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Passionate Testimony - DoD Counterfeit Components DFARS Case2012-D055

Posted by Travis Thoman on Jul 24, 2013 10:23:00 AM

Secure ComponentsOn June 28th our COO, Stephan Halper, and I attended a public meeting in Washington, DC sponsored by the U.S. Department of Defense to allow industry professionals to voice their ideas and concerns over  DRARS Case 2012-D055 legislation, which will impact how the defense industry deals with the counterfeit component epidemic the industry faces within its supply chain. 

Our company, Secure Components, is an Independent Distributor of electronic components to the Department of Defense, the Defense Logistics Agency and the many defense and aerospace contractors.  As an independent distributor, we have battled for years to find a solution that would require everyone in the supply chain who procures electronic components from an “other-than-authorized source” to require and demand authenticity testing.  The problem of electronics counterfeiting has now risen to a point that in 2011, the Senate Arms Services Committee drafted Section 818 of the National Defense Authorization Act to address the issue.

The hearing was attended by many well known industry groups and organizations.  As I listened to the testimonies it became apparent that much of testimony was focused solely on the immediate impact of how future rulings would affect their businesses.  Many suggested ways to delay a decision that could potentially offer meaningful legislation to address the problem.   I felt an overwhelming need to address what I was hearing from many of my peers in the industry.   Although I had not intended to speak that day, as I heard the calls to delay action on this issue in which I am passionately and professionally concerned and that could dramatically impact the security of our nation’s economy, its national security and those American men and women who defend this great nation, I felt compelled to speak out.  Below is account of what I wrote the following weekend and submitted as official testimony which will be reviewed by Department of Defense Officials as they determine exactly what new regulations they will announce on this issue in the months to come. 

The Testimony of a Veteran

Let’s begin with full disclosure. I am a veteran, and as a result, I cannot begin to comprehend anything other than an aggressive and immediate solution to the issue of counterfeit parts within the Department of Defense (DoD) supply chain. I am Travis Thoman, Vice President of Sales at Secure Components, LLC, in Norristown, Pennsylvania. Secure Components is an AS9120 iUS NAVYndependent distributor/brokerage firm that specializes in safely sourcing material used in life-critical applications from nontraditional sources for aerospace and defense contractors, the DoD, the Defense Logistics Agency (DLA) and NASA. Although Secure Components is certainly not one of the larger companies within the supply chain, we have chosen to invest heavily in establishing one of the most robust counterfeit avoidance plans in the industry, irrespective of the costs associated with such an effort. As a result, Secure Components is one of only ten “trusted suppliers” certified to the DLA’s Qualified Testing Suppliers List (QTSL) program. This certification qualifies us to sell obsolete microcircuits to the DLA. Additionally, we are the first company in the world to have successfully completed an accredited AS6081 Counterfeit Avoidance Assessment by the certifying body Det Norske Veritas (DNV), with the anticipated receipt of our certificate in July of this year. As an independent distributor, we are extremely proud of the effort we have put forth to become a leader in the independent distributor community and in preparing to comply with the current regulations established in Section 818 of the National Defense Authorization Act. We are eager to gain clarity on the mission ahead as it relates to the upcoming regulations that will affect our position in the supply chain.

As a veteran, I am compelled to speak today. As I sit here and listen, I hear a lot about the needs of “us” in the supply chain. However, I hear nothing about the needs of those active duty men and women who rely on “us” to do our job and to provide authentic products they DoDcan use with confidence. While the men and women in uniform put their lives on the line to protect our families, homes, businesses and country, we owe it to them to ensure maximum and swift effort is put forth to combat counterfeit components and to protect our military’s supply chain. Prior to working in this industry, I spent 4 years in the US Navy. I served onboard the USS Nebraska 739B, a Trident Submarine. I still have friends serving in the armed services that are counting on authentic parts. I understand the need to ensure the parts supplied to our contractors and the DLA are authentic. This material directly impacts the lives of those serving our country today. As I listen to the testimony of those calling for a delay in the rulings by the DoD, I find myself growing increasingly frustrated. Have we forgotten why we are here or who our customer truly is? Counterfeit parts in the supply chain have become an epidemic; the DoD itself has admitted that it suspects that more than 1 million counterfeits exist within its supply chain. The National Defense Authorization Act, Section 818, was signed nearly 17 months ago, establishing the callout for the building of a framework that would address the urgent issue of counterfeit components entering our supply chain. What if Delta or US Air announced it had a comparable figure of counterfeit components in their supply chains? Would those organizations wait this long to provide a solution? How many people would continue to fly on their airlines or support a decision to delay a potential solution because the cost was inconvenient and expensive? The warfighters do not have the luxury of choice—they must use the tools we provide them.

DoD Working to Correct this Problem

I applaud the effort of the DoD and others who have worked to correct this problem. However, considering the period of time that has passed since the NDAA was signed enacting Section 818 and the fact we still have no real guidance, the thought of delaying another 12 months strikes me as unconscionable and disrespectful of our active duty personnel. The problem of counterfeits is escalating annually. This issue is as real as the enemy we face on the battlefield and deserves action—now! We cannot forget that our customer is the warfighter. It is unrealistic for us to focus purely on searching for a solution that is going to be embraced by everyone within the entire supply chain. This problem is complicated and will no doubt be expensive to solve, but that is irrelevant to the threat counterfeits pose to the warfighter and our nation’s economic and physical security. Delaying implementation will not make the issue go away, nor will it make it any less expensive. The warfighter does not run away from his or her duties but, instead, confronts them. We as citizens—particularly those of us who work in and with the DoD supply chain—owe the same response.

As an 8-year professional in independent distributing/brokering, I have made my living by buying and selling components to aerospace and defense clients used in military applications. I understand firsthand the issues with which we as suppliers are forced to compete. Unfortunately, the current system offers insufficient guidance to address the necessary actions to properly establish a secure buying or quoting system for obsolete microcircuits. QTSL Qualified

Obsolete electronic components are not commodity items and should not be treated as such. With an established DoD protocol that focuses specifically on quoting and procuring obsolete microcircuits, we would make a dramatic impact. This would ensure that the entire supply chain—from the independent distributors quoting the contractors to the contractors offering quotes to the DoD—more adequately reflects a true and comparable quote. I am referring to the fact that without a required procedure of testing similar to the callout of AS6081 or the DLA’s QTSL program requirements, it is impossible to have an “apples to apples” quote from one supplier to another, let alone multiple contractors. The current quoting process for obsolete microcircuits is without adequate parameters. Again, obsolete microcircuits are not commodities and there are many facets that must be considered, such as source, traceability, part application, risk assessment and testing requirements.

We need clear direction and guidance to ensure the entire supply chain is on a level playing field. There is no question that this issue is complicated, but there are current measures available (e.g., the AS6081 Counterfeit Avoidance Program and the DLA’s QTSL/DNA Marking Program) that would be an aggressive step toward resolving this issue. Regardless of what the process is, it must be consistent across the board. Additionally, the DoD should establish a clear “bar” that specifically defines the parameters for exactly what the minimal requirements should be to meet the DoD’s definition of a “trusted supplier.” This will not only reinforce what needs to be done but it will also require the buyers working for the contractors to focus on the qualifications of suppliers and not simply the lowest price. Clear guidance will ensure that all suppliers must be certified to a set of standards followed by everyone competing for the business. By setting such standards, contractors will be able to arrive at well-thought-out and informed buying decisions with the knowledge that the parts to be acquired have been examined in a consistent manner. It removes from the equation the issue of distributors offering lower pricing with minimal testing or simply unsubstantiated written assurances regarding quality and relies on a structured format relative to the issue of quality. And, by default, when the DoD receives a quote from several competing contractors, they will know they are receiving a quote that ensures all the microcircuits have been inspected and tested to a uniform standard. Currently, there is no standard and independent distributors offer different quotes based on undefined guidelines. I can tell you from years of industry experience attempting to sell buyers on the value of quotes that include testing costs that buyers are often extremely reluctant to pay more for an obsolete component that will be accompanied with test reports.

Uniformity Required in the Quoting Process

More importantly, trying to get a buyer that will define exactly what your test quote should consist of is very unlikely. The infamous response is “we only buy from trusted suppliers” or “we have never had a bad part from this supplier.” Anecdotal evidence is not enough—there needs to be uniformity in the process by which an obsolete part is tested and verified before it goes into our military’s supply chain. The reality is, across the board, buyers are making Electronic Componentdecisions based primarily on price and approved vendor lists, just as they do with the commodity items they purchase. Again, without direct guidance, what choices are left for a broker committed to doing the right thing when ultimately buyers eschew quality concerns in favor of price and lead time? The current system is outdated and inefficient for obsolete microcircuits as well as any microcircuit that must be procured from sources where the supply chain has been broken. The current methodology forces everyone to place too much emphasis on price and not enough on quality assurance procedures. Commodity items bought from an authorized source with traceable paperwork can obviously be procured based on price. That is far from the case with obsolete electronic components procured from alternative sources. If the standards do not flow down properly from the highest levels of the supply chain to the contractors who are requesting quotes, then it is impossible to have a consistent quote from suppliers to the contractors and ultimately results in inconsistent quotes from contractors to the DoD.

In addition, we continually hear the focus should be on procuring parts from an authorized source—of course they should. This statement is continually used as if it is somehow the magic answer to the problem. If it were simply that easy, there would be no need for this discussion. However, the term “authorized” can create a great deal of confusion. One of the greatest benefits of what is being discussed is the fact that if proper protocols are put in place regarding quality issues, then those suppliers that demonstrate the ability to meet those standards will, in fact, qualify as authorized sources. We know we are here today because we must deal with the reality that military systems require obsolete components.

The True Cost of a Low Priced Obsolete Component

The fact is obsolescence drives up the price of those components as they become less available in the market place. In turn, it creates the perfect scenario for counterfeiters to focus their efforts. It is also a fact that the large, franchised distributors who often weigh heavily into this discussion have nothing of value to offer in regards to the problem of obsolescence. Independents and brokers are the backstop; we are the spare tire of the supply chain. Let’s address the issue by focusing our attention on the area of obsoletes and how to improve the independent distribution supply chain that plays a vital in role in filling this void in the system. This is a vital step toward solving this problem. Reality demonstrates the independent distribution market is comprised of small companies without the resources of some of the billion-dollar franchised distributors. Independent distributors have been disregarded as a potential solution and overshadowed by those with an agenda that wish independents did not exist. It is time we all accepted the need for independent distributors. Our system does require purchases from third-party sources in some cases—admit it out loud, and commit to doing something to make a change. If independent suppliers were given clear requirements to do business within the DoD supply chain as discussed above, those organizations that are dedicated to conducting good business will rise to that challenge to earn the chance to compete for the business. Suppliers who fail to meet the stated requirements will simply fall to the wayside and no longer represent a hazard to the supply chain.

Just like freedom, the price of an authentic supply chain in 2013 is not free. Certainly, we recognize there are significant costs associated with the implementation of such requirements but, as an independent supplier, we have met the challenge of accomplishing the strictest of standards and absorbed the costs of doing so. As to the increased cost to be absorbed by the end users of these obsolete components, relative to the cost of the equipment into which these components are to be integrated, the increased cost is of minimal significance. The real cost is not tied to the supply chain; it is the possible loss of life suffered by our warriors as a result of the delivery of substandard parts. Action on this subject will fulfill our duty to those who take the battlefield to defend our freedom. Set the “bar” high—require action from your supply chain. If you do, we can and will accomplish our mission.

Thank you for the opportunity to offer this testimony.

Take Action For the Troops

For those of you who are interested in working to increase the momentum which could incite Support Our Troopsaction on this issue, please feel free to contact me as well as your senator or congressman to voice your concerns on establishing more awareness of the need for action on the issue of counterfeit material entering our military’s supply chain.  I believe strongly in the comments that I have submitted above as the result of years of being an independent distributor and seeing the realities that exist in the obsolete electronic component market.  I believe we are closer than ever to reaching a point at which significant action will be made that can impact this problem and once again ensure that our military’s supply chain is safe from fraudulent components.  Consider taking action of some kind today, whether it is simply “liking” this post, reposting it or contacting your Congressman to raise awareness of this issue.  It just might save a life, maybe even your own.

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