Avoiding Counterfeit RiskHosted by Supply & Demand Chain Executiveand featuring IHS, ERAI Inc, and L-3 Communications

February 23, 2011

A Global Supply Chain ProblemWe’ve Entered a Generation of Counterfeiting & Piracy

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“We estimate that, based on 2008 data, the total global economic value of counterfeit and pirated products is as much as $650 billion every year……estimates imply that the global value of counterfeit and pirated products could be up to $1.77 trillion by 2015.”

Frontier Economics, February 2011

ModeratorAndrew K. Reese

• Editor, Supply & Demand Chain Executive

PanelistsMark A. Snider

• President, ERAI, Inc. and IHS Partnership Executive Sponsor

Kristal Snider• Vice President, ERAI, Inc. and G-19 Committee Member

Rick Roelecke• Director of Quality Assurance for L-3 Wescam Sonoma Operations • L-3 Communications Corporate Counterfeit Parts Lead

Today’s SpeakersRecognized Industry Experts

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• Founded in 1995, ERAI is an information services organization that monitors, investigates and reports issues affecting the global hi-tech electronics supply chain.

• ERAI provides tools to mitigate risks on substandard parts, counterfeit parts, vendors and even customers.

• Subscribers include OEMs, CMs, Distributors, OCMs, government agencies and industry associations.

• Actively involved in a number of committees and task forces addressing the counterfeit issue.

ERAI Inc.A World of Information at Your Fingertips

IHS and ERAI Combat CounterfeitsExclusive Partnership Providing Market Intelligence

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“ENGLEWOOD, Colo. (January 12, 2010) - IHS Inc. (NYSE:IHS), a leading global source of critical information and insight, today announced an agreement with ERAI, Inc. to be its exclusive worldwide partner for delivering products and services designed to mitigate the risks associated with counterfeit, substandard and high-risk parts found throughout global supply chains…”

• Founded in 1959, IHS is a leading source of information and expert analysis in pivotal areas shaping today’s global businesses

• Employs 4,400 colleagues in 30 countries who speak 50 different languages

• IHS customers include nearly 70% of the US Fortune1000 and 80% of the Global Fortune 500

• Tens of thousands of customers and hundreds of thousands of end-users in over 100 countries

• Public (2005) NYSE: IHS

• FY10 revenue $ 1,075 million

IHS Inc.A Leading Information Provider

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Why IHS?Opportunity to Help Thousands of IHS Global Customers

Avid

Copyright © 20011 IHS Global Inc. All Rights Reserved. January 2011 9

KPI: EOL / Lifecycle Planning KPI: Shortages KPI: Price/Lead Time

KPI: Counterfeit Incidents

Problem: How the Market Sees ItProactive Mitigation to Resolution when Counterfeits Detected

Qualify + Approve

Manage+ Avoid

Validate + Detect

Report + Resolve

Redesign + Resupply

Establish infrastructure to mitigate risk through qualified and approved designs, suppliers, & parts.

Update processes, tools, and information to avoid counterfeit and high risk parts.

Validate, sample and test components for authenticity. Quarantine suspected counterfeits.

Procedures to notify stakeholders, report occurrences, and resolve incidents.

Maintain controlleddesign/redesign cycles of products. Optimize parts, inventory, and suppliers.

Challenge

…mission failure!

Economic downturn… …shortage… …fake parts…

Customer Workflow Needed

Copyright © 20011 IHS Global Inc. All Rights Reserved. January 2011 10

Solution: IHS-ERAI Market IntelligenceUnrivalled Solutions from IHS iSuppli, PLC, and ERAI

IHS iSuppliMarket Trackers

Teardown Analyses

Forecasts & Measures

Analyst Inquiry Time

IHS PLCStandards Expert

Haystack

4DOnline Product Family

PCMS

IHS ERAI*BOM Scrubber Management Suite

Company Search

Reported Company Search

Reported Parts Search

Qualify + Approve

Manage+ Avoid

Validate + Detect

Report + Resolve

Redesign + Resupply

Establish infrastructure to mitigate risk through qualified and approved designs, suppliers, & parts.

Update processes, tools, and information to avoid counterfeit and high risk parts.

Validate, sample and test components for authenticity. Quarantine suspected counterfeits.

Procedures to notify stakeholders, report occurrences, and resolve incidents.

Maintain controlleddesign/redesign cycles of products. Optimize parts, inventory, and suppliers.

Challenge

…mission failure!

Economic downturn… …shortage… …fake parts…

* Our Exclusive Alliance Partnership

Customer Workflow

Products & Services

Copyright © 20011 IHS Global Inc. All Rights Reserved. January 2011 11

* Complimentary BOM risk analysis for today’s viewers *

• You send a Parts / Materials List…• AVL, AML, BOM, Parts List of more than 500+ records

• You’ll get a free Counterfeit Risk Analysis• Counterfeit and High Risk Parts on your BOM

• Register via email• Subject: “ERAI Webcast Offer”• Email: ERAI@IHS.com

Best practices and techniques for mitigating risks Date: Wednesday, February 23, 2011

Time: 8:00 am PT | 11:00 am ET | 4:00 pm London | 16:00

Kristal SniderMember, SAE G-19 Committee

Vice President, ERAI Inc.3899 Mannix Drive, Ste. 421-422, Naples, FL 34114

Tel: 239-261-6268, Fax: 239-261-9379Email: ksnider@erai.com

Counterfeit Avoidance - Yesterday, Today, Tomorrow...

Meeting Objective

Review available solutions/resources that can reduce the potential of acquiring a counterfeit electronic component.

ERAI-Overview

• Founded in 1995• Mitigate Risk of Parts, Customers & Vendors• Provide up to date information on Counterfeit, Faulty & High-Risk Parts• Real-time Industry Monitoring & Reporting Services• Real-time High-Risk and Counterfeit Part Reporting• BOM / Assembly Cross Checking against High-Risk Parts Database• Vendor & Customer Analysis• Proactively Prevent Losses & Reoccurring Problems• Access to Search Risk Mitigation Tools• Fair & Impartial Investigation Services• Stay Informed on Current Issues Affecting the Supply Chain

© 2011 ERAI Inc.

Counterfeit-Origin

2001 – China Admitted to WTO

Counterfeit-Origin

Counterfeit--Origin

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Counterfeit-E-Waste

Laborer de-soldering circuit boards over a coal-fired grill. Rock in the box is where boards are hit to remove solder. Pliers are used to pluck off chips which go into various buckets. The boards are then tossed into a pile for open burning.

© Basel Action Network 2006.

Counterfeit-E-Waste

Counterfeit-E-Waste

Counterfeit-Portals of Entry

Counterfeit -Portals of Entry

• Rapid access to millions of parts

• Minimal membership requirements

• Quick & easy access to a large audience of buyers

© 2011 ERAI Inc.

All types of components are being counterfeited, even passives.

% of reported counterfeits from ERAI database, 2004 to present

Counterfeit-What is Being Counterfeited?

Counterfeit -Impact

Counterfeit - Impact

Impact of using counterfeit parts or materials• Potential loss of life• Espionage• Monetary loss• Liability• Lack of availability of products for customer use• Loss of customer/public trust• Brand damage

© 2011 ERAI Inc.

Counterfeit-Where the industry has fallen short

• Lack of dialogue between all organizations in the U.S. supply chain.

• Companies and organizations assume that others in the supply chain are testing parts.

• Lack of traceability in the supply chain.

• Insufficient chain of accountability within organizations.

• Recordkeeping on counterfeit incidents by organizations has been limited.

• Stricter testing protocols and quality control practices for inventories are required.

• DOD organizations have not had policies in place to prevent counterfeit parts from infiltrating their supply chain.

© 2011 ERAI Inc.

G-19

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Formation of G-19 (Sept. 2007) -Industry Working Together To Craft A Solution

OrbitalSciences

ArrowElectronics

Northrop Grumman

Integra Technologies Honeywell

Boeing

Jabil

SMTAERI

ERAIIDEAAIA

NASAJPLG-19

© 2011 ERAI Inc.

SAE G-19 Committee Members & Liaisons

US Government Members …• DCMA• Defense Logistics Agency, DSCC• MDA• NASA/JPL• Navy-Crane• NSWC Crane• SUBMEPP• Tinker Air Force• US Army – AMRDEC

Industry Members …• 3M• Boeing• General Dynamics• Honeywell• L-3 Communications• Lockheed Martin• PerkinElmer• Plexus• Raytheon

Participating Industry Associations …• AIA• ERAI Inc.• Independent Distributors of Electronics Association (IDEA)

Participating Test Laboratories …• Center for Advanced Life Cycle Engineering (CALCE)• Evans Analytical Group• Hi-Reliability Microelectronics• Integra Technologies• Premier Semiconductor Services• Process Sciences• Silicon Cert Laboratories• White Horse International

Representation from Government, Aerospace, Military, & Commercial

BrokersIndependent

Franchise

CommercialDefenseSpace

InspectionTest

G-19- A Multilayered Counterfeit Risk Mitigation Initiative

© 2011 ERAI Inc.

AS5553 Rationale

AS5553-Requirements: 4.1 Counterfeit Electronic Parts Control Plan

Risk MitigationDisposition

Reporting

Design, Proposal, and Program PlanningObsolescence Management (DMSMS)

AS5553-Requirements: 4.1.1 Parts Availability

Assess potential sources of supply to determine the risk of receiving counterfeit parts Has the organization/part been reported by ERAI

Maintain a register of approved suppliersDo not buy from sources not identified on your AVL

Specify a preference to procure directly from OCMs or authorized suppliers

Audit suppliers to ensure they are maintaining effective processes for mitigating riskComing Soon: ARP6178

Ask for supply chain traceabilityBe Careful - Paperwork can also be counterfeited

Flow down your requirements.In the event that one or more supply chain intermediaries do not have a counterfeit part control plan compliant to this document, a risk analysis shall be required for every application of the part.

AS5553- Requirements: 4.1.2 Purchasing

AS5553-Requirements: 4.1.3 Purchasing Information & 4.1.4 Verification of Purchased Product

APPENDIX D - PROCUREMENT CONTRACT REQUIREMENTS

APPENDIX E - PRODUCT ASSURANCE

AS5553-Requirements: 4.1.5 In Process Investigation & 4.1.6 Material Control

…shall address the detection, verification, and control of suspect counterfeit parts.

…shall prevent suspect counterfeit parts from entering the supply chain / use.

…shall preclude suspect counterfeit parts from re-entering the supply chain.

AS5553-Requirements: 4.1.7 Reporting

The documented processes shall assure that all occurrences of counterfeit parts are reported, as appropriate, to internal organizations, customers, government reporting organizations (e.g., GIDEP), industry supported reporting programs (e.g., ERAI), and criminal investigative authorities.

ERAI maintains a database of counterfeit and high-risk items. Data can be submitted by anyone on the public domain of their website (www.erai.com). Companies do not need to be members to report counterfeit and high-risk items. Submitting companies remain anonymous in the reporting of counterfeit/high-risk items. Companies must be ERAI members to view this database. However, virtually all electronics-related companies/organizations, not just resellers, are candidates for membership.

Reporting

G-19

AS5553 Adopted By DoD

G-19-ERAI Involvement

ERAI Serves On:• Original Member of

G-19 (AS5553)• Member of G-19D

(AS6081)• Member of G-19DR• Member of G-19CI

(Continuous Improvement/AS5553 Rewrite to ensure document is applicable in both US and foreign markets)

Meeting Schedule:Tuesday 10:00am–12:00pm EST

G-19CI – AS5553 Re-writeBi-Weekly

Thursday 11:00am-1:00pm ESTG-19D – AS6081 Development Team

Weekly

Other G-19DR – Distributor Assessment Manual/Survey Team

As Required

Summary

Employees need clear direction from management on combating counterfeits as well as written guidance on how to: avoid purchasing counterfeit parts; test, handle and track incoming and outgoing parts; and manage and dispose of suspected counterfeit components.

Thank YouKristal SniderMember, SAE G‐19 CommitteeVice President, ERAI Inc.3899 Mannix Drive, Ste. 421‐422, Naples,  FL  34114Tel:  239‐261‐6268, Fax: 239‐261‐9379Email: ksnider@erai.comwww.erai.com

Counterfeit Parts Program at L-3

Rick RoeleckeDirector of Quality Assurance

L-3 WESCAM Sonoma Operations

February 23, 2011

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BackgroundThe L-3 Counterfeit Parts Team was established in September 2007

Originally influenced by Orbital Sciences and BAE Systems Requirements

Both companies have requirements for:– C of Cs from Original Equipment Manufacturers or their authorized distributors– Approval of the procurement process if OEM certifications can not be obtained– Burdensome liability clauses for counterfeit escapes

It is especially difficult to manage these requirements for COTS hardware or production lines that feed multiple customers

We needed to control our own destiny by emphasizing preventionDefine our own procurement guidelinesIdentify our own approved Independent DistributorsDefine our own risk mitigation processes to prevent counterfeit or substandard parts from reaching our customer communityProtect our liability

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L-3 CPT Mission Statement

To define and provide guidelines for managing and controlling the risks associated with Counterfeit Parts

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Team ObjectivesEstablish procedural guidelines for all divisions that address:

Procurement practices Supplier/Distributor controls Part screening requirements

Identify and survey Independent Distributors that have systems and processes to screen for counterfeit parts

Includes identifying approved independent test facilities

Define purchase order and subcontract flow-down requirements

Develop inspection and test guidelines to screen for counterfeit parts

Communicate government, industry, and customer requirements/issues via intranet and share lessons learned

Control Your Own Destiny Or Someone Else Will

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The L-3 10 Counterfeit Commandments

1. Implement A Strict DMSMS Program

2. Load Your Obsolescence BOM Into A Counterfeit Hit Database (ERAI)

3. Control Independent Distributor Purchases For Obsolescence Only

5. Control Your Independent Distributors

6. DPA, X-Ray, Permanency Test, At A Minimum, All Lots Purchased from Independent Distributors

7. Track and Document Lessons Learned

4. Screen All P.O. Transactions For Counterfeit Hits

8. Impound and Report All Counterfeit Parts

9. Influence Your Customers To Support Re-Design Efforts

10. Educate Your Workforce And Subcontractors

Thou Shall

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1. Implement A Strict DMSMS Program

2. Load Your Obsolescence BOM Into A Counterfeit Hit Database (ERAI)

L-3 Companies,IHS Parts

Management ERAI BOM Tool

Automated Counterfeit

Notifications to Each Division

One Combined Obsolescence List

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Assure that your Buyers are not placing orders to Independent Distributors for Cost & Schedule

Obsolescence Only

Run all Purchases through ERAI for Counterfeit HitsEvery procurement, every time Screen your Distributor even if they are on your approved listScreen your part number

3. Control Independent Distributor Purchases For Obsolescence Only

4. Screen All P.O. Transactions For Counterfeit Hits

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Desk and Physical SurveysIDEA MemberERAI MemberAS9120 CertifiedISO9001:2000 CertifiedESD S20.20 CompliantCertified Inspectors to IDEA 3000Supplier controls and flow-down of counterfeit mitigation requirementsTest and inspection processes and equipment Names of third part test facilities used and services performed Purchasing Policy, No China, India, Africa, etc.Have they ever delivered a counterfeit or substandard part to a customer

– If so, how did they resolve the issueDo they have a die library and will they share itDo they offer escrow servicesWhat is their policy upon discovery of counterfeit or suspect parts

– Impounding– Reporting

5. Control Your Independent Distributors

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6. DPA, X-Ray, Permanency Test, At A Minimum, All Lots Purchased from Independent Distributors

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7. Track and Document Lessons Learned 8. Impound and Report All Counterfeit Parts

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Share your DMSMS system results with your Customer

Consider using authorized re-manufacturers of parts vs. procuring from Independent Distributors

Analyze the risk and liability of the part type on the Independent Market

Train your incoming inspection and production personnel on counterfeit and substandard part visual characteristics

Implement a system to educate your Major Subcontractors and Critical Assembly Suppliers

Approve their counterfeit risk mitigation control plansAudit their procedures and processes

9. Influence Your Customers To Support Re-Design Efforts

10. Educate Your Work Force And Subcontractors

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So, Remember!

We want your feedback!Win for completing today’s webcast survey

At the end of today’s survey…

Everyone who completes the survey at

the conclusion of today’s live event will

be entered into a drawing for to win an

Amazon Kindle.

* Complimentary BOM risk analysis for today’s viewers *

• You send a Parts / Materials List…– AVL, AML, BOM, Parts List of more than 500+ records

• You’ll get a free Counterfeit Risk Analysis– Counterfeit and High Risk Parts on your BOM

• Register via email– Subject: “ERAI Webcast Offer”– Email: ERAI@IHS.com

Questions?Thank you for attending today’s webcast.

All other inquiries, please email:ERAI@IHS.com