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Counterfeit electronics have existed for many years, but recent disruptions in the supply chain, such as parts shortages, have brought this issue more to the forefront. Among the problems this creates for manufacturers is the inferior quality of these components, which can pose serious safety and reliability risks.
Supply chain complexity can make it difficult to track the origin of the parts and ensure their authenticity. Manufacturers are under increasing pressure to manage costs while dealing with ongoing supply chain disruptions, and counterfeiters seek to exploit these challenges for their own gains.
In addition to compromising the safety of end users, these substandard parts can lead to legal action, financial penalties and reputational damage. Counterfeit parts can also lead to less serious product failures, potentially resulting in expensive recalls and damage to brand reputation.
More broadly, counterfeit parts can negatively impact the U.S. economy. According to the Semiconductor Industry Association, counterfeiting costs U.S.-based semiconductor companies more than $7.5 billion per year, which translates into nearly 11,000 lost American jobs.
Detecting counterfeit electronic parts can be challenging. Purchasing parts on the open market, particularly from companies outside of North America, is a risky proposition—particularly for small to medium-sized businesses that may not have the resources associated with an established global network.
Some parts can arrive “gutless,” merely shells of the required components. Still, others are branded and designed to look and perform so much like the real thing that manufacturers are unaware that they were not, in fact, made by the alleged component supplier. Without the internal resource to test and validate parts, manufacturers often look to partners to provide those assurances for them.
Preventing the entry of counterfeit parts into production streams requires a concerted effort involving business, governmental agencies and law enforcement. The electronics industry has implemented a range of measures to address this issue, including stricter supply chain management, increased use of testing and inspection and the development of anti-counterfeiting technologies like traceability systems. Regulatory bodies around the world have implemented regulations requiring manufacturers to implement measures to detect and prevent the use of counterfeit components in their products.
While businesses work to protect themselves from the adverse impact of counterfeit parts, one accelerating manufacturing trend can also be of help: nearshoring.
By keeping production closer to home, nearshoring can help reduce the complexity of the supply chain and increase transparency, making it easier to track the origin of components and ensure their authenticity. Manufacturers must monitor and control the production process and part-sourcing efforts or find industry partners to aid them in their efforts. The real-time collaboration that nearshoring enables results in closer coordination, giving manufacturers clearer insight into day-to-day operations.
Nearshoring also helps to increase quality control. With operations taking place closer to home, manufacturers can more easily monitor the quality of the components and ensure that they meet the required specifications. Working with trusted partners who can source parts in the open marketplace, test them and validate them can provide assurance that end products will meet business standards.
Finally, companies spend tens of billions of dollars every year to develop, manufacture, test and support products to ensure they will operate to the highest quality and reliability levels for many years. While initial costs may be higher in producing components in countries closer to home, that cost can be offset by protecting that investment via the reduced risk of counterfeit parts, as well as the increased quality control and faster delivery times that come with nearshoring.