number of high-risk suppliers to the U.S. government, including
companies that sold suspect counterfeit product to military and
commercial electronics channels, soared by 63 percent from 2002 to 2011.
This large and growing trend highlights the need for members of all
tiers of the supply chain to implement tighter supplier-monitoring and
procurement procedures in order to meet increasingly stringent
regulations, according to information and analytics provider IHS.
9,539 suppliers in 2011 were reported for known involvement in
high-risk, fraudulent, and suspect counterfeit-part transactions or for
conduct identified by the government as grounds to debar, suspend, or
otherwise exclude from contract participation. This was up from 5,849 in
In all, 78,217 potential high-risk entities and suppliers to U.S.
government agencies, defense contractors and subcontractors, as well as
all military and commercial electronics application markets, were
reported during the period from 2002 to 2011.
The counterfeit risk
The deluge of high-risk suppliers that may have violated regulations or
acquisition policies comes at a time when the defense supply chain has
been infiltrated by counterfeit parts that present a risk to national
security as well as human health and safety. As recently reported by
IHS, reports of counterfeit parts in the electronics supply chain
quadrupled from 2009 to 2011.
Much of the recent scrutiny has come as a direct result of a breakdown
in supply traceability and the use of untrustworthy or unauthorized
sources for critical components—characteristics not uncommon for the
types of suppliers reported.
The combination of rising counterfeit activity and increased government
scrutiny underscores the critical need for companies to implement
tighter processes and procedures in the use of Trusted Suppliers,
Approved Vendor Lists, and Authorized Sources for parts and materials.
"At a time where the entire global defense supply chain is trying to
respond to strict new NDAA (U.S. National Defense Authorization Act)
regulations that crack down on safety and national-security threats from
counterfeit parts, instances of these parts and poor conduct and
unscrupulous activity are being reported at record levels," said Vicki
Knauf, parts logistics expert and Haystack product manager, supply chain
solutions at IHS. "It's abundantly clear that supplier risk is real,
extensive, and growing. It's a federal acquisition requirement to screen
for debarred, suspended or otherwise excluded parties. The Department
of Defense, as well as its contractors and subcontractors, must comply
with new regulations for the use of trusted suppliers and authorized
sources. A key component of developing a secure supply chain includes
the use of Trusted Suppliers. Pinpointing probabilities of risk,
blacklisting, and vetting high-risk suppliers is crucial to developing a
resilient supply chain that fends off devious behavior."
In response to the significant and increasing volume of counterfeit
electronic parts entering the aerospace supply chain, NASA in September
2007 became heavily involved in the formation of the SAE International
G-19 Committee to develop standardized requirements, practices, and
methods related to counterfeit-parts risk mitigation. The committee
subsequently released the SAE International AS5553 standard, Counterfeit Electronic Parts: Avoidance, Detection, Mitigation, and Disposition;
NASA was the first government agency to formally adopt the standard.
NASA has since put in place many processes and procedures aimed at
counterfeit detection and avoidance. In April 2012, NASA's Dryden Flight
Research Center shared strategies with global business leaders
attending an executive conference co-hosted by IHS and ERAI Inc. There,
the space agency shared a strict approach to counterfeit parts. This
includes methods to assess suppliers' capabilities and expose their
NASA also shared its approach to new U.S. NDAA regulations, noting how
it was the first federal agency to promulgate formally a
counterfeit-part mitigation strategy. The agency outlined its
development of a comprehensive database of counterfeit parts, including
ERAI counterfeit-incident reports. Indeed, the industry's team efforts
from IHS, ERAI, G-19, NASA and other leaders are making a positive
impact on controlling-and in some cases, choking off—any counterfeit
parts from entering their supply chains.