Does Nearshoring Really Reduce Counterfeit Component Risk?

Anyone that works in the electronics industry, and especially procurement professionals, are familiar with the risks of ordering from overseas brokers. As much as you might try to build a list of reputable, trustworthy brokers to support your supply chain, there is always the possibility for some counterfeit parts to slip through the cracks. Like it or not, brokers will continue to play a role in the electronics supply for the foreseeable future, and they can be valuable sources of parts during a production emergency.

If you’re developing a nearshoring strategy for your highest value products, how will this affect your ability to detect and eliminate counterfeit components from an assembly? Simply nearshoring production may not be the complete solution, regardless of the claims from contract manufacturers (CMs). Whether you’re nearshoring, building a captive production operation, or consigning parts to an external supplier, there are real strategies you can implement to help reduce your risk of counterfeiting.

Nearshoring Doesn’t Eliminate Counterfeiting

In today’s complex global production environment, nearshoring offers several benefits, particularly regarding procurement of electronic components and quality control. Quality control practices are highly standardized and well-known among local and overseas suppliers. But despite quality control measures, companies can still end up with counterfeit components in their products. Potential problems range from early failure to complete lack of functionality in the end product.

Companies looking outside of China and Taiwan for manufacturing capacity can see a range of benefits outside of counterfeiting risk. The primary effect of onshoring or nearshoring is to shorten the overall supply chain for a product and make it less complex. For example, nearshoring brings greater control in the following areas:

• Shorter distribution chain that allows easier traceability
• Faster communication and collaboration with a CM or EMS
• Faster delivery times for finished product
• Simpler inventory management processes
• Greater control over product quality

Despite all the above benefits, procurement from overseas distributors and brokers perpetuates the risk that counterfeit components are placed in an assembly, regardless of where PCBAs are produced. Anyone that tells you nearshoring production can prevent counterfeit components from entering an electronics assembly is not living in reality. The only companies that can provide a true guarantee of authenticity is the component manufacturer and their authorized distributors.

Aside from taking supplier guarantees at face value, implementing an inspection and testing program is the only sure-fire way to guarantee a component is not counterfeit. If companies are planning to nearshore production, but they still plan to use overseas suppliers and non-authorized distributors for components, they need to make component inspection part of their quality control process.

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Nearshoring Can Offer More Control

If counterfeiting is a concern for your products, then nearshoring could provide an opportunity to mitigate the problem. One benefit of nearshoring or onshoring in terms of controlling counterfeiting relates to the level of control you can exert over quality and testing. Specifically, it can give you an opportunity to work with your CM or EMS provider to set up a testing and inspection operation for received components. 

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If you plan to work with your CM/EMS provider to implement component inspection processes and capabilities, they may be reluctant to invest in the equipment and training required. Not all CMs or EMS companies provide these services for customers, nor do they have the resources to train staff to run such a program. Without the order volume to support these services, a company could be left on their own to find a service provider that can support a nearshoring strategy.

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Solutions for Smaller Companies

If your company has a captive production operation, or your company consigns parts to an assembly house, setting up your own inspection facility can be difficult. It requires inspection expertise, investment in equipment, and an additional time before parts are consigned to assembly.

The simplest solution is to work with a 3rd party inventory management platform that can provide component inspection, testing, warehousing, and shipping under one roof. These services can provide comprehensive counterfeiting inspections for parts kits that enter their facilities. They will then package and store components in a controlled environment until the parts are needed for a production run.

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Final Thoughts

As long as overseas gray market brokers continue buying up component stocks from authorized distributors and holding them for ransom, counterfeiting will continue to be a problem. Because of these overseas brokers, buyers soon find that their only option is to go overseas for parts, which creates more opportunities for counterfeiters to scam buyers with fake parts. When parts are ordered from overseas and consigned to an assembly house, it does not matter if assembly happens at home or abroad.

However, setting up a testing facility with your nearshored PCBA supplier gives you a way to control and spot counterfeiting. If you do not have the experience to build this type of operation yourself, there are 3rd party inventory management services that will provide testing and inspection of components.

Cofactr is the only supply chain management platform used by electronic hardware teams and procurement professionals to quote, purchase, manage inventory, and manage logistics for their electronic components. As part of our inventory management platform and warehousing service, we also perform inspection and testing of components as they enter our facility. We take every effort to identify counterfeit components before they are included in your PCBA.

To learn more about our counterfeiting inspection process, read our guide on IC anti-counterfeiting measures.