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America Semiconductor article in the October 2014 issue of ECN

What does a safe, reliable supply chain look like?

By Jeffrey Simon, Co-CEO and Co-Founder of America Semiconductor LLC

Throughout the industry, we hear distribution managers, procurement professionals, organization leaders, government/defense experts, senators, congressman, and others preach the importance of a reliable, secure supply chain. It has almost become trendy weigh in on this serious problem — particularly when you start to look at the recent results all of this conversation has delivered. Too often, we read about in-field failures as a result of counterfeit or substandard semiconductor devices being used in mission-critical applications ending in a catastrophic event.

A report by global analyst IHS stated that “up to 10% of all worldwide technology products are expected to be counterfeit, while the Bureau of Industry and Security of the US Department of Commerce has reported a rise in counterfeit incidents sequentially each year.” http://www.ihs.com/info/sc/a/combating-counterfeits/index.aspx

The procurement process changes and/or security measures previously put into place - whether from an industry standpoint or government legislation ‑ have clearly not affected the flow of counterfeit or substandard devices. The industry needs to do better, and the industry can do better. So what changes can be made to ensure a secure supply chain? What would a truly safe, reliable supply chain look like?

Procurement practices that only buy devices directly from the OSM, through an authorized distributor, or from an authorized continuing semiconductor manufacturer, are a good start. The Department of Defense and the Semiconductor Industry Association (SIA) continually advise that purchasing semiconductors through the authorized distributor network is the only way to guarantee integrity and traceability. Just this month, the Department of Defense (DoD) finalized a new procurement regulation that addresses contractor responsibilities for detection and avoidance of counterfeit electronic parts. Among other provisions, the rule implements section 818 of the National Defense Authorization Act (NDAA) for fiscal year 2012, which calls for the DoD to utilize trusted suppliers to mitigate the risks of counterfeits from entering the supply chain and being used in military equipment.

http://www.semiconductors.org/news/2014/05/14/press_releases_2014/ new_pentagon_policy_helps_combat_counterfeit_semiconductors/

Buying only from authorized sources can be easier said than done, particularly when there are bill of material (BOM) cost limits to meet and / or availability issues that could jeopardize production schedules as a result of end-of-life events and obsolescence.

Better testing and inspection protocols must also be applied to all devices as a first line of defense. Many counterfeit and substandard devices enter the supply chain via customer returns. Testing protocols should include electrical testing (no short cuts), visual inspection, and destructive physical analysis (DPA), all of which focus on authenticity, quality and consistency. Without the original IP, how can any company other than the OSM accurately and confidently guarantee the authenticity of a device? OEMs and distributors need to rely on OSMs or their authorized manufacturers exclusively for this function.

Combining this level of verification testing and inspection with a 100% authorized distributor supply chain should enable the industry to take a significant step forward to solving the counterfeit problem. So why do customers still buy from questionable sources today? Why purchase a device without proof of direct lineage to the OSM? Why would customers, especially small and mid-size OEMs take the risk when sketchy product ought to be viewed as a potential lawsuit? Cost and device availability significantly effect the purchasing decision and can outweigh the risk of receiving a counterfeit device. As a result, less than reputable sources are used to save a quick buck or to procure a difficult to find or obsolete part. 

However, the responsibility of identifying ways to remove counterfeit electronics from the supply chain should not solely rest on the shoulders of purchasing professionals.  Original semiconductor manufacturers can do more to help secure the supply chains. One method is to simply continue manufacturing the essential devices that customers need to support their own product life cycles. Eliminating end-of-life announcements would help reduce device obsolescence so that devices are always available through authorized channels. If this strategy is not possible, certainly giving customers more of a notice to effectively plan for an end-of-life notice would help.

Another method is for OSMs to only sell through authorized distributors.  If OSMs only sell their products through authorized distributors, and don’t take key accounts and growth accounts away on a direct basis, this immediately resolves one problem area ‑ where OEMs will get their products. Only from authorized distributors with 100% certified product from the OSM. This also means, that a customer can return product back through the authorized distributor, and the distributor can in fact return product to the OSM. This is the only way to maintain 100% control of products throughout the supply chain and at the same time, maintain trust, traceability and preserve direct lineage back to the OSM. This will also establish confidence at the OEM level that we as manufacturers will not pull business away from the distributor, preserving the OEM/distributor relationship, finally creating a constant that the supply chain desperately needs.

These methods are part of the Constant Initiative, a methodology that strives to help the industry develop a secure semiconductor supply chain. The goal for those OSMs and OEMs engaged in Constant Initiative sales/procurement practices, such as America Semiconductor, are helping shape what a safe, reliable supply chain looks like.