U.S. counterfeit regulations could affect global tech supply chain

U.S. counterfeit regulations could affect global tech supply chain

Summary: The proliferation of counterfeit goods in the tech market has been growing, causing the U.S. Department of Defense to take stricter actions.

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New regulations on counterfeit goods from the U.S. Department of Defense could have significant ramifications for the international tech supply chain, among others.

A new report from IHS posits that 362 non-U.S. companies worldwide that are supplying the U.S. government could be directly impacted by counterfeit regulations, with many more indirectly affected.

Greg Jaknunas, senior product manager of supply chain solutions at IHS, explained in a report that this will likely happen as defense contractors place requirements on their suppliers, and those rules will ripple down to other suppliers on the food chain.

This could have a severe impact on other global industries as well considering that IHS noted non-U.S.-based suppliers accounted for more than $2 billion worth of items to the U.S. government during the five-year period between 2007 and 2011.

The proliferation of counterfeit goods in the tech market, in particular, has been getting more attention lately. In February, it was reported that the number of reported counterfeit parts have quadrupled since 2009.

Supply chain companies reported 1,363 separate and verified counterfeit-part incidents worldwide in in 2011, most of them being for commercial electronic parts that are widely used in the technology sector.

Furthermore, earlier this month, IHS also published findings that counterfeit semiconductors have seeped through corporations and the military, and that they are a $169 billion risk to the electronics supply chain.

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Topics: Enterprise Software, Government, Government US, Software

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11 comments
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  • Counterfeit covers a broad range of topics

    Especially in electronics, where it can mean anything from a knock-off iPhone imitation to a genuine Intel processor that has simply been relabeled. The effects run from simply being cheated for a few bucks to creating a hazardous device that could fail or even cause a fire (power supplies with fake capacitors).

    People keep saying that the counterfeiters are getting more sophisticated, but it's the beancounters and crooked managers that make it happen. The beancounters want the lowest-cost parts, no questions asked. They will go through a risk analysis to decide that using bad parts is cheaper even if they do get returns or get sued. To them, it's an acceptable trade-off, and the government keeps coming back to the same contractors that cheated them time and again. Colonels and generals who oversaw purchases end up with nice corner offices with those same companies after they retire from the military. It hasn't really changed much in the last 50 years. Nobody ever goes to jail, so it will just continue despite any new "regulations".
    terry flores
    • Build it to price, thats the problem

      I quite agree with you about beancounters, so many things are simply built to price. not to spec even in safety critical applications. Built by "well known" manufacturers too.

      You mention power supply capacitors (unreliable at the best of times) I have first hand experience of this.
      I was once involved with testing a large Static UPS which was destined for a hospital. These, as you probably know, have some huge Capacitors in them often running at high voltages.
      During the testing one of these failed, "failed" is an understatement, the thing blew up like a bomb!
      It destroyed itself and blew out a couple of windows but luckily nobody was hurt.
      The manufacturer's technician was called in to carry out the inevitable "post mortem" on it and his comment on seeing it was "Oh coupling C's gone we've had a few of these pack up, we keep telling 'em they're not up to it, but they won't wear it"

      And this was from a large, reputable,manufacturer and a unit costing 40,000+, I don't know what that is in dollars but it was an American manufacturer. Not that this problem is confined to the states it is world wide

      An expensive, and vital piece of equipment, in a safety critical application.
      It doesn't bear thinking about if it had failed in service, that's why we were testing it in the first place.

      All this down to "beancounters".
      As you rightly say no amount of legislation will stop it as long as there are people out there making a fast buck.
      thetracybros
  • Why did George Washington get stiffed at Valley Forge?

    Congress bought supplies, but the contractors took the money and then resold the goods to the British. Feel better now? Nothing has changed, it's just that "wool blankets" became "computers".
    Tony Burzio
    • *BINGO*

      Not much left to say, apart from my response below telling of counterfeit goods made by China in our military equipment...
      HypnoToad72
  • Given how much counterfeit technology is on the market now,

    right down to this,

    http://www.c-span.org/Events/Senate-Investigates-Counterfeit-Parts-in-Military-Equipment/10737425339/

    why the sensationalizing of an act that desperately needs to be done?
    HypnoToad72
  • It's about time

    The supply chain can explode for all I care, if they're supplying counterfeits to the government or to their contractors, they need to go out of business. End of story.
    BrewmanNH
  • The government will jump up and down, then fire the wrong person

    and give the next contract to the same company that completely stiffed them last time. Because the entire government on both sides are corrupt and truly seem to hate America and everything we stand for.
    Reality Bites
  • I don't understand

    It seems the posting assumes the readers knows stuff about the new rules - which are not themselves described in the post (except to say what they address).

    It also does not say what the effect would be, or why the effect would occur.

    Please do the reader a few favours to help us follow the story.
    dimonic
  • Nothing new here. Keep moving.

    Among my favorite counterfeiting stories involves the big mother super-strong bolts that hold engines onto airplane wings. Apparently, fakes of much lower strength got into the supply chain. I searched around a bit and quickly found a story from the '80s reporting multiple deadly failures traced to bad fasteners, and a cool ten million fraudulent piece parts in the system back then. The writeup was a fairly official document, and urged the supply chain to--at the very least--keep all fastenings in original packaging until pulled for use. Since fake "super" fastenings might work in ordinary applications, but might someday be reassigned from stock to super duties, there was then and is now no economy in buying counterfeits at bargain prices.

    Another story involved one of the hard drive makers a few consolidations ago. Somebody had a huge delivery with a hard deadline and made it by shipping . . . tiles. Pallet loads of ceramic tiles, instead of hard disk drives. Even more-or-less honest people get desperate and do amazing things.

    In consumer affairs, counterfeiting can take the form of running a prized production line for a third shift off the books. Worse cases, though, include falsely marking known inadequate components that may wind up in medical gear, repackaging rejected return merchandise as new, etc. If a quality circle model is in place, it is quite possible that defective components won't even be statistically tested before a ruinous cluster of failures takes place.

    Is one paranoid for thinking that some counterfeiting is not merely for illicit aggrandizement, but is deliberately crafted to cause harm? As far as DoD is concerned, I recall this particular question leading in the past to a "buy American," "know-your-vendor," and "test everything" policy that added significant program costs but assured (then) that fakes and defects were minimized. More recent acquisition policies seem trapped between naivete and mendacity--Gordon Gekko, call your office.
    bright_dr@...
  • I beg to differ, somewhat...

    In the case of 40,000+ costing UPS. I would not entirely blame it to a "counterfeit" capacitor. It may be that the manufacturer opted for a component - in this case a capacitor - from actual manufacturer, that was sub standard. There is a very clear distinction in the meaning of the terms "counterfeit" and "sub standard". One must not confuse the two.

    Most of these problems arise when specific brand name products are used at design stage but substituted at production stage strictly for cost reduction purposes.
    pmshah@...
  • Counterfeit merchandise

    Counterfeit items are sold the world over, affordable counterfeits made to look like trusted brand name goods. But a few anti-piracy activists, as well as the Department of Homeland Security, are starting to get tougher with those who traffic in the bogus items. However, some of these crusaders also want to target the customers who knowingly buy fake goods. In the near future, those who do so could face fees and maybe even jail time. Use an installment loan to get the real items you want. Take a look at wwwpersonalmoneynetwork.com
    alecthor