2. Supply & Demand Chain Executive
The executive’s user manual for
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chain transformation, providing
analysis, viewpoints and case
studies to steer executives and
supply management
p
professionals through the world of
g
supply and demand chain
enablement to gain competitive
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3. Moderators
Barry Hochfelder
f
Editor, Supply & Demand Chain Executive
Rory Ki
R King
Director, Global Product Marketing, IHS
3
4. Counterfeits: A Big Deal
Risks to Company, Brand, and Performance
What is the Impact of Counterfeit Electronics?
(% Respondents)
Undermine compliance claims 44%
ANY
Compromise device/product security 37%
ND
COMPA
BRAN
Expose contractual liability 42%
&
Expose product safety / legal liability 55%
Damage brand / reputation 71%
PERFORMANC OPERATIONS
Product launch delays 36%
PRODUCT
Production line stoppages 57%
&
Customer returns/recalls 67%
Product quality/reliability failures 84%
Increase product dev’pt time/costs
dev pt 38%
CE
FINANCIAL
Add to unit costs 51%
Inhibit sales / customer sat 62%
&
Reduce expected product life 64%
Increase warranty/maint. costs
warranty/maint 65%
P
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Source: Benchmarking Counterfeit & Inferior Grade Components,
Supply & Demand Chain Executive & IHS Inc., April 2009
5. Counterfeits: A Huge Deal
Loss of Life and National Security in Jeopardy
"They ground aircraft and impact airplane safety" …
“Bring disrepute to our company / blacklisting from customers ”
Bring customers.
“Destroy customer trust, confidence & credibility.”
“Customers do not get product in a timely manner”
"They cause failure of safety related components in nuclear plants."
y y
“Flood market and create unjust competition with reliable sources”
"Counterfeiting causes a loss of revenue due to equipment down time."
“Increase Lab testing time” and “Increase procurement costs”
“Undermine revenues” and “Loss of customers”
"They harm patients and pose a significant risk of death."
“They increase risk of legal action and product failure”
“Increase warranty claims”
Increase claims
“Force multiple, costly QA in destructive and non-destructive examinations.”
“Compromise Security, DOD, Government” …
…“Counterfeiting Jeopardizes our missions and soldiers safety."
Shown: DailyTech LLC, June 17, 2011
Source: Benchmarking Counterfeit & Inferior Grade Components,
Supply & Demand Chain Executive & IHS Inc., April 2009
5
31. What is Being Counterfeited
In a typical recent two weeks of ERAI provided data (Reported
Companies)
Five suspect counterfeit shipments (3 integrated circuits, 1
transistor, 1 capacitor), $55,169.00
• 6,233 ICs at $44,154 = $7.08 per
• 500 transistors at $1 015 = $2 03 per
$1,015 $2.03
• 200,000 capacitors at $10,000 = $0.05 per
• These are just the companies that were reported by ERAI
members,
members usually due to disputes
• These instances are seldom reported to GIDEP
Slide compliments of Fred Schipp-MDA
32. What is Being Counterfeited
June-July 2011 ERAI reported
186 suspect counterfeit parts
– Integrated Circuits – 81%
• Processors/Controllers – 14%
• Memory – 12% (mostly FLASH)
• Transmitter/Receivers – 7%
• Operational Amplifiers – 6%
• Programmable Logic Devices – 5%
• Digital Switches – 5%
• Converters – 4%
• Field Programmable Gate Arrays (FPGA)
– 4%
– Discrete Transistors – 8%
– Discrete Diodes – 4%
Di t Di d
– Capacitors – 4% (mostly aluminum
electrolytic)
– Inductors – 1%
Slide compliments of Fred Schipp-MDA
40. Exports of Used and EOL
Products
New product take-back laws and
take back
expanding customer demands in key
markets are directing larger volumes of
equipment toward recycling and reuse.
National laws often impose
requirements on the collection, storage,
recycling and export of wastes
wastes,
including some e-wastes.
E-waste exports are a priority concern
for th U S
f the U.S. and many other
d th
governments with significant initiatives
underway within the Basel Convention.
Link between U.S. exports of e-waste
and counterfeit problem? 40
42. Evolving International Waste
Shipment Regimes
Shi tR i
The Basel Convention (global)
178 Parties (but not the U.S.)
OECD Council Decision C(2001)107/Final
Co ncil
OECD Expansion (e.g., Chile, Israel)
Other “Article 11 Agreements (e g U S
Article 11” (e.g., U.S.
bilaterals)
EU Waste Shipments Regulation
p g
Regulation (EC No. 1013/2006) effective 2007
EU WEEE Directive Recast
42
43. Exports of Used and EOL Products
p
• Basel Convention parties moving to
g
classify many types of WEEE as
hazardous wastes subject to controls
and trade bans.
• Negotiations on whether used
equipment intended for repair/reuse
must be managed as “waste.”
g
• E-waste technical guidelines
considered at COP-10 in October with
negotiations continuing in 2012.
• New logistical challenges, trade bans
and compliance costs for managing
used and end-of-life electrical and
end of life
electronic equipment world-wide.
43
44. E-waste Exports: U.S. Regulation
• Exports of “Hazardous Waste” regulated under RCRA.
p g
• Separate EPA rules governing exports of certain waste
for recycling to OECD countries.
• EPA CRT Rule
– Notice and consent requirements for exports destined
for recycling
– One time notice to EPA and recordkeeping
requirements for exports destined for reuse
• E-waste exports an EPA policy and enforcement priority.
• U.S. subject to Basel Convention non-party trade ban.
44
45. H.R. 2284: The Responsible Electronics
Recycling Act of 2011
R li A t f
• Introduced by Reps. Green (
y p (D-TX) and Thompson (
) p (D-
CA) on June 23, 2011.
• Proposes to prohibit the export of e-waste to developing
nations that are not members of the OECD or the EU, or
Liechtenstein.
• Establishes an expansive category of “restricted
electronic waste” that cannot be exported from the U S
waste U.S.
to these developing nations.
• Requires notice, prior written consent, and licensing to
export any used electronics th t are exempt from the
t d l t i that tf th
export prohibition.
• Effective 2 years after the date of enactment.
y
45
46. China Import Controls on Used
Equipment and E-waste
i t d E- t
• Article 25 of the Solid Waste Act of the People’s
p
Republic of China
– Prohibition on import of solid waste that is unusable as raw
materials or cannot be used in a hazard-free manner
hazard free
– Catalogue of Solid Waste Prohibited for Import
– Catalogue of Restricted Wastes that can be Used as Raw
Materials (imports allowed with approvals of AQSIQ and MEP)
– Catalogue of Automatic-Licensing Solid Waste Imports that can
be Used as Raw Materials
• Measures for Administration of Import of Mechanical and
Electrical Products identifies used products destined for
repair/refurbishment that can be imported under a
p p
MOFCOM-led program, subject to approvals.
46
69. Dan Ellsworth
Implications for Independent President & CEO
World Micro, Inc.
Distributors Suppliers
Di t ib t & S li December 8, 2011
70. Three types of distributors Independent distributors
Tend to carry many in-stock SKUs
May have contracts with manufacturers
Vendor neutral
Tend to have robust quality control systems
Tend to follow the “80/20” rule
Tend to buy unneeded excess from large
OEMs and CMs (e.g. IBM, GE)
Tend to supply what franchises and brokers typically cannot:
Obsolete Parts – Factory Allocated – Custom – Excess Purchases – 3PL Stocking – Long Term Distribution
The market from an independent
Independent distributors distributor’s viewpoint
72. Capital expenses for testing/detecting
Obtain
Ob i certifications, establish on-going
ifi i bli h i
testing/compliance programs
Get on QSLD
Q
Work with DoD, follow all guidelines
Work more closely with primes
& sub-primes
Have process for GIDEP reporting
Align i h
Ali with associations
i i
like ERAI, IDEA etc…
What does it mean to
The Defense Authorization Bill independent distributors?
Short-term iimplications
Sh t t li ti Get involved
73. Why it’s Benefits of using independents in mission critical applications
Important when regular supply is disrupted:
Parts will largely be inspected with robust equipment
Great reduction in counterfeit parts entering US borders
Demand for Chinese fakes disappears with modified
government purchasing habits
Provides a trusted supply channel
Human lives are at stake
Benefits and implications
when using independents
h i i d d t
74. At Minimum
Certs: ISO9001,AS9120,ANSI20-20A,AS13485,
ITAR compliance
Certified and listed on the QSLD list
Well document QC process
Inspectors certified to IDEA-ICE3000 standard
Technology to inspect for and detect counterfeits
ERAI, IDEA, or other memberships
Strong financial background, D&B score
Open to onsite audit
Develop a list of minimum requirements
Selecting a good independent
75. Thank you for your time today
Dan Ellsworth
Implications on Independent President & CEO
World Micro, Inc.
Distributors Suppliers
Di t ib t & S li December 8, 2011
77. Obsolescence Reality?
Percent of Commercial Off The Shelf (COTS) parts that are out of production (un procurable) versus the
(un-procurable)
first 10 years of a surface ship sonar system’s lifecycle. (Courtesy of NAVSURFWARCENDIV Crane)
Source: The Engineering Economist, Vol. 51, No. 2, pp. 115-139, April-June 2006
12/8/2011 Created By: Mark Northrup 77 of 11
78. Industry reaction legislation?
Supplier CM OEM
liability liability liability
liability
li bilit liability
li bilit liability
li bilit
Tactical Response?
Flow down through suppliers Waive liability?
Refusal to provide obsolete parts End programs?
12/8/2011 Created By: Mark Northrup 78 of 11
79. Industry reaction legislation?
Dual Path Approach?
fund test, audit, and certify trusted obsolete parts suppliers
test audit
design out obsolescence and / or decommission programs
12/8/2011 Created By: Mark Northrup 79 of 11
80. Design Out Obsolescence ?
b l
The Only True C
Th O l T Component Ri k Miti ti S l ti
t Risk Mitigation Solution
Risk Mitigation Testing Strategies (IDEA -1010, AS5553, Mil-Std-1580, Custom)
81. Obsolescence Mitigation Methods
Test Plan Strategy
i.e. IDEA-1010, SAE AS5553/AS6171/AS6081, Mil-std-
1580/883/750/202/981 for substandard parts
Certification of Test Labs
i e ISO 17025 for technical capability proficiency and
i.e., capability, proficiency,
repeatability
Data Archive of Component Analyses for Distribution
Enabled through Tools for EOL, Obsolescence,
Counterfeit Mitigation
12/8/2011 Created By: Mark Northrup 81 of 8
82. B i Mi i i S
Basic Mitigation Starts with P di i Lif
i h Predictive Lifecycle
l
Forecast for Part Analysis, Selection and Refresh
Component Years to End of Life (YTEOL)
An estimated number of years before a component becomes obsolete.
Current 1– 2 3– 4 5– 6 7– 8
Availability Years Years Years Years
Available Available Available Available Available
Available Available Available Available Available
Discontinued Discontinued Discontinued Discontinued Discontinued
EOL Discontinued Discontinued Discontinued Discontinued
End item Available Available Discontinued Discontinued Discontinued
Parts Available Available Available Discontinued Discontinued
Available Available Available Available Discontinued
Available Available Available Available Discontinued
Available Available Available Available Discontinued
End it
E d item Years
Requirement
83. Wh t About “The U
What Ab t “Th Unpredictable”?
di t bl ”?
Natural disasters, geo-political, economic instability…
12/8/2011 Created By: Mark Northrup 83 of 8
84. “The Unpredictable” Makes Part
The Unpredictable
PCN/EOL Alerts a Critical Requirement
Component PCN 40% CAGR from 1997-2010 Lead-free creates 20% new EOL 2006-2007
End of Life (EOL)
Specific to RoHS/Pb-free Environmental Compliance
2003 2004 2005 2006 2007 2008 2009
Component EOL 40% CAGR from ‘97 to ‘10 Demand weakness 90% of EOL in 2009
2,600
2,500
2,400
2,300
Semiconductor MSI (Right Scale) 2,200
End of Life Parts % of Total Parts 2,100
2,000
1,900
.80 1,800
.75 1,700
1,600
.70
1,500
.65
1,400
.60
1,300
.55
1,200
.50 1,100
.45 1,000
.40 900
.35 800
.30
.25
IHS EOL insight found “demand side” primary reason for 90% of EOL
g p y
.20 actions in 2009, vs. more typical 15-20% citations during 2004-2008
.15
.10
Millions Square Inches Silicon Processed - Semi
Parts: IHS Electronics Database
.05
.00
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Charts Courtesy of IHS Inc., 2011
12/8/2011 Created By: Mark Northrup 84 of 8
85. Mitigation Should Always Consider Part
Alternates from Trusted Supplier Sources
Trusted
Original Component Aftermarket Authorized Sales /
Independent
Manufacturer Manufacturer Distributor
Distributors
12/8/2011 Created By: Mark Northrup 85 of 8
86. Mitigation Should Integrate Suspect
Counterfeit Part / Supplier Screening
12/8/2011 Created By: Mark Northrup 86 of 8