Assessing the Risk of Counterfeit Components. Colm Nolan, IBM Martin Huehne, Celestica

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1 Assessing the Risk of Counterfeit Components Colm Nolan, IBM Martin Huehne, Celestica

2 Assessing the Risk of Counterfeit Components Agenda Introduction of Presenters Introduction Risk of Counterfeit Use Calculator #1 Risk for untrusted sources Calculator #2 Counterfeit Losses & Costs Calculator #3 Request for Feedback Q&A Note: All phones will be on mute until the end of the presentation Questions should be typed into the chat box to All Presenters/All Participants and we will answer them through the chat window and during the Q&A session 1

3 Assessing the Risk of Counterfeit Components Presenters Colm Nolan... IBM, Anti-Counterfeit & Misbranded Program Manager. Colm is currently leader of the anti-counterfeit program for IBM working with the world wide teams from supply chain, security, channel, legal etc.. His background is in Semiconductor and Server Operations and Engineering, having held roles at senior management level in all. Martin Huehne... Celestica, FA & Lab. Manager at the Thailand factory As part of his current work and a previous assignment, Martin has been involved in the anticounterfeit analysis carried out in his laboratory for more than 8 years. He holds a degree in physics and a doctoral degree in physical chemistry and has worked on failure analysis, semiconductor technology and instrumental analytical chemistry in engineering, research and management. Dave Brown... Intel Corporation, Sr. Principal Engineer His current work includes developing many of the methods Intel uses to mitigate counterfeiting attacks on Intel branded products. He currently servers as the Chairman of ISO Technical Committee 247: Fraud Countermeasures and Controls that is developing international standards where the scope includes counterfeit product issues. He was involved with writing the direct component marking standard (once known as EIA-706) that established the use of 2-dimensional barcode on integrated circuits. He joined Intel in 1978 after receiving BSEE and MSEE degrees from Purdue University. 2

4 inemi Today Mission: Forecast and Accelerate improvements in the Electronics Manufacturing Industry for a Sustainable Future. 5 Key Deliverables: Technology Roadmaps Collaborative Projects Research Priorities Document Proactive Forums Position Papers 3 Major Focus Areas: Miniaturization Environment Medical Electronics International Electronics Manufacturing Initiative (inemi) is an industry-led consortium of around 100 global manufacturers, suppliers, industry associations, government agencies and universities. A Non-Profit Fully Funded by Member Dues; In Operation Since Visit us at 3

5 Assessing the Risk of Counterfeit Components Introduction Counterfeit Components Assessment Methodology and Metric Development Project began in March 2012 Its purpose and scope... Identify and develop methodologies with associated metrics to assess the overall extent of the counterfeit problem in the electronics industry. The outputs will enable inemi members to assess the risk of counterfeit use in their respective industries, the risk of untrusted sources of supply in that industry and generate the total cost of ownership associated with those risks. 4

6 Assessing the Risk of Counterfeit Components Introduction Many Tasks were identified... Develop a methodology to evaluate or assess the risk of counterfeit use Develop a methodology to evaluate or assess the aggregated risk of untrusted sources of supply Develop an assessment / mitigation strategy which includes a methodology to estimate long term cost of ownership These are the three calculators we will review here today. Our goal is to introduce these calculators to you and to ask for your feedback on how effective they are for you. 5

7 Assessing the Risk of Counterfeit Components Introduction In addition to the calculators, a white paper of the tasks undertaken by the team and the tools developed has been written Published on the inemi website ion/counterfeit_whitepaper.pdf 6

8 Counterfeit Components Team 7

9 Risk of Counterfeit Use Calculator #1

10 Risk of Counterfeit Use Calculator #1 This calculator quantitatively asses the relative risk of a product being counterfeit Can be used by Component Manufacturers identify risk for their product Product Designers identify risk of products to be used or of end product Distributors identify products at risk and those requiring extra controls End Users identify risks of selected products and provide product ranking It is based on 4 key attributes product profile, supplier and supply line characteristics, counterfeit deterrents used on the product and channel characteristics The user selects the appropriate rating for each of the elements from the rating table and the calculator provides an overall risk assessment for that product. The higher the rating, the higher the risk of counterfeit for that product The relative ratings for a product portfolio enables the company to focus their efforts on the high risk products. 9

11 Risk of Counterfeit Use - Calculator #1 1. Select the Product Type & Profile 2. Select the supply Line profile 3. Select the counterfeit Process controls 4. Select the output & channel characteristics 10

12 Risk of Use - Ratings Table #1 Select the rating that corresponds to the best description for that element 11

13 Risk of Use - Ratings Table #1 Part 1/3 1. Select the rating that corresponds to the Product Profile 2. Select the rating that corresponds to 4 elements of the Supply Line profile Use the rating the table below that best corresponds to the description for that rating. Rating Profile Demand / EOL Supplier Supply Line Input Mitigation & Controls Supplier History Rating = 1 Product has Low demand and/or is not EOL OCM Direct from OCM Supplier has No known Strong Mitigation & Counterfeit Controls Incidents Rating = 2 No 2 rating No 2 rating No 2 rating No 2 rating No 2 rating Rating = 3 Product has Low demand and is EOL or high demand and not EOL Authorized Distributor Multiple known suppliers Some evidence of mitigation / controls Counterfeit supply suspected Rating = 4 No 4 rating No 4 rating No 4 rating No 4 rating No 4 rating Rating = 5 Product has High demand & is EOL Broker or Ind. Distributor Supply line not defined / clear No evidence of mitigation / controls Counterfeit supply confirmed 12

14 Risk of Use - Ratings Table #1 Part 2/3 Select the rating that corresponds to 3 elements of the Counterfeit Process Controls Process Rating Ease of Counterfeit Ease of Detection Counterfeit Controls Rating = 1 Very difficult to counterfeit; requires factory access or capital investment >$1M Easy to detect, e.g. by check of packaging, documents, labels, history Uses Unique Overt and Covert Controls & Identifiers that are easy to validate Rating = 2 Requires major equipment / facilities such as wire bonders and laser markers, >$100k capital Possible by optical inspection Unique Overt or Covert Controls / Identifiers that are easy to validate Rating = 3 Requires moderate equipment and capital ($10k-100k) Possible by routinely applied 2D X-ray inspection, decapsulation Overt and Covert Controls / identifiers but validation not easy Rating = 4 Needs simple equipment such as sand blasters and ink printers (<$10k capital) Requires advanced analytical tactics, i.e. XRD, CSAM, 3D X-ray Some overt controls / identifiers but validation not easy Rating = 5 Easy - little / no investment required (<$1000) Difficult to detect; nearly No special controls in indistinguishable from place authentic 13

15 Risk of Use - Ratings Table #1 Part 3/3 Select the rating that corresponds to 6 elements of the Output & Channel Characteristics Output Rating Sales Channel Excess Inventory & Prototype Customer Rework Ease of Fraudulent Reuse Disposal Rating = 1 Direct- OCMs/ Manufacturers /Suppliers Minimal Excess inventory. Very limited prototyping/tight OCM security and traceable records that are digitally signed/encrypted and/or independently audited. Direct to OEM In-house only under tight controls in certain designated areas, tight security and traceable records (signed / encrypted and/or independently audited) Exponential factor of 1 for low ease of reuse In house only, on site physical destruction, traceable records (signed / encrypted and/or independently audited) Rating = 2 Known channel: Franchised / Authorized Distributors Excess and prototype inventory under tight controls and security Trusted Sales Rep and Franchised Distributor to OEMs In-house + vendor, under tight controls and security Exponential factor of 2 for high ease of reuse In house + vendor physical destruction, traceable records, third party certification* Rating = 3 Limited - OEMs/ CMs and some use of Brokers Significant inventory but under tight controls and security Trusted Sales Rep and Unfranchised distributor to CMs Primarily offsite vendor based, with controls and security. Offsite vendor, with controls and records for physical destruction Rating = 4 Very Limited - Primarily Reputable Independent Distributors /Brokers Some controls in place. No traceable records. No security Independent Distributors, dependent on end user oversight. Offsite some controls in place. No traceable records. No security Offsite vendor, some controls and records. No proof of physical destruction Rating = 5 No control / Unknown- Unknown Independent Distributors/Brokers /Unknown Sources Excess and prototype inventory not controlled Customer not defined, open market. Offsite Vendor, no controls and no traceability Vendor or no vendor. No controls, no records 14

16 Counterfeit Risk of Use - Examples Range of products to be assessed FLASH product is the highest risk Area of greatest concern / focus on FLASH 15

17 Calculator #1 DEMO 16

18 Risk Calculator for Untrusted Sources Calculator #2

19 The risk calculator for untrusted sources (#2) Based on objective information, the calculator produces relative ratings which are expected to be correlated to the risk of receiving counterfeits from untrusted sources. The ratings can support a decision whether to purchase from a particular source or which of several suppliers to choose. 18

20 Screenshot of Untrusted Source Risk Calculator 1. Select memberships & accreditations 2. Rate mitigation & controls 3. Fill in information on company characteristics 19

21 Instructions For each supplier, search for the information to fill in the numbers in columns B - G, I - M, and O - S. If firm information is not available for some items enter your best guess instead. Compare the total ratings in column U. They indicate the expected risk of receiving suspect parts in relative number but not the absolute risk. The lower the total rating, the lower is the expected risk. Rank the suppliers of a particular product according to the total ratings. Optionally, you can use the scores in columns H, N and T as additional aids in decision making on which supplier to choose. Again, the lower the score, the lower is the risk. 20

22 Examples Supplier A is ISO 9000 certified. Therefore, enter the rating 2 into column E in the row of supplier A. Supplier B is not ISO 9000 certified. Therefore, enter the rating 4 into column E in the row of supplier B. Screenshot from sheet Rating Tables Cells from sheet Untrusted Supply Calculator 21

23 Calculator #2 - DEMO 22

Conclusion on examples After entering the complete input information, the total rating result in column V is 103 for supplier A and 8249 for supplier

24 Conclusion on examples After entering the complete input information, the total rating result in column V is 103 for supplier A and 8249 for supplier B. Choose supplier A, not B. Due to the extremely high rating for supplier B, consider to disqualify supplier B from any purchases until he improves. 23

25 Counterfeit Losses and Costs Calculator #3

26 Counterfeit Losses & Costs Calculator #3 This calculator provides an estimate of the costs and losses associated with counterfeit product There are 3 assessments provided A) Total loss estimate by product B) Loss estimate by GEO or market C) Total Counterfeit Cost & Losses estimate. The total loss estimate is based on the output from calculator #1 where the counterfeit risk result is classified as low, medium or high The loss by GEO or market is generated using the World Bank Corruption Control index The Total Counterfeit Cost is an estimate of all aggregated costs & losses incurred by a company where counterfeit product has entered that company s supply chain. 25

27 Total Counterfeit Loss Calculator #3 (A) 1. Input the products to be assessed 2. Input risk of counterfeit use from calculator #1 3. Input industry estimate of counterfeit use 4. Input the estimated w/w Revenue for the product Estimated Counterfeit Revenue Losses 26

28 Counterfeit Loss by GEO Calculator #3 (B) 1. Input all countries / markets the product is sold 2. Input estimated or target Revenue for that market 3. Input the Corruption Control Index for that market ( World Bank ) Estimated Counterfeit Revenue Loss by Country / Market 27

29 World Bank Corruption Control Index 1. Select the Control of Corruption 2. Select the Countries 3. Read the Rank No 28

30 Total Counterfeit Cost Calculator #3 (C) 1. Input estimated counterfeit Rate (internal or external data) 2. Input all costs actual or estimated Total Counterfeit Cost 29

31 Calculator #3 - DEMO 30

32 Assessing the Risk of Counterfeit Components Request for Feedback At the exit of the webinar, you will be taken to a survey monkey page asking for feedback on the webinar and on the calculators. Your responses will help determine the future direction of work on the calculators and the next steps for this project. 31

33 Q&A 32

34 contacts: Mark Schaffer

Risk Mitigation to Avoid Counterfeit Components

Risk Mitigation to Avoid Counterfeit Components DMSMS & Standardization 2011 Westin Diplomat Hollywood, Florida August 29 th through September 1 st 2011 Presented by Marty Lanning, XTREME Semiconductor