1 Vigilance–Enforcement–Abatement World Micro Training Program Diane Hummer, Mahendran Sanggaren 23 rd, July, 2012 Ministry of Domestic Trade Cooperatives and Consumerism Protecting Malaysia From The Economic Impact of Suspected Counterfeit Electronic Components

2 How did counterfeiting start? E-waste is main driver The U.S. and the UK struggled with finding places to dump their e-waste China and Pac-Rim countries agreed to take the e-waste at no charge Photo source: Science Blogs

3 E-waste is valuable China began extracting precious metals from electronic parts

4 Profits in e-waste Remove and re-mark components China also realized it could obtain more profit by removing and remarking components and selling them as new product

5 Defense supply chain study followed In January 2010, the Defense Industrial Base Assessment: Counterfeit Electronics report was released by the U.S. Department of Commerce, the Bureau of Industry and Security (BIS), and the Office of Technology Evaluation (OTE) The purpose of the study was to provide statistics of the extent of the infiltration of counterfeits into the U.S. defense and industrial supply chain, to provide understanding of industry and government practices that contribute to the problem, and to identify best practices and recommendations for handling of and preventing counterfeit electronics

6 From the report: Part 6 Impact “What is the impact from not detecting and preventing counterfeit electronics from entering and leaving Malaysia?”

7 Impact Aerospace applications Without a formal counterfeit electronics detection program, Malaysia is at risk of allowing defective materials in airplanes

8 Impact Medical applications Penang and the rest of Malaysia have several medical manufacturing facilities MRI scanning and human implantable devices are examples of what can be affected

9 Loss of brand identity Reduced brand value can hurt Malaysia If counterfeit components are allowed to be received by Malaysian manufacturers, there will be a loss of brand value to those companies, as well as to Malaysia overall

10 Automobile industry Reliability and quality impact Reworked and counterfeit components can disrupt the reliability of Malaysian automobile products, including automobile running gear, and overall automobile quality

11 Elevator operation Service disruption and safety concerns Counterfeit components can find their way into Malaysian elevator systems around the country. This could cause disruption of service and unsafe operation

12 Traffic control systems Traffic flow disruption and possible injuries Having fake or reworked components used in the Malaysian traffic control system could cause traffic flow problems and even result in serious injuries

13 ATM terminals Impact to the economy and citizens ATM malfunctions caused by counterfeit parts could have a serious impact on the Malaysian economy and the country’s citizens

14 Counterfeits defined … An electronic part that is not genuine because it: …is an unauthorized part …does not conform to original OCM design, model and/or performance standards …is not produced by the OCM or is produced by unauthorized contractors …is an off-spec, defective, or used OCM product sold as ‘new’ or working, or… …has incorrect or false markings, and/or documentation

15 Countering the counterfeits Industry-wide efforts underway Standards AS5553 | IDEA-STD-1010 B | CCAP-101 AS 6081 | ISO Family | QMS-IDEA-9090 Associations IDEA | ERAI |GIDEP | NEDA Differentiation Authorized distributors Independent distributors Brokers

16 Leaks in supply chain Allow material to escape into counterfeit market

17 Independent distribution: Where did it come from and why does the market need it? Industry Pressure – Industry needed to find more ways to manage costs and drive profit. Independents are an ideal solution Lack of Solutions - Companies did not have enough resources to effectively manage the 20 percent of the parts that cause 80 percent of their headaches. World Micro- like independents came to the rescue Franchise, Brokers and Traders -Just Not Enough – Because of manufacturing diversity and volatility of markets, it is no longer economically feasible for franchise distribution channels to support all customer needs. Risk is high when purchasing material from companies calling themselves Independents without certifications. So, independents differentiated themselves. World Micro is a prime example. Value Added Services Protect Customer Supply – Certified independents have expertise in identifying suspected counterfeit and sub- standard material.

18 Independent distribution Minimum requirements If it is recognized that there is a true need for an Independent Distributor in a company’s vendor base, how does one go about selecting the right supplier? The first step is to develop a list of minimum requirements. Each company that seeks to be a “Preferred Independent” should be able to provide the following:

19 Safe Supplier programs are being built..details available soon World Micro is involved World Micro has served as unofficial advisors to three US Senators on the Armed Services Committee World Micro has a state-of-the art quality lab for testing/detection, industry certifications, on-going testing/compliance programs Earned spot on the QSLD Working with DoD and have supplied govt. for years Have process for GIDEP reporting Aligned with associations like ERAI, IDEA etc…