counterfeiting Archives

Supply Chain Integrity is Not Discussed Publicly

Pharma & Life Sciences | By Steve Banker • 02/27/2012

There are certain supply chain topics that are rarely discussed publicly. “Supply chain integrity” is one of them. Companies don’t want to admit that their products are being counterfeited, or that theft and grey market diversions are hurting profitability. They also don’t want thieves to know about the security measures they are taking to protect their products.

At the Supply Chain Integrity track at ARC’s forum earlier this month, we conducted a think tank session where professionals shared, confidentially, their experiences and insights on this topic. Here are some of my key takeaways from the session without attributing them to a particular person or company.

Companies that have experienced counterfeiting issues do not have to face this problem on their own. The Department of Homeland Security (DHS) will undertake investigations and prosecute offenders, particularly if companies provide them with promising intelligence. DHS can do this while keeping the name of the company that brought the matter to their attention private.

No one wants to say this publicly, but companies that outsource manufacturing to China are at greater risk. With branded apparel, for example, there are cases where a contract manufacturer produces goods and ships them to the brand owner, then at night they continue to produce the same products and sells them into black market channels.

If you are using a contract manufacturer, the contract should include a provision that allows you to conduct spot inspections at any time without cause. Even better would be having staff on site during all hours the factory is in operation.

Service parts counterfeiting can put manufacturing companies at risk. For example, Oil and Gas companies have found counterfeit electronic components in their plant floor automation. If key components fail, the risk of safety incidents is greatly increased.

This is one reason why addressing supply chain integrity issues after products come to market is too late; companies should start thinking about supply chain integrity during product development. Some key questions that companies should ask: How long will this product be on the market? And for how long after that will we continue to provide service parts? And if we don’t supply the service parts, how can our customers be assured of safe replacement parts?

Companies should use multiple technologies to detect counterfeit products. Track and trace technologies, particularly serialization, are one key set of technologies. But track and trace is not sufficient. Some bar codes can be counterfeit. Tough to counterfeit bar codes have been scraped off returned goods and reapplied to counterfeit goods.

Serialization can help companies detect gray market diversions, which can actually be legal. For example, in Europe, drugs might sell at different prices in different nations. It is perfectly legal for a distributor to buy more goods than it needs in a low retail price nation and then ship them to a high price nation. However, serialization gives a pharmaceutical company the ability to detect this and tell the distributor, “Knock it off or we are going to stop doing business with you.”

Track and trace technologies are being piloted in consumer-facing applications. For example, a consumer might be able to use their smart phone to read a QR code and call a hotline number to make sure a drug is legitimate. Or a customer in a store might scan a QR code at a produce bin to see what field the produce was grown in, whether domestic or foreign, and whether it is truly organic.

Many pharmaceutical pilots of serialization will begin next year because of the California ePedigree mandate that starts to phase-in in 2014. We will likely also soon see serialization requirements for spare parts sold to the Department of Defense.

Companies should segment their supply chains. Not all customer segments require the most expensive supply chain integrity technologies. Customer segments with less stringent requirements should not be burdened with extra costs.

And finally, companies can use the same continuous improvement processes that they have used to improve manufacturing and logistics to improve supply chain integrity.

Supply chain integrity is a topic that is gaining importance. But it is a topic that is best discussed in small and confidential settings.

Supply Chain Management and Brand Protection

Supply Chain Risk Management | By Steve Banker • 03/14/2011

I recently attended a presentation, given by an executive at a very large global company, on anti-counterfeiting and brand protection (ABP) and supply chain management. This executive reports to the supply chain organization, which he likes because so many of the touch points associated with brand protection occurs in the supply chain. He views brand protection as an emerging discipline that is truly cross-functional, involving security, supply chain, R&D, legal, quality, government affairs, press relations, and marketing. Of all those disciplines, he spends most of his time with the supply chain and security teams.

However, more important than the reporting structure is authority. Would a vice president of brand protection have the power to change processes? How can an executive in this new discipline get this power? That is the true test.

In the past, senior management at this global company had said things like, “We haven’t seen [evidence of counterfeiting]” or “It is baked into the numbers.” To grab their attention, this executive assembled a meeting and described the following scenario to them: “We have a competitor that has taken 5 percent of our business, has an incredibly low cost of goods sold, has a great distribution network, and is taking business across all our best product lines.” Of course, the executives in the room wanted to know the identity of this competitor. The answer: “Counterfeiters Amalgamated.”

While educating senior management is an ongoing part of this executive’s job, their complacency about counterfeiting is now gone. He summed it up this way: “If you don’t have a problem with counterfeiting, it’s because you don’t know you have a problem or because you have rotten brands.”

He made several other interesting points. First of all, supply chains have not been designed, historically, with security in mind. For example, when companies perform due diligence on partners like contract manufacturers, they typically examine the manufacturer’s financial records and dissect their business processes. But how often do companies check to see if a contract manufacturer has ever been involved in illegal trade?

Secondly, the returns process is where a company can discover counterfeiting. Without sound returns processes, counterfeit products might find their way back into the market. And even if you discover counterfeit products during returns, if your track and trace systems are not granular enough, your company will find itself recalling a whole lot more product than it would otherwise have to.

Thirdly, more powerful than track and trace is giving consumers the ability to validate a product. The executive gave an example of a product his company believed would be widely counterfeited, so the company assigned product-level tracking numbers and ran an advertising campaign telling customers, “If you suspect the product you have purchased may not be legitimate, please call the following telephone number and tell us the serial number.” Customer calls into the call center helped the company protect consumers, establish the size of the counterfeiting problem, and establish the extent to which a gray market was in operation (legitimate product was being distributed in several nations where the product had not yet been released).

Finally, the company developed performance metrics. The scorecard should include metrics for “savings.” Dollar-based metrics grabs the attention of top executives and makes it easier for them to justify the brand protection budget. Because in brand protection you are dealing with events designed to be hidden, the metrics will not be as exact as metrics in other functional areas, so you may need to employ “soft” metrics. For example, if the brand protection team helped arrange a warehouse raid in China, whatever inventory was found and destroyed, they multiplied it by three and the team got credit for the larger dollar value.

That is an example of what this company considers to be a tactical metric. The company also developed strategic metrics to help measure how well it was at actually preventing counterfeiting. In the example of the new product with product-level serial numbers, the company assumed that five percent of the total market for that product was counterfeit. If the company’s efforts could help it to go a year without any reports of counterfeiting, the team would be credited for a dollar value equivalent to five percent of the market.

In conclusion, while I am endlessly interested in supply chain management, brand protection sounds like a fascinating profession. And this executive said something similar. He has worked in many functional areas at his company, but he has never had more fun than in his current role.

Protecting Your Supply Chain from Counterfeit Products

High Tech & Electronics Industry | By Janice Abel • 01/17/2011

Counterfeiting is a growing and pervasive problem across all industries. However, in the electronics, consumer products, food, pharmaceutical, medical devices, aerospace, defense, and automotive industries it is particularly frightening because it threatens consumer health and safety, as well as corporate profits and brand equity. Counterfeiting is increasing worldwide, with counterfeiters using increasingly more sophisticated techniques and consumers purchasing more goods online. The value of counterfeit products was expected to reach $1 trillion globally in 2010, according to the International Chamber of Commerce and World Customs Organization.

Use of Anti-Counterfeiting and Brand Protection (ABP) technologies and methodologies is especially important for manufacturers if counterfeit versions of their products could pose a risk to consumer health or safety; compromise brand equity; result in lost revenues; or increase their liability risks. It is very difficult for legitimate manufacturers to keep pace with the increasingly sophisticated techniques and methodologies counterfeiters are employing.

Here are some of the current trends ARC sees in this area:

The market for ABP technologies is growing; the US government has found that counterfeiting and economic improvements increase in parallel and will continue to increase as the economy improves into 2011. Therefore, the need for manufacturers to add more ABP technologies and techniques will increase.
The Internet is one of the largest drivers for counterfeit products – and this trend will continue.
More and more companies are forming dedicated brand protection teams focused on deterring counterfeits through the supply chain. Companies can no longer rely on disparate organizations to tackle this problem.
In an effort to secure their supply chains, companies are becoming more focused in how they deploy ABP technologies, methodologies, and strategies.
The volume of products stolen along the supply chain (such as in tractor-trailers) is on the rise.
Along with ABP, the industry is seeing an increase in the number and volume of recalled or diverted products; these problems need to be addressed using similar strategies, technologies, and methodologies.

Based on these trends, ARC does not believe that it will be possible for manufacturers to keep up with the increase in counterfeit products and maintain the security of their supply chains without addressing ABP in a multi-faceted fashion with focused brand protection teams and continuous vigilance, improvements, communication and updates.

ARC is hosting an Anti-Counterfeiting and Brand Protection Workshop and seminar February 7-8 at our 15th Annual Executive World Industry Forum in Orlando, FL. This is a must-attend event if you’re interested in learning more about the latest strategies, tactics, approaches, risks and technologies for securing your supply chains against counterfeit or diverted products. Session speakers include:

Dennis Fetting, National Program Manager and Senior Special Agent, Homeland Security Investigations, US Department of Homeland Security
Ron Guido, Vice President, Global Brand Protection & Supply Chain Integrity, Johnson and Johnson
Camilla Herron, Brand Protection Manager, Monster Cable Products
Martin Kenner, Global Technical Director, Security Systems Division, 3M
Eduardo Salas González, Project Manager, British American Tobacco
Craig Casto, Global Leader for RFID, GPS, Auto ID, Dow Chemical Company

Visit the website for the complete list of speakers and registration details. You can also contact me directly at jabel@arcweb.com if you have any questions or comments.

I hope to see you in Orlando!

Janice Abel is a principal consultant in ARC’s regulated industry group. She performs research and provides consulting services for ARC’s clients in the pharmaceuticals, biotechnology, medical devices, food, beverages, consumer packaged goods, and other regulated industries.

Amazon Kindle: The Counterfeiting Risks of Offshore Sourcing

China | By Steve Banker • 07/14/2010

When companies construct supply chains around new products, they often decide to engage with partners in China or other low-wage nations for manufacturing. However, this choice comes with the risk of counterfeiting.

ARC recently published a strategic report titled “Global Strategies for Anti-Counterfeiting and Brand Protection” by Janice Abel and John Blanchard (available to ARC clients only). One of the examples cited in the report was the case of fake Amazon Kindle e-readers, based on an investigation conducted by OpSec Security late last year. According to the OpSec press release:

On launch day, Kindle DXs were already available for purchase on a major B2B trade board from a company located in China. A sample of 8 seller listings on a popular trade board had an estimated 40,000 Kindles available within a few weeks after the DX launch. Suspect Kindle knockoffs were found for sale on trade boards and auctions in colors and languages not sold by Amazon.

The product launch of a highly anticipated consumer electronics product, such as the Kindle DX, presents a challenge to manufacturers desiring to maintain supply chain control in the global market. Even on the day of launch, Kindle DXs were offered for sale on a B2B trade board raising questions on how the product was acquired. Thousands of Kindle e-readers were available on trade boards from sellers, many offering significant quantities at deeply discounted prices. One seller offered 2,500 Kindle 2 e-readers per week at a unit price of $65, well below the list price of $299. Of 33 B2B listings offering Kindles when the DX launched, 75% of the sellers were located in Indonesia and China.

ARC was not told how this counterfeiting occurred, but one possibility, if you read between the lines, is that the offshore manufacturer(s) Amazon worked with were either responsible for the counterfeiting or sold the specs to other companies.

According to the ARC report, “Counterfeit goods make up 5-7 percent of world trade. The International Anti-Counterfeiting Coalition (IACC) and the US Federal Bureau of Investigation estimate that counterfeiting and piracy cost the US economy between $200 to $250 billion per year, contributing to the loss of approximately 750,000 American jobs.”

In addition to lost profits, counterfeit products can damage a company’s brand reputation, create liabilities, and the loss of intellectual property can result in new competitors emerging.

“To address the tremendous global counterfeiting problems,” say Abel and Blanchard, “manufacturers must understand the range of solutions, technologies, and methodologies they can employ to prevent counterfeiting. A ‘one solution fits all’ approach may not be best to solve the counterfeit or diversion problem. It’s important to understand the extent of methodologies and technologies that address anti-counterfeiting and brand protection. The right solution must examine the supply chain, the product, the technologies, policies, training, global standards, organizational teams, and enforcement.”

Preventing Counterfeiting in the Pharmaceutical Industry

Pharma & Life Sciences | By Steve Banker • 04/21/2010

When supply chain folks think about anti-counterfeiting in the pharmaceutical supply chain, we naturally think about bar codes and RFID. Those technologies have a role to play, but the requirements go far beyond the simple tracking that occurs in many other supply chains.

My colleagues Janice Abel and John Blanchard have written an ARC Insight (available to ARC clients only) on preventing counterfeiting in the pharmaceutical industry that documents the breadth of this problem, outlines global anti-counterfeiting regulatory initiatives, and delineates the various anti-counterfeiting technologies and the primary vendors who supply them.

What I found interesting was the role of non-scan-based technologies. As my colleagues wrote:

The FDA also issued draft guidance on July 13, 2009 covering the use of inks, pigments, flavors, and other physical-chemical identifiers (PCIDs) by manufacturers to make drug products more difficult to counterfeit and to make it easier to identify the genuine version of the drug. PCIDs, inactive ingredients that can be detected and authenticated to deter counterfeiting, are added to coatings, capsule shells, encapsulated particles, or tablet layers of solid oral dosage forms (SODFs) for on-dose protection. PCIDs for SODFs include inks, molecular taggants, pigments, and flavors. The guidance recommends using PCIDs listed in the FDA’s Inactive Ingredient Guide, adding the smallest amount possible and placing them on SODFs so that they do not interact with the API or interfere with the drug release.

Inert substances that are combined with active ingredients in a drug are known as excipients. The kinds of excipients described above are used for covert identification, as opposed to bar codes and RFID tags that are typically not covert. Because of the complexity of the excipient industry, the FDA determined that a paper trail would provide the fastest and least-disruptive approach to tracking chain of custody through the supply chain.

Ideally, however, the excipient approach should be combined with technologies that aid in tracking drugs through a multi-tiered supply chain, from the factory all the way to a drug store’s shelves. Here RFID and bar coding are used to support serialization, ePedigrees, and track and trace. ePedigrees are an electronic record that contains information about each transaction that results in a change of ownership of a given dangerous drug, from sale by a manufacturer through acquisition and sale by one or more wholesalers or retailers. The pedigree needs to be created and maintained in an interoperable electronic system, ensuring genealogy throughout all stages of distribution.

End-to-end tracking and tracing goes even further than ePedigrees. In addition to tracking the changes in ownership, tracking involves knowing the physical location of a product throughout the supply chain at all times, as well as the time spent at each location, environmental storage conditions, and packaging hierarchies that answer questions such as: How many bottles in a case? How many cases on a pallet? What are the dimensions of each of those units? And how does the packaging hierarchy change at each step of the supply chain.

Creating ePedigrees and performing detailed track and trace requires serialization—i.e., a unique serial number for every unit or item produced that can be used to track and trace the product across the supply chain.

ARC is conducting a multi-industry anti-counterfeiting web survey. If you are interested in this topic, please take a few minutes to fill out the survey.

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