FY2012 NDAA – Implementation of a ‘Trusted Supplier’ concept

One of the key elements of counterfeit avoidance described in Section 818 of the FY2012 NDAA is the “trusted supplier” concept. Referring to Section 818(c)(3)(A), DOD is expected to revise regulations to …

… require that, whenever possible, the Department and Department contractors and subcontractors at all tiers–

(i) obtain electronic parts that are in production or currently available in stock from the original manufacturers of the parts or their authorized dealers, or from trusted suppliers who obtain such parts exclusively from the original manufacturers of the parts or their authorized dealers; and

(ii) obtain electronic parts that are not in production or currently available in stock from trusted suppliers;

[NOTE: The use of the term trusted supplier within Section 818 of the FY2012 NDAA differs significantly from its current use with respect to the “DoD Trusted Foundry Program”, an accreditation plan for design, fabrication, packaging and test services across a broad technology range for specialized governmental applications.]

Section 818(c)(3)(A)(i) includes the keystone to counterfeit avoidance practices recommended by industry and US government subject matter experts and industry standards such as AS5553— use of original manufacturers of the parts or their authorized dealers. It also acknowledges circumstances where one would use other suppliers who, in turn, obtain parts from the original manufacturer or its authorized dealers.

Why would one use other suppliers when parts are currently produced by and available from the original manufacturer or though its authorized dealer? US Government agencies, including DOD, flow down expectations to enhance subcontracting opportunities for small and small disadvantaged business concerns. One method that contractors use to be responsive to these expectations is to outsource part procurement to small and small disadvantaged businesses. In order to assure authenticity and integrity of the purchased product, contractors flow down requirements to small and small disadvantaged businesses directing procurement from an original manufacturer or its authorized dealer.

Counterfeit electronic parts tend to find their way into the DOD supply chain through the scenario described by Section 818(c)(3)(A)(ii)— electronic parts that are not in production or currently available in stock from trusted suppliers. When obsolete parts are not eliminated from product designs, independent distributors are often used to obtain components that are no longer in production. Despite the inspection and testing protocol applied by Independent Distributors and “Brokers”, counterfeit products continue to escape detection. Robust and current inspection and testing protocols are necessary to avoid counterfeit electronic parts when purchases from sources of supply other than the original component manufacturer and its authorized distribution chain are necessary.

The following recommendations are offered to DOD as it develops policy and changes to regulations in response to Section 818 of the FY2012 NDAA:

Define or adopt definitions within industry standards for the terms …

  1. “original manufacturer” (e.g OCM per AS5553),
  2. “authorized dealer” (e.g. “authorized supplier” per AS5553), and
  3. “trusted supplier”

Develop a definition of the term trusted supplier to include suppliers who obtain such parts exclusively from the original manufacturers or their authorized dealers.

Include provisions for cases where electronic parts that are not in production or currently available in stock from the original manufacturer or its authorized dealers such that the supplier must apply extra measures to avoid counterfeits. These extra measures must include…

  1. an assessment of supply chain traceability information associated with the product, and
  2. inspections and tests specifically designed to detect and intercept counterfeits.

Should DOD consider including suppliers other than original manufacturers or their authorized dealers as trusted suppliers, develop qualification requirements, 818(c)(3)(C), that require these suppliers to apply the extra measures described above when electronic parts are obtained from other than the original manufacturer or its authorized dealers.

Include provisions in the event of a suspect counterfeit or counterfeit electronic part escape such that the costs of suspect counterfeit and counterfeit electronic parts including rework and corrective action are allowable costs if the contractor ….

  1. established and implemented detection and avoidance elements described in 818(e)(2)
  2. purchased the suspect counterfeit and counterfeit electronic parts from a ‘trusted supplier’ as specified in 818(c)(3)(D) or a supplier selected by the DOD customer.

Approaches such as these will implement a trusted supplier concept that will help secure the DOD supply chain from the risks of counterfeit electronic components by (1) applying supplier preferences for electronic parts purchased from original manufacturers or their authorized distributors, and (2) performing due diligence to avoid counterfeits when purchases from sources of supply other than the original component manufacturer and its authorized distribution chain are necessary.

Henry Livingston

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5 thoughts on “FY2012 NDAA – Implementation of a ‘Trusted Supplier’ concept

  1. Phil Zulueta says:

    Henry:

    I read this with great interest and applaud all your efforts in providing these inputs for DoD consideration in addressing NDAA 2012.

    It is clear that the use of the term “trusted supplier” differs from the previous DoD Trusted Foundry Program and that a definition needs to be developed for NDAA 2012 purposes. When I read your article, I could not help but think about the role of an Aftermarket Manufacturer, as defined in AS5553. Is it possible that an Aftermarket Manufacturer be considered a “trusted supplier” for NDA2012 purposes? If an Aftermarket Manufacturer can be a trusted supplier, then it seems that their operations would preclude the need for the “extra measures to avoid counterfeits” and a crafting of the definition will be more involved.

    Phil Zulueta

    • “Is it possible that an Aftermarket Manufacturer be considered a ‘trusted supplier’ for NDA2012 purposes?”

      I believe so, yes.

      Referring to the current definition of aftermarket manufacturer within AS5553, I would agree that the aftermarket manufacturer would certainly be a trusted supplier. I still support the current definition within AS5553 for authorized supplier which includes the aftermarket manufacturer.

      I also agree that the selection of an aftermarket manufacture would preclude the need for “extra measures”.

      It may be helpful to devise a venn diagram to illustrate the types of suppliers and their relationships surrounding the ‘trusted supplier’ concept.

  2. A very knowledgeable colleague offers a very important point about ensuring that testing for the purpose of detecting counterfeits needs to be performed using facilities with suitably skilled personnel and the necessary equipment to conduct these tests … 

    “I would add to your list of extra measures that test houses be formally qualified to perform the specified tests.  One of the DoC findings that sticks in my mind is that 20-25% of test houses certifying parts as authentic were wrong. This says that either they lacked the necessary competency or, worse, that they were committing fraud themselves.”

  3. Buying product from an authorized source does not guarantee authenticity. Franchised distributors regularly provide return priveleges for larger customers, and those parts returned can very easily be mixed with counterfeit components purchased elsewhere by the OEM.

    • Re “Franchised distributors regularly provide return priveleges for larger customers, and those parts returned can very easily be mixed with counterfeit components purchased elsewhere by the OEM”.

      I have heard statements like this from a number of Independant Distributors and ‘brokers’, and from companies or industry groups representing them. I have asked for objective evidence of this from those who make these claims, but I have yet to receive it.

      Perhaps you can share specific examples of what you describe or refer to specific studies that include them.

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