Counterfeit Parts

1. 1 Counterfeit Parts Prevention & AS9100 Atlanta, GA July 23, 2010 Kevin Beard Auditor Workshop Atlanta, GA July 22-23, 2010

2. Presentation Intent Discuss Industry Problems with Counterfeit Parts Discuss Industry Efforts On Counterfeit Part Prevention Discuss Role of G-19, AS5553 and Other Standards Discuss the Roles of Various Groups within an Organization in Preventing Counterfeit Parts From Entering Product Discuss Methods for Auditing Counterfeit Parts Prevention (CPP) within AS 9100 Internal Audits Supplier Audits 2

3. What is a Counterfeit? a. Parts which do not contain the proper internal construction consistent with the ordered part. (die, manufacturer, wire bonding, etc.) b. Parts which have been used, refurbished or reclaimed, but are represented as new product. c. Parts which have different package style or surface plating/finish than the ordered parts. d. Parts which have not successfully completed the Original Component Manufacturer’s (OCM)’s full production and test flow, but are represented as completed product. e. Parts sold as upscreened parts which have not successfully completed upscreening. f. Parts sold with modified labeling or markings intended to misrepresent the parts’ form, fit, function, or grade. 3

4. Counterfeit Parts Origin 4

5. E-Waste Laborer de-soldering circuit boards over a coal-fired grill. Rock in the box is where boards are hit to remove solder. Pliers are used to pluck off chips which go into various buckets. The boards are then tossed into a pile for open burning. © Basel Action Network 2006. 5 5

6. 6 Counterfeit Overview

7. How Counterfeits Enter The Supply Chain 7 7

8. Counterfeit Overview 8 8

9. Counterfeit Overview 9 9

10. Counterfeit Overview- Impact - Counterfeiting accounts for more than 8% of global merchandise trade and is equivalent to lost sales of as much as $600B and will grow to $1.2T by 2009. Source: Dept of Commerce 10

11. Due Diligence Is Essential 11 11

12. 12 12

13. What We Know • There is a lack of dialogue between all organizations in the U.S. supply chain. • Companies and organizations assume that others in the supply chain are testing parts. • Lack of traceability in the supply chain is commonplace. • There is an insufficient chain of accountability within organizations. • Recordkeeping on counterfeit incidents by organizations is very limited. • Stricter testing protocols and quality control practices for inventories are required. • Most DOD organizations do not have policies in place to prevent counterfeit parts from infiltrating their supply chain. 13

14. Supply Chain Awareness-Key Industry Associations Aerospace Industries Association (AIA) Counterfeit Parts Integrated Process Team (IPT) ERAI Independent Distributors of Electronics Association (IDEA) Semiconductor Industry Association (SIA) Anticounterfeiting Task Force (ACTF) US Chamber of Commerce Coalition Against Counterfeiting and Piracy (CACP) 14

15. 15 Industry Working TogetherG-19

16. G-19 The Way Forward 16 AS TBD AS 6081 AS 5553

17. 17

18. AS5553 Focus Parts Availability Purchasing Process Supply Chain Traceability Procurement Contract Requirements Product Assurance Material Control Reporting 18

19. AS 5553 -Purchasing Process Assess sources of supply Assess risk Interview Audit Alerts Make Risk Based Decisions Maintain approved supplier list 19

20. 20

21. 21

22. 22 The Way Forward Brokers Independent Franchise Commercial Defense Space Inspection Test

23. Auditing Counterfeit Parts Prevention within AS 9100 Can We Audit For Counterfeit Parts Prevention within AS9100b? AS9100c? Explicit/Implied? What Parts of the Standard? 23

24. Counterfeit Parts & The Industry Model Aerospace Industry Challenges Complex Products Complex Processes Small Quantity Purchases Long Duration Product Lifecycles Ever Changing Supply Chain Many OCMs Go Out Of Business Prior to the End of the Product Lifecycle Supply Chain Roles In Counterfeit Parts Prevention System Integrator Design Responsible Middle Tier Organizations Non Design Responsible Middle Tier Organizations Distributors 24

26. Open Market

27. Recyclers

28. Etc.

29. Stocking

30. Broker

31. IndependentCounterfeit Parts Entering the Supply Chain 25

32. AS 5553 and Risk Risk in the Aerospace Supply Chain Design Responsible Organizations Manufacturing Responsible Organizations Warehousing and Distribution Organizations Common Areas of Risk Source Selection Obsolescence Loss of Traceability Piece Part Configuration Changes without Notification Many Others Risk Model in AS5553 Categorization of Risk Hierarchy of Risk Inputs & Mitigations per Category Application of Mitigations Based on Risk Input Hierarchy 26

33. SAE AS5553 & Risk Hierarchy Risk Hierarchy in AS 9100c Highest Risk Supplier with GIDEP & ERAI Alerts _ _ _ _ OCM 100% _ _ _ _ _ Small % Life Test _ _ _ _ _ 1X Visual Inspection In Business < 1 Year & Unknown Financials _ _ _Supplier Audited & Approved Life Dependent _ _ _ _ _ Non-Critical Design Lifecycle Approach Configuration Management ID/Traceability SCM Strategy Test & Insp Level Source of Supply Test / Insp Population Supplier Assessment Product & Application Lowest Risk ?? How Can This Approach Be Applied in AS 9100b/c ?? 27

34. Counterfeit Parts & The Industry Model AS9100 Applicability Parts Qualification Concept Creation of Design Baseline Configuration Management Concept Control of Design Baseline Application In Supply Chain Robust Procurement Strategy 28

35. Counterfeit Parts & The Industry Model Needs of the Industry Ensure QMS Promotes Acquisition of Acceptable Parts for Integration into the Organizations Product Engineering Good Risk Identification, Analysis & Mitigation Decision Processes Design Specifications that identify parts from suppliers that provide parts with a high degree of Supply Chain Assurance Purchasing & Receipt Inspection Proper Source Usage to Prevent Inadequate Parts from entering the Organization’s Supply Chain Supplier Assurance of Proper Sub-Tier Source Usage Proper Evaluation Techniques to Prevent Inadequate Parts from entering the Production Process Production Planning & Inspection Proper Production Planning that Ensures Adequate I&T of Supplier Parts at the appropriate points in the Production Process 29

37. Broker

38. Independent

39. Surplus

40. Open Market

41. Recyclers

42. Etc.Where Are The Risks? Where Do We Focus The Audit

44. Broker

46. Open Market

47. Recyclers

48. Etc.Where Are The Risks? Where Do We Focus The Audit

50. Open Market

51. Recyclers

52. Etc.

53. Stocking

54. Broker

55. IndependentWhere Are The Risks? Where Do We Focus The Audit

56. Common QMS Areas of CP Prevention Challenges Requirements Definition at Proposal/Contracts Phase Design Planning For Production and Full Life of Components Purchasing Strategy to Support Production and Full Life of Components Control of Subtier Suppliers for CM and Parts Qualification Identification & Traceability Requirements In House & Through Out Supply Chain Production Planning Inspection & Test of Components Does AS9100 Have Wording in These Areas?? 33

57. Audit Approach to CP Prevention Themed Approach to Audits Parts Qualification CM & Traceability Controls Outsourcing/Supply Chain Control Others?? 34

59. Part Qualification Approach

60. Reliability, Material Baselining, Etc.

61. Lot Control Against Know Qualified Part

62. Procurement Strategy (Current Need, Future Need, Obsolescence, Etc.)

63. Procurement Flowdowns for :

64. Configuration Management, Change Notification, Sub Tier Supplier Sources, etc.

65. Source Integrity

66. Risk Impact on Initial Qualification and Acceptance Approach

67. Risk Evaluation on Future Procurement Impacts to Initial Qualification

68. Inspection Against Qualification UniteWhere in AS9100 can you audit these activities?? 35

70. Procurement

71. Manufacturing

72. Inspection & Test

73. Parts Control (Segregation, Bonded Storage, etc.)

74. Lot Traceability

75. Lot Storage (Segregation by Lot Code)

76. Part Handling & PackagingAudit Focus – Franchise Distributor Design Change with No Part Number Changes Material Substitutions By OCM With No Part Number Changes OCM Discontinuing Production of Specifically Qualified Component Strength of COTC Chain of Custody Parts Control (Segregation, Bonded Storage, etc.) Lot Storage (Segregation by Lot Code Part Handling & Packaging Where in AS9100 can you audit these activities?? 36

77. Outsourcing/Supply Chain Control Focused Audits Supportive Requirements In AS9100c 7.2.2.e Risks have been identified (See 7.1.2) 7.3.1 D&D Planning Shall consider the ability to produce, inspect, test and maintain the product 7.3.3 The Organization shall Define ……. The drawings, parts lists, and specifications necessary to define the configuration and the design features of the product. 7.4.1 The organization shall ensure that purchased product conforms to req’ts. The type and extent of control applied…..Dependent on the effect….. on subsequent product realization or the final product The Organization shall evaluate and select suppliers based on their ability to supply product in accordance with organ. Req’ts. 7.4.1.f determine and manage the risk when selecting and using suppliers Various others 37

79. Open Market

80. Recyclers

81. Etc.

82. Stocking

83. Broker

84. IndependentAS9120 & AS6081 38

85. Challenge to Organization’s Auditors Review the AS9100c standard with a view towards The Industry Structure Supply Chain Structure Influence On Product The Challenges Facing the Industry Counterfeit Part Risk In Organization’s Supply Chain Our Ability to Interact with Organization’s during Audits with Regards to Counterfeit Parts Prevention Appropriate Interpretations & Application Of AS9100 In Our Audits 39

86. Linking AS9100c to AS5553 40

87. Linking AS9100c to AS5553 41

88. Linking AS9100c to AS5553 42

89. Linking AS9100c to AS5553 43

90. In Closing Significant Challenges Industry Focus Ramping Up. What Part will We Play in Solving this Industry Problem? Your Input Is Invited Your Audit Efforts in this Area are Needed! 44

91. Counterfeit Part Prevention Which Device Do You Want In The Airplane you are flying on? Counterfeit Known Good Part Questions? 45