DoD and law enforcement Supply Chains have real reason to be concerned about counterfeiting.
We are working on a study on counterfeiting, and are seeing more instances of this issue in the Department of Defense and law enforcement. The Department of Defense (DoD) supply chain has significant exposure to counterfeit parts surfacing in their equipment. For instance, in the extended aerospace supply chain that feeds into the U.S. Airforce, going after sources of fake components is a major issue. An example was given of the Defense Recycling Office that recycled F14 pieces, that ended up in restored aircraft in Iran! Often these products will pass a quick check, so testing them isn’t the solution, and often they will fail prematurely. When the product is returned to the manufacturer, they inform the customer that the product has been discontinued a long time ago! If a motherboard says Texas Instruments or Alterra on the label, maintenance technicians will just assume it must be good and install it on an aircraft! One cannot fault the technician, as what else can they do but look at the label on the part? The truth is that counterfeiters re-label boards that are 20 years old, and make them look like new through remanufacturing. Many of these components are acquired through recyclers, re-painted, and relabeled using a counterfeit manufacturer’s label, and then sold through second level distributors. Suppliers who are producing legitimate products, but have some product discarded because of inspection from a run that have the same form, fit, and function but are not military grade are a major risk to aerospace producers. The Department of Defense is not willing to take that risk, at a high level, but this resolve dissipates as you move down to the contractor level. The Secretary of Defense has “bought in” to the idea of only using prime audited contractors, but at the Program Office level this approach begins to unravel. The Government Risk Assessment Center has lately focused on analyzing component failure and linking them to supply sources, but this is in its infancy. Similarly, a government international Investigative unit has intelligence on suppliers producing product that are not authorized to do so, but even when discovered, it is difficult to prosecute overseas. Investigative intelligence is very difficult, even in regions like Shenzhen that are the major sources of fake aerospace parts.
This issue is also coming up in law enforcement. In a reply to a recent blog I wrote on reverse auctions, Timothy Fugate pointed out that he recently encountered two instances where a sherriff’s department purchased equipment on EBay from a non-authorized source that was not an official government contractor. The purchase was significant, and when law enforcement officials are trying to stretch a dollar given tight funding constraints, it is tempting to go to such online sources. The equipment began not functioning properly and falling apart after 3 months. Tim notes that “it looked like the real deal”, and when he sent a few pieces of the equipment to the manufacturer, he received a reply that it was not their product, but a counterfeit, even though it was branded as such. It turns out the company on Ebay was buying the product from China and Mexico from counterfeiters. When they went after this dealer, he immediately closed his doors and disappeared. The sheriff’s department was out about $60,000.
These types of horror stories are not only problematic, but worrisome when one considers the risks that this is posing to our defense and law enforcement agencies. If a deal looks too good to be true, it probably is.