Many original component manufacturers (OCMs) reported their highest sales growth figures for seven years in the first two quarters of 2017 and, six months later, this has now developed into significant increases in lead times and pricing that haven’t been experienced for some time. The increase in demand seems to be mostly technology-led with large scale increases in demand coming from new and developing applications such as automotive and IoT. However, there is some evidence that production rationalisation following the wave of OCM mergers and acquisitions during 2016 has also decreased supply in some areas.

Passives lead-times are increasing to in excess of thirty weeks with some orders being quoted for delivery in 2019. The picture is the same for many active components with some functions being placed on allocation, meaning that no firm lead time is being quoted at all. We have even heard of some purchase orders being acknowledged with clauses added indicating that, not only can no delivery date be confirmed but that the agreed purchase price may increase in the meantime.

These are desperate times, which in turn, only encourage buyers to place orders for more than they need, causing lead times to further increase as OCM order books become over-stated and demand races further ahead of demand.

The current component shortage situation is forecast to last throughout 2018 as OCMs go through the cycle of decision making about where and by how much to add manufacturing capacity and then acting on it before supply and demand regain some sort of equilibrium. Typically, OCMs take about six to twelve months to increase production capacity so buyers are set to endure more pain for the foreseeable future.

Inevitably, the grey market is becoming a more attractive and, in some cases, the only alternative to fulfill those shortages. However the informal relationships existing in the unauthorised supply chain increases the risk of inadvertently being supplied with counterfeit or fraudulently marked components, even when your trusted grey market supplier sources product in good faith.

The increased threat of counterfeit components in recent years has led many grey market suppliers to protect themselves and their customers by developing in-house component testing capabilities providing their customers with assurance of the authenticity of components that they buy. Counterfeiters have improved, if that’s the right word, the quality of their products in recent years so that visual inspection and a dab of acetone to detect black topping are often not enough to determine if components are genuine. Arguably, counterfeit components that just about pass system testing but later cause systems to fail in the field are a worse threat with significantly more expensive consequences than counterfeits that fail at the outset and buyers should be very wary of relying solely on certificates of conformance when sourcing components on the grey market. If components can be counterfeited, certificates can be counterfeited more easily!

When selecting grey market sources, buyers should look for suppliers conforming to relevant international standards for the management of counterfeits in the supply chain, such as AS6081 - Counterfeit Electronic Parts: Avoidance Protocol for Distributors. The standards landscape is complex but a comprehensive list of all current relevant international standards can be found on our website at https://www.anticounterfeitingforum.org.uk/best_practice.aspx

Buyers wanting to assess the level of risk they are potentially exposing their organisations to might want to download and study the excellent Development of a Methodology to Determine Risk of Counterfeit Use, a free of charge paper published by INEMI, the International Electronics Manufacturing Initiative. If all of this starts to seem as dry as dust when the objective is to keep the production line running or complete a system upgrade or repair, prevention is always better than cure.

A very good investment in time to learn more about the treat of counterfeit components and how to mitigate against it might be to attend the next Anti-Counterfeiting Forum Seminar, which is to be held at BAE Systems, Farnborough on Thursday 15th March. There will be a wide range of presentations from domain experts who will be talking about the relevant international standards and how to develop internal processes for management the threat of counterfeits in the supply chain. There will also be plenty of opportunity to network and learn more about using grey market sources with greater security.

To find out more about the seminar, contact the Anti-Counterfeiting Forum via the website here or, to book a place at the seminar, go to the link here