Dear Members & Colleagues:

Welcome to the first edition of INSIGHT, a quarterly newsletter that will address topics relevant to any organization involved in the purchase, sale, inspection or use of electronic parts/EEE parts. There are two key objectives we hope to achieve with this publication: 1) to better serve and more deeply connect with our existing Members and 2) to further our awareness efforts to a broader audience.

Each edition of our newsletter will align with ERAI’s core mission which is to provide tools and information that can be used to reduce risk and help our Members make the most informed business decisions possible. We will offer readers news from within ERAI, standards updates, access to surveys and studies, white paper reviews and upcoming educational and networking opportunities. We will carefully monitor industry norms, make you aware of the most pressing supply chain challenges, and ensure you are up-to-date on the most current counterfeit identification and mitigation strategies and techniques. As the newsletter matures, we plan to include articles from guest writers from our community to share their experiences and expertise.

We want to hear from YOU

If you are interested in being a guest contributor or have suggestions or ideas to make this publication more beneficial, please contact me. I can be reached at anne@erai.com. All input is welcome.

Stay Plugged In

A lot can happen in three months. As I previously stated, this newsletter will be distributed quarterly so for immediate access to many of the issues we address, join ERAI’s LinkedIn Group (ERAI: Counterfeit Part Avoidance, Detection, Disposition and Reporting) where new topics are addressed each week by ERAI Members and non-Members alike.


Anne-Liese Heinichen

Kristal Snider, Vice President

It has been well established that fraudulent, suspect counterfeit and counterfeit parts have no value and pose a serious threat to all sectors of the supply chain. As such, these types of parts must be controlled, quarantined and ultimately eliminated. However, compliance is sometimes easier said than done despite instructions to do so coming directly from the United States Government and a leading standards development organization.

What's the basis for implementing a material control plan?

The Defense Industrial Base Assessment report titled Counterfeit Electronics prepared by the U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation states that in order to curtail the flow of counterfeit parts into the U.S., defense and industrial supply chains organizations should, "ensure physical destruction of all defective, damaged, and substandard parts."1

SAE Aerospace Standard AS5553 Revision A requires the control of "nonconforming parts to prevent them from entering the supply chain under fraudulent circumstances by physically identifying and segregating the parts from acceptable non-suspect parts and placing in quarantine".2 "Parts should not be returned to the supplier for refund, replacement, etc., except under controlled conditions which would preclude resale of the suspect fraudulent/counterfeit EEE Parts."3

SAE Aerospace Standard AS6081 requires Independent Distributors to control suspect or confirmed fraudulent/counterfeit parts by "physically segregating the [suspect or confirmed fraudulent/counterfeit] parts from acceptable non-suspect parts and placing in quarantine. Quarantine should consist of physical barriers and controlled access for a minimum of five (5) years or maintained in accordance with Customer statutory and regulatory requirements."4

The National Defense Authorization Act for Fiscal Year 2012 [H.R. 1540 Sec. 818] called for "policies and procedures to eliminate counterfeit electronic parts from the defense supply chain" and that these policies shall include "the reporting and quarantining of counterfeit electronic parts and suspect counterfeit electronic parts."5

Minimizing risk when controlling suspect and confirmed counterfeit parts

Most business owners I talk to support the control of suspect counterfeit, counterfeit and fraudulent material and agree if these types of parts are returned to their originator, they will find their way back into circulation. In order to protect their financial bottom line, many Independent Distributors rely on escrow service providers, if open payment terms are not an option, to ensure they receive the parts they ordered and that the goods conform to their purchase order specifications (e.g. new, unused, etc.). But caveat emptor; some escrow providers cater to the suppliers of faulty, or worse, bogus material, and will not return funds held in escrow unless the goods are returned despite their suspect/counterfeit condition. Others have required the funds remain in escrow until the material is seized by Homeland Security and the Buyer is able to produce proof of the seizure. This can be a problem considering Homeland Security is not always able or willing to pick up the suspect material. In this type of situation the Buyer is forced to either return the parts despite the legal ramifications associated with doing so (i.e. trafficking in counterfeit goods) or quarantine the goods despite funds being held indefinitely in escrow.

Organizations relying on escrow providers to protect them should carefully review the terms and conditions of the escrow agreement to identify its rights in advance of the sale.

eraiESCROW empowers Buyers to comply with industry standards and the law

ERAI has included the following written terms in its escrow agreement that must be signed by both the Buyer and Seller prior to the commencement of the transaction:

Buyer and Seller hereby agree and acknowledge that suspect/fraudulent/counterfeit components have no value and any transaction involving suspect/fraudulent/counterfeit components should be declared null and void since no consideration has passed due to the suspect/fraudulent/counterfeit nature of the components.

As a result, Buyer and Seller hereby agree that if Buyer or a testing laboratory chosen by Buyer determines that the electronic components supplied by Seller are suspect/fraudulent/counterfeit, then Seller has the right to: 1. Agree with Buyers findings and the escrow will be voided; or 2. Verify Buyer’s findings by contracting with an ERAI approved test laboratory for further authenticity verification.

If Seller chooses to immediately cancel the Escrow, the electronic components will not be returned to Seller until an ERAI approved testing laboratory determines that the electronic components are not suspect/fraudulent/counterfeit. If the ERAI approved testing laboratory verifies the Buyer’s findings that the components are suspect/fraudulent/counterfeit, then ERAI possesses the absolute right to immediately refund all of the monies deposited into escrow to Buyer. Buyer has the absolute right to destroy, confiscate or return the suspect/fraudulent/counterfeit components at its sole discretion and the Escrow shall be cancelled.

If the Seller’s approved laboratory contradicts the findings made by Buyer’s testing laboratory and determines that the electronic components are not suspect/fraudulent/counterfeit, then the following options exist for the parties to resolve their dispute:
  1. Proceed to a mediation which shall last no less than 4 hours;
  2. Proceed to binding arbitration;
  3. The electronic components are returned to Seller and Buyer receives a refund for all of the electronic components except for those that have been used during the testing process.
If the Buyer and Seller cannot agree upon one of these options, then they will first proceed to mediation and if they are unable to resolve their dispute during mediation, then they shall be required to resolve their dispute through the arbitration process.

Buyer and Seller agree that if the independent testing laboratory chosen by ERAI determines that the electronic components are suspect/fraudulent/counterfeit, then the Seller shall be solely liable for all fees incurred by the independent testing laboratory for conducting the testing. Buyer and Seller further agree that if the independent testing laboratory chosen by ERAI determines that the electronic components are not suspect/fraudulent/counterfeit, then the Buyer shall be solely liable for all fees incurred by the independent testing laboratory for conducting the testing.

Do the right thing

Keep suspect/fraudulent/counterfeit parts out of the supply chain. Do allow the supplier an opportunity to verify your findings. The parts can be sent to an independent third party laboratory and/or original component manufacturer for evaluation. Once the suspect/fraudulent/counterfeit nature of the parts is confirmed, the parts should be placed into quarantine. The quarantined parts should be in an access-restricted, secure location and should be clearly marked. Labeling should be kept intact and should not be covered or altered. ERAI recommends the product be stored for a minimum of 5 years or as required by local laws. Upon the end of the quarantine period, the parts should be scrapped and a certificate of destruction should be kept on file.

ERAI is here to help

If you have questions or need assistance developing a material control plan call (239)261-6268. We understand the challenges you are facing and are available to discuss, in confidence, your concerns.

Additional Guidance

Detailed guidance is also available in SAE Aerospace Standard AS6081.

1 U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation
2 SAE Aerospace Standard AS5553 Revision A. Fraudulent/Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition | Requirement 4.1.8 Material Control
3 SAE Aerospace Standard AS5553 Revision A. Fraudulent/Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition | Guidance Appendix F
4 SAE Aerospace Standard AS6081 Fraudulent/Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition - Distributors | Requirement 4.2.6 Control of Suspect, Fraudulent, or Confirmed Counterfeit Parts
5 National Defense Authorization Act for Fiscal Year 2012: H.R. 1540 Sec. 818 Detection and Avoidance of Counterfeit Electronic Parts- page.199 (2) Elements (A) (vi) the reporting and quarantining of counterfeit electronic parts and suspect counterfeit electronic parts

Tell us your experience or what you think about Material Control. Email ksnider@erai.com or call 239-261-6268.
Material Control – Case Example

Superior Court of California, County of Orange finds in favor of Independent Distributor that refused to pay for or return counterfeit parts

Pure Chip Inc.
750 W 17th
Costa Mesa, CA 92627

On May 16, 2012 an Independent Distributor (hereafter referred to as “ID”) placed a purchase order with Pure Chip for 343 pieces of Xilinx part number XC3090A-7PQ160C (Date Code: 0212 | Lot Code: X45780M) totaling $8,060.50. Payment terms were Net 1 upon delivery of the goods. The ID’s purchase order terms and conditions clearly stated, "Counterfeit or re-Marked parts will be confiscated".

Immediately upon receipt, the goods were inspected and subsequently rejected. Multiple abnormalities were present indicating a high probability the parts are counterfeit. The markings are not consistent on parts. The back of parts differ in that some have barely visible markings obscured by re-marking. X-ray revealed the presence of three different lead frames within a homogeneous lot. The parts’ leads are bent and show signs of oxidation, debris, and solder re-work. Resistance to solvents screening revealed the presence of blacktop.

Based on these findings, the suspect counterfeit parts were placed in quarantine and payment was not issued. Pure Chip demanded the goods be returned and, in an effort to either regain control of the parts or obtain payment, Pure Chip sued the ID in small claims court. After a four-month continuance, the Superior Court of California, County of Orange determined Pure Chip (the Plaintiff) would not be awarded costs and that the parts shall be destroyed pursuant to Section 1952 of the Code of Civil Procedure.

Important Note: The part in question, XC3090A-7PQ160C, has been reported by ERAI on three (3) separate occasions. In each instance the parts were marked with the same date and lot code (DC: 0212 | LC: X45780M); however, each lot originated from a different supplier in the U.S.

Establishing Trends in Nonconforming Part Reporting
Damir Akhoundov, IT Manager

ERAI has maintained a database of nonconforming, suspect, fraudulent and counterfeit electronic parts since 2003. Over the last decade, the number of reports received by ERAI has increased from year to year, despite some minor fluctuations that appear to follow overall market trends.

In an effort to be able to provide Members with additional reporting trends data, starting the first quarter of 2014, ERAI enhanced the data captured during the reporting process. In its infancy, the amount of data captured by our system was limited to a restricted data set and the description of nonconformance was text provided by the reporting entity. As most of the critical data was embedded in the text description, it was difficult to be able to parse out elements that describe what methods led to the detection of the nonconformance as well as detailed descriptions of the nonconformance(s). It became obvious that part reporting would be improved by the creation of a standardized data set.

Using various industry resources including, but not limited to, IDEA-STD-1010B, SAE AS6081 and numerous inspection reports originating from both Independent Distributors and independent test labs, ERAI compiled a universal set of the major types of tests and inspection methods commonly used in the identification of nonconforming parts, condensing the list to the following major categories:

From the established detection methods list and after reviewing more than a decade of ERAI reported parts data, we were then able to define the common types of nonconformances that could be identified using these tests and inspection methods.
  • Documentation, Packaging & Shipping Inspection
  • BGA Lead External Visual Inspection
  • Lead External Visual Inspection
  • Part Markings External Visual Inspection
  • Device Package External Visual Inspection
  • Remarking & Resurfacing Testing
  • Mechanical Scraping (e.g. Scrape Test, Scratch Test)
  • Radiological (X-ray) Inspection
  • Lead Finish Evaluation (XRF or EDS/EDX)
  • Decapsulation Internal Analysis (a.k.a. delidding, decap)
  • Scanning Electron Microscopy (SEM)
  • XRF Analysis
  • Solderability Testing
Below is an example of a reported part report featuring our new standardized dataset:

These new dataset changes will provide:
  • Statistical analysis of suspect, fraudulent and counterfeiting trends based not only on a part number/manufacturer combination, but also on specific types of non-conformances, enabling a better understanding of current and historical trends in counterfeiting activity within the global supply chain.
  • Capability of searching the ERAI parts’ database using not only part number or manufacturer, but also specific nonconformances that may be associated with a part.  This enables Members to easily view multiple examples of similar non-conformances and allows for the development of better methods of identification and prevention.
  • Links to images that illustrate a specific nonconformance to the category within the part's description that identifies it and a corresponding search module that allows Members to search for images showing a specific nonconformance.
  • Insight as to what detection methods are most commonly used to identify nonconformances and at what stage of the inspection nonconformances are being detected.
  • Inclusion of test and inspection methods that a part may have passed, providing real-life examples of how multiple detection methods may be necessary.
Quarter 1 2014 Observations

We have aggregated nonconforming and suspect/fraudulent/counterfeit part data from the first quarter of 2014 for this article. A quarterly updated will be released in each quarter’s newsletter enabling our Members to observe reporting trends in our database.

We first wanted to examine how nonconformances are identified. We started by looking at the number of specific tests and inspection methods that were used by reporting organizations to identify nonconformances. The parts’ nonconformances reported to ERAI during the first Quarter of 2014 were identified using as few as one and up to six different test/inspection methods.

The following chart illustrates that just over one third or 34% of part nonconformances reported to ERAI during Q1 were identified using one inspection/testing method. Two thirds or 66% of part nonconformances were identified using more than one detection/testing method (2-6 methods).

The following chart depicts the inspection and test methods that were most commonly used to detect nonconformances for parts reported to ERAI during Q1 of 2014.

In the above graph, please note that since a majority of the parts underwent more than one test/inspection method, the above numbers do not represent parts but rather the frequency of the test/inspection methods used to identify the nonconformance.

The inspection/test method that identified nonconformances in the majority of parts (66% of all parts reported during Q1-2014) was Device Package External Visual Inspection.

Next we delved further into Device Package External Visual Inspection to see what were the specific nonconformance categories identified by this method. The detailed breakdown revealed that the most common nonconformance identified using Device Package External Visual Inspection were signs of blacktopping in or around the surface indent mold, overspray/overflow of blacktopping and inconsistent surface textures, all signs of part remarking.

The following chart illustrates the nonconformance categories identified using Device Package External Visual Inspection.

The next inspection/test method most frequently failed during Q1-2014 was Remarking and Resurfacing Testing.

Using our new standardized data set, we can further parse out the specific testing methods used to detect remarking and resurfacing of electronic components. More than three-quarters of nonconformances in this category were identified using Resistance to Solvents (RTS) testing.

Further examination of these five testing methods reveals the specific nonconformances identified by each method. The summary of these findings are shown in the graph below:

Though the first quarter of 2014 has presented us with a limited dataset, we have greatly enhanced the data captured during the reporting process and will be releasing quarterly updates in each edition of INSIGHT. This data will also enable us to compile over time a more thorough analysis of the specific trends that can be seen in nonconforming and suspect/fraudulent/counterfeit components reported to ERAI.

A downloadable PDF version of the ERAI Recommendations for Screening for Nonconforming and Suspect/Fraudulent/Counterfeit Parts is available to Members here. This document has been created based on the new data standardization system and is a useful tool in the identification and reporting of suspect/fraudulent/counterfeit parts.

New ERAI.COM Features

ERAI started the first quarter with enhancements to erai.com with a new look along with improved navigation and usability.  Several new features have been added to the Counterfeit Awareness tab to provide Members with a more comprehensive resource for counterfeit part mitigation. Changes were also made to how Members search for a company and an alerts and disputes archive was created.

We always welcome your input and comments. Upcoming Member-requested development will feature modifications to the high risk part search results to permit column sorting, capability to search reported parts by part category and new tools to assist Members with standards requirements. Feel free to email your suggestions to eraiinfo@erai.com.

The Awareness Timeline highlights major events that have taken place in the electronics supply chain, demonstrates how counterfeit parts have evolved, and illustrates ERAI’s response to the counterfeit threat.

Training and Events provides links to upcoming training and networking opportunities provided by industry organizations.

Standards links you to the latest SAE standards that are applicable to the electronics industry including AS6081 for Independent Distributors and AS5553 for use by all contracting organizations that procure electronic parts, whether such parts are procured directly or integrated into electronic assemblies or equipment.

Screening for Counterfeits notes nonconforming conditions that may indicate the part being inspected has been subjected to relabeling, refurbishing, and/or repackaging, processes synonymous with counterfeiting. In addition to the downloadable checklist, the list provides a standard nomenclature to describe specific nonconformances.

Material Control outlines best practices for the control of suspect/confirmed counterfeit material to preclude its re-entry into the supply chain.

Test and Inspection Services lists companies that offer component testing and inspection services for counterfeit part detection.

Government Studies offers downloadable versions of US Government studies regarding the threat posed by counterfeit parts.

The Glossary tab condenses commonly used industry terms in an easy-to-use and keyword searchable format.

Changes to ERAI.com Features

Changes to Report A Part – Aside from being able to report a high risk part online, we have also created an easy to use Microsoft Word template submission form that can be sent via email. Image guidelines have also been added to clarify how to best submit photographs with your part report.

Changes to Company Search – The ERAI Company search now consolidates the ERAI Reported Companies and ERAI Member Databases plus ERAI’s internal database containing thousands of companies servicing the industry.

Addition of Complaints and Disputes Archive – Resolved alerts are now automatically archived after 3 years from the date of resolution of the incident and will remain there indefinitely. Disputes are archived 3 years after the date the dispute was posted to the ERAI website. Archived disputes and alerts can be found at the bottom of a company’s profile.

Smith & Associates Annual Survey for 2014

On March 19, 2014, Smith & Associates released its annual survey which, "explores supply chain challenges, component demand and growth, the impact of counterfeiting, and the evolving role of independent distributors." Smith canvassed all major sectors of the electronics industry to gather insight into key issues and concerns affecting the semiconductor and electronics supply chain. The survey includes findings relative to component demand trends and forecasts, counterfeiting vulnerabilities and mitigation strategies, influential technologies, and sustainability management. In addition, it also delved into expectations surrounding independent distributors and their evolving role in the global supply chain. Active counterfeit mitigation is identified as one of the most defining and vital services that IDs provide.

Respondents were asked to rate the effectiveness of eight anti-counterfeiting measures:

Part Authenticity Testing followed closely by Standardized Certification & Accreditation Requirements were identified as the top-rated effective anti-counterfeiting measures.

Rank Order Anti-Counterfeiting Measure Percent Ranking
1 Part Authenticity Testing by Distributors 62.78%
2 Standardized Certification & Accreditation Requirements for Suppliers and Distributors 59.13%
3 RFID & DNA Tracking 54.02%
4 Tightening of International Customs Inspections 54.02%
5 Flow-down & Traceability 53.29%
6 Government Regulations and Increased Punishments 48.18%
7 E-Waste Handling (e.g., Shredding, Zero-Landfill, e-Stewards Recycling) 48.18%
8 Improved Reverse Logistics 43.07%

All industry sectors acknowledged they continue to be vulnerable to counterfeiting.

Obtain the full report here: http://www.smithweb.com/en/market-expertise/supply-chain-survey-2014

To Disclose or Not To Disclose
That's not only the question; it's today's "Hot Topic"
Kristal Snider, Vice President

The steady stream of GIDEP and ERAI Alerts along with a growing number of federal indictments serves as evidence that counterfeit part proliferation isn’t slowing down. Reporting and analyzing suppliers and suspect parts can be overwhelming and may lead to unexpected twists and turns. Take for example the recent indictment against Hao Yang, a 25 year old Chinese national residing in the U.S. on a student visa that admitted to selling counterfeit goods in the open market. As is often the case, Yang and his associates operated as an Independent Distributor using multiple company names including, but not limited to: MS Technologies Inc., (aka MST, aka MST Chip, aka MSTI) and Aone Electronics in Baltimore; A-Best Technologies in China; and Arrcord Group, LLC, SMC Group and Smooth LLC. In addition to the named entities, ERAI records link these operations to a string of companies not named in the indictment with global footprints in the US, Canada and China. It is not known how many military grade integrated circuits infiltrated the supply chain or the number of organizations affected by Hao Yang’s actions but there are steps that can be taken that could lessen the risk posed by MS Technologies and others.

It's difficult to completely eliminate risk but when you have the name of a known problematic source of supply, an organization can view all purchases made from that source and identify who those parts were sold to. To disclose, not disclose, how and when is something every organization needs to discuss both internally and with legal counsel.
  1. Should an organization be required to notify its customer if they sold them parts that originated from a source later identified as high risk?
  2. On what basis should a supplier be viewed as a high risk source? Should action be restricted to individuals and/or companies indicted by the Federal Government or applicable to any person or company found to have shipped a suspect counterfeit or counterfeit part (e.g. named in a GIDEP or ERAI Alert)?
  3. Is an organization’s liability increased if they do become aware of a risk and they fail to forward that to their customer?
  4. What do your customers expect and/or want?
The bottom line is: There could be parts sitting on the shelf of a stocking Independent Distributor, contract manufacturer, or government prime contractor right now that originated from MS Technologies or one of its known affiliates. Now what?

ICE Press Release: Man pleads guilty to selling counterfeit goods, including military-grade circuits https://www.ice.gov/news/releases/1401/140127baltimore.htm

[TALK ABOUT IT: What should you do if you purchased parts from a source that is later identified as selling counterfeit goods?]

When Your Parts Fail to Perform

Keith M. Gregory
Snell & Wilmer

Howard Miller
L/B/W Insurance &
Financial Services, Inc.

The accidental circulation of counterfeit goods is a very real issue facing distributors today and one that can potentially produce significant legal and economic consequences. It is vital for distributors to understand the risk of accidentally distributing counterfeit goods, how to minimize that risk and what will happen if those risks are not addressed.

On March 19, 2014, Snell & Wilmer and L/B/W Insurance & Financial Services held a dynamic conversation with Keith Gregory, Partner at Snell & Wilmer, and Howard Miller, Vice President–Director of Tech Secure® Division for L/B/W Insurance & Financial Services. Summaries of the presentations follow:

When Your Parts Fail to Perform: A Risk Management Solution for Component Distributors

Summary of presentation by Keith Gregory of Snell & Wilmer

A common issue requiring legal counsel involves documentation with conflicting terms and conditions between Buyers and Sellers of electronic components. This “Battle of the Forms” many times revolves around Universal Commercial Code (UCC) 2-207, Additional Terms in Acceptance Confirmation, whose terms can have minor variations from state to state. Problems can arise when additional terms are included in one of the party’s terms and conditions, such as when a Seller provides terms to the Buyer after the Buyer has provided their initial terms and conditions.

Disputes occur frequently with regard to Sections 2316 and 2319 which cover limitation of warranties and damages, including express and implied warranties. Typically, Sellers provide terms and conditions which have a limitation of warranties provision, many times with a defined time period (e.g. 30 days, 60 days, 90 days, etc.) during which the Seller will accept product returns and issue replacements or refunds. Sellers may also limit damages, not just compensatory, but also consequential damages. This covers the Seller by providing arguments in your favor if an issue would arise. Sellers are also recommended to include terms and conditions as part of the initial offer and should require signatures by the other party to demonstrate acceptance of the terms and conditions.

Another important factor is whether or not a company has the right type of insurance coverage. With the correct insurance, a company can be more empowered and have legal defense fees taken care of by the insurance company. This may also enable the parties to agree to a settlement more easily and can maintain the relationship between the two parties. Lack of suitable insurance coverage leaves companies with fewer alternatives, significant legal fees and potential loss of business relationships.

Mr. Gregory concluded that companies should include terms and conditions into their documentation, vet their suppliers and deal only with reputable companies, strengthen customer relationships so that each transaction can be negotiated between the parties and obtain and regularly audit insurance policies to protect their company.

Managing Risk – Risk Management for Component Distributors

Summary of presentation by Howard Miller of L/B/W Insurance & Financial Services

Product failures can result in dramatic losses due to recall costs, loss of use and counterfeit product. Many companies believe that insurance policies will guard them against losses, but this is not always the case. General liability policies generally have two exclusions: (1) Recall of products, which eliminates coverage in many instances and (2) require physical injury or damage to product, which can be difficult to prove. Additionally, under a general liability policy with the above exclusions, insurance companies have no obligation to provide you with a defense.

Effective insurance programs cover three main areas. General liability as previously mentioned, Errors and Omissions which can cover financial damages arising out of errors worldwide, and Cyber Media/IP to cover network security and privacy, libel/slander, and copyright and trademark infringements. This coverage must be obtained before a claim arises.

A company’s risk management process should include identification and analysis of potential problems, a combination of insurance and risk control involving best practices, product testing and trusted relationships and implementation and monitoring of the process. Measuring success should consider the value of your company’s brand, profits and customer loyalty.


Acceptance of product by a Seller is at delivery of product. Rejection can be delayed many months due to factors such as the parts sitting on the shelf or parts that are placed into assembly but a problem arises later.

When trying to obtain insurance policies, the more a company can demonstrate they are covering their bases, the more likely a company will be able to obtain a policy and get a better price.

When obtaining a signature to your terms and conditions, ensure that the person executing the document has the authority in their company to do so. Ask the individual if they have the authority to sign on behalf of the company and if so, obtain their confirmation in writing. If a company later disputes that the individual did not have the authority, you will have proof to defend yourself in court.

Properly vet your customers and suppliers, ensure that your parts are properly tested before shipping and provide appropriate training to your employees.

To obtain the right insurance coverage, identify what you are up against and try to match your insurance to your terms and conditions as much as possible and involve your legal counsel in the process.

Featured Whitepapers

Counterfeit Integrated Circuits: Detection, Avoidance, and the Challenges Ahead by Ujjwal Guin, Daniel DiMase & Mohammad Tehranipoor

Why you should read it: Get a more in depth understanding of what a counterfeit part is, how a counterfeit part is detected and efforts being made to ensure product authenticity.

ERAI Insight: This paper provides clarification for the term counterfeit and clearly summarizes the different types of counterfeit parts that fall under the definition including “used OCM product sold as ‘new’”. These seven different sub-classifications help to provide a better understanding of the term counterfeit. In addition, the paper outlines different counterfeit detection methods while openly providing the pros and cons for each method and summarizes the taxonomy in an easy to read graph. Lastly, a thorough summary of counterfeit avoidance methods is presented. The document concludes that although the industry has effected many counterfeit detection strategies, more needs to be done in order to implement more effective detection methods and increased efforts must be made at the manufacturing stage in order to ensure product authenticity.

In Search of a Workable Counterfeit Risk Mitigation Strategy: Lessons Learned in Review of the Current State of the Electronics Industry as Regards Counterfeit Mitigation Requirements for Suppliers by Kevin Sink

Why you should read it: See what improvements can be made in your organization’s procurement documents to enhance your risk mitigation plan.

ERAI Insight: Kevin Sink analyzed the documents received by an authorized distributor in order to analyze the management of counterfeit part mitigation. His findings indicate that there is no clear standardized method that is being used in the industry. As a whole, the mil-aero sector appears to address the matter with more stringent requirements yet many times customers apply the same policies to their entire supply chain and no distinctions are made in requirements for different types of suppliers. In addition, organizations do not seem to make distinctions in requirements for parts of different risk level and risk applications. The paper concludes with recommendations to enhance an organization’s risk mitigation plan.

Convergence of Counterfeit and Cyber Threats: Understanding New Rules on Supply Chain Risk by Robert S. Metzger

Why you should read it: See how NDAA Section 818 and related DFARS and FARs can affect your business.

ERAI Insight: Robert Metzger’s paper provides insights into NDAA Section 818 and the related DFARS and FAR cases. Of note, he points out that while Section 818’s efforts are commendable, he believes implementation will be difficult and appears to apply only to the larger government contractors. However, through flow-down requirements, suppliers will also be forced to accept liability risks. Although mainly applying to defense acquisition, the DFARS and FAR do reach outside to other sectors of the federal systems acquisition, showing the concern the US government has over not just counterfeit parts, but also the cyber threats they pose to cyber security. To illustrate this, the author cites Section 806, which became law, Pub. L. 11-383, which permits the Secretary of Defense to exclude a source that is not qualified by their definition to supply items pertaining to information technology that are purchased for inclusion into a national security system and moreover authorizes the DOD to limit the disclosure of information as to the basis for exclusion. Mr. Metzger states that the associated interim rules and provisions provide a broad application of the law, do not address how the qualification standards are defined and maintained, have potentially unfair effects since sources of supply can be excluded without potentially even knowing that their products will wind up in National Security Systems, and lack transparency since there is an absence of remedy when a source is excluded.

Counterfeit Part Reporting Trends – Observations in anticipation of forthcoming regulations by Henry Livingston

Why you should read it: See how organizations are reporting counterfeit parts and the effect that regulations have on reporting.

ERAI Insight: Henry Livingston compares GIDEP and ERAI reporting trends over the past couple of years to analyze the effect that Section 818 of the FY2012 NDAA has had on reporting. While the number of reports to GIDEP has declined after a post-NDAA peak, the number of reports to ERAI has steadily grown. The author suggests that the upcoming regulations have not had a drastic effect on reporting and organizations need to establish and enhance reporting processes in preparation for upcoming changes to the regulations.

A Comprehensive Framework for Counterfeit Defect Coverage Analysis and Detection Assessment by Ujjwal Guin, Daniel DiMase & Mohammad Tehranipoor

Why you should read it: Learn more about detection methods for counterfeit parts, what defects can be found and the best methods for detecting them.

ERAI Insight: This paper provides an in-depth taxonomy of defects and anomalies present in counterfeit electronic components and describes current counterfeit detection methods. A graphical analysis of counterfeit detection methods and their effectiveness at identifying defects is provided.

Focus on – The Illicit Trafficking of Counterfeit Goods and Transnational Organized Crime by the United Nations Office on Drugs and Crime

Why you should read it: Find out how counterfeiting affects the global economy, who are its victims, and what can be done.

ERAI Insight: This article by the UN Office on Drugs and Crime describes global counterfeiting and demonstrates that virtually every industrial sector feels the effects of counterfeit goods. As well as documenting links between counterfeiting and organized crime, examples of the victims of counterfeiting are given, showing who benefits and who pays the price for counterfeit goods. A global effort is required between governments and individuals internationally to tackle the issue.

Meet ERAI at the following events:

CALCE/SMTA Counterfeit Electronic Parts and Electronic Supply Chain Symposium
College Park, Maryland
June 24-26, 2014

Construction Industry Institute 2014 Annual Conference
Indianapolis, Indiana
July 21-23, 2014

SAE 2014 Aerospace Systems and Technology Conference
Cincinnati, Ohio
September 23-25, 2014

DMSMS 2014
San Antonio, Texas
December 1-4, 2014

POWER-GEN International Conference
Orlando, Florida
December 9-11, 2014

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