Change the manufacturer or country of origin of parts to be more salable to a wider market.  Similar but unequal parts to a different device type.  Next most common is reclaiming used parts from the E-waste stream and presenting them as unused, or as feedstock for re- marking. A counterfeit and ecological disaster.  Packaging surplus or rejected wafers or dice as if they were good parts from the original manufacturer.  Reverse-engineering and manufacturing in low-cost facilities, marking and selling them as the legal OCM’s parts (the proverbial Chinese copy).  Sale of non-functional components (dummies to dummies).  Providing false traceability for all of the above.

13 ENERGETIC MATERIALS CO. Form 2498A 04/07 13 Multiple Packages, Same Date Code

14 ENERGETIC MATERIALS CO. Form 2498A 04/07 14 “Blacktopped” Parts

15 ENERGETIC MATERIALS CO. Form 2498A 04/07 15 Re-marking Methods and Changes  Markings were originally sanded off, leaving sanding scratches and rounded edges.  Covering materials were painted or sprayed on (blacktopping) to cover original markings, but left a very different surface finish.  Powdered package material was added to the blacktopping and screened on to improve the surface appearance.  Application methods were improved to keep mold indentations from filling or losing their smooth surface.  Laser marking capability became available with used/surplus equipment, but wear and poor maintenance leave visible signs.  Printing methods have been improved, but alignment is still mostly manual and character/logo formation are not up to OCM standards.  The part bottom is not usually modified or re-marked, and top-to- bottom differences are visible until the parts are assembled.

16 ENERGETIC MATERIALS CO. Form 2498A 04/07 16 Re-Marked Parts

17 ENERGETIC MATERIALS CO. Form 2498A 04/07 17 Blacktop in the Mold Cavity

18 ENERGETIC MATERIALS CO. Form 2498A 04/07 18 Reclaiming Indicators  Excess solder or flux, or cracks in solder, from re-tinning.  Missing, shortened, or bent leads  Leads extended by welding or soldering  Changes in lead width or diameter  Different degrees of oxidation on leads  Lead damage, evidence of mishandling  Insertion or probe marks on leads, showing prior use  Component body damage, pry marks, contamination  Heat marks, scorching  BGA spheres oxidized, misaligned, or missing

19 ENERGETIC MATERIALS CO. Form 2498A 04/07 19 Insertion Marks on Pins

20 ENERGETIC MATERIALS CO. Form 2498A 04/07 20 How Can Risks be Reduced? 1.Purchase only from OCMs or verified authorized distributors – required by customer flow-down, DI-ENG-322, and Form 842 (SQC-100). 2.Require only original signed certs and documents - no photocopies or scanned and printed documents that hide changes. 3.Verify and preserve packaging labeling, seals, and materials. Counterfeiters don’t invest heavily in things that usually get thrown away at the receiving dock. 4.Verify LDC’s and quantities for all parts in a lot against OCM and Distributor invoices (trace). Date codes can be checked on many OCM websites to verify they were actually used. (70% of known counterfeit date codes were after OCM end of production.) 5.Verify part carriers, labeling, part orientation, etc. Carriers are often reclaimed by counterfeiters, never by OCM’s. Parts loaded by hand don’t have the repeatability of machines, or the OCM’s QC. 6.Verify part number, manufacturer, part quantity for the full lot – mixed date codes never come from the OCM. 7.Visual part inspection per IDEA-1010-B checklist (100% or large samples).

21 ENERGETIC MATERIALS CO. Form 2498A 04/07 21 Counterfeit Labels

22 ENERGETIC MATERIALS CO. Form 2498A 04/07 22 Counterfeit Labels

23 ENERGETIC MATERIALS CO. Form 2498A 04/07 23 How Can Risks be Reduced? 8.Perform sample part marking tests (non-destructive) – detects cheap or improperly cured inks. 9.Perform sample surface tests (non-destructive) – detects the presence of “blacktopping” covering the original markings. 10.Verify and record sample dimensions (non-destructive) – most commonly overlooked but useful for discrete components. 11.Perform and record sample electrical, XRF, and leak tests (non-destructive) – many counterfeit discrete components are not the correct value (saves inventory!). 12.Perform and record de-lid or x-ray inspection (destructive) – done on lot samples for each date code, or whenever another inspection or test identifies a lot as “suspect”. 13.Document, verify, report, and properly dispose of suspected counterfeits so they cannot re-enter the supply chain. 14.Regularly review counterfeit alerts (GIDEP, customer, etc.). 15.Plan for obsolescence well in advance of possible need.

24 ENERGETIC MATERIALS CO. Form 2498A 04/07 24 After Device Marking Test…

25 ENERGETIC MATERIALS CO. Form 2498A 04/07 25 After Device Surface Test…

26 ENERGETIC MATERIALS CO. Form 2498A 04/07 26 In Summary Avoid Counterfeiting:  Select, qualify, audit, and monitor suppliers  Enforce and verify flow-down to sub-contractors  Monitor customer/government sources of counterfeit information Detection of Counterfeits:  Associate awareness, training, and responsibility  A robust inspection and testing program  Integration into the PMP plan – part of the Quality culture Reduce Counterfeit Part Impact:  Select high-yield and available components from reputable OCM’s  Qualify alternate parts  Prepare for obsolescence before end-of-life Safely Dispose of Counterfeit Parts:  Comprehensive containment procedure  Full documentation and reporting of all incidents  Drive corrective actions back to the supplier

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