The Dangers of Counterfeit Parts in the Aerospace and Defense Industry Supply Chain

Robert Brice
Mon, Oct 12, 2015
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A supplier tried to sell government contractors counterfeit submarine parts.

The aerospace and defense industry needs a reliable supply chain. Military vehicles, aircraft and submersibles are built using parts from dependable commercial suppliers. Oversight is critical because sometimes companies defraud government contracts by including counterfeit parts in manufacturing orders.

An RFgen white paper describes counterfeit parts as equipment, usually electronic, sold for fabrication and assembly that do not match the agreed upon description of materials. Companies may try to sell cheaper parts in place of more expensive options in order to pocket the difference. Some suppliers are unaware when they pass counterfeit parts to government contractors because they do not have complete visibility in their supply chain.

Counterfeit parts are dangerous. Government regulators created the Defense Federal Acquisition Regulation Supplement (DFARS) to protect personnel from faulty equipment. By prioritizing supply chain visibility, suppliers can remain DFARS compliment and keep U.S. forces safe.

Putting Profit Ahead of Safety
Suppliers sell counterfeit parts both intentionally and by mistake. The New London Day, a Connecticut newspaper, recently reported Massachusetts resident Peter Picone was sentenced to 37 months in prison for trafficking counterfeit integrated circuits from China. Picone sold the counterfeit parts to contractors working on U.S. Navy nuclear submarines.

A U.S. district judge required Picone to make restitution for the theft of intellectual property. He has to pay about $350,000 to the company that created the original ICs he trafficked counterfeit copies of. Picone's prison sentence is partly in response to the danger his actions could have caused. Leslie R. Caldwell, criminal division assistant attorney general of the U.S. Department of Justice, discussed the hazards associated with individuals or organizations that attempt to profit at the sacrifice of national security.

"He sold counterfeit integrated circuits knowing that the parts were intended for use in nuclear submarines by the U.S. Navy," Caldwell said, "and that malfunction or failure of the parts could have catastrophic consequences."

Fraudulent electronic parts find their way into multiple supply chains. Manufacturing Business Technology said companies that make automobiles, computer monitors, ultrasound machines and security systems are all targets. When manufacturers produce medical equipment or commercial vehicles with counterfeit parts, it could put consumers at risk. 

Aerospace and defense industry equipment not only transport personnel but contain weapons systems and sensitive information. A failure in guidance, storage or communications may prove hazardous to more than the users. This is why the U.S. Department of Defense created the DFARS regulations. The rules for aerospace and defense industry supply chain procedures constantly change in response as new risks present themselves.

Government Supply Chain Regulations
Securing Industry reported new revisions to DFARS regulations place a greater emphasis on traceability. Contractors must source parts to the original manufacturer or authorized dealer and present documentation for supply chain activities, and the rules now more carefully define what the government classifies as an authorized dealer.

To keep up with changing regulations and to stay DFARS compliant, contractors utilize data collections to provide supply chain visibility. Many government contractors use Deltek Costpoint and automated data collection systems like RFgen to meet strict supply and manufacturing standards. The RFgen white paper about counterfeit parts in the aerospace and defense industry said automated procedures prevent mistakes by creating consistent reporting practices and an integrated central solution that grants oversight to all stakeholders.

Any company that deals with electronic parts needs traceability to ensure the final product is productive and safe. Inspection must take place as soon as parts come in from a supplier. Employees should check for serial numbers and technical specs to make sure materials match promised terms. When companies detect problems, they should report the issue to government overseers as soon as possible.

Mobile data collection software facilitates real-time data capture and reporting. If employees have the solutions they need to inspect materials and communicate fraudulent parts detection to central systems, it promotes greater visibility. ERP systems like Deltek Costpoint integrated with mobile technology creates a supply chain free from the usual obstacles that let counterfeit parts slip through. 

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