Counterfeit and Grey-Channel logistics headaches grow
bangkokpost.com
As global brands stretch their supply chains farther and deeper around the world, they face a growing danger from counterfeiters and grey channels. Cheaper sources of production, the internet, online auctions, lower freight costs and other factors have intensified the problem and its effects on businesses and consumers. No product sector is immune.
The size of the problem: Consumer goods and electronics have received much of the publicity, but auto parts, footwear, handbags and apparel, prescription drugs, sunglasses, and all types of components are at risk. The World Customs Organisation reports that 7% or more of the world's merchandise is counterfeit, amounting to $512 billion worth of fake goods. In some regions, 40% of certain categories of goods are believed to be fake or sold through unauthorised channels, according to supplychainbrain.com.
Sharing technology increases risk: China is by far the major source of piracy and fake goods. As companies turn to China for more production, the risk of piracy and unauthorised 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 specifications as well. In many cases legitimate factories use a so-called "third shift" to make fake goods that look quite authentic. In other cases, excellent packaging and labelling do the trick. In others, the lack of adequate quality assurance, inspection, control, and authentication processes leads to the proliferation of questionable products in the market.
Many shades of grey: In parallel to counterfeit products, another global supply chain involving grey products is booming. A grey market involves the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorised, or unintended by the original manufacturer. In contrast, a black market is the trade of goods and services that are illegal in themselves and/or distributed through illegal channels, such as the selling of stolen goods, certain drugs or unregistered handguns.
The main culprits: The parties most concerned with the grey market are usually the authorised agents or importers, or the retailers of the item in the target market. Often this is the national subsidiary of the manufacturer, or a related company. In response to the resultant damage to their profits and reputation, manufacturers and their official distribution chain will often seek to restrict the grey market.
Industry case study: Johnson & Johnson attacked the growing problem of grey products a few years ago by assembling a multi-disciplinary team, getting outside logistics specialists, and analysing its supply chains. It found significant diversions - selling legitimate products in markets other than those intended - which opened the doors for counterfeit or unauthorised products to enter the chain.
The solutions involved more central monitoring and control, 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, as well as enhancing its risk management programmes. It also found that its own supply chain managers could do more to discover, and report, incidents where diversions, counterfeiting, and grey market products were present.
Supply chain and logistics managers can help. Whether your company has in-house investigators or not, there are ways to reduce the risks from counterfeit and grey channels - some straightforward, some more complex:
- Better scrutinise labels, packaging, and contents of items we are moving.
- Collaborate with suppliers, and internal teams, to improve quality assurance processes and practices.
- Verify barcodes and other identification 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 internal processes - and those of your trading partners - for accepting, moving, and delivering cases or items, both for security reasons and for intercepting counterfeit goods that have somehow entered the chain.
In Summary: Supply chain managers are often 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.
However, classic supply chain management improvements are still the best way to reduce counterfeiting and piracy. Consistent, documented distribution, labelling and packaging help distributors; retailers and consumers quickly recognise legitimate products and identify those that are in their proper and original packaging. |
