SD-2 Dod Acquisitions Buying Commercial Items And Nondevelopmental ItemsThis document offers guidance on acquisitions involving all types of commercial and nondevelopmental items: systems, subsystems, assemblies, parts, and items of supply. Commercial services are also addressed.This document does not present a “cookbook” approach to the acquisition of commercial and nondevelopmental items; such an approach could not accommodate the vast array of potential applications. It does offer lessons learned and things to consider when participating on an integrated product team.

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items.The vast majority of counterfeit parts enter the supply chain through unauthorized dis- tributors, or those most removed from the original component manufacturer (OCM). Although unauthorized distributors make up the largest part of this problem, sometimes counterfeits are passed along, unknowingly, from trusted sources.

The link between e-waste and counterfeit products also is strong. Many electronic compo- nents contain hazardous materials such as lead, barium, beryllium, mercury, cadmium, or ar- senic. The danger associated with environmental contamination from equipment containing those substances has led to legislation or directives in Europe and other places governing and restricting the disposal of e-waste.Two of the most important of these directives-Reduction of Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE)-were issued by the European Union and apply to such electronic items as computers, cell phones, televisions, appliances, tools, toys, and sports equipment.

Compliance with the legal requirements greatly increases the cost of recycling e-waste. Con- sequently, tons of scrapped electronic products are shipped from around the world to nations where these requirements do not exist or are not enforced. (The National Safety Council esti- mates that 75 percent of all personal computers ever sold are now part of the e-waste stream.) The majority of this e-waste is shipped to China and a handful of other Asian nations.Those nations, in turn, strip components from the e-waste; re-mark them with new part numbers and recent date codes, update the packaging, and so on; and return the items-now counterfeits-

to the global supply chain. Counterfeit parts and components originate in many different coun- tries, but according to some estimates, approximately 80 percent of all counterfeit items come from China.The top 10 countries are China,Taiwan, India, Malaysia, Philippines, Indonesia, Singapore,Thailand, Russia, and South Korea. Eastern Europe, South America, and the Middle East are also known sources of counterfeit parts.

Risk Mitigation Strategies

The risk of counterfeits can be mitigated in one of two ways:

•  Avoid buying parts and components from unknown sources; instead, purchase such prod- ucts only from trusted suppliers

•  If no known, trusted supplier is available, subject the purchased products to rigorous inspection and testing.

The degree of trust, and the risk of counterfeits, varies with the type of supplier, as shown in

Figure A-1:

•  The OCM designs and engineers the part, owns the intellectual property rights, and can easily provide a pedigree or proof of a part's authenticity.

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