® Conference on Quality in the Space & Defense Industries 2008 - CQSDI ERAI and a Risk Mitigation Strategy to Address Today’s Complex Global Marketplace March 4, 2008 Dan DiMase President ERAI, Inc. (dan@erai.com) www.erai.com © 2008 ERAI, Inc.

Serving & Uniting the Industry ® INTRODUCTION Trade association that monitors, investigates, reports and mediates issues affecting the global supply chain Risk mitigation on substandard and counterfeit parts, vendors, and customers Founded in 1995 Over 1K members globally in over 33 countries Members include OEMs, CMs, Distributors, OCMs, Government agencies, other industry associations Serving & Uniting the Industry © 2008 ERAI, Inc.

Working to Protect our Members ® SUPPLY CHAIN HAS BEEN COMPROMISED E-Waste is contributing to the problem Counterfeiting is big business RMAs from customers back to franchise or factories Stock rotations back to factories from franchise No one is immune in the supply chain Create a program to address the issue – it’s not going away anytime soon Working to Protect our Members © 2008 ERAI, Inc.

E-WASTE AND COUNTERFEITING ® E-WASTE AND COUNTERFEITING © Basel Action Network 2006 Woman cooking circuit boards over pool of molten solder. Thousands of men, women and children handle imported electronic waste from North America and Japan in this way every day in China. Taizhou, China 2007. © Basel Action Network 2006 Circuit Board being cooked. Taizhou, China 2007 © 2008 ERAI, Inc.

Fair & Impartial Investigation ® COMPLAINT PROCESSING Processed over $6 million incidents in 2007 Cases are investigated and reported or mediated All incidents are thoroughly investigated & verified Meditation efforts helped members recover over $976K in 2007 Saves time and avoids expensive litigation Difficult or challenged cases are reviewed by voluntary grievance committees Must fall into categories defined in Internal Processes & Policies Manual Fair & Impartial Investigation © 2008 ERAI, Inc.

Integrity in the Supply Chain ® COMPLAINT & REPORTING SERVICES Over 30 types of complaints processed including: Sale of counterfeit and/or substandard parts Misrepresentation of goods Credit card or wire fraud Bankruptcy filings Returned checks Unpaid invoices Violation of purchase order terms and conditions Contract Disputes Unscrupulous business practices Integrity in the Supply Chain © 2008 ERAI, Inc.

Complete and Current Information ® REPORTING SERVICES Summary report of investigation Complaint alerts Reporting company is anonymous Dispute alerts Outside of Processes & Policies Avoid repeating a problem, alert subcontractors, divisions, and other companies Separate database for high-risk and counterfeit parts Complete and Current Information © 2008 ERAI, Inc.

Global Information Exchange ® HIGH-RISK AND COUNTERFEIT Reporting company maintains anonymity Issues - failed function, used parts sold as new, stolen parts and counterfeit Counterfeit items must have confirmation from OCM, test report, or sufficient visual evidence Comprehensive non-conforming parts database Material Scrubber available for BOMs cross checking against high-risk parts database Non-members can submit data Global Information Exchange © 2008 ERAI, Inc.

Protecting your Investment ® eraiESCROW Industry’s first escrow service Minimizes transaction risk, avoids hassles Protects buyer/seller financial interests Contract review Funds held until buyer receives, inspects, and approves goods according to contract Non-members are eligible Protecting your Investment © 2008 ERAI, Inc.

Providing Critical Information & Insight ® ONLINE DATABASE Access to search risk mitigation tools Updates on counterfeit, faulty or high-risk parts Cross check your assemblies or BOM against high-risk parts database Search companies for complaints and disputes Review member profiles Update personal preferences for profile & alerts Providing Critical Information & Insight © 2008 ERAI, Inc.

Expertise, Service, and Education Combine for Unparalleled Results ® RISK MITIGATION Integrate ERAI mitigation web tools into quality & procurement practices Review parts for reported incidents through ERAI and GIDEP Assess vendor profile on ERAI website ISO 9000 certified? AS9100/9120? Other quality accreditations? Documented ESD program? ANSI/ESD S20.20? Can your supplier provide item traceability? Has supplier been reported through ERAI or GIDEP? Expertise, Service, and Education Combine for Unparalleled Results © 2008 ERAI, Inc.

Expertise, Service, and Education Combine for Unparalleled Results ® RECOMMENDED PRACTICES Reasonable supplier expectations Audit all pre-approved vendors Limit your AVL to pre-approved sources Review supplier’s warranty & terms and conditions Monitor vendor performance matrix Assign ERAI and GIDEP representative Participate in the ERAI community Report issues immediately Train your inspectors The IDEA-STD-1010-A Expertise, Service, and Education Combine for Unparalleled Results © 2008 ERAI, Inc.

IDEA PROMOTES USE OF IDEA-STD-1010 ® IDEA PROMOTES USE OF IDEA-STD-1010 IDEA-STD-1010-A Acceptability of Electronic Components Distributed in the Open Market Provides examples of characteristics that indicate substandard and counterfeit product Standardized Inspection Controls and provide When auditing When purchasing When inspecting Establishing Quality Standards for the Industry Slide courtesy of

Designed to demonstrate objective evidence of inspector competency ® IDEA INSPECTOR CERTIFICATION EXAM IDEA-ICE-3000 Visual inspections of electronic components from the open market requires specialized knowledge to detect visual indicators of substandard and potentially counterfeit characteristics. Designed to demonstrate objective evidence of inspector competency Successful examination provides reason for increased confidence in the basic working knowledge and resource-ability of quality and inspector personnel. www.idofea.org Slide courtesy of

Education & Networking with Industry Peers and Professionals ® EDUCATION & TRAINING Electronic Industry Supply Chain Conference - EISCC May 1 – 2, 2008 in Las Vegas, Nevada Topics target common industry challenges Counterfeit and high-risk part mitigation Vendor selection Part inspection Import/Export controls ITAR Industry outlook Interactive and hands-on Workshops http://www.erai.com/PUBLICVEGAS08.ASPX Education & Networking with Industry Peers and Professionals © 2008 ERAI, Inc.

Solutions for Today’s Complex Global Marketplace ® SUMMARY Proactively prevent losses, recurring problems Reduce financial losses via mediation / escrow Mitigate risk - parts, customers and vendors Enhance quality management and procurement practices Educate your staff Obtain up to date information on counterfeit, faulty, & questionable parts Stay informed on current supply chain issues Solutions for Today’s Complex Global Marketplace © 2008 ERAI, Inc.

Solutions for Today’s Complex Global Marketplace ® APPENDIX Solutions for Today’s Complex Global Marketplace © 2008 ERAI, Inc.

Global Information Exchange ® REPORTED COMPANIES DATABASE Global Information Exchange © 2008 ERAI, Inc.

Global Information Exchange ® COMPLAINT ALERT Global Information Exchange © 2008 ERAI, Inc.

Global Information Exchange ® DISPUTE ALERT Global Information Exchange © 2008 ERAI, Inc.

Global Information Exchange ® HIGH RISK PARTS DATABASE Global Information Exchange © 2008 ERAI, Inc.