Counterfeit and Unapproved Parts Go Beyond A&D: Where We Know the Problem is All Too Real

A problem unseen is not one that is likely to go away anytime soon. The problem of counterfeit and unapproved parts in the A&D supply chain, which Paul Teague recently called attention to is likely just as large (if not bigger) in other industries that don't monitor it as closely. Of course A&D is unique when it comes to caring about the issue -- it has to be, given the extremely high costs of even a single failure. Given the focus and concern in this particular vertical, you'd think that attention to the problem would lead to improvements and reductions, but you'd be wrong. Paul suggests, according to an Aerospace Industries Association (AIA) report, that in 2009, "US Customs and Border Protection officials seized nearly $4m worth of counterfeit critical electronic components that the industry buys and uses." And that's just what a woefully understaffed -- and many would argue inadequate -- policing force found.

Paul correctly points out that counterfeit parts are likely substandard -- no argument there. The A&D industry has known this for some time. In a recent discussion with a very large firm that must remain anonymous, I learned that the private sector organizations and the DOJ are tackling counterfeiting by focusing on both OEM and service parts traceability. They're considering not only provenance (i.e., original source), but also movement in the supply chain is mounting. Certainly concern over unfair profits and dangerous equipment including materials by unapproved vendors aren't the only reason driving this focus -- concern over China and what Chinese suppliers, at the behest of the party overseeing their activities, might intentionally include in parts is real indeed.

Paul is also right to point out that the problem extends beyond the A&D supply chain. And it's likely that supply chain disruptions like the Japanese tsunami and earthquake will lead to actions by those at lower levels of the supply chain to secure supply -- even unapproved supply. Moreover, some procurement and supply chain managers at companies further up the food chain (even OEMS) may even opt to not inquire about the methods that a key supplier used to maintain continuity of supply -- or as close to normal fill rates as possible -- in the aftermath of the incident. Given these combined risks, it's critical to take specific physical inspection steps, as Paul points out, plus understand and visualize your supply network at all levels. You should be leveraging operational data and ideally monitoring not only your own internal information, but insight provided by third parties, industry groups/consortium and other sources. And in cases where disruptions or delays seem imminent or are already spotted, be especially vigilant about the potential for work-arounds.

Jason Busch

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