2018

STANDARDS OUTLOOK

Fake Out

Keep counterfeits at bay via your quality management system

by Dale K. Gordon

Some already know this issue, but many do not: There is a problem in the supply chain. There are some unscrupulous people around the world who don’t just think imitation is the sincerest form of flattery—to them it’s a profitable activity.

I am talking about counterfeit products, an acute problem that shows up in many consumer and nonconsumer industries. Figure 1 shows global reports of counterfeit product incidents and purchased parts.

Figure 1

Some think this is harmless, only affecting copyrights or similar issues related to music or movies. Others think of "knockoffs," such as handbags, luggage and clothing that looks almost identical to the namebrand originals but that can be purchased for a fraction of the retail cost.

The sad truth is that the counterfeiting of goods has extended to all areas of commerce. Some of the most frightening examples have involved electronics and extended into many products that could affect personal safety. In the aviation, space and defense (AS&D) industry, the safety implications of counterfeit electronics are severe. Imagine the consequences: loss of control of air or spacecraft, defense munitions or communications. These cannot happen for a warfighter or for the defense of nations.

Think about the quantity of today’s products that depend on small numbers of electronic components for their safe and effective operation. This even extends to children’s toys or automotive components that can catch fire or malfunction due to counterfeit, improperly functioning components.

A reason for the focus on electronics by counterfeiters for a source of profit is the ease of entry into the supply chain. Most electronic components (resisters, transistors, diodes, capacitors and integrated circuits) are bought through distribution.

Search the internet for a component and you will find dozens, if not hundreds, of brokers and legitimate authorized distributors for it. If you wanted to sell into an uncontrolled marketplace (think of a Middle East bazaar), this is the best point of entry for a counterfeiter.

Another issue is that the lifespan of many electronics components is now about the same as the lifespan of the end items they go into, such as cellphones and consumer products. This lifespan may be only a few years.

In the early days of the electronics industry, AS&D was the promoter and investor in electronics. The products produced back then are still flying or working today. For example, think of a B-52 aircraft bomber as it enters its 60th year of continuing service.

Replacement electronic parts for many avionic components are no longer produced or available from the original manufacturers, making servicing of the aircraft difficult. Furthermore, AS&D needs today account for less than 1% of the uses of electronics.

The volumes, therefore, are too low and costs too high for the manufacturers of components to directly support the AS&D products that last more than 30 years. In fact, the problem has become so acute that the U.S. government has deemed it necessary to implement strict requirements and regulations on defense contractors for the prevention of counterfeit electronic components in products provided to the Department of Defense (DOD).

The current accepted definitions of counterfeit and suspected counterfeit parts are shown in Table 1.

Table 1

Prevention and the a QMS

So what does this have to do with a quality management system (QMS)? It has been argued many times that a QMS is not designed to detect fraud and deception. The question really is: "How does a well-functioning QMS protect the customer and provide safe and reliable products?"

Some could point to the requirements found in ISO 9001:2008, clause 7.4,1 which say proper ordering and verifying of goods should be sufficient. Think about counterfeiting currency. If it looks, acts and feels like real money, and spends like real money, how do you know without special forensics analysis? And, after it’s in the supply chain via a legitimate distribution network, why would you need to test it?

Also look at the current and proposed ISO 9001 as it relates to an organization that functions as the intermediary between a large-scale manufacturer of components and smaller-scale buyers of products for all sorts of uses within society. The number of exclusions from possible clause 7 with these types of organizations is extensive.

This is one reason the global AS&D industry originally developed AS9120—Quality management systems—Requirements for aviation, space and defense distributors2 and instituted a certification program.

This standard recognizes the important role of distribution in the supply chain, but makes clear the expectations that they will not only control sources, but also preserve the integrity of the supply chain from the direct manufacturer to the customer using the item being sold.

For many years, AS9120 has included definitive requirements at the distribution level for "implementation of controls to prevent the purchase of counterfeit parts,"3 but because the issue is now more pervasive and widespread, the AS&D industry intends to expand these requirements to all levels of the design, manufacture, assembly, testing and servicing of AS&D products.

The main requirements of recent U.S. DOD regulations on counterfeit electronics have requirements for organizations to:4

  • Train personnel.
  • Inspect and test electronic parts (the requirements include criteria for acceptance and rejection).
  • Establish processes to abolish counterfeit parts proliferation.
  • Enable mechanisms to trace parts to suppliers.
  • Use and qualify trusted suppliers.
  • Report and quarantine counterfeit electronic parts and suspect counterfeit parts.
  • Implement methods to identify suspect counterfeit parts, and rapidly determine whether a suspect counterfeit part is, in fact, counterfeit.
  • Design, operate and maintain systems to detect and avoid counterfeit electronic parts and suspect counterfeit electronic parts.
  • Flow down counterfeit avoidance and detection requirements to subcontractors.

Because the issue of counterfeit parts can extend beyond electronics, the AS&D industry is proactively considering not just additional QMS requirements on distribution, but also on all organizations in the next revision of the industry’s QMS standard, AS9100,5 due with the next ISO 9001 revision, targeted for early 2016.

Some of the language being considered in the revised AS&D standard includes specific requirements for the organization to implement processes—appropriate to the product—to prevent counterfeit parts from being delivered in products. Some of the requirements that might be considered in a QMS for the prevention of counterfeit parts would include:

  • Training appropriate personnel in the awareness and prevention of counterfeit parts.
  • Application of a parts obsolescence monitoring program.
  • Procurement requirements for ensuring traceability of parts and components to their original authorized manufacturers.
  • Inspection and test methods to detect counterfeit parts.
  • Monitoring counterfeit parts reporting from external sources.
  • Quarantine and reporting of suspect or detected counterfeit parts.

The current proposal in the standard’s revision also could have some requirements for verification activities and flow down requirements to subcontractors with respect to the prevention of counterfeits components.

What you can do

When considering how a QMS should function to ensure counterfeits don’t enter the supply chain, start with the design of the product. When products are being designed, are older designs being replicated and updated? This leads to obsolete or soon-to-be-obsolete materials being considered and incorporated into new or current products.

Counterfeiters typically observe the basic laws of economics: supply and demand. When obsolescence will create a limited supply of product, with a constant or new demand for the scarce or difficult-to-find materials, the profits make it lucrative for the counterfeiters to engage in their trade.

Training is a consideration because personnel responsible for specifying design requirements and for executing procurement and verification activities of purchased products must have an awareness of the risks of counterfeits to the products being produced.

Another part of QMS activity is procurement from trusted sources of supply or directly from manufacturers. The risk of counterfeit is low to nonexistent when buying designed product directly from the source. When dealing with commodity-type items, however, this is becoming increasingly difficult. Buying from authorized or franchised distribution provides a higher level of prevention, but it is not a guarantee.

The QMS requirements for control (better known as traceability) of items that are produced from their origin can be another area to show that confirmed pedigrees of all items and components of a product can be fully tracked to the original—and known—manufacturers. Remember, however, it’s even easier to counterfeit paper documents when simply relying on a certificate of origin or conformance.

Verification activities, of course, must be designed according to the risk of counterfeit items being introduced to the product. In the case of electronics, some elaborate inspections are being prescribed because the skill of counterfeiters has become so good that it is very difficult to detect fakes from visual or functional examination.

Another specific issue with respect to counterfeits is the need to ensure that once discovered, counterfeit items are destroyed so they do not return to the supply chain. Some sophisticated reporting services have been created in the past several years for the electronics industry to alert users and end users of known or suspected items that might have been counterfeited and where and how they were identified, so existing products or inventories might be examined to determine whether a similar risk might exist.

All of these current and proposed QMS additions are doing a lot to ensure the safety, reliability and performance of products in the AS&D industry, but in many other industries and throughout the interconnected global supply chain for other products, it still might be a case of buyer beware.


References

  1. International Organization for Standardization, ISO 9001:2008—Quality management systems, Clause 7.4—Purchasing.
  2. Society of Automotive Engineers International and the European Association of Aerospace Industries, AS9120—Quality management systems—Aerospace requirements for stockist distributors.
  3. Ibid, paragraph 7.4.2g.
  4. U.S. Department of Defense, Defense Federal Acquisition Regulation (DFAR) 252.246.7007.
  5. Society of Automotive Engineers International and the European Association of Aerospace Industries, AS9100—Quality systems—Aerospace—Model for quality assurance in design, development, production, installation and servicing.

Dale K. Gordon is director of supplier quality for Aerojet/Gen Corp. in Sacramento, CA. He is an ASQ fellow, chair of the SAE Americas Aerospace Quality Standards Committee (G-14) and serves on many writing teams and committees for the aerospace series of standards. Gordon earned a bachelor’s degree in industrial engineering from General Motors Institute (now Kettering University) in Flint, MI, and an MBA from Butler University in Indianapolis.



Great article. If possible, please reference statistical tools that might be helpful in identifying and preventing fraud especially as applied to the Supply Chain. Thanks, Tony Foley
--Anthony D. Foley, 03-19-2015

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