Guide To Mitigating Risks Of Counterfeit Parts In Your Supply Chain

The business of counterfeit goods, electronic parts in particular, has exploded over the past decade. In 2016, the trade in counterfeit and pirated products was estimated to have reached a value of  $509 billion and in 2019, the U.S. seized counterfeit goods valued at $1.5 billion at the border.

In addition, organized criminals have been crafty enough to capitalize on counterfeit trade to smuggle contraband goods, launder money, or bribe officials.

All industries suffer from the problem, from electronic components to automotive parts and electrical products, potentially causing health and safety hazards. Considering the prevalence of circuits and conductors in most of the equipment used today (including navigation and weapon systems), any counterfeit part entering the supply chain represents a considerable risk. In Mapping the Real Routes of Trade in Fake Goods published in 2017, the OECD identifies the top ten sectors affected:

• Food
• Pharmaceutical products
• Perfumery and cosmetics
• Leather articles and handbags
• Clothing and fabric
• Footwear
• Jewelry
• Electronics and electrical equipment
• Optical, photographic, and medical equipment
• Toys, games, and sport equipment

Mitigating The Risks Of Counterfeit Goods

Despite posing a global challenge to businesses and authorities, the supply chain risks associated with counterfeit parts can be identified and mitigated.

Knowing Criminal Patterns

Counterfeiters typically follow a classic MO to ship and trade their products. They may falsify documents, hereby lying about the origin of a product. They may open distribution centers where counterfeit goods are mixed with the legitimate inventory. They also would repackage and re-label products to pass non-conforming items as compliant.

Per the OECD report cited previously, counterfeits originate mostly from China and Southeast Asia. Seized packages were transported by sea (51%), postal and express service (23%), air (19%), and road (8%).

The more complex the supply chain and shipping routes, the more points of entry are available. However, having a clear picture of trade flows can help prioritize risk mapping. 

Monitoring the supply chain processes, including logistics, can minimize the risk of inaccurate paperwork: quality systems, background checks, track and trace, trusted partner programs, etc. Providing local training is another way to engage suppliers so they can recognize suspicious patterns, especially coming from high-risk areas.

Selecting Suppliers

Anytime a business selects a new supplier, it exposes its value chain to various risks, including counterfeit or pirated goods to enter the stream. Strong vetting practices, onboarding, ongoing virtual audits, and supplier assessments mitigate those risks and increase transparency.

Contractual terms should include quality standards and accountability measures, as well as provisions for inspections and random testing.

Leveraging Data

Collecting accurate, timely data is crucial to product compliance and identifying counterfeit parts. Comparing lists of materials and components against a global database allows to quickly flag high-risk and suspect sources by part number, description, visual, supplier name, or region. You can receive real-time alerts on issues as they arise and when new parts are added.

Over time, you can build a list of trusted sellers and consolidate procurement rather than multiple suppliers to the point of opacity. Again, vetting and engagement greatly reduce the risk of sourcing counterfeit or pirated goods.

A Note On Counterfeit With GIDEP

GIDEP (Government-Industry Data Exchange Program) often pops up in association with counterfeit topics. The program is a membership-based cooperation between government and industry participants, sharing data on equipment, parts, and assemblies suspected of being counterfeit.

In short, the information provided by the report allows companies in scope to avoid negative impacts on quality, safety, and reliability of their systems and equipment.

While a robust program, GIDEP excludes commercial products and presents applicability challenges. Becoming a member is reserved to: 

• industrial organizations in the U.S. or Canada supplying items to the US government or the Canadian DoD
• U.S. or Canadian government department, agency, or activity
• Licensed U.S. Public Utilities Company

The program mostly reports on electronic components and to some extent on valves, fasteners, and circuit breakers.

Risk-Based Approach To Counterfeit Parts In Your Supply Chain

Non-conforming parts and goods can be damaging to your brand and present risks for supply chain disruptions. They can lead to costly recalls, loss of contracts, safety concerns, and reputational damage. The rise of digital commerce and the recent disruptions in supply chains due to the pandemic have created more opportunities for criminals to trade their goods.

The surest and most effective way to prevent risk is to use Source Intelligence’s Counterfeit Parts Prevention solution to detect, mitigate, and respond to risk. Our solution:

• Alerts you when and where counterfeit parts issues are detected
• Collects and automatically verifies supplier’s data
• Centrally stores documents on our cloud-based platform
• Builds a strong community of trusted and engaged suppliers

Shield your business from incidents and create a safe, transparent supply chain. Request a demo of our supply chain solutions today.