Strategic Purchasing
Buying Components Should Never Be a Calculated Risk

Buying Components Should Never Be a Calculated Risk

Years ago, I interviewed a purchasing manager at an electronics manufacturing services (EMS) provider about his company’s use of electronics distributors. He told me his company used about a dozen franchised distributors and a half-dozen independent distributors. He also said his firm mostly used independent distributors when parts were in short supply and could not be sourced from franchised distributors. He added that on occasion he would also buy from independent distributors if the parts needed were priced significantly lower than authorized distributors.

I asked him if he was concerned about buying counterfeit parts when doing business with independent distributors. He said that he was, but it was a “calculated risk.” In fact, he went on to say that there were several occasions when his company purchased substandard or counterfeit parts on the open market.

In one case his company bought parts that were supposed to be new, but turned out to be recycled parts that were pulled off a printed circuit board. The parts still had solder paste on them, he said. The purchasing manager said his company had purchased the recycled part from an independent distributor because the price was lower than the price authorized distributors were charging. The purchasing manager’s company had not done business with the distributor before and had not thoroughly evaluated the distributor.

Today, most buyers would not purchase components from independent distributors that they had not done business with before or had not previously qualified. Some buyers will not purchase from an independent distributor if the distributor has ever sold substandard or counterfeit part. Large OEMs and EMS providers occasionally buy from independent distributors, but have rigorous qualification processes for independent distributors before purchase orders are placed. Such robust evaluation is imperative because counterfeiters are getting more sophisticated in their techniques and bogus parts are getting harder to detect.

Many counterfeit parts are actually refurbished parts that are sold as new components. In fact, it is the most common form of counterfeiting, according to the Electronic Resellers Association Inc. (ERAI), an association that maintains a database of reports of counterfeit components.

Richard Smith, vice president of business development for ERAI, said in some cases counterfeiters are cloning parts. The fake parts look real and may have some functionality, but cannot perform to the spec of the genuine components.

In many cases the part is a legitimate part, often made by an Asian manufacturer. It could be a low-value, low-functioning chip that is supposed be used in a toy. It is sold through a legitimate channel and purchased by counterfeiters.

A counterfeiting operation then re-marks the component with the logo of a major electronics component manufacturer and a part number of a superior part that has much higher specifications than the inexpensive part. The component is sold on the open market.

In some instances, counterfeiters will take e-waste—components that have been stripped from old equipment—and try to sell them as new parts, says Smith. Counterfeiters will scratch off the original part number, coat it with a black top material, mark it with a new part number, and sell it as if it were new.

In some cases, counterfeiters will sell a part that is supposed to be semiconductor, but has no die in it. It is just a dual in-line package (DIP) or thin small outline package (TSOP) or other semiconductor package.

“It looks brand new because the package is new and had never been used,” says Smith. "But it is empty with just a part number stamped on it.”

While most counterfeit parts involve semiconductors, there are cases where counterfeiters sell bogus passive components. One example is surface-mount resistors, which are very tiny with no markings on them. They may be sold in 5,000-piece reels. Counterfeiters will buy the reels of inexpensive commodity resistors, remark the reels as being higher-cost, high-resistance precision resistors. Often the commodity resistors are not discovered to be lower-value parts until the equipment they are placed in fails in test or in the field, says Smith.

Buyers have to do more than just be aware that counterfeit parts are circulating in the supply chain. The Electronic Components Industry Association (ECIA)) advises buyers that the best way to avoid buying bogus parts is to only buy directly from component manufacturers or their authorized distributors.

It is good advice, but purchasers—especially those in the defense and aerospace industry—say that sometimes they have no choice but to buy from independent distributors because the parts they need are obsolete and not being made by any component manufacturers or being held in inventory by authorized distributors.

Purchasers who have to buy from independent distributors need to evaluate and screen their independent sources carefully. Some parts brokers are unscrupulous and are only looking to make a fast buck and don’t care if they sell counterfeit parts or not. Buyers obviously need to avoid such sources like the plague.

Purchasers need to make sure they use responsible distributors that take counterfeiting as a serious issue and can trace the parts they sell back to the original component manufacturer.

Purchasers also need to look for independent distributors that have the screening and testing procedures in place to root out counterfeit, substandard, and poor-quality components.

For instance, many independent distributors will perform a visual inspection of parts using an optical microscope and some chemicals to identify problems with the parts such as sanding marks, black topping, bent leads, or alterations to the part.

Some distributors will run electrical tests on parts to help determine functionality, while others have invested in X-ray fluorescence (XRF) spectrometers that can detect bogus components or poor quality parts. XRF machines can measure composition of materials in the parts and compare them to a genuine part to determine if the components are authentic or not.

Some distributors have invested in decapsulation machines, which remove the lid or top layer of a part to expose the die and the internal structure of the component to determine if it is genuine.

Although such testing and screening is no absolute guarantee that parts sold by independent distributors are genuine, the screening process goes a long way to identify fake components.

Counterfeit components are not an issue that’s going away anytime soon and buyers need to make sure they never take a  “calculated risk” when buying electronic parts. They need to have the procedures and strategies in place to make sure their companies only buy authentic components from responsible distributors.

Looking for parts? Go to SourceESB.

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