Electronics Supply Chain Continues Fight Against Counterfeit Parts

It’s been nearly a year since President Obama signed the National Defense Authorization Act (NDAA) into law, and its ultimate effect on companies in the electronics supply chain is still a hot topic. This fall, distributors in particular were busy preparing for a flurry of activity related to NDAA Section 818, which addresses the government’s new requirements for purchasing electronic components for use in defense systems and equipment—rules that include enhanced inspection and reporting procedures and closer scrutiny by the Homeland Security Department over countries considered to be significant sources of counterfeit components. As of mid-September, one of the newest requirements related to Section 818 was from the government’s Defense Logistics Agency, requiring DNA marking on electronic microcircuits.

Late this summer, Electronic Design/SourceESB sat down with some key parties involved in the issue—independent distributors, authorized distributors, government representatives, and ancillary service providers—to find out what they are doing to prepare for the new rules and to get their opinion on the state of the counterfeit issue in late 2012. We spoke to Janice Meraglia, vice president in charge of military and government programsfor Applied DNA Sciences, which makes botanical-DNA based security and authentication solutions for a wide range of industries; Steve Martin, executive vice president of sales for Components Direct, an authorized distributor of excess and end-of-life electronic components; Christine Metz, technical and quality process owner for the federal government’s Defense Logistics Agency; Matt Hartzell, chief operating officer for independent distributor NF Smith & Associates; and Kevin Sink, vice president of total quality for authorized distributor TTI Inc. Hartzell and Sink also are members of SAE International’s G19 Committee, which works to address prevention, detection, and electronics industry response to the counterfeit threat.

The following comments are excerpts from our conversations.

Electronic Design/SourceESB: Last year’s passage of the NDAA with its Section 818, which details actions for curbing the flow of counterfeit electronic parts into the defense supply chain, has drawn new attention to the counterfeit issue. How is the increased attention helping in the fight against counterfeit electronic components?

Matt Hartzell: Given the intense focus of the NDAA and the Senate Armed Services Committee hearings that preceded it, there has been a wealth of information written and reported about the counterfeit issue in the electronic marketplace. And in the last few years, reporting [of the incidences of counterfeit parts] has increased dramatically.

If anything, I think the focus is so great on the issue that it’s sort of in status quo now. Unfortunately, one counterfeit part is too many, so we have to be ever vigilant in our efforts to keep counterfeit parts out of the supply chain.

Steve Martin: The problem is just as serious as ever—and it could be even more serious right now when you look at the supply chain in general. There are a lot of people out there trying to meet customers’ needs, but they don’t have the means to detect bad parts. [Customers] need to make sure they’re partnering with the right companies.

Kevin Sink: I think it has reached critical mass now. Section 818 of the NDAA and the report from the Senate Armed Services Committee in May—those two things together have kind of forced [companies into action]. Customers are requiring suppliers to make a statement that they have a counterfeit mitigation program in place. I probably get three of these [requests] a week, when three years ago I didn’t get any.

Electronic Design/SourceESB: But as an authorized distributor, TTI doesn’t really have to worry about having a counterfeit mitigation plan, right? What is your role in the anti-counterfeit movement, and SAE’s G19 committee in particular?

Sink: Almost all customers are saying [to everyone], ‘We want to make sure that you are aware of the problem and that you have a plan.’ [They also] want to know if you ever buy outside the authorized channel and how you deal with that. Some require that you not buy outside the authorized channel at all—which for me, is fine, because we don’t.

There are three authorized distribution representatives on the [G19] committee…. We represent authorized distribution and, in this case, ensure that the rules that are written fairly protect customers when they do buy outside of authorized distribution. We don’t support that, of course, but we want the rules to be fair.

Frankly, until recently, a lot of customers didn’t understand the difference between an authorized and an independent distributor.… For example, I recently had a customer who wanted to require every supplier to do intensive visual inspection of the product—and he was making no distinction in what was being purchased from independent distributors, authorized distributors, or manufacturers. What a waste of money to have the manufacturer who made the product and the authorized distributor who sells the product prove what it is.

Electronic Design/SourceESB: The counterfeit electronics discussion often focuses solely on military and aerospace markets, for many reasons. How serious an issue is this for other industries?

Hartzell: This is something that was simmering before the boiling overflow from the Senate hearings. [Many people] began to believe this was a large problem with the military and the government last year. But if you’ve been in the business for a long time, you know that there are people out there who have been trying to make a quick buck and sell products below acceptable quality for a long time. It’s just as important for commercial customers to know that their vendor is reputable, has counterfeit [mitigation] processes in place, and can stand behind the products they sell. Their risk, which is not life threatening unless you’re talking about commercial aviation or similar industries, is that the product won’t work or will catch fire or cause physical damage. The last thing [commercial customers] want to face is publicity from a failed product—or worse, a recall.

Martin: The reason [the problem] has been defined by the Department of Defense is that they have a lot of clout. But it doesn’t matter if it’s a consumer application, medical, defense, or automotive, everyone has the same level of concern.

Electronic Design/SourceESB: What’s next on the anti-counterfeit horizon?

Sink: In the next year, there will be a lot of reaction to the Section 818 rules. The deadline [was] September, so shortly after that I expect to see another flurry of the surveys I mentioned earlier [regarding suppliers’ counterfeit mitigation plans]. I also see a lot of activity around companies’ procedures changing, their supply base being restricted, and more authentication of the product at the incoming receiving point—and if there’s any question, a lot more product going to test labs. There will be quite a bit more of that.

Martin: I think the U.S. government has to put more stringent rules and regulations in place and work hand in hand with other countries [to fight the problem]. Until that happens, the counterfeiters are going to try and stay one step ahead of the process.

Hartzell: Talk at [industry] meetings over the last few years has increasingly been focused on the [problems with] non-conforming product in the marketplace and the need for independents to increase their vigilance, their inspection ability, their insurance, and their resources that are solely focused on making sure that they’re selling good products. [As a result], it’s getting tougher for the smaller companies in this industry to do business. And I think you’ll see that continue.

Government Takes Action

One of the newest issues to come out of the NDAA requirements is the government’s mandate that all microcircuits supplied to and managed through the Defense Logistics Agency be marked with DNA technology. The DLA is a logistics combat support agency that supplies a wide range of products to the U.S. military worldwide. We asked Christine Metz of the DLA and Janice Meraglia of its authorized DNA marking provider Applied DNA Sciences to explain the requirement and what it means for the supply chain.

ED/SourceESB: What are the new requirements for DNA marking when selling to the Defense Logistics Agency?

Metz: The new requirement is a deoxyribonucleic acid (DNA) marking for DLA-managed items within Federal Supply Class 5962, Electronic Microcircuits. DLA deems the microcircuits as a high risk for counterfeiting. The initial requirement applies to a subset of microcircuits supplied under the Generalized Emulation of Microcircuits (GEM) program. SRI International is DLA’s contractor for those specific microcircuits. However, within the next 90 days, DLA intends to apply the requirement to other DLA-managed items within FSC 5962.

On Friday, August 3, 2012, DLA placed a notice on the DLA Internet Bid Board System (DIBBS) and the Supplier Information Resource Center (SIRC) sites to introduce the new marking requirement. DLA separately solicited feedback concerning the new requirement from DLA FSC 5962 suppliers.

ED/SourceESB: How does this affect suppliers? Is there a phase-in period?

Metz: Suppliers who provide DLA FSC 5962 items will be required to provide items marked with a unique, botanical SigNature(r) DNA mark supplied by Applied DNA Sciences or its authorized licensees, if any. The authentication DNA used shall be unique to the supplier or the manufacturer of the part. The DNA marking can be applied with a visible or invisible DNA mark on the part, or the contractor’s ink utilized for part marking can be infused with the DNA marking material. In addition, suppliers will be required to retain traceability documentation that demonstrates the items provided under the contract to DLA have been marked with SigNature(r) DNA produced by Applied DNA Sciences or an authorized licensee, and that the DNA marking is unique to the contractor.

There is a phase-in approach. First, the requirements will apply to the emulated microcircuits (August 2012) and then all FSC 5962 (November 2012).

DLA is proceeding with this marking requirement for FSC 5962 in order to implement effective authentication marking while concurrently initiating a research and development effort to evaluate comparable DNA and alternative authentication technologies for intended application to all electronics items. A forthcoming Request for Information (RFI) will request input concerning authentication marking technologies that would satisfy DLA’s requirements as outlined in the RFI.

ED/SourceESB: What end products/equipment will this new requirement help to protect?

Metz: This new requirement will help to protect the majority of Department of Defense weapon systems. Many items which DLA manages are used in more than one weapon system. DLA is initially targeting microelectronics. The technology is used with other commodities and has broad implications for other DLA products and equipment which do not contain microcircuits.

ED/SourceESB: How much of a difference do you think this will make in the fight against counterfeit electronics?

Metz: Implementation of this new requirement will reduce the risk of counterfeit parts entering DoD’s supply chains. Generally, DLA intends to infuse parts that have better authentication attributes, and the new marking requirement is one tool toward that goal and one piece of a comprehensive DLA program to detect and prevent counterfeits. The new requirement facilitates the goals of the recent laws (NDAAs) requiring DoD and industry enactment of counterfeit item detection and prevention measures for electronic items and comprehensive national cybersecurity.

The DLA strategy includes the continuous application of new or updated tools to detect and prevent counterfeit items as the tactics of the counterfeiters continuously evolve. DLA is mandating authentication marking of the microcircuits using SigNature(r) DNA for now, based on a successful R&D project. We are open to other solutions and tools as we learn about them.

DLA’s efforts to socialize the concept of authentication marking and encourage broader acceptance is a positive influence on the DoD supply chain participants’ risk management practices and solutions development.

DLA has developed a Request for Information (RFI) for authentication marking, which will be open to additional technological solutions. DLA plans to issue the RFI in October 2012.

ED/SourceESB: What is Applied DNA Sciences’ role in the process?

Meraglia: We have spent the last couple of years talking to the industry, so people are at the point where they understand [our DNA] technology, and now they are saying, ‘What does this mean for me? What do I do? How do I get started?’ More specifically, we’ve spent the last few weeks [since the DLA’s announcement] fielding inquiries and getting people up to speed and understanding what the process entails.

ED/SourceESB: In a nutshell, how does the technology work and what will it do for the industry?

Meraglia: When you look at a microchip, it’s typically a metal or ceramic package, then you have the die and so forth, and you have certain information on the chip—it may have the date, lot code, and the manufacturer’s name printed on it, for instance. If you’re printing that information on the chip, we can put the DNA into the ink you are using. On the other hand, there are some companies that may laser etch information onto the chip. [If that’s the case], then there are other ways to apply the DNA.

In either case, we think this is a tremendously powerful tool for what needs to be accomplished across this industry. Working with manufacturers is something we’re trying to do because that’s what places the most benefit in the supply chain. It allows for the most downstream benefit to all participants [because] it can be authenticated at various points. The further upstream [the part] is marked, the better it is for everyone.

ED/SourceESB: One of the biggest problems in the war on counterfeit components is the evolution of counterfeits—the counterfeiters keep coming up with ways to get by the detection methods. How does DNA technology measure up?

Meraglia: We’ve had some pretty strong entities try to copy what we’re doing and no one has been able to do it. We use plant-based DNA, and it’s just as strong or stronger than human DNA. The counterfeiters will not be able to break through.

During our research and development phase with the DLA, they sought independent validation of what we’re doing. That’s an important part of the process. As we move forward, we’re getting away from demonstrating [the technology] ourselves in favor of having others demonstrate how well this works.

At the end of the day, we want to keep the bad guys out of this industry. We want to make it so difficult for them to attempt [counterfeiting] that they just move out of the business.