Special Report on Anticounterfeiting

According to MEMA, the Motor and Equipment Manufacturers Association in the United States, the automotive industry loses approximately US$12 billion globally to fake parts, of which about US$3 billion is lost in the United States. This is particularly damaging to automotive manufacturers because a significant proportion of their revenue is obtained through the sale of spare parts. Moreover, genuine parts are often subject to rigorous testing for reliability, safety and environmental compliance. This process costs the legitimate industry significant money in terms of research and certification.

Fake parts, however, will not have been through this approval process. As a result, unsuspecting customers may have defective and substandard equipment fitted on their car. Worse still, these potentially dangerous components could fail to operate correctly in an emergency or life-threatening situation.

Although this sounds alarmist, the issue is exacerbated because modern cars are equipped with sophisticated systems including anti-lock brakes, electronic stability control, airbags, cruise control, seat-belt pre-tensioning systems, high performance tires, catalytic converters, and complex fuel injection and engine management systems. All of these units, combined with carefully engineered materials and structures for the chassis, side impact protection, and crumple zone panels provide for a safe and reliable mode of transport.

Consequently, fake parts will almost certainly not live up to these high standards. The result can include impaired performance, reduced efficiency, premature mechanical failure, overheating, and electrical faults. The result can be costly damage to the rest of the car through mechanical seizure, fire, or simply impact damage through the cause of an accident.

Moreover, fake parts are not limited to the regular civilian automotive industry where volumes are relatively high, but also to the motorcycle industry, goods vehicle industry, and the aircraft industry.

Industry requirements

The automotive industry is a competitive lean manufacturing sector with high degrees of sophistication and product development. The industry can be divided into several layers, known as tiers.

The car manufacturers themselves produce the vehicles, but in doing so, they source the components and parts from tier one, tier two and tier three suppliers around the globe on strict terms and conditions, often demanding high industry standards such as ISO TS 16949. In such cases, the supply of parts is regulated and there is little room for fake parts to enter the system. This is partly because of the close relationships established between the suppliers and original equipment manufacturers, but also because the industry is so cutthroat that a fake part manufacturer would probably not find it a worthwhile exercise.

The aftermarket and spare parts industry, however, is very different. Here there are numerous outlets for spare parts, including retail stores, garages, body shops and workshops. A myriad of distributors, consolidators and vendors provide parts, and plenty of opportunity exists for fake parts to enter the system. This is where the industry requires a high level of control to prevent counterfeit parts being sold.

Protecting automotive components from counterfeiting is also problematic because of the relatively severe service conditions that certain parts witness, the requirement for parts to have a long life, and the fact that the automotive industry is fiercely price competitive. In addition, the wide variety of materials, shapes and sizes of components makes product marking more difficult.

Fake parts and related issues

In the automotive industry, the issue of fake parts is subtler than the straightforward presence of bogus parts.

Firstly, legitimate products can be distributed into the wrong territory. This grey market trading arises because one market may be prepared to pay a premium for a product compared to another. Although many different industries face this issue of arbitrage, and it is certainly not always illegal, the problem with automotive parts is that they may not be certified for use in certain territories. This can be due to stricter environmental or safety legislation, or because certain models of cars sold in some territories are to a different specification. As a result there is a need to tighten the supply chain and verify that when components are sold, their suitability for that market can be demonstrated.

A second concern is the resale of old or reconditioned parts under the guise that they are new. This problem has traditionally arisen in the aircraft industry in which timed-out parts find their way back into the supply chain with doctored paperwork. In the automotive industry, the problem occurs when unscrupulous workshops do not properly destroy replaced parts. In some instances, original packaging is retained from a legitimate part and used in combination with the older part. In such cases, there is a need to link the warranty of a part with a database that is able to confirm its authenticity and the fact that it has not already been used in service.

Another issue is that of overruns. These occur when a contract manufacturer produces a batch of parts based on the materials and processes of legitimate parts, but is able to sell them without paying a fee to the brand owner. Such manufacturing activities usually occur in out-of-hours shifts or when there is spare manufacturing capacity at a plant, and is known as the ‘ghost shift’. Although arguably less of a problem in the highly regulated automotive industry than, for example, the fashion industry, the problem is still significant. The concern here is that although the goods are generally of good quality (indeed they are often referred to as ‘class A fakes’), they will probably not have undergone any quality control or performance testing. In the aircraft industry, this has serious implications because parts are usually subject to individual testing, and in the automotive industry, as parts become more sophisticated, the seriousness of the problem is growing. In this instance, it is desirable to have the ability to audit the contract manufacturer and control the exact number of genuine parts being made, down to the item level.

Generics or clones, in which parts are reverse engineered to appear like an established brand, can also cause problems and confusion. In this case the generic may appear exactly like an established brand’s part, but lack the logo or brand name. Similarities can even extend to the use of similar part numbers, serial numbers and typefaces. This practice can be legal if patents, design rights and trademarks are not being infringed, but can lead the consumer into believing that they are purchasing a branded part just through familiarity of the item. In such instances, it is beneficial for the brand owner to provide a means of differentiating itself from others, educating the customer to look for the brand and perhaps some additional security features.

In all of these instances, problems arise when a part underperforms and the customer becomes aware of this. The result can be poor customer satisfaction, the erosion of the brand name, and ultimately the loss of customers.

Finding a solution

Singular ID has developed a new anticounterfeiting solution that is particularly appropriate to the automotive industry and related sectors. This is because it has been developed from a materials platform, and is therefore particularly suited to customization for different parts and formats.

The enterprise brand security system is based on several integrated components. Tags contain magnetic features on the micrometer and nanometer size scale, imparting each tag with a unique identity (analogous to a fingerprint or signature). This identity is randomly generated as part of the physical manufacturing process of the tag, and so each identity is different for each tag, and because the detail is so fine and complex, the tags are prohibitively difficult to replicate.

Singular ID has also developed scanners to read and authenticate the tags, verifying the details with a remote and secure database. This approach provides a high level of security, and also presents opportunities for inventory control and customer relationship management, because it works in real time and makes reference to a central database that can be kept updated with information. Singular ID markets this technology under its enxure brand name (see image on previous page).

Sanden case study

Sanden International is the largest independent manufacturer of air-conditioning compressors for automotive applications. Headquartered in Japan, the company has several factories around the world producing high quality units that are recognized as such by major players within the automotive industry. Their total annual output is over 10 million units, serving the original equipment manufacturers of vehicles as well as the aftermarket and spare parts sectors.

With comfort and safety being key features in a car, factory-fitted air-conditioning is becoming a standard feature, with demand increasing. These air-conditioning units are therefore subject to counterfeiting and cloning and can fail prematurely as a consequence, damaging Sanden’s reputation as a supplier of dependable components.

Because it is difficult to convince a consumer that a part is not genuine after a warranty return, and in some cases doing so is counterproductive from a customer relationship point of view, Sanden has always been keen to differentiate its products from both competitors and clones. As a company, it has also tried to educate the vendors and customers on how to recognize a genuine Sanden part. In the past, they have used embossed motifs, laser markings, and distinguishing labels to facilitate this process.

Over the past year, Singular ID and Sanden have been working closely together to introduce the new brand protection technology into Sanden’s product range - initially at its factory in Singapore. Singular ID’s technology has now been incorporated into Sanden’s product labels, and the first products (see image on previous page) are now being shipped with this extra level of brand protection in place.

The labels are supplied to Sanden as pre-read secure labels already on the database. This has two advantages: if, in the unlikely case some labels are stolen or lost in transit, they can simply be logged as missing in the database. Should they turn up again, then investigations can follow and the labels will not be validating a genuine product. Secondly, during the manufacturing process there is no need to verify the magnetic signature again, but rather just use the barcode. This ensures that the manufacturing process continues at the same rate as before, and does not interfere with production. To achieve this, the Singular ID project managed additional changes to the production line hardware to make this a seamless process migration for Sanden.

Sanden are now supplying its authorized vendors with scanners that can be used to read and authenticate the tag. These will be a mixture of both mobile-phone versions and personal computer versions, giving flexibility to the deployment of the solution. The hardware provides point-of-sale information to the vendor and customer about the authenticity of the product, and also provides Sanden with up-to-date information on the sales situation from the vendors. As such, Sanden will encourage the authentication of every product when it is sold, and expects its vendors to readily adopt the system because of the certainty it will provide to its customers.

The future

The label solution is seen by both Sanden and Singular ID as an interim solution. The aim in the future is to create automotive parts with their own intrinsic identity that can be read and authenticated out in the field. As such, Singular ID plans to create tags that can be incorporated into the casting of metal components, giving the item a fingerprint or signature of its own that is not associated with a detachable label. This approach is equivalent to biometrics for inanimate objects, and has therefore been termed materiametrics, providing a much higher level of security to the tagged object.

Singular ID’s vision is for the associated tags and system to be adopted as an industry standard for the automotive industry, enabling players to benefit from a shared platform and ensuring the end customers are informed of the advantages of authenticating parts before making a purchase.