The document analyzes trends in counterfeit electronic component reporting from 2005 to 2013 using data from the ERAI and GIDEP databases. It finds that counterfeit incident reporting increased significantly after the 2007 BIS study when reporting was mandated compared to voluntary reporting previously. While counterfeit incidents appear correlated to market fluctuations, data sharing needs more widespread participation to accurately measure trends. Most counterfeits are still identified through established screening processes, but more sophisticated fakes may be slipping through.

1. An Overview of Historical Trends Relating to
Suspect Counterfeit, Non-Conforming and
High Risk Electronic Components
Mark Snider
President, ERAI, Inc.
DMSMS
December 4, 2013
www.erai.com
© 2013 ERAI Inc.
1/28/2014

2. Introduction to ERAI, Inc.
2




Founded in 1995, ERAI is an information services
organization that monitors, investigates and
reports issues affecting the global electronics
supply chain.
ERAI provides tools to mitigate risks on
substandard parts, counterfeit parts, vendors
and even customers.
Subscribers
include
OEMs, CMs, Distributors, OCMs, government
agencies and industry associations.
Actively involved in a number of committees
and task forces addressing the counterfeit
issue.
© 2013 ERAI Inc.

3. Today’s Objectives
3
Analyze the number of counterfeit incidents vs. the number of reporting entities
and measure reporting trends.
Evaluate the amount of data collected when sharing data is mandated vs.
voluntary.
Assess if counterfeit encounters are or are not on the decline.
Identify the most frequently counterfeit product type.
Confirm who is most likely to report and when.
Compare counterfeit activity against supply chain activity.
Determine if there has been a change in procurement practices by analyzing
changes in the number of counterfeit/nonconforming part escapes against
product obsolescence.
Reveal
at what level of inspection most nonconforming and suspect
counterfeit parts are identified.
© 2013 ERAI Inc.

4. BIS Study – June 2007
In June 2007 The US Department
of the Navy, (NAVAIR), asked
the Bureau of Industry and
Security’s Office of Technology
and Evaluation to conduct a
defense
industrial
base
assessment
of
counterfeit
electronics.
NAVAIR suspected an increasing
number of counterfeit/defective
parts were infiltrating the DoD
supply chain and sought to
verify
and
quantify
their
suspicions.
© 2013 ERAI Inc.

5. NAVAIR was correct
- Industry leaders ring alarm bells
5
January 2002 - ERAI began collecting and publishing counterfeit and
nonconforming part data.
January 2004 - ERAI traveled to China to see first hand the recycling
and refurbishing activities that were fueling the supply of counterfeit
parts.
Late 2004 - US Chamber of Commerce launched the CACP (Coalition
Against Counterfeit and Piracy).
June 2006 - SIA Launched the Anti-Counterfeiting Task Force
October 2006 - IDEA-STD-1010-A Acceptability of
Components Distributed in the Open Market) published.
Electronic
Industry leaders were assembling at conferences & symposiums
looking for information and guidance.
Discussions underway within SAE to create a standard to supplement
ISO and AS9100/AS9120 that would specifically address counterfeit
avoidance.
© 2013 ERAI Inc.

6. Counterfeit Incidents Steadily Rise
- As of June 1, 2007, ERAI had reported 1,554 incidents
6

7. BIS Data Source & Survey Period
7
Survey Period
-
2005-2008
Data Source
-
387 companies representing 5 segments of the supply chain
1.
2.
3.
4.
5.
83 OCMS
98 distributors and brokers (45 authorized | 53 unauthorized)
32 circuit board assemblers
121 prime contractors and subcontractors
53 Department of Defense (DoD) agencies
© 2013 ERAI Inc.

8. What We Discover When Information Sharing Is Not Optional
39% encountered counterfeit electronics during the four year period.
8
50% of OCMs
encountered
counterfeit parts
26% of DOD
agencies
encountered
counterfeit parts
26% of prime
contractors and
subcontractors
encountered
counterfeit parts
55% of distributors
encountered
counterfeit parts
34% of circuit board
assemblers
encountered
counterfeit parts
Data was collected under authority delegated to the U.S. Department
of Commerce under Section 705 of the Defense Production Act of
1950, as amended (50 U.S.C. App. Sec. 2155) and Executive Order
12656.
© 2013 ERAI Inc.

9. 29,910 Counterfeit Encounters Reported
- BIS Study 2005-2008 | 90% from OCMs
9
10000
OCM = 26,794
9000
613
Counterfeit Part Encounters
8000
750
938
Distributors = 2,755
CB Assemblers = 154
7000
Prime Contractors = 207
6000
DOD = ?
5000
8644
4000
7295
454
7486
2006
2007
3000
2000
3369
1000
0
2005
OCMs
© 2013 ERAI Inc.
Distributors (AD & ID)
26% (14 out of 53) of the
DoD agencies surveyed
encountered
counterfeits. The
incidents were not
tracked. The number of
incidents is unknown.
2008
Circuit Board Assemblers
Prime Contractors
DOD

10. 2,5555 Counterfeit Encounters
- ERAI & GIDEP 2005-2008
10
1/28/2014

11. Data Source Reporting Comparison
- 2005-2008
11
GIDEP
BIS
BIS Study Period
BIS Study Period
OCM = 3
Distributors = 3
CB Assemblers = 0
Primes & Subs = 10
(DoD) agencies = 1
OCM = 42 out of 83
Distributors = 54 out of 98
CB Assemblers = 11 out of 32
Primes & Subs = 31out of 121
(DoD) agencies = ?
While it is likely organizations surveyed by BIS were also
Members of GIDEP, unless required to reveal counterfeit
encounters, the data was not willingly shared.
© 2013 ERAI Inc.

12. Data Source Reporting Comparison
- 2009-2013
12
GIDEP 2005-2008
GIDEP 2009-2013
BIS Study Period
Post BIS Study Period
OCM = 3
Distributors = 3
CB Assemblers = 0
Primes & Subs = 10
(DoD) agencies = 1
Other = 1
58 Counterfeit Encounters
18 Unique Reporting Sources
OCM = 5
Distributors = 27
CB Assemblers = 11
Primes & Subs = 32
(DoD) agencies = 5
Other = 1
460 Counterfeit Encounters
81 Unique Reporting Sources
© 2013 ERAI Inc.

13. Data Source Reporting Trend
- 2009-2013
13

14. Data Source Reporting 10-year Trend
- GIDEP 2003-2013
14

15. Reported Parts 10-year Linear Trend
ERAI 2003-2013
15

16. Who is Most Likely to Share?
16

17. Why More Data can be Found Within ERAI
17


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ERAI’s membership is open to all sectors of the supply chain, without
geographic restrictions, and is not limited to defense and
aerospace.
ERAI’s reporting mechanism does not require the reporting entity to
publicly identify its supplier.
As awareness increases, suppliers deeper within the supply chain
are catching counterfeit and nonconforming parts keeping them
out of the hands of top tier Independents that sell directly to
government contractors.
Because
of
concerns
over
brand
damage,
legal
repercussions, unwanted media attention, etc., DoD primes and
sub-primes will likely attempt to flow the responsibility of reporting to
their supplier which may result in fewer GIDEP alerts.
Forthcoming US Government regulations will require DoD and its contractors to report
“counterfeit electronic parts or suspect counterfeit electronic parts” via GIDEP. The
impact these regulations will have on the amount of data captured cannot be predicted.
© 2013 ERAI Inc.

18. Reporting Should not Damage a Company’s
Reputation
18
The defense and aerospace industry has
recognized the reporting of counterfeit
part incidents as a key practice to
addressing the counterfeiting threat.
The stigma of being known as a source or
receiver of counterfeit or substandard
parts has been one of the reasons behind
the failure to report such activities.
© 2013 ERAI Inc.

19. 19
Trends cannot be accurately measured without
industry-wide cooperation and participation.
Data sharing is vital to the effectiveness of
ERAI & GIDEP.
1/28/2014
© 2013 ERAI Inc.

20. Does Counterfeit Activity Fluctuate along with
Market Demand?
20

21. Most Frequently Reported Part Types
21

22. Reported Part Types Trend Over Time
22

23. Obsolescence Trend
23

24. Obsolescence Trend
24

25. Obsolescence Incidence
25
1/28/2014

26. How are Most Counterfeits Identified?
- Are Counterfeits Slipping through the Cracks?
26
It
is
widely
stated
that
counterfeiters are evolving their
processes;
however,
the
incidents being reported to ERAI
and GIDEP are detected using
widely
accepted
screening
processes like those called out in
AS5553-A,
AS6081,
CCAP101, IDEA-STD-1010-B, etc.
Are more sophisticated counterfeit parts slipping through the cracks?
© 2013 ERAI Inc.

27. 27
© 2013 ERAI Inc.

28. Counterfeit Detection Methods
28
Revisions to the ERAI
Nonconforming Parts
Database will provide:
• Standardized language
to be used throughout
the entire supply chain.
• Measurable data set.
• Searchability by
nonconformance type.
• Photo library by
nonconformance type.
• Downloadable
Screening Check list.
© 2013 ERAI Inc.

29. Data Trends Conclusions
29





Counterfeit incidents appear to have a correlation to
market fluctuations.
A decline in the number of active parts being reported
suggests organizations are limiting procurements from
the open market to allocation or obsolescence.
Counterfeit trends are relatively consistent over time.
Data trends can help us with assumptions not
conclusions.
Despite being encouraged to voluntarily report, data is
not being widely shared.
© 2013 ERAI Inc.

30. THANK YOU
Send questions and requests for information to:
mark@erai.com
Join- ERAI: Counterfeit Part
Avoidance, Detection, Disposition and Reporting
Follow ERAI on Twitter (@ERAI_Inc)
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© 2013 ERAI Inc.