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NDAA Raises Stakes on Component Traceability

| September 10, 2015 | 1 Comment
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Anti-counterfeiting-product (300x120)Counterfeit components in aerospace and defense equipment endangers lives. To combat this threat, the U.S. government enacted a number of measures specifically geared at counterfeit mitigation. One of these measures, the National Defense Authorization Act (NDAA) was first signed into law in 2007 and revised in 2012.

NDAA is a wide-ranging law that spans a vast set of responsibilities pertaining to the running of and working with the U.S. Department of Defense (DoD). Section 818 in NDAA 2012 (minor amendment in the current NDAA 2015 Section 861) is the most pertinent to electronics procurement. This came about as the DoD discovered an increase in the number of counterfeit parts in its systems.

To address the counterfeit problem and to implement sourcing guidelines for contractors and subcontractors, the NDAA was enacted to specify how quality, security, and improved traceability would be ensured. At the core of the NDAA is the specific requirement for anti-counterfeit mitigation for electronic components: traceability, inspection, and reporting procedures, as well as unique identification through plant-DNA markings. Many of these requirements are also applicable to –and have been implemented in — the commercial components market.

Traceability is, in and of itself, not a new quality measure, but the level of diligence now demanded for DoD contractors is. The idea behind the traceability requirement is the way that counterfeit electronic components enter the supply chain. Counterfeits are introduced with criminal intent; so tracking the routes that components have taken ought to eliminate, or at least significantly reduce, the likelihood of receiving counterfeit components. Similarly, when a counterfeit component is found, traceability provides a complete history of where the part has been and offending suppliers can be held liable.

However, there are problems with the assumption that full traceability will remove counterfeit components from the supply chain. There have been a number of cases of fraudulent parts being intentionally introduced into the supply chain by criminals who might operate with legitimate subcontractors. Also, full provenance, especially for obsolete or end of life (EOL) parts is not always available.

Today, the NDAA continues to be revised annually because it is such a wide-reaching piece of legislation. There is, however, a precedent-setting aspect of the NDAA that is reshaping the expectations of quality management systems along the electronic supply chain. Namely, although NDAA specifically applies only to U.S. DoD contractors and subcontractors, the increased attention on counterfeit mitigation methods along the channel has had the added effect of moving the requirement of traceability and testing into the commercial supply chain.

Best practices in component sourcing now demand a zero-tolerance policy toward counterfeits. As a result, suppliers, resellers, and distributors are increasingly required to provide deep (if not full) provenance of components and provide evidence of business processes and procedures dedicated to quality control and counterfeit mitigation. In addition, testing is increasingly being required in specific situations in order to further ensure the elimination of not only counterfeit but also substandard parts. An important aspect of the anti-counterfeit measures relates directly to the classification of the supplier, reseller, and/or distributor. There is terminology in the NDAA that specifically discusses requirements depending on if the contractor or subcontractor is a “trusted supplier.” The definition is not as clear as it may seem and will be examined in upcoming articles.

Beyond quality management, the current extension of traceability and testing in sourcing is driven by the increasingly tight competitive market that demands impeccable end-device quality because there are too many competitors waiting to take market share should an OEM product prove to be substandard.

The NDAA underscores the need for the electronics supply chain, writ large, to recognize that solid quality management systems are the essential, business-internal processes and procedures building blocks. However, there is still a need, even eight years out from the original NDAA, for industry-wide agreements regarding how testing, sourcing, and traceability for full provenance — when taken together — can dramatically reduce the number of counterfeit parts entering the supply chain. In conjunction with these important measures is the need for more discussion around how the industry will set standards for defining what suspect, counterfeit, and fraudulent parts are in order to agree on the identification of these components; enforce legislation; and levy punishments appropriately. As these anti-counterfeit measures continue to mature and strengthen mitigation strategies and raise awareness along the electronics supply chain, it is imperative that suppliers have best-in-class processes and procedures in place and can provide full traceability on all parts.

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Category: Smart Purchasing

About the Author ()

Lisa Ann Cairns, Ph.D., Contributor Lisa comes to EPS with a diverse background that includes 10 years of hands-on experience in IT as well as in semiconductor and electronics distribution. The majority of that time, Lisa spent in the role of Senior Market Analyst and Senior Contributor at a leading, independent distributor of semiconductor and electronics. Prior to that tenure, she was a professor of linguistic anthropology, engaged in social science research, modeling, and analysis. The skills of observing and explaining complex social patterns adds a rich framework in which to indentify and to understand the range variables that constantly affect today’s globalized marketplace. Lisa’s admixture of experiences brings a fresh eye and a contextualized understanding of the global semiconductor and electronics supply chain. Lisa’s market analyses provides readers with unique views spanning micro- to macro-level industry events, synthesized insights bridging business and economics, as well as connecting the dots between upstream to downstream industry events that affect and inform distribution strategies. Lisa has a Ph.D. and A.M. in Linguistics from The University of Chicago, during which time she was awarded the prestigious National Science Foundation Doctoral Dissertation Research Improvement Grant. She holds a B.A. from Hofstra University, where she was Hofstra's first woman undergraduate to be awarded a Fulbright-Hayes Grant for independent research prior to attending graduate school. Lisa is currently consulting and freelance writing and can be reached at lcairns@lcairnssolutions.com.

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