Tyndall Says:
|
It
would seem that the time
is right for supply chain
managers and logistics
service providers to take
a more active role in
fighting, or mitigating,
this growing drag on corporate
earnings and customer/consumer
risk.
What
do you say? Send
us your comments here
|
We
have all recently been reminded
of the problem of counterfeiting
of merchandise, with the FDA
recall of fake toothpaste believed
to be toxic, falsely packaged
and labeled as “Colgate." While
we knew of this issue as a persistent
problem of international trade,
as global brand companies stretch
their supply chains farther
and deeper around the world,
they face a growing danger from
counterfeiters. Cheaper
sources of production, the internet,
on-line auctions, lower freight
costs, and other factors have
intensified the problem and
its effects on businesses and
consumers.
No
product sector is immune to
this problem. Consumer
goods and electronics have received
much of the publicity, but auto
parts, footwear and apparel,
prescription drugs, sunglasses,
and all types of components
are at risk. The World Customs
Organization reports that 7%
or more of the world’s
merchandise is counterfeit,
amounting to over $512 billion
of fake goods. In some regions,
some 40% of certain categories
of goods are believed to be
fake. Some $350 billion of the
total is estimated to cross
the US borders each year. US
Customs is able to seize only
about one-third of this, even
though they increased the number
of seizures by over 80% in 2006,
to over 14,000.
China
is by far the major source of
piracy and fake goods.
As companies turn to China for
more production of products,
the risk of piracy and unauthorized
technology transfer increases.
The protection of intellectual
property is made more difficult
when companies share not only
their production technology
but their marketing and packaging
as well.
But
China is not the only source.
Eastern Europe, India, South
America, and others in the Far
East also produce and ship copies.
This is truly a global problem
for all businesses and, for
health and safety reasons, for
consumers as well.
A
recent informative article in
Forbes discussed the issue from
the perspective of the Zippo
lighter company, along with
a few other brands. The Zippo
company estimates it has lost
one-third of its earnings to
counterfeiters. While it has
finally located and constrained
the major sources in south China,
others have sprung up.
Some of the cases have taken
years for court resolution,
even with the Chinese government's
assistance. Often one
company makes the lighter cases;
another makes the internal assembly;
another the packaging; another
does the full assembly; and
yet another handles shipping.
It
would seem that the time is
right for supply chain managers
and logistics service providers
to take a more active role in
fighting, or mitigating, this
growing drag on corporate earnings
and customer/consumer risk.
Virtually all the copied products
somehow move through supply
chains established for legitimate
purposes. In the Zippo
case, some legitimate factories
were using the so-called “third
shift” to make fake goods
that were quite authentic. In
other cases, it is excellent
packaging and labeling that
does it. In yet others,
it is simply the lack of adequate
processes for quality assurance,
inspection, control, and authentication.
Consider
one other case: Johnson &
Johnson attacked the growing
problem a few years ago by assembling
a multi-disciplinary team, getting
some outside specialists, and
analyzing its supply chains.
They found significant diversions
– selling legitimate products
in markets other than those
intended – which opened
the doors for counterfeit products
to enter the chains. The
solutions involved more central
monitoring and control, getting
common operating processes among
business units, and improved
information and supply chain
visibility. The corporation
has also stepped up checking
of finished goods in the market
and in different buying channels,
as well as enhancing its risk
management programs. They
found that supply chain managers
could do more to discover, and
report, on incidents where diversions,
counterfeiting, and gray market
products were present.
Supply
chain and logistics managers
can indeed help. Whether
your company has in-house investigators
or not, there are methods –
some straightforward, some more
complex – that can be
instituted. For example,
we can:
- Better
scrutinize labels, packaging,
and contents of items we are
moving.
- Collaborate
with suppliers, and our own
teams, to improve quality
assurance processes and practices.
- Verify
bar codes and other automatic
identification methods prior
to shipping and receiving.
- Verify
bills of lading against orders
and other controls.
- Work
with logistics service providers
to improve their risk processes.
- Examine
all our internal processes
- and those of our trading
partners -- for accepting,
moving, and delivering cases
or items – both for
security reasons and for intercepting
counterfeit goods that have
somehow entered our supply
chains.
Not
only do we want to keep dangerous
items out of our supply chains
for security and health reasons;
to deny the handling of product
that is not quality assured,
inspected, verified, and authorized
is an equal business objective.
There
are some new methods and solutions
now on the market to help with
this brand protection challenge.
RFID, especially in the pharmaceuticals
industry, offers some potential,
but is not by itself enough.
A more comprehensive solution
that has recently caught my
attention is a company named
SADT (Stanford Anti-Counterfeiting
Digital Technologies, www.sadtglobal.com
), which provides an array of
technology and services that
help companies not only detect
fake goods, but also locate
counterfeiters, seize the counterfeits,
and stop the process.
Another company looking to address
this problem is called Verify
Brands (www.verifybrands.com).
I am sure there are others,
or soon will be.
Surely,
supply chain managers are swamped
already with managing supply
chains on a daily basis, keeping
goods in motion and meeting
customer needs, all at minimum
costs while dealing with substantial
risks. But, the pervasiveness,
severity, health risk, and growth
of this common problem affect
all of us – whether in
corporate earnings or in our
lives as consumers.
We
should get proactive with this
problem and improve our business
processes to help mitigate it.
This supply chain challenge
is undoubtedly only going to
become worse.
Agree or disgree
with our expert's perspective?
What would you add? Let us know
your thoughts for publication
in the SCDigest newsletter Feedback
section, and on the web site.
Upon request, comments will
be posted with the respondents
name or company withheld. |