IHS Webcast - Counterfeiting, Obsolescence, and Risk
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Transcript of IHS Webcast - Counterfeiting, Obsolescence, and Risk
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Welcome to Today’s Webcast
Counterfeiting, Obsolescence, and Risk
Solutions to mitigate cost, risk, theft and security disruptions in your supply chain
April 7, 2010
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Copyright © 2011 IHS Inc. All Rights Reserved. 2
We want your feedback!
Win prizes for completing today’s webcast survey
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Everyone who completes the survey at the conclusion
of today’s live event will be entered into a drawing for
to win an Amazon Kindle*
Survey Offer
*Offer valid through April 8th, 2011
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Supply & Demand Chain Executive
The executive’s user manual for
successful supply and demand chain
transformation, providing analysis,
viewpoints and case studies to steer
executives and supply management
professionals through the world of
supply and demand chain enablement
to gain competitive advantage.
www.SDCExec.com
twitter.com/SDCExec
www.linkedin.com/in/andrewkreese
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An Era of Counterfeiting
4
“We estimate that, based on
2008 data, the total global
economic value of counterfeit
and pirated products is as
much as $650 billion every
year…
…estimates imply that the
global value of counterfeit and
pirated products could be up to
$1.77 trillion by 2015.”
Frontier Economics, February 2011
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What do counterfeits do
Increase warranty/maint. costs 65%
Reduce expected product life 64%
Inhibit sales / customer satisfaction 62%
Add to individual unit costs 51%
Increase development time/costs 38%
What do counterfeits cause?
Product quality/reliability failures 84%
Customer returns/recalls 67%
Production line stoppages 57%
Product launch delays 36%
What do counterfeits impact?
Damage brand / reputation 71%
Product safety / legal liability 55%
Expose contractual liability 42%
Compromise security 37%
Undermine compliance claims 44%
Supply Chain Risk is High
Source: “Benchmarking Counterfeit & Inferior Grade Components”,
Supply & Demand Chain Executive, 2009
“Jeopardize our missions
and soldiers safety.”
SC BENCHMARK STUDY
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Industry Fights Back SAE International forms G-19 Committee that leads to AS5553
Purpose
This SAE Aerospace Standard standardizes practices to: maximize availability of
authentic parts,
procure parts from reliable sources,
assure authenticity and conformance of procured parts,
control parts identified as counterfeit,
and report counterfeit parts to other potential users and Government investigative authorities.
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GIDEP and ERAI Counterfeit Reports90% of all incidents reported by ERAI
Reported Counterfeit Incidents
SAE AS5553 Names Two
Primary Sources: ERAI and
GIDEP
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“The presence of counterfeit
electronic parts in the Defense
Department’s supply chain is a
growing problem that government
and industry share a common
interest in solving.”Carl Levin, D-Michigan, and
Sen. John McCain, R-Arizona
March 2011
Congress Investigation Launched
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Effects of the Japan CrisisPanic Buying, Shortages, and Pricing Issues?
Source: IHS iSuppli 2011
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Brokers Gone Wild… Already?
Already, calls into brokers are finding big increases in
pricing, with pricing increases of more than 100% seen
by several of the sourcing pros I spoke to this past week.
One of the challenges in using brokers in these emergency
situations is that the initial calls themselves can serve to
intensify pricing pressure.
As such, VPs and Directors of Direct would be very wise
to control, aggregate, and actively manage all calls to
brokers in an attempt to avoid what could be called “self-
competition.”Brokers Wild – Pressure on Japanese Supply Chain Intensifies
Posted by Andrew Bartolini on April 1st, 2011
CPO Rising
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Today’s Speakers
11
Mark Snider
President
ERAI, Inc
Daniel Bronstein
Solution Engineer, Electronic
Products & Solutions Group
IHS
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INFORMATION
+
INSIGHT
=
KNOWLEDGE
Predictive
Obsolescence
Danny Bronstein
Solution Engineer - Direct Parts
Electronic Products & Solutions
Phone: +1 909 481 4150
Email: [email protected]
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Copyright © 2010 IHS Inc. All Rights Reserved. 13
What is Predictive Obsolescence?
Predictive Obsolescence refers to the steps taken to
mitigate the effects of obsolescence by applying predictive
forecasters to component selection decisions.
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Copyright © 2010 IHS Inc. All Rights Reserved. 14
What is Predictive Obsolescence?
Predictive Obsolescence refers to the steps taken to
mitigate the effects of obsolescence by applying predictive
forecasters to component selection decisions.
It is not….• Using a Crystal Ball
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Copyright © 2010 IHS Inc. All Rights Reserved. 15
What is Predictive Obsolescence?
Predictive Obsolescence refers to the steps taken to
mitigate the effects of obsolescence by applying predictive
forecasters to component selection decisions.
It is not….• Using a Crystal Ball• Tarot Card Readings
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Copyright © 2010 IHS Inc. All Rights Reserved. 16
What is Predictive Obsolescence?
Predictive Obsolescence refers to the steps taken to
mitigate the effects of obsolescence by applying predictive
forecasters to component selection decisions.
It is not….• Using a Crystal Ball• Tarot Card Readings• Reading Tea Leaves
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Copyright © 2010 IHS Inc. All Rights Reserved. 17
What is Predictive Obsolescence?
Applying objectively derived information
to assist with making informed decisions.
It is.…
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Copyright © 2010 IHS Inc. All Rights Reserved. 18
Predictive Forecasters
• Life-cycle Code (LCC) and Years to End of Life (YTEOL)
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Copyright © 2010 IHS Inc. All Rights Reserved. 19
Predictive Forecasters
• Life-cycle Code (LCC) and Years to End of Life (YTEOL)
• Life-cycle Code
• Similar to mortality tables used by the insurance
industry which predict human life expectancy.
• The LCC provides a numeric representation of the
estimated position of a component within its defined
Life-cycle.
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Copyright © 2010 IHS Inc. All Rights Reserved. 20
Life-cycle Code
An electronic part typically advances through
six life cycle stages:
1.0 – 1.99
Introduction
2.0 – 2.99
Growth
3.0 – 3.99
Mature
4.0 – 4.89
Decline
4.9
Phase-out
5.0
Discontinued
Time
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Copyright © 2010 IHS Inc. All Rights Reserved. 21
Predictive Forecasters
• YTEOL (Years to End of Life)
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Copyright © 2010 IHS Inc. All Rights Reserved. 22
Predictive Forecasters
• YTEOL (Years to End of Life)
• An estimated number of years before a component
becomes obsolete.
• Real world factors such as the number of
manufacturers producing the component, the type of
manufacturer, OEM versus Aftermarket, and market
consumption data are taken into account.
• Other considerations which are used can be
changes in global availability of raw materials or
manufacturing disruptions due to geo-political
considerations and natural catastrophes.
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Copyright © 2010 IHS Inc. All Rights Reserved. 23
YTEOL
Current
Availability
1 – 2
Years
3 – 4
Years
5 – 6
Years
7 – 8
Years
Available Available Available Available Available
Available Available Available Available Available
Discontinued Discontinued Discontinued Discontinued Discontinued
EOL Discontinued Discontinued Discontinued Discontinued
Available Available Discontinued Discontinued Discontinued
Available Available Available Discontinued Discontinued
Available Available Available Available Discontinued
Available Available Available Available Discontinued
Available Available Available Available Discontinued
End item
Parts
End item
RequirementYears
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Copyright © 2010 IHS Inc. All Rights Reserved. 24
Incorporating Predictive Obsolescence
Engineering and Logistics
• Work with engineering, logistics, and or subcontractors to get accurate part lists on a recurring basis.
Subcontractors
• Establishing a relationship with subcontractors is critical. May need to create contracts, so don’t forget about funding requests.
Electronic Component Database
• Need an Electronic Component Library that is comprehensive, complete, and provides predictive forecasters.
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Copyright © 2010 IHS Inc. All Rights Reserved. 25
Lessons Learned
Supply Chain Disconnect
In addition to incurring additional costs
and losing revenue, not practicing in a
predictive obsolescence mode can
cause you to lose sight of your supply
chain.
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Copyright © 2010 IHS Inc. All Rights Reserved. 26
Lessons Learned
Supply Chain Disconnect
In addition to incurring additional costs
and losing revenue, not practicing in a
predictive obsolescence mode can
cause you to lose sight of your supply
chain.
Price Increases and Counterfeits
Having to source parts after they are
discontinued can add 2,000% to the
purchase price, and can lead you to
the Gray Market and counterfeit parts.
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Copyright © 2010 IHS Inc. All Rights Reserved. 27
Lessons Learned
Supply Chain Disconnect
In addition to incurring additional costs
and losing revenue, not practicing in a
predictive obsolescence mode can
cause you to lose sight of your supply
chain.
Reliability
Certain countries are salvaging
discarded computer equipment and
removing individual components. These
parts are put back into the supply chain
as “new”.
Price Increases and Counterfeits
Having to source parts after they are
discontinued can add 2,000% to the
purchase price, and can lead you to
the Gray Market and counterfeit parts.
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Copyright © 2010 IHS Inc. All Rights Reserved. 28
Lessons Learned
Supply Chain Disconnect
In addition to incurring additional costs
and losing revenue, not practicing in a
predictive obsolescence mode can
cause you to lose sight of your supply
chain.
Reliability
Certain countries are salvaging
discarded computer equipment and
removing individual components. These
parts are put back into the supply chain
as “new”.
Testing Required
Expensive and time consuming testing
might be the only way to tell if the parts
you purchased from some non-
franchise distributors and brokers are
the real thing.
Price Increases and Counterfeits
Having to source parts after they are
discontinued can add 2,000% to the
purchase price, and can lead you to
the Gray Market and counterfeit parts.
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Copyright © 2010 IHS Inc. All Rights Reserved. 29
Lessons Learned
Additional Costs
$14M spent on procuring obsolete
parts. Decisions were not made in time
to buy these parts from the OEM or
franchise distributors.
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Copyright © 2010 IHS Inc. All Rights Reserved. 30
Lessons Learned
Additional Costs
$14M spent on procuring obsolete
parts. Decisions were not made in time
to buy these parts from the OEM or
franchise distributors.
Competing for Parts
Out in the Gray Market, part pricing
became a bidding war when more than
one program wanted the same parts.
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Copyright © 2010 IHS Inc. All Rights Reserved. 31
Lessons Learned
Additional Costs
$14M spent on procuring obsolete
parts. Decisions were not made in time
to buy these parts from the OEM or
franchise distributors.
Competing for Parts
Out in the Gray Market, part pricing
became a bidding war when more than
one program wanted the same parts.
Unneeded Inventory
Perceived benefit of making several
EOL purchases to support an end item
may be negated if obsolescence drives
a redesign before the purchased parts
are needed.
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Copyright © 2010 IHS Inc. All Rights Reserved. 32
Lessons Learned
Additional Costs
$14M spent on procuring obsolete
parts. Decisions were not made in time
to buy these parts from the OEM or
franchise distributors.
Competing for Parts
Out in the Gray Market, part pricing
became a bidding war when more than
one program wanted the same parts.
Cost Avoidance
Employing Predictive Obsolescence
practices would have lowered the cost
to only $4M had the parts been
purchased before they went obsolete.
Unneeded Inventory
Perceived benefit of making several
EOL purchases to support an end item
may be negated if obsolescence drives
a redesign before the purchased parts
are needed.
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Best Practices in Supplier and Parts Risk MitigationMark Snider, President
ERAI
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My Commitment is PersonalSolving counterfeits is critical to our family
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About ERAI Inc.A World of Information at Your Fingertips
• 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.
• Founding participant in SAE International G-19 Counterfeit Electronic
Components Committee and several sub-groups
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IHS and ERAI are Exclusive PartnersOne provider of counterfeit alerts and supply chain risk mitigation
36
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Over 50 Incidents in
the last 14 Days(page 1 of 2)
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Over 50 Incidents in
the last 14 Days(page 2 of 2)
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Example: Infineon TLE5205-2GReported Parts Detail
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Example: Infineon TLE5205-2GScreenshot - Blacktopping
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Example: Infineon TLE5205-2G Screenshot - Blacktopping
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How difficult are these to detect?Let’s look at another: Asiliant Technologies M69000
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Very difficult… and getting worse.“it wouldn’t take much more to make it perfect”
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How Risk Enters Your Supply Chain Intended and unintended ports of entry for counterfeits
1. Many unsafe part & supplier “sources”
• Online Broker Search Engines
• Maverick procurement methods or spending limits
2. These are counterfeit ports of entry
• Rapid access to millions of parts
• Minimal membership requirements
• Quick & easy access to a large audience of buyers
3. Are you creating your own shortages?
• Multiple RFQ’s create false demand signals
• Leads to price increases and incentive for counterfeiting
Request for QuoteRequest for Quote
Request for Quote…
…
…
…
Request for Quote
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Best Practices to Avoid RiskStay Within Your Trusted Supply Chain
1. Direct from the Factory
2. Your Approved Vendor / Manufacturer (AVL / AML)
3. Other Franchised and Authorized Sources
4. Approved Independent Distributors
5. ERAI Members
6. Valid Alternate Parts or Sources• Distributors, Aftermarket Sources
• Alternate Parts - Upgrades, Downgrades, Equivalents…
• Manufacturers and Products sanctioned by qualifying authorities
• Government QML/QPL
Contractually define your expectations. Test accordingly.
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Vet the Open MarketExample ERAI Member Details
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Vet the Open MarketQualify your suppliers
ASK YOUR SUPPLIERS…
Industry Membership and Reporting?
Quality System and Processes?
Warranty and Insurance?
Supplier Qualification and Purchasing Process?
Non-Conforming Material Control?
Inspection and Test?
Efforts made to verify a Parts’ Authenticity before use?
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Vet Real Stock from “Available” PartsIt limits risk exposure from fake sources and price games
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Many Types of Supplier Risk OccurA wide range of incidents pose serious business problems
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“Where there’s a will, there’s a way.”Past due invoices, wire fraud, faulty product for example…
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“Where there’s a will, there’s a way.”Company aliases are changing all the time
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“Where there’s a will, there’s a way.”Relationships exist across “new” supplier entities as well
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BOM analysis is where our clients beginIt’s where “the rubber meets the road” to assess risk exposure
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“IC's were failing to boot up.”
“Maxim stated in writing that they did not manufacture the product shown in the below noted
photographs. The lack of a country of origin and other visual nonconformities suggest the parts in
question have been remarked by an unauthorized third party.”
“Test report shows parts not performing up to spec, incorrect voltage.”
Risks are detected and monitoredProblems are immediately flagged and the BOM can be monitored thereafter
Actual Medical Devices Bill of Material (4 of 94 electronic components)
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1. Are all open market sources the same? No
2. Does real stock versus “available stock” matter? Yes
3. Will a blanket policy preventing open market source
eliminate risk? Some
4. Do vetted open market suppliers require less
testing? No
5. Is buying only from authorized distribution practical
or technically feasible? Not always
Conclusion: Address How You BuyExplicitly tackle the difficult decisions head on
Stay within your trusted supply chain.
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Free Offer for Attendees: Risk AnalysisWe will do a BOM risk assessment for webcast attendees
Fill Out Our Survey and Specify “YES” to Free AnalysisOr Send Email with Subject Line “April 7th Webcast Offer” to [email protected]
Limited to qualified electronics value chain entities.
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Win prizes for completing today’s webcast survey
At the end of today’s survey…
Everyone who completes the survey at the conclusion
of today’s live event will be entered into a drawing for
to win an Amazon Kindle*
Reminder
*Offer valid through April 8th, 2011
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You’re InvitedSupply Chain and Design Strategies
58
Live Webcast:
April 21, 2011 | 8:00 AM PDT
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