The Counterfeit Challenge
Preventing & Detecting CounterfeitComponents In Global Supply Chain
Steven Kuritz PhD
Quality, Safety and Mission AssuranceNorthrop Grumman Aerospace Systems
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
Customs Seizures in 2011
2Counterfeiting is a Broad ProblemCounterfeiting is a Broad Problem
Source CBP.gov
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
Electronics Counterfeiting
• 2011- > 1300 Incidences ofCounterfeit Electronics reported toERIA
– Double the number in 2010– Quadruple the number in 2009
• Defense industry is particularly at riskdue to budget driven serviceextensions
– System lifecycles are measured indecades
– Electronics in those systems havelifecycles of 5-10 years
– Electronic part lifecycles aremeasured in months
• Driven by commercial uses
Source GAO-12-375Source: AIAA Counterfeits Report
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
Counterfeit Material AwarenessWhat is Counterfeit Material?
• A copy or substitute without legal right or authority to do so
• Item whose material, performance, or characteristics are knowinglymisrepresented by the vendor, supplier, distributor, or manufacturer
• Non-conforming supplies tendered with intent to deceive
• Used or reclaimed parts misrepresented as new
• Parts suspected to be counterfeit are rigorously evaluated todetermine if material is authentic
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Differences in marking Differences in textureindicates overspray
All photos courtesy of GIDEP
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
Typical Counterfeit Examples
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Authentic Part but Reclaimed
Counterfeit part
New leads butt welded onto reclaimed part – Only identified because of change of metal
Comparing two parts above a “dimple” is missing from one of the parts. X-ray analysis of the two partsshows that the top one had the wrong die inside
All photos courtesy of GIDEP
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
Preventing & DetectingCounterfeit Components HasBecome A Critical Challenge:
• GAO Sting Operation demonstratesavailability of counterfeit parts in theSupply Chain
• Testimony Before the Senate ArmedServices Committee RevealingCounterfeit Content Within The DoDSupply Chain (Nov 8th, 2011)
• NDAA Section 818 Requires DoD andContractors to develop systems toeliminate counterfeit parts
• Debarment Global IC & Hong DarkFor Counterfeit Parts (Jan 13th, 2012)showed how intertwined we all are
• Overarching DoD CounterfeitPrevention Guidance (Mar 2012)Expands concern to “mission criticalcomponents, critical safety items andload-bearing mechanical parts”
Counterfeit Components –Jeopardizing The Performance & Reliability Of Defense Hardware
Bagging For Sorting
Inside Market Place Ready for Packaging
Drying In The StreetsRemoving Components
How Is All ThisCounterfeit ElectronicsPossible?
e-Waste — Feedstock forCounterfeiters
Internet – Allows GlobalDistribution
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
FY 2012 National Defense Authorization Act
SEC 818 “Detection and Avoidance of Counterfeit Electronic Parts” Requires
Purchasing
• Requires contractors to buy electronic parts from original component manufacturersand their authorized dealers or trusted suppliers who meet established standards fordetecting and avoiding counterfeit parts.
Detection
• Requires DoD to adopt policies and procedures for detecting and avoiding counterfeitparts in its direct purchases
• Requires contractors to establish systems for detecting and avoiding counterfeit parts
Reporting
• Requires contractors who learn of counterfeit parts in the supply chain to provide writtennotification to the contracting officer, the DoD Inspector General and to GIDEP within 60days
Correction
• Makes Contractors Responsible for any rework required as an unallowable expense
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
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Northrop Grumman Aerospace SystemsCounterfeit Material Prevention Implementation
NGAS Counterfeit Material Prevention Strategy
Processes Training Surveillance Obsolescence ReportingNGAS Counterfeit
Material PreventionPolicy P0-016
Review/Revise SectorProcedures andT&C’s
Audit ExistingSupplier FlowdownRequirements
Counterfeit MaterialAwareness andPrevention Training
Counterfeit ControlPlan VerificationTraining
Sector CounterfeitCommunications
TPM-16 SupplierAudit ChecklistImplemented
Supplier Quality AuditTeams In Place
Supplier CounterfeitPlan Verification toAS5553
DiminishingManufacturingSources and MaterialShortages (DMSMS)Handbook
NGAS ObsolescencePolicy & Control Plan
Life Cycle Logisticsand Support
GIDEP – ReportingEvaluation andTracking
NGAS “Space Alert “and “Sentinel Alert“Tracking System
NGAS CounterfeitWebpage Information
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
RequiresException Below
This Line
Managing Counterfeit VulnerabilityChanges to Procurement Priorities
Level Authenticity Assurance
A • Original Component Manufacturer (OCM)
B • Franchised/Authorized Distributor, with pedigree from OCM
C • “Trusted” Distributor, with pedigree from the OCM
D • Approved Independent Distributor, with pedigree from OCM
E • Approved Independent, with broken OEM/OCM chain of custodybut with “Authenticity” testing
F • Open market (i.e., COTS), with rationale/justification and fullCustomer notification
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• Start At Level A , Move Down Only When Materiel Not Available at Higher Level
Lowest Risk
NGConcurrence
Probability of receiving counterfeit hardware increases with each levelProbability of receiving counterfeit hardware increases with each level
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
Risk Based Approach To Mitigation
Cost Effective Solutions Must Consider RiskCost Effective Solutions Must Consider Risk
Mitigation plans must consider complexity and criticality ofthe application
Considerations• Mission criticality• Safety-of-Flight• Redundancy• Line Replaceable Units
Mitigation may include:• Assessment of paperwork• Inspection of parts• Non-destructive and destructive testing
1 2 3 4 5
Consequence Factor
1
2
3
4
5
Pro
babi
lity
Fac
tor
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
Obsolescence & RedesignDMSMS Tracking & Management
• Counterfeiting is Putting Added Pressure onManaging Obsolescence Obsolescence/ DMSMS is a driver for counterfeit risks
• GSC Supplier Manufacturing Engineering Teams Close coordination with IPT’s, Engineering & Life Cycle
Logistics and Support
Consideration of obsolescence earlier in design cycle
• Authentic parts may not be available from a trustedsource
Redesign May Be NecessaryRedesign May Be Necessary
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
Communication and Training
• Counterfeiting is not just a supply chain issue– Supply Chain, Engineering, Quality, Logistics &
Program Management all have a role
Driving Awareness of Counterfeit RiskDriving Awareness of Counterfeit RiskCopyright 2012 Northrop Grumman Systems Corporation. All rights reserved.
Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
Look ahead – Lessons from the Past
• Lessons from the fastener industry– In the 1980s, defective fasteners on Army tanks, Navy ships, and interstate
highway bridges caught the attention of Congress.– A study of the U.S. fastener industry by the House Subcommittee on Oversight and
Investigations documented inadequate standards and quality control. It also foundthat imported, low-grade parts were being passed off as high-strength fasteners.
– The end result was the 1990 Fastener Quality Act (FQA), which set guidelines forinspecting and labeling fasteners and accrediting test facilities.
• Today, counterfeit fasteners are not a big problem in the U.S. but ittook about 15 years
• As an industry we need to move quickly, get all parties involved fromthe distributors through the entire supply chain to the end users
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We Are Just Getting StartedWe Are Just Getting StartedCopyright 2012 Northrop Grumman Systems Corporation. All rights reserved.
Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12
Summary
• Counterfeit electronic parts Is a growing problem
• Most effective prevention is buying directly from OriginalComponent Manufacturer or their franchisee
– Only as good as weakest supplier– Must flow down similar requirements to lowest rung of supply chain
Preventing Counterfeits Requires an Enterprise WideApproach
Preventing Counterfeits Requires an Enterprise WideApproach
• NGAS is taking proactive steps to mitigate risk ofcounterfeit parts
• Prioritizing Purchases from OCM• Flowing Same Requirement to Suppliers• Aggressive management of Obsolescence• Training throughout the organization
Copyright 2012 Northrop Grumman Systems Corporation. All rights reserved.Approved for Public Release: Northrop Grumman Case 12-1994, 10/30/12