A look at how one independent electronics distributor works to undermine the efforts of counterfeiters around the globe.
Founded in Houston in 1984, Smith & Associates is a leader in the independent distribution of semiconductors and components for electronic devices. The company works with suppliers that include the likes of Intel and customers that include OEMs as well as high-tech contract manufacturers and assemblers.
Privately held and employing more than 300 people worldwide, the company has garnered a reputation for fulfilling orders that can become particularly challenging during widespread supply chain shortages, as was the case following several tragic events throughout Asia this past year.
Not surprisingly, one of the most critical issues they must address is the receipt of counterfeit electronic parts and components. In a recent interview, Matt Hartzell, the company’s chief operating officer, offered some thoughts on how Smith works to prevent these counterfeit products from reaching the marketplace.
Jeff Reinke, Editorial Director, Manufacturing.net: When did counterfeit products first get your attention?
Matt Hartzell, Chief Operating Officer, Smith & Associates
Matt Hartzell, Chief Operating Officer, Smith & Associates: The problem of counterfeit products in the electronic supply chain has been around for a long time, but it really started to become a major concern around 1999 or 2000 as the “Y2K” and “dot com” eras were peaking and manufacturers were rapidly ramping up production. That, coupled with the prolific offshore manufacturing of parts throughout the world that had occurred by this time, created an opportunity that was soon exploited.
Reinke: What are the potential impacts of receiving and selling counterfeit products? For you? Your customers?
Hartzell: Counterfeit products obviously are a risk to every buyer and seller of goods in today’s increasingly international marketplace. This impact of the risk increases dramatically in certain key industries such as defense, aviation, and pharmaceuticals. The potential impacts are immediately both reputational and financial.
Counterfeiting is an insidious problem. It might take weeks or months before a fake is discovered, so the mere threat of the risk means everyone’s scrutiny must be constantly on the increase, from inspection to record-keeping to knowing your vendor. So costs increase as a result.
Many of the world’s largest electronics manufacturers list Smith as a preferred vendor in large part because of our anti-counterfeit procedures and in-house testing labs. As a distributor, our business is built on relationships.
Any damage to those relationships directly damages our business. Of utmost importance to preserving that relationship – and reputation—is first, constant vigilance in preventing counterfeits from being passed on, and second, standing behind every sale. If a problem is discovered, it needs to be addressed, identified, and resolved without delay. And that product must be removed from the marketplace, not returned for possible resale.
Reinke: What are the most common characteristics of counterfeited products that you have seen in the past? How about currently? Have things changed over time, and if so, how?
Hartzell: Some of the most common signs of counterfeiting have included blacktopping, remarking and altering of manufacturers’ labels and packages. Over the years, counterfeiters are definitely getting more sophisticated in their approach and execution.
They have stepped up to laser printing and etching where ink was used in prior years to re-mark parts. Blacktopping (covering the original markings) and remarking now often start with sanding off original markings and finishes. Because counterfeiters are using increasingly sophisticated tools to perform these removals, we have responded by using more powerful microscopes as well as chemical solution tests to detect evidence of sanding or scraping. We have even used our C-SAM (Scanning Acoustic Microscope), to view traces of the original markings incompletely removed by the sanding or scraping processes.
Counterfeiters also follow market trends and target commodities that are highly in demand. This kind of aggressive pursuit of new technologies and market intelligence by counterfeiters means that we are constantly improving and upgrading our procedures and equipment and monitoring the latest developments to combat their efforts.
Reinke: Why do you think it’s so easy for these products to get on the market in the first place?
Hartzell: Unfortunately, the globalization of the supply chain has introduced opportunities at every level for counterfeiters. The semiconductor industry worldwide exceeds $200 billion, so the incentive to participate is huge. It has opened the door for thousands of new players, some of which may not be reputable, and in markets where local practices or the rule of law may not provide adequate remedies.
Reinke: Are there any initial indicators that might bring a product’s authenticity into question?
Hartzell: In our experience, initial questions about a product’s authenticity start with the product vendor. For that reason, the first step in our anti-counterfeit procedures is vendor evaluation and certification. A vendor’s location, reputation, facilities and financial strength can all be important in evaluating product authenticity. Once a vendor is screened, we use ongoing vendor management tools to assure that all of our purchasing staff operates with the same information concerning a vendor’s merit.
Another indicator might be price. Our systems are constantly showing available pricing per commodity, and sharp deviations below those ranges are red flags.
Reinke: Going step by step, generally describe the testing and inspection procedures Smith uses to ensure that the products you receive and distribute are not counterfeits.
Hartzell: Once product is received, Smith’s Quality Control department ensures that all products go through an inspection and test process that includes: package, barcode and labeling inspection, dimensional statistics, digital imagery, software product verification, functional testing and comparison with manufacturer specifications.
If any indicators of counterfeiting are identified during the inspection process, Smith will escalate the parts to our in-house counterfeit detection lab, which includes advanced counterfeit detection and functionality testing equipment, such as an in-house Decapsulation Machine, C-SAM, Dynasolve Chemical Test, and InspexX130 X-Ray Machine.
Smith's in-house inspectors, engineers and technicians have years of experience as well as ongoing training and multiple certifications in the latest equipment and counterfeit detection techniques. The knowledge of our quality team combined with our equipment allows us to quickly identify non-conforming components.
Reinke: Is there any advice you can offer in helping to avoid the use of counterfeit products or components? Are there any characteristics of counterfeit product suppliers that might raise concerns about the viability of the source?
Hartzell: Vendor screening and selection is critical in the fight against counterfeit components. Smith evaluates vendors based on location, background, longevity, financial stability, audit results and trade references. Third-party recognition of quality, such as affiliation with trade organizations like IDEA (Independent Distributors of Electronics Association), can also be an indication of the legitimacy of a vendor and its commitment to fight counterfeits.
Obviously China has been high on the list of locations where counterfeit product is sourced, but it is by no means limited to there. A market in excess of $200 billion, forecast recently to hit $300 billion by 2013, means you are going to attract all sorts of criminal enterprises, from the people “recycling” used products over campfires in rural China to sophisticated laser etching and fabrication plants elsewhere around the world.
At the end of the day, you can apply all the processes and equipment in the world, but experience matters: if a deal looks too good to be true, it usually is.