US Department of Defense Counterfeit Regulations Impact Global Suppliers
Stringent new counterfeit-part regulations contained in the 2012 U.S. National Defense Authorization Act (NDAA) may have broad international implications, impacting hundreds of overseas companies that have supplied billions of dollars’ worth of items to the American government.
Non-U.S.-based suppliers accounted for more than $2 billion during the five-year period from 2007 to 2011, with European Union (EU) and Middle Eastern companies accounting for the bulk of the American government’s procurement spend, according to the IHS Haystack GoldTM service from information and analytics provider IHS (NYSE: IHS).
The figure below presents a ranking of foreign countries’ revenue from sales to theU.S.government. Data in the figure was derived from the IHS Haystack system that provides information on more than 100 million items in the U.S. Federal Supply Catalog and more than 40 U.S. Army, Navy, Air Force and related databases.
“There’s a perception thatU.S.regulations such as 2012 NDAA,Section. 818. Detection and Avoidance of Counterfeit Electronic Parts,is only an issue for American companies, and that they don’t impact firms in Europe, the Mideast and elsewhere,” said Greg Jaknunas, senior product manager, supply chain solutions, at IHS. “However, the impact is beginning to be felt worldwide, as many international companies and global manufacturing facilities can directly participate in the defense supply chain and begin to see customer requests for counterfeit detection and avoidance measures that are flowed down through the supply chain.”
Even though the regulations in 2012 NDAA are from theUnited States, they will become an international issue as defense contractors place requirements on their suppliers, who then place similar demands on their suppliers, and so on, Jaknunas added
“The 2012 NDAA requirements will get pulled through the global supply chain,” Jaknunas observed. “Owing to the complex nature of the supply chain, it will become an international concern. In a way, this is similar to the EU’s restriction of hazardous substances (RoHS) environmental directive, which called for the elimination of six hazardous materials in electronic components and systems, most notably lead. While RoHS requirements appeared to be European in nature, they had a ripple effect worldwide as suppliers all over the world changed their products in order to continue to do business in the key EU markets.”
IHS estimates that 362 non-U.S. companies worldwide that are supplying the U.S. government could be directly impacted by the NDAA counterfeit regulations, with many more that could be indirectly affected.
The very real problem of counterfeits
Reports of counterfeit parts have soared dramatically in the last two years, presenting huge challenges for electronics manufacturing and especially the military and aerospace industry. Supply chain participants in 2011 reported 1,363 separate verified counterfeit-part incidents worldwide, a fourfold increase from 324 in 2009, according to IHS.
The bulk of these incidents were for commercial electronic components that have wide use across every major technology end market.
Counterfeit parts often are often cheap substitutes or salvaged waste components that fail to meet strict military and aerospace specifications, leading to potential failures.
To help combat the problem, President Obama on December 31, 2011 signed the fiscal year 2012 NDAA, which adds regulations for counterfeit part detection and avoidance. Members at all tiers of the defense supply chain must put counterfeit risk mitigation procedures in place, and certain steps must be completed within 270 days of the president’s signature.
Companies based in the European Union represent the largest group of foreign suppliers to the U.S. government.
During the five-year period from 2007 through 2011, the region accounted for $1 billion in sales, or 51 percent of the total. The area, by a large margin, also had the most number of companies—283 firms.
Next was the Middle East with $951.2 million, representing 47 percent of the global total during the past five years. This revenue was generated by just 32 companies. The region, particularly Israel, is involved in extensive defense spending, and provides technology in this area to the United States. A major purchaser and user of U.S. military equipment, Israel is also involved in the joint development of military technology and regularly engages in joint military exercises involving United States.
Other regions trailed far behind, including Asia-Pacific, with the region’s 38 companies accounting for just 2 percent of global revenue.
To manage the wrenching changes wrought by the NDAA regulations, companies throughout the world must have tools that allow them to identify components at risk of counterfeits.
IHS provides content, software and expert analysis about worldwide electronics for component selection, sourcing, and logistics, as well as integrated obsolescence management, bill-of-materials management, environmental compliance and counterfeit risk mitigation.
IHS Haystack provides critical, integrated and interpretable logistics information to the government and contractors so that processes can be automated, labor and research costs saved, and new levels of efficiency as well as return on investment realized.
IHS Haystack allows users to locate a part number, determine its manufacturer, research past award histories, conduct competitive analyses, identify alternative sources, and find parts and manufacturers qualified against military specifications. Companies can use IHS Haystack’s Qualified Products Dataset to locate the most current information on certified government manufacturer and supplier sources of qualified products, in order to stay within a trusted supply chain of authorized suppliers.
About IHS (www.ihs.com)
IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today’s business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS employs more than 5,500 people in more than 30 countries around the world.
IHS is a registered trademark of IHS Inc. All other company and product names may be trademarks of their respective owners. © 2012 IHS Inc. All rights reserved.