Can DNA tagging solve the problem of how to spot Counterfeit Electronics?

by Todd Bone on November 8, 2012

DNA tagging technology, recently described by Fox News has clear potential to help electronic supply chains police their own goods. The sooner this technology is deployed by manufacturers supplying to major markets, and not just to the DOD, the better.  End users should be aware that this technology exists and demand that their vendors utilize this process. (Or alternatives with similar advantages)dna chip

In a nutshell, DNA encoded ink is printed on parts at the OEM factory as a unique identifier. The random generation of DNA codes is similar to using an encryption machine to generate single use codes which are exceedingly difficult to break. It is assumed it will be difficult and costly for copy-cats (counterfeiters) to match the correct code and thus goods so labeled will be easy to differentiate from fakes. Problem solved, mostly.

How did the electronics industry come to have this problem? The answer lies in the classic maxim “Follow the Money”.

The first requirement for a viable counterfeit operation is profitability. There has to be a market for the product being counterfeited in large enough volume to justify the investment and the risk. The most commonly counterfeit products are therefore those with large worldwide markets, such as those made by CISCO, HP and EMC. The Defense Industrial Base Assessment of Counterfeit Electronics provides considerable detail on the types of products and markets into which Counterfeiting is focused. The report confirms that large quantities of modestly priced parts (in the $1 to $500 range) are the most frequently counterfeited. 

The second requirement is that the goods have to sell as fakes without being easily detectable. It is far more complicated to make a whole knock-off F5 Networks router or Brocade switch than to make a fake Gucci handbag in a sweatshop in Pakistan.  For counterfeit machines to be built – they have to be fully functional or they will be detected and rejected by buyers.  Since building a wholly counterfeit product is extremely complex, the primary problem is with parts integrated into whole machines. The Counterfeit Electronics Report confirms that the OEMs themselves are finding counterfeit components in their assembled products.

The nature of the worldwide trade in Original Component Manufacturer (OCM) parts means that the entire supply chain is impacted. There are no standards for how to identify counterfeits; nor any standards for how to independently validate counterfeit from legitimate.  Counterfeit parts may be shipped directly to distributors or large end users (such as the DOD) for spares, or be integrated into circuit boards.  Most buyers in the supply chain assume that testing has already been done, or rely upon the invoice from the OEM/OCM as proof of legitimacy.

OEMS have inadvertently created their own counterfeiting production lines by outsourcing their production overseas. Prior to the globalization of the electronics supply chain, it was difficult to counterfeit goods because the component and assembly production lines were under the constant scrutiny of the OEM. When production was domestic, counterfeit equipment was so rare that OEMs did not even consider that parts sourced from the used market were anything other than legitimate product.  

However, with global supply chains and outsourced manufacturing, OEMS have lost control.  It is common that OEMS no longer even design their own boards – they rely upon outsourced engineers to design products. A worldwide parts industry of Original Component Manufacturers (OCM) supplies OEM sub-contracted factories with parts. Finished products are assembled under contract in factories that are similarly independent of the OEM.  The combination of lax supervision and billions of dollars in potential profits, guarantees that there are powerful incentives for counterfeit products to be manufactured.  

So why don’t OEMs do more to control their own supply chains? Circling back to our maxim “Follow the Money”, there has to be at least one good financial reason that OEMS are not as effective at preventing counterfeiting as they should be. There are two. First – the cost of policing the use of counterfeit but functional parts has to be weighed against the costs of prevention. The DNA printing function has a cost, as do other actions such as extensive testing.  It may be simply too costly to test low value components unless one has a contract with the DOD demanding (and paying for) the extra testing.

Second, there are sales and marketing advantages to using the uncertain presence of counterfeit equipment in the supply chain to press customers into dealing exclusively with the OEM for both product sales and service. So long as the OEM can make a higher profit by commanding exclusive supply and support agreements than it can by eliminating counterfeiting, counterfeiting will probably be tolerated. 

Without admitting that the supply chain is not clean, the OEM still persists in announcing that they alone can guarantee the provenance of their equipment. As the industry has already documented, the invoice alone is not proof of source. Given that the source of counterfeit items is the OEM/OCM, it is illogical to believe that dealing with the OEM for product is any actual guarantee of legitimacy. It is just as likely that the OEM itself has counterfeit product in their warehouse as any other source of distribution. Claims of OEM/OCM legitimacy are just as difficult to validate as those from any other distribution channel. 

The DOD has recognized that counterfeiting is pervasive at the component level and cannot be resolved with better trails of invoices. DNA marking is the best way shown so far to guarantee legitimacy as it addresses the problem at its source - the component level.  This will restore the opportunity for end users to have competitive options for products from a variety of distribution channels, including Independent Resellers and maintenance organizations such as XSi.

XSi belongs to ASCDI/NATD which counts 400+ Independent Resellers as member and we have pledged to honor and abide by the ASCDI/NATD Anti-Counterfeit Policy in order to eliminate or mitigate the impact of counterfeit information technology goods and to develop best practices and strategies aimed at identifying, inspecting, testing and properly disposing of counterfeit goods and to report encounters with counterfeit goods to law enforcement.

Buying from the OEM, OEM Distributors and authorized OEM resellers does not mitigate the chance you will unknowingly by them recieve counterfiet equipment more than buying from Indepedent resellers - without this DNA tagging. Independent resellers also employ visual inspections and unlike the OEMs XSi does not purchase parts from overseas vendors.

The next time the OEM visits your offices - ask them when they will start DNA tagging in their manufacturing process.


Topics: Brocade, Cisco, HP, EMC, DOD, OEM, F5, DNA tagging technology, counterfeit, ASCDI

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