Advances in digital commerce and international logistics have transformed our supply chains. But while today’s global marketplaces have created many exciting opportunities, they have also allowed counterfeit products to reach epidemic proportions around the world.
Today, we’re starting to hold supply chain professionals accountable for knowing the full provenance of the products that our companies buy and sell. In other words, we need to know what the products are, where they’ve been, and what’s happened to them along the way—because companies that don’t manage supply chain provenance are easy targets for criminals who commit product fraud.
How big is this problem? Right now, the International Chamber of Commerce estimates global trade in counterfeit goods to be $2 trillion. To put that into perspective, the global trade in fake goods is equivalent to the entire GDP of Canada! If your company hasn’t felt the effects of counterfeit products, then you’ve either been very lucky, or else it’s happening and you just don’t realize it.
But managing provenance is a new challenge for supply chain professionals. As we come to terms with this enormous issue, we need to stop and ask how we can truly know whether the products we buy were made in the right facilities, using the correct materials and processes, and whether they were actually approved for use. Manufacturing companies and brand owners also need to prepare for the risk that criminals could be selling replicas of their products.
Let’s look at the eight common types of product fraud that affect many companies. Then, we’ll look at a framework that can help you develop a supply chain provenance strategy that addresses all of your risks. And we’ll talk specifically about the need for establishing controls in a manufacturing supply chain.
Common Types of Fraudulent and Unapproved Products
Product fraud comes in many forms, but here are eight common types that supply chain professionals should be concerned about.
The Five Elements of Supply Chain Provenance
While there are many different forms of product fraud, the key to defeating all of them is to have an effective strategy for managing supply chain provenance. There are five elements that should be addressed in any provenance strategy. The five elements are interconnected, and they also need to align with supply chain processes such as sourcing, producing, delivering, and returning products.
Securing the Factory
For manufacturers and brand owners, securing the supply chain starts at the factory, regardless of where it’s located. Once the factory is secure, it’s much easier to secure the rest of the supply chain—from your supplier’s supply to your customer’s customer.
By integrating an effective supply chain provenance strategy with Industry 4.0 technologies, supply chain managers can monitor and take control of manufacturing equipment, for example, with a solution that tracks the number of items produced by a machine and disables the machine once an order is completed. That allows them to ensure that a factory produces exactly the ordered quantity of legitimate product, and that there isn’t any genuine-but-unlicensed merchandise that can slip out the back door.
It’s worth noting that many companies have started to implement processes to secure their packaging. But they’ve found that to truly protect a manufacturing process, it’s also necessary for brands to implement systems that uniquely identify the individual products. That way, the product’s provenance can be maintained regardless of what happens to the box, package, or label.
As professionals working in a global environment, we also need to be realistic and recognize that if a contract manufacturer is offering a deal that seems “too good to be true,” there’s a high risk that they see an opportunity to target our products for production overruns and other forms of fraud.
Now Is the Time to Take Action
For most companies, issues related to supplier fraud and brand protection have generally been handled reactively by the legal department. But hiring lawyers to fight these battles after the fact is an expensive solution that seldom solves the problem. And law enforcement is often reluctant to get involved in these cases, unless the scale is huge or there are clear ties to larger criminal activity.
So, companies need to explore proactive solutions, and develop a robust supply chain provenance strategy that integrates with their sourcing, logistics, manufacturing, and distribution operations.
In an age where counterfeit products are known to be common, we have to protect our brands and our customers from this serious threat. “Buyer beware!” might have been acceptable in the past, but the risks have now grown too severe.
Today, our brands and our customers are demanding a new approach to supply chain provenance, with a focus on solutions that allow us to “Trust, but verify.”
Learn more about how Oracle’s Supply Chain Management technologies can help your business prevent fraud. https://www.oracle.com/industries/industrial-manufacturing/digital-supply-intelligent-trace-track.html
About the Authors
Daniel Stanton is a supply chain executive, entrepreneur and educator. Known as “Mr. Supply Chain,” he’s the author of Supply Chain Management For Dummies and several courses on LinkedIn Learning (formerly Lynda.com). Stanton is also co-founder of SecureMarking, Inc. whose proprietary anti-counterfeiting technology was selected for the 2018 Air Force Technology Accelerator Powered by Techstars. For more insights and perspective, you can follow Daniel here on LinkedIn and Twitter.
Mark Manning is the Founder & CEO of iTRACE Technologies, a Silicon Valley company specializing in supply chain security. Mark is a serial entrepreneur and has been involved with brand protection and product security for over 15 years, delivering technology solutions to some of supply chains biggest problems. You can follow Mark here on LinkedIn and Twitter.