How to mitigate the risk of counterfeits in your supply chain?

The easiest thing would be to avoid the open market totally and only buy from franchised sources or directly from manufacturers, but that is not realistic in today’s world for many reasons. Independent distributors are a necessary part of the electronics supply chain.

Open Market Policy
The first way to mitigate this risk is to create an open market policy and communicate it clearly within your organisation. You need to look into when the open market can be used, who authorises the purchases, and how you perform the quality control for the parts procured. Who should you deal with and what should you do if you detect counterfeit parts? What standards and practices do you expect from your partners and what standards and practices should be implemented in your own organisation? There are a number of good practices already established in the industry. Familiarising yourself with those is a good place to start.

Limit your purchases
Rule number one is to limit your purchases to the times when they are truly needed, and in the case of the EMS, clearly communicate the situation to your customer. The EMS should also know whether his customer has his own policy in place and what requirements that poses on each of you in your dealings with the open market.

Approved list of companies
The next way to mitigate risk is to deal only with reputable independents. The market has numerous players, many of them disappearing into the sunset and then popping up under a new name by dawn. Despite the availability of parts on many internet sites, never deal with a distributor you do not know. When creating your list of approved brokers, look into companies that have been around for a long time, as the most unscrupulous brokers tend to have short life-spans. Audit their quality systems (there are specific standards and best practices for counterfeit detection) and understand how they will protect you from bad components. They should have processes in place for “Avoidance”, “Detection”, “Disposition” and “Improvement” in regards to counterfeits. Check whether they are a member any of the organisations that exist to fight the problem. Some of the big franchised distributors have invested in the leading independents, putting their reputation on the line in case something bad happens. Post the contracts in a prominent place and make sure they are understood by both parties. Discuss all issues of concern with the independent distributor’s management and develop a relationship with them. Make sure they understand that you have a short approved list and that all your company’s open market business will go to vendors on that list and nowhere else. Give them access to your procurement staff and make sure relationships are established on all the necessary levels. And then, just deal with companies on your list and keep on developing the relationship. Good independent distributors have the knowledge, processes and tools to keep you safe from the risk.

Process control
Despite having only the “good companies” on your list, pay additional attention to the parts as and when they arrive. Use of external test houses should be done if there are any doubts of the origin of the parts. Increased awareness in your own Incoming Quality Control and production departments is strongly recommended, and test the final products extra carefully.

Finally, every case where counterfeits are encountered should be reported and the parts should be disposed of properly to avoid them ending up in the market again.

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