Counterfeit Prevention Considerations when using a Contract Manufacturer (CM), Electronic Manufacturing Service (EMS), or Third Party Logistics provider (3PL)

Some electronic equipment developers outsource manufacturing services to a Contract Manufacturer (CM), Electronic Manufacturing Service (EMS), Third Party Logistics provider (3PL) or Value Added Service provider.

The term “Contract Manufacturer” or “Electronic Manufacturing Service” generally refers to an organization that manufacturers products developed by others. Prominent examples include Foxconn Technology Group and Pegatron Corporation who produce iPhones and iPads for Apple Inc. Some contract manufacturers perform “consignment manufacturing” where a product developer outsources the assembly of its products, but maintains direct control over some portion of the overall manufacturing supply chain in-house, such as materiel procurement and system level assembly. Other contract manufacturers offer “turnkey manufacturing” services which perform all manufacturing functions, including material procurement, inventory control, receiving, and kitting. Some turnkey manufacturing companies also function as an Independent Distributor or have established a formal partnership with an Independent Distributor.

A “Third Party Logistics provider” or “Value Added Service provider” performs part or all of a customer’s supply chain management functions. These services can also include value-added services related to the procurement of materiel  and preparing materiel for assembly manufacturing (e.g. testing, packaging, termination resurfacing, etc.) Some 3PL and value added service providers also function as an Independent Distributor or establish a partnership with an Independent Distributor.

The selection of these services should include a review of purchasing practices, material control and materiel transfer practices to identify potential vulnerabilities to counterfeit electronic parts.

Independent Distributors frequently acquire excess inventory from Original Equipment Manufacturers or Contract Manufacturers. If product offered by an Independent Distributor is reported be OEM or CM excess, due diligence should be performed to address potential vulnerabilities to counterfeit electronic parts.

H Livingston

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