Beware of counterfeiting: How to seize the opportunities of procuring electronic components in the free market, minimising possible risks.

Capture open-market sourcing opportunities while minimizing risk

Today, sourcing electronic components from the open market has become critical if companies want to ensure the competitiveness and continuity of their production lines and the resilience of their supply chains, according to Alessandro Nardo, founder and sales director of independent distributor Electronic Partner.

“However, there are significant risks associated with the seemingly excellent prices and perfect delivery times promised by websites and web platforms,” warns Nardo. “In general, these issues relate to the quality of the goods and the lack of recourse in the case of non-conforming, defective or counterfeit products, as well as the security – or protection – of the payment, which guarantees the safety of the money until confirmation of receipt and proof of authenticity the goods themselves.”

Quality Issues

Counterfeiting is a growing problem that takes many forms. Although comprehensive global statistics are not available, the Semiconductor Industry Association reported in 2023 that counterfeiting costs U.S. semiconductor companies more than $7.5 billion annually.

Counterfeit products can come from:

  • Official production surpluses sold outside the manufacturer’s official channel by unscrupulous employees.
  • Stock components resold on the market by companies that no longer need them. Sometimes these batches of products are misrepresented to “meet” market demand.
  • Low-quality prototype products that do not meet the manufacturer’s performance or quality standards, but are released to the market instead of being destroyed.
  • Unofficial and unauthorized copies of original components that are intentionally modified, repackaged, marketed and sold as original products, but lack the quality or warranties of the components they purport to be.
  • Old, obsolete, recycled, or discarded components that have key identifiers such as the manufacturer’s name, serial numbers, date codes, or packaging altered so that they can be resold as high-demand items by questionable dealers.

How much do counterfeit electronic components cost companies?

Counterfeit electronic components can cause incalculable damage. Some of these risks include:

  • Damage to production lines, product performance, and brand reputation – Poor quality products that do not fit or perform as expected, or that break almost immediately, can degrade or damage production lines, reduce or prevent the performance of other production equipment and even products, potentially injure customers and even cause death (in the case of medical devices), and ultimately damage your reputation.
  • Counterfeits are increasingly difficult to detect – The use of artificial intelligence tools is improving the quality of counterfeit packaging and label production. In addition, counterfeits often have unpredictable failure rates that occur during high performance or peak demand, or under extreme operating conditions. These problems go undetected during standard condition testing. All of these issues make it nearly impossible to identify counterfeits.
  • Business Failure – In extreme cases, counterfeit components can host ransomware payloads that block access to some or all of the company’s data and equipment until a large ransom payment is received – and even then, the ability to access the data is not guaranteed, potentially causing a complete business failure in addition to the huge payments required.
  • Job losses – A 2011 study commissioned by the International Chamber of Commerce estimated that counterfeiting is responsible for the loss of 2.5 million jobs worldwide.

Lack of recourse

Before buying on the open market, companies should find out as much as possible about the legitimacy of the supplier they are buying from, how long it has been in business, whether it has a verifiable track record, what its replacement or return policies are, and whether it is reliable and trustworthy.

According to Nardo, the safest choice is to work with a professional independent distributor that has a reputation and proven track record in the marketplace and is willing to provide actual customer references that can be contacted to verify their claims.

He adds, "It is even better to work with an independent distributor like this who also offers escrow services to protect your money until the goods are received and who employs an independent testing company/laboratory to perform all necessary inspections and tests on the products to ensure their authenticity and quality.

The benefits of using independent testing laboratories

The use of third-party testing laboratories ensures that the results of testing procedures are completely independent of any potential bias or vested interest, and that the company will identify and report any anomalies or deviations from the product manufacturer’s technical specifications.

These companies are highly specialized in various types of counterfeit testing, including:

  • Quality assurance – using rigorous inspection techniques such as external visual inspection, integrated circuit decapsulation, lead testing, and material analysis to ensure the authenticity of components.
  • Compliance testing – they verify compliance with international quality standards for electronic components, such as the EU’s Restriction of Hazardous Substances (RoHS) Directive and the U.S. Department of Defense’s MIL-STD-1276 (MIL Lead) standard, where applicable, to assess the authenticity and validity of components.
  • Advanced Inspection Methods – Laboratories have advanced inspection equipment to analyze the internal structure of components and their surface characteristics through XRF analysis, electrical curve tracing, SEM (Scanning Electron Microscope), BGA (Ball Grid Array) verification, and die verification through OCR (Optical Character Recognition).

“Independent testing laboratories that are completely external to the supply channel have no interest in proving specific test results,” explains Nardo, “Their expertise allows them to recommend which tests to run on a specific part based on the history of nonconformities found in other batches. This significantly reduces testing time and increases the success rate of identifying potential counterfeit or nonconforming parts.

With more than 20 years of experience in electronic component distribution, Electronic Partner has built an established and reliable network of fully inspected, verified and tested suppliers, even for hard-to-find or obsolete components.

“To ensure our customers’ peace of mind, we always offer independent testing of all ordered components prior to shipment to verify their authenticity and functionality. Notwithstanding this, our customers then have a warranty period, agreed at the quotation stage, within which we will respond to any anomalies that may have escaped the testing laboratory used. We also continuously monitor reliable industry sources for up-to-date news on counterfeits,” concludes Nardo.

Beware counterfeit electronic components when sourcing on the free market. Work with a reputable independent distributor to minimize the risks.

Article originally published in Italian in the print edition of Elettronica AV.

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