Although the supply of critical electronic components and semiconductors has increased in 2024, even to the point where excess inventory is again becoming a concern, this has not negated many of the risks typically associated with times of part scarcity. Chief among these risks is the continued rise of counterfeit components.

According to a recent report from electronics information firm ERAI, reports of counterfeit components increased in 2023 from 768 to 786. The most prevalent counterfeit parts reported were analog ICs (18%), followed by microprocessor ICs (16.6%), memory ICs (13.1%), and programmable logic ICs (13.1%).

Although ERAI cannot state the reason for these trends with certainty, we can get a key insight from a new metric introduced in this report: the availability status of a component at the time of counterfeit detection. Of the components reported, 45.7% of them were marked as obsolete. Additionally, 32.8% of the components were listed as active but had long lead times. This surprisingly high figure, says ERAI, indicates that “active parts are in no way inherently ‘safer’ than obsolete parts.”

Viewing these figures, it is clear that just because the economic outlook of the electronics market appears positive (at least in the short term), that does not mean that counterfeit components cease to become a concern. “Counterfeit semiconductors are so pervasive throughout the supply chain, that regulation and enforcement have proven to be ineffectual in stemming their supply,” says Rochester Electronics representative Ken Greenwood in a recent article by EPS News. “Customers’ purchasing policies and controls are the best and most credible line of defense.”

Among the most important of these policies is easily restricting purchasing channels to only authorized distributors or OCMs. Not only does this eliminate the window that bad actors use to enter the market, but it also guarantees the customer’s purchase will come with a full warranty for performance, reliability, and quality.

In order to maintain this policy, however, requires a degree of additional planning when obsolescence is factored into the equation. To avoid situations where the only remaining option to secure critical components for current builds without a costly redesign is unauthorized third-party vendors, OEMs need to acquire sufficient inventory well in advance. This can be challenging for a few reasons, namely the need for additional warehousing space and the upfront capital freed up to make such a large purchase.

This is why, even in a supply-heavy components market, OEMs require a detailed Inventory Ownership Solution such as what is offered by Partstat. Benefits include:

• Zero upfront loss in capital, which can remain free to invest however the customer sees fit.

• No need to use inventory space.

• Use of secure, climate-controlled facilities with best-in-class electronic component protection.

• Fully customizable delivery schedules, with inventory picked, packed, and shipped to the customer on their timelines.

• Annual carrying cost savings of up to 47% compared to self-storage.

For more information on how Parstat’s Inventory Ownership Solution can secure your supply chain and save you tens of thousands annually, contact a representative today. We’d love to hear from you!

The post Counterfeit Components Still Plague Global Supply Chain. What Is the Best Solution? appeared first on News & Blog.

In many regards, the current state of the electronic component and semiconductor market is quite positive. According to ECIA’s Electronic Component Sales Trend (ECST) released in March, for example, February saw overall electronic component sales move into positive territory for the first time in 21 months on the back of momentum from interconnected, passive, and electromechanical (IP&E) devices. The trend continued into March, with nearly all major electronic segments surpassing the 100-point threshold that indicates positive growth. However, just because current news is positive does not mean the market — or the manufacturers purchasing within it — should become complacent. The largest reason: continued geopolitical tensions.

This point was made clear in a recent speech by India’s Secretary, Union Ministry of Electronics and Information Technology, S. Krishnan. The lecture, titled “Building Economic Resilience Through Technology,” was given at the Madras School of Economics and organized by the Southern India Chamber of Commerce and Industry (SICCI). “The dynamics of geopolitics again is something that needs no explanation,” said Krishnann. “We need to ensure that there are supply chains that are resilient. We need to ensure that geopolitical issues do not append the economy suddenly.”

The clearest example of today’s geopolitics at work revolves around the tensions among Taiwan, China, and the United States, which has to date has publicly aligned itself with Taiwan. According to CrowdStrike co-founder and acclaimed national security analyst Dmitri Alpervitch, the U.S. currently finds itself in a “Cold War” with China on multiple fronts: space, AI, and, critically as it relates to Taiwan, semiconductors.

Most recently, China has also responded to the bill signed by President Biden that effectively bans Tik Tok in the U.S. unless the app is sold away from parent company ByteDance. The bill also included foreign aid to Taiwan.

“China firmly rejects the U.S. passing and signing into law the military aid package containing negative content on China,” said Chinese Foreign Ministry spokesperson Lin Jian responding to the law. “We have lodged serious representations to the U.S.”

Another bellwether of the current state of affairs recently came from Taiwan’s King Yuan Electronics Co. (KYEC), one of the world’s largest semiconductor testing and packaging services firms. In April, KYEC’s board of directors announced that they would be withdrawing from mainland China’s semiconductor manufacturing landscape. Companies like Foxconn, Intel, and the Taiwan Semiconductor Manufacturing Co. have also announced plans to expand into other markets in the face of such tensions.

Even in the wake of positive market conditions, it is warning signs such as these large-scale supply chains must consider when developing long-term sourcing strategies. For more information on how to insulate your supply chain from geopolitical risk, check out Partstat’s innovative Inventory Ownership Solution.

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In a year that has seen a degree of optimism regarding global supply chain news — at least compared to recent years — a notable exception is the medical device supply chain. Since the COVID-19 pandemic revealed many weaknesses in the U.S. medical supply chain’s ability to provide life-saving tools and equipment in times of crisis, some U.S. lawmakers have worked to prevent these weaknesses from being a concern ever again.

For example, in November 2023 as part of the inaugural meeting of the White House Council on Supply Chain Resilience, President Biden announced new efforts to bolster the domestic supply chain for essential medicines and medical countermeasures.

“To ensure Americans always have the essential medicines and other critical medical products we need, we must have more control over our supply chains,” said HHS Secretary Becerra at the council. “In addition to having the necessary data and insights for visibility into supply chain disruptions, we need to be better positioned to help our partners in the private sector mitigate supply chain disruptions. The actions we have taken today, and will continue to take, accomplish these goals.”

Such measures, however, will take time to implement, which means that medical companies and their suppliers will have to make efforts to improve the supply chains on their end. With this in mind, there are a few areas to consider:

1. Transportation and Warehousing Optimization

Medical device manufacturers need to carefully consider their relationships with their suppliers and their distribution networks from both a quality standpoint (proper warehousing packing, climate control, shipping procedures, etc.) and a regional standpoint (where the storage is located). With looming concerns regarding the tensions between China and Taiwan, supply chain diversification must be prioritized, with particular favor toward on-shore or near-shore supplier and warehouse partners. As an industry-leading component and part storage partner, for example, Partstat stores all customer materials in our climate-controlled facilities right outside of Orlando, Florida.

2. Optimized Inventory Management

Medical device manufacturers need to emphasize absolute transparency between themselves, their suppliers, and their supply chain partners. This can include investment into automated management tracking systems that use RFID technology, but it can also include improved inventory purchasing strategies. The Partstat Inventory Ownership Solution, for example, allows customers to purchase critical inventory directly from authorized distributors without any loss in upfront capital. The inventory is stored securely in Partstat’s storage facilities, and the customer can use the capital saved for technology investments that tackle today’s supply chain challenges. Full tracking and monitoring of the inventory at Partstat in real-time also work to streamline supply chain visibility and limit waste and unnecessary additional purchasing.

3. Improved Legacy Product Management

Given the extended lifecycles of many pieces of medical equipment such as MRI scanners, medical device manufacturers need to be extremely cautious regarding the purchase of legacy service parts needed to support the products for their entire lifecycle. Not only do the components need full traceability to prevent the influx of counterfeit materials into medical designs, but they also need to have proof of industry-leading inspection and functionality testing measures. All of this is provided through Partstat’s Legacy Product Support, where all legacy service parts come with a full 12-month warranty that includes inspection, functional testing, and all firmware updates. Partstat provides a broad line of products including motherboards, CPUs, hard drives, optical drives, GPUs, memory modules, power supplies, networking controllers, RAID controllers, and fans, and we have provided services for many of the world’s leading medical device manufacturers. For more information, check out some of our many success stories here!

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While there will always be minor ebbs and flows analyzing any market, long-term the electronic component market will almost assuredly grow to unprecedented levels. Over the next five years, it is anticipated that the market will be valued at nearly $900 billion, driven primarily by exponential demand increases in market such as automotive, healthcare, consumer electronics, and, more recently, AI technologies. With such growth, however, comes several inherent risks — one of the most significant being the rise of counterfeit chips.

“Everything is becoming computerized,” says Roei Ganzarski, CEO of Alitheon in an interview with Fierce Electronics, “whether it’s cars, day-to-day devices or systems being used by the US Department of Defense. And when there’s a high demand that’s not being fully met, there’s more room for outright counterfeit chips, as well as gray market items, which might be a genuine chip that’s packaged as new when it has in fact been used somewhere else for several years.”

And OEMs and their contract manufacturing partners are well of this. For example, according to a recent survey, approximately 87% of industry professionals say that IC counterfeits are and will be a major concern in the coming years. With such a risk looming so large over the industry, innovative new solutions throughout supply chains will be paramount.

What Is Meant by Counterfeit Chips?

When one hears the term “counterfeit”, the first thing that might come to mind is a chip or component manufactured to imitate another. Although this certainly happens and is a concern, counterfeit is now used more broadly, as Ganzarski alluded to. “Gray market” chips refer to chips that may be authentic, but have been used in another application for several years and resold as new — sometimes with a falsified date code. Putting a used and worn chip in, for example, a military defense system poses a grave threat to national security and the health and safety of those around it, because the chip may break at any time and cause malfunction. If the chip is in, say, an airplane’s landing gear, the resulting malfunction could very well prove fatal.

Chip manufacturers, aware of these risks, have in recent years taken steps to mitigate the issue. Hologram stickers, barcodes or QR codes, and other mechanisms have been added to ICs in recent years, but as bad actors learn to overcome them, the relief is short-lived. Even then, often manufacturers are not properly educated on these anti-counterfeit measures and will miss them entirely when researching potential purchases. More recently, some companies have been experimenting with biometrics, which is seen as a more full-proof solution, but mass adoption industry-wide will be slow due to high technology costs.

The Responsibility on the Buyer

Clearly, buyers need to take every precaution to ensure counterfeit or gray market chips do not make it into their builds. However, while anti-counterfeit technologies are improving, the margin of error is still significant enough that another, more permanent solution might be needed.

Partstat offers the only complete solution for avoiding counterfeit markets through our Inventory Ownership Solution. The idea is simple: through our solution, Partstat only purchases components on behalf of the customer through authorized distributors. This way, not only will all chips and components be fully traceable and authenticated, but acquiring them will have no upfront costs for the Partstat customer. Partstat will purchase, store, pack, and ship as needed to the customer, in the process saving the customer warehousing space and up to 47% in annual carrying costs.

For more information on how the Partstat Inventory Ownership can be the counterfeit solution to your supply chain, contact us today!

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