As lead times lengthen, counterfeit and fraud risks grow

TTI’s VP total quality, Kevin Sink, examines ways that counterfeiters and other criminal elements are taking advantage of uncertainty to prey on manufacturers.

Right now we are seeing the ideal growing conditions for fraud and counterfeiting in the electronic components supply chain. Logistical issues; the disruption of supply chains by the Covid-19 pandemic; concerns about raw materials availability: and increased competition for key components among different industries: all these factors have led to the status quo of long lead times and high uncertainty.

In this high-stakes, high-stress environment, larger OEMs and ODMs may have more options than mid-size and smaller manufacturers. Even so, there is no shortage of bad actors who are waiting to take advantage of anyone who falls into their trap.

First, there are the ever-present problems of counterfeit parts: components that are offered as new when they are actually used or refurbished, and components that have been intentionally mislabeled to appear to be higher quality or reliability than they actually are. Those challenges have not gone away.

In addition, manufacturers are being targeted by sophisticated groups that claim to be franchised distributors with parts in stock: in exchange for up-front payment. These organizations build reputable-looking websites and register a wide variety of domain names related to different electronic components. They invest heavily in search engine optimization (SEO) and bid on internet keywords in hopes their site will appear above authorized distributors.

These websites promise on-time delivery but as soon as funds change hands, that’s the end. No parts arrive because there were no parts for sale. In many cases funds are quickly transferred away from the destination bank, leaving victims with little or no recourse.

Industry watchers have seen similarly-designed websites with multiple different names (as many as 50 or more variations) that seem to be in the business of selling passives, semiconductors and more. This sort of fraud was common years ago until the legitimate industry of parts escrow services helped prevent it. Buyers urgently searching may not be familiar with such scams or may not know to rely on an escrow service.

A lot has changed in the past two decades. Smartphones and other computing devices, plus the growing electronics content in vehicles, have increased component demand. For example, those who weren’t working in our industry during the 2000 tantalum shortage may be caught off-guard.

While major companies with larger staff and more resources may not fall victim to this kind of fraud, smaller manufacturers may be vulnerable: especially those dealing in smaller volumes where every job is a large contributor to the company’s overall health.

To those worried about access to electronic components inventory during challenging times, the best advice is do due diligence and build connections with a known authorized distributor. If you’re looking for specific components, rely on ECIA’s search.

While the potential for fraud won’t disappear entirely, by working together we can at least help stop counterfeiting and scams from harming manufacturers and customers in the industries we serve.

Special thanks to ERAI’s Kristal Snider who contributed information for this article.