The National Electronic Distributors Association (NEDA) has announced new guidelines regarding product returns concerning electronic parts which, in our view, lack substance.  These guidelines are a long-overdue response to the rapidly growing problem of counterfeit and bogus parts penetrating high tech and national defense related supply chains. NEDA has rightfully acknowledged that a primary source of illegitimate parts lies with the reverse supply chain, and the guidelines were established to help distributors to better validate the return parts process.

Supply Chain Matters commented in November of 2009 on the increasingly widespread problem of counterfeit parts.  Scrupulous players have found that there are more monetary and other incentives for engaging in this activity, more so than illicit drugs or other forms of organized crime.  Criminal laws covering this activity are generally weak. On the buying side, suppliers offering parts and components below current market prices lure buyers into spot buying or new contract arrangements in order to meet cost-reduction goals. Suppliers and other players continue to discover more sophisticated means to alter the composition or stated quality of parts, more often beyond current means to detect such deficiencies. Many of these parts originate from the recycling of discarded electronics that make their way to the China and other Asian destinations, or through various channels for selling or disposing of inventory surplus.

We view this NEDA announcement as encouraging but rather weak in substance. The four page guideline is rather thin on specific controls and mitigation procedures, along with outlining any consequences for those distributors who do not choose to adopt the guidelines.  The document notes that “the most effective way to minimize risk and to ensure receiving authentic parts is to buy through authorized channels”, yet the outlined guidelines only address visual inspection of superficial packaging and verification of purchase orders, which are hardly substantive in insuring audit and control.  There are no guidelines for insuring pedigree or chain of custody regarding parts. The guideline seems to imply that best means to control counterfeiting is to buy from a NEDA member distributor, only.

Readers may recall our December Supply Chain Matters posting noting that the U.S. Department of Defense and other governmental procurement agencies have begun to step-up criminal investigation and indictments related to those suspected of selling counterfeited electronic parts or altering product trademarks.  The U.S. government is clearly serious about enforcement and so should all players residing in industry.

The final note in the NEDA announcement states that: “We want the component manufacturers to also consider their stock rotation/scrap-allowance policies with respect to their authorized supply chain.” That statement is but another acknowledgement that neither NEDA nor the high tech industry as a whole has the alignment or the determination to crackdown on the sources and operators in counterfeit parts. After all, its always the problem of that other entity in the chain.

Bob Ferrari