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Reports of counterfeit parts in military four times higher since 2009

February 25, 2012

Latest statistics are clearly showing what everyone, surely, already knows: counterfeit electronic parts are deluging the world supply system, critically threatening military, medical, and other systems which use electronics intensively.  A new report will help to quantify the extent of the crisis, and we hope, help assess the growing losses to national safety, to jobs, and to companies' bottom lines.

According to the noted supply chain research firm IHS iSupply, the number of counterfeit electronic parts found in the supply chains of US-based military and aerospace firms has quadrupled since 2009.    Drawing on industry and government databases, the report documents 1,363 separate verified counterfeit-part incidents worldwide, “a total that could encompass millions of purchased parts.”  Can it be surprising that the U.S. government has stepped up its anti-counterfeit effort by passing Amendment 818 of the National Defense Authorization Act for 2012?  (see our earlier post here).

Huge Spike in Found Counterfeits

The huge spike in found counterfeits follows a dip in reported incidents starting with the Great Recession of 2008.   The number is now far beyond what is was in early 2007, just before the economic crisis.  (and, by percentage of shipped parts, the counterfeit crisis almost certainly never wavered even during the Recession).

Perhaps more startling still, IHS states that going back to 2001, the number of reported incidents has risen by a factor approaching 700.

The report also gives us a glimpse of what this means to defense suppliers, and the men and women in the armed forces.  The typical Bill of Materials (BOM), or parts list, for a defense program can have from several hundred to tens of thousands of parts.   A percentage of that BOM—from .5% to 5%-- typically  matches parts which have turned up in the reported incidents database.    In other words, hundreds and maybe thousands of parts in each BOM are typically suspect.    In military supply, where even one counterfeit can have devastating consequences, thousands are suspect in every parts list.

This is also a good picture, by extension, of the situation we now face in the medical devices and automotive industries, also intensively invested in electronics, and also very high risk for counterfeit, and therefore possibly defective parts.

Counterfeit Crisis Larger Still

It’s well to keep in mind that “reported incidents,” like the number of seizures of counterfeit goods by government agencies, is an indicator, but only an indicator of the larger, global problem.   The data comes from the industry database kept  by an IHS partner, ERAI Inc., and from the U.S. government’s GIDEP data store, both U.S. sources.   The number of incidents reported by governments and companies worldwide is without doubt much higher. 

At the same time, this total admittedly under-reports the total of counterfeits found in consumer electronics and other industries, a normal outcome using statistics that rely on official reports.  Such reports are much more likely to come from military and the related aerospace sectors than from consumer-facing companies, whose defective product problem is generally handled and in the case of counterfeits, hidden,  by warranty service.  

The consumer sector is much larger: in microchips, for example, the U.S government normally buys about 2% of the global supply.