On May 6, 2014, the U.S. Department of Defense (DoD) published final DFARS (Defense Federal Acquisition Regulations System) rules1 to eliminate counterfeit parts from the supply chain by shifting the burden of protection onto contractors.
The regulation broadly defines “electronic parts” and eliminates allowable costs for replacing counterfeits with authentic components. The outcry from the industry has been predictably loud.
Basing the rule on their interpretation of the 2012 and 2013 National Defense Authorization Acts (NDAA), DoD leaves up to the supply chain how to eliminate counterfeits, and focuses more on penalties for contractors when counterfeits are found in the system. The responsibility falls entirely on the contractor to certify that deliveries are manufactured from 100 percent genuine components.
There are many expensive actions a company can undertake to help prevent counterfeit parts from entering its supply chain. Massive testing programs, inspection protocols that touch deep into that supply chain, even destruction of random samples add time-consuming layers to manufacturing, while providing only a veil of insurance, rather than value.
The easiest way to ensure genuine components is to purchase from an authorized distributor rather than an independent broker. Authorized distributors inventory components directly from the manufacturer, guaranteeing first-quality, new components.
Independent distributors are not tied to any single supplier. Their parts can come from other brokers, overstock, or even gray markets; providing quick service and, in some cases, the allure of inexpensive parts.
However, according to Lieutenant General Patrick O’Reilly, Director of the Missile Defense Agency, “… more than 60 percent of inspected independent distributors were assessed as moderate to high risk for providing counterfeit products.” MDA found that some, “… engaged in ‘deceptive marketing’ by posting photos of fake facilities on their websites to appear more established.”2 Investigators found that one independent distributor’s “facility” was a local UPS store.
