Protecting yourself from counterfeit and gray market components

Much has been said about the estimated $75-billion lost annually to counterfeit products and its impact to the microelectronics industry, but little is said about how manufacturers can protect themselves. From quality to safety issues to intellectual property (IP) theft, counterfeit components have a significant negative impact on manufacturers and those who purchase gray parts.

Purchasers of counterfeit parts tend to fall into two camps: those willing to cut corners and purchase regardless of quality just to save some money; and those who don’t know they are purchasing counterfeits. Not only do manufacturers lose money when counterfeit parts are sold, but their brand is often damaged when their customers are falsely led to believe they are purchasing legitimate parts with a high standard of quality.

As a manufacturer of switches, quality is one of the most crucial elements of our brand. If the switch doesn’t meet quality standards and tests that we expect from our manufacturing processes, it is discarded and destroyed. As a company, we’ve worked hard to enforce processes and other controls so that we don’t have counterfeit parts in our supply chain or inventory.

While purchasers should confirm the legitimacy of parts with the vendor and authorized distributors before buying components, manufacturers also need to put into place best practices to protect their customers from buying counterfeit or gray market parts.

Many years ago we put processes in place to ensure gray market parts – parts that didn’t pass our quality standards – are discarded and destroyed. We also identified and pursued those who sold counterfeit parts purporting to be from NKK Switches. As a result, the issue for us is virtually non-existent. We accomplished this by following some basic best practices to protect ourselves from counterfeit and gray market parts. These best practices include:

• Implement supply chain security processes

• Provide resources that confirm legitimacy

• Enforce policies, rules and laws relentlessly

Implement supply chain security processes

The first thing manufacturers should evaluate is their own supply chain security in protecting their customers against counterfeit or gray market components. Not only should they be able to trace a part from the manufacturing process through the various distributors until it is sold, but they should be able to identify if the part is being resold illegitimately.

This process should begin at the end of the manufacturing process. Each part should be easily identifiable. Just as currency is often modified to prevent counterfeit money, logos, lot codes, serial numbers and other unique features should be evaluated frequently to make components easily identifiable.

In addition, manufacturers should have processes in place to corroborate that parts that don’t meet quality standards and other discarded parts are destroyed properly. They should also verify that parts are only sent to authorized distributors. Missing parts can often be resold without the proper testing. Ensuring that bulk orders contain ranges of serial numbers, dates codes, lot codes or other batch identifications rather than random part numbers is another way to help customers ensure parts are legitimate.

Training should occur with anyone who has access to product, those on the manufacturing line, the warehouse, shipping, distributors and support engineers. This training should include information about the liability these individuals can incur through improper handling of manufactured items, and how they can identify counterfeit and gray market components.

Finally, manufacturers should appoint someone who can regularly set aside time to search for illegitimate parts that are being sold online. This is particularly crucial when there is a change in pricing and when price of raw materials drastically shifts. Often the lowest-priced item that is advertised in some dark corner of the Web is not a legitimate part and is more easily found during these times than others. Putting in place such processes is easy, not very time consuming and can save thousands of dollars.

Provide resources that confirm legitimacy

The manufacturer should clearly provide on its website the essential information that can help identify counterfeit parts. Manufactures websites need to list which distributors are authorized to sell their parts. Customers should also be able to quickly match up the information listed with the part with information provided on the website. If it doesn’t match up, more than likely it is a counterfeit component. Manufacturers should ensure that their distributors are authorized by organizations like the National Electronic Distributors Association. This ensures that the distributor is reputable and trusted and should also be listed on the company website.

In addition to helping with customer service, making support teams available to distributors and customers to detect counterfeit components is crucial. Not only should engineers and purchasers be trained on the process of proper specification and purchasing, but manufacturers should train their employees, distribution partners and other frontline representatives to prevent counterfeit parts.

Support engineers should also be able to ensure the quality of a switch, and should definitely know how to identify if a part is counterfeit. For example, switches come with various ratings that describe their expected lifetime including the minimum number of guaranteed actuations before the switch is less likely to function properly. If this does not match up with documentation the customer received then it is likely they are dealing with counterfeit components.

Company support engineers, authorized distributors and other front-line representatives should have access to a database that has each manufactured component’s serial number so that they may verify the part number when customers call.

Distribution partners should not only provide proper documentation with parts they ship, but they should know how to handle verification requests. They should also be familiar with the specification of any component they work with.

Enforce policies, rules and laws relentlessly

Because their reputation is at stake manufacturers must take a zero-tolerance stance in enforcing company policies, regulations and laws. Every course of action available should be taken, including lawsuits, prosecution, termination of employment or contracts, and more. Working with government officials, law enforcement professionals and legal teams is essential.

Time and resources should be regularly set aside for the identification and tracking of counterfeit parts. While there are some organizations and services that can help with this, often the best course of action is simply just to have a process in place that is done on a regular basis.

If counterfeit or gray market parts are identified, the manufacturer has no choice but to pursue each case to the maximum penalties to ensure the safety of customers, the quality of products and reputation of the company is protected.

By following these best practices, manufacturers can help protect themselves, and protect their customers from purchasing counterfeit or gray market components.

www.nkkswitches.com