Global Shortages Are a Counterfeiter’s Paradise

 August 10th, 2022 |   By Area51 Electronics |   0 Comments
Research Factory Cleanroom: Close-up of Engineer Scientist wearing Coverall and Gloves Use Microscope to Inspect Motherboard Microprocessor Component, Developing High Tech Modern Electronics

The 2020-2022 chip shortage came with a lot of eye-opening information. We learned that the global supply chain is way more vulnerable than we thought. That the demand for smarter technology is only going to increase. That the future is unpredictable and the definition of normal is always set to change. And that the electronics sector, arguably, learned one of the most important lessons.

That global shortages are the spark to a counterfeit boom.

Counterfeit electronic components are a well-known danger in the electronics sector. Unfortunately, counterfeits are an issue unlikely to be entirely stamped out. But their risks can always be mitigated. Normally, they are. However, Covid-19 presented an opportunity that no one expected.

The rising demand for chips can make any company that’s unprepared reach desperate levels. Hundreds of different businesses in various sectors were left without parts for weeks. Stephanie Yang, a reporter for the Wall Street Journal, wrote in her article about a New York based 3-D printer manufacturer who, without chips for several weeks, turned to AliExpress for semiconductor stock.

The chips arrived in plastic wrap, not the normal anti-static packaging. To no one’s surprise, the majority of these purchased chips didn’t work. Normally, these manufacturing companies wouldn’t consider a site like AliExpress, a Chinese retail service owned by Alibaba, as a reputable distributor.

However, during the global chip drought, many were unable to resist the cheap, fully-stocked inventory of microchips on sites like AliExpress. If large companies were turning to wholesale retailers without quality management systems, who knows the effect counterfeits had on smaller ones.

The 2021 Counterfeit Boom

Since 2012, the counterfeit market has been growing. Now valued at over $75 billion, this monumental growth has been driven to new highs from the effects of the pandemic. After several disastrous hits to the global supply chain, a fire in Japan, bad weather in Texas, many sectors were desperate enough to look for stock in the gray market.

The gray market, known for its delicate balance on the line of legal and illegal, has been a problem for years. However, the global shortage led dozens of companies to its front door. Production stalls had been the cause of over $500 billion lost in sales over the course of 2020-2022. The pandemic saw the turnover and closure of thousands of stores that couldn’t meet demand.

12,200 closed in 2020. It was forecasted in early 2021 that another 10,000 would more than likely close over the year. Apple, due to rises in Omicron across the U.S., recently had to shut down 20 of its stores from outbreaks among employees. With Omicron’s higher transmission rate, that trend is expected to continue through the first half of 2022.

Household industry names from Apple to Volkswagen to Sony faced significant losses in revenue over the course of 2021. There were simply not enough chips to meet the rising demand. Especially if the medical sector, which needed chips for life-saving equipment, was pleading Congress to prioritize healthcare over the automotive industry with who gets chips first.

Counterfeiters thrive off this desperation. That is how they are able to enter a company’s supply chain, especially during global shortages. In times like this, risk management is the cornerstone of a successful push through a shortage.

After all, the cost of a single counterfeit component can be monumental. It’s estimated that U.S. businesses lose between $200-250 billion a year from counterfeit parts.

How to Prevent Counterfeits From Entering Your Supply Chain

Assessing risk and risk management are objectives that cannot fall by the wayside. Unfortunately, many companies either don’t have a proper quality management system or counterfeit mitigation systems in place. The pandemic made time, an already invaluable asset more so. Without an experienced team, counterfeits often manage to slip through the cracks.

What can be done? What should be done? Fortunately, there are plenty of things that can be done to help prevent counterfeits from entering a supply chain. For many companies, those that don’t have a quality management system in place, it is pertinent to buy from a distributor with proper accreditation.

They should possess several certifications that make up their quality management system. This includes SAE AS6081 which provides requirements, practices, methods, and guidance on how to detect and mitigate the risk of purchasing and supplying counterfeit parts. As the highest industry standard when it comes to establishing a counterfeit mitigation system.

There are several ways to detect counterfeit parts during an inspection. Some of these methods include external visual inspections (EVI) by comparing the sample lot with an authentic component. One could use technology, such as X-rays to closely analyze components to determine authenticity through internal package or die construction, wire bonds, and other indicators.

Or, if one is not opposed to partially destructive tests, there is decapsulation. This test involves the use of chemicals to examine the internal structure of the component.

The pandemic’s effect on the supply chains might have led to a rise in counterfeits slipping in where they couldn’t before. However, there will always be innovative minds to combat the risk with newer, sophisticated methods of detecting counterfeits.

New Methods of Detecting Counterfeits

An analysis conducted by Research and Markets, a research-driven news source that follows the latest trends in various markets, estimates that by 2028 anti-counterfeit packaging technologies will be worth $420 billion. RFID is forecasted to be one of the fastest-growing technologies in this sector over the next six years. SourceToday writes that “within the anti-counterfeit packaging segment, mass encoding is in the biggest demand right now. “

Types of mass encoding include barcodes, digital mass serialization, and digital mass encryption that are used on thermal paper-based labels. These labels, according to MarketsandMarkets’ research, another news source, that SourceToday quoted in the same article, have also experienced a rise in demand. The reason behind it is that most of these anti-counterfeit package technologies are supported by software.

This software can not only track but detect when counterfeits enter their supply chain. Thus, they remove the link to the suspect counterfeit parts. In SourceToday’s article, several new methods of detecting counterfeits were in the works. This includes using DNA-tagged substrates and fluorescing signals, a molecular ink for barcodes, and smartphone authentication with QR codes and S-White holograms. Talk about moving counterfeit mitigation into the 21st century!

To ensure no counterfeit parts enter your supply chain, there are a plethora of options to keep in mind when making a purchase. However, the best preventative measure one can take is buying from a distributor who not only keeps on top of the latest anti-counterfeit measures but continually updates their quality management systems.

Your Best Bet is a Certified Distributor

Area51 Electronics knows the risks and damage that can be done with counterfeit components. The amount of damage a single counterfeit can do is immeasurable. The results are costly and often destroy the trust between each contact in a supply chain. That is why preventing and mitigating the risks of counterfeits, especially now, when the shortage is still lingering, is crucial.

As a member of the SAE G-19D committee, Area51 Electronics is dedicated to developing and maintaining the highest level of standards in the detection, avoidance, mitigation, and disposition of counterfeit electronic components. As an independent and authorized distributor, Area51 Electronics follows the requirements not only set forth by manufacturers for their authorized lines but the far more stringent rules of an independent distributor.

Under the guidance of a consistently updated and refined quality management system, buyers can rest easy. Area51 Electronics will go above and beyond to make sure the counterfeit risk is addressed and made null. This is how we can make it through the last stage of the shortage, stronger and better equipped to deal with future crises.

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