Counterfeit sources that creep into businesses’ supply chains and used as building blocks can seriously compromise the quality of end products and post grave impacts to the businesses. There must be anti-counterfeiting strategies on both fronts – supply source counterfeiting and end product counterfeiting.
CNN Money reported that in 2012, U.S. Customs and Border Protection seized 25,000 shipments of counterfeits totaling $178.9m making their ways into the United States. In the same year, SCM World survey showed that counterfeiting is the second-highest concern on the minds of supply chain executives. Counterfeits hurt brand reputations, customer loyalty, revenue, and could damage national security, public health and even lives. This is why implementing anti-counterfeiting measures is becoming one of business executives’ top priorities.
To fight counterfeits on both fronts, businesses not only need to establish mechanisms to prevent counterfeits from sneaking into their supply chains, and detect fakes before using them as building blocks to their end products, they also need to make forging their end products difficult and costly, incriminate exposed counterfeiters, and terminate counterfeiters’ sales and distribution channels. Strategies involving these counter forgery measures on both fronts can be represented below by the acronym REMIT:
• Reduce counterfeit sources in the supply chain.
• Espy counterfeit sources before using them to build end products.
• Make it difficult or costly for the forgers to counterfeit end products.
• Impair forgers by exposing them and taking litigation actions.
• Terminate counterfeiters’ sales and distribution channels.
The below sections suggest approaches for each of these REMIT strategies.
Reduce counterfeit sources in the supply chain
As the old saying goes; garbage in, garbage out. Counterfeit parts used as building blocks could severely impact the quality of the end products. This in turn tarnishes businesses’ brands which could be very costly to repair or even be irreparable. Therefore businesses must guard their material and component sources stringently. To accomplish this goal, the first strategy is to procure high quality source materials by adopting a set of very stringent supplier requirement criteria. These supplier requirement criteria establish high standards for the suppliers to meet in the following areas:
• Supplier’s own upstream supplier requirement criteria
• Supplier’s quality validation standards and processes of their upstream sources
• Supplier’s experience and processes in counterfeit detection
• Supplier’s commitment to certify their parts and share mitigation cost should their parts be forged and/or used
• Supplier’s membership in general and industry-pertinent, reputable anti-counterfeiting associations like IACC (International AntiCounterfeiting Coalition, IMPACT (International Medical Products Anti-Counterfeiting Taskforce, ERA (Electronic Retailing Association, IAA (International Authentication Association, IDEA (Independent Distributors of Electronics Association, etc.
• Supplier’s certification status by the aforementioned associations.
• Supplier’s compliance status on REACH (Registration, Evaluation, Authorization, and restriction of Chemical substances, RoHS (Restriction of Hazardous Substances, etc.
Espy counterfeit sources before using them to build end products
The second strategy for businesses to guard their supply sources against counterfeits is to implement early detection apparatus to filter out infiltrated counterfeit parts. Businesses need to remember that there would always be counterfeits crept into businesses’ supply chains potentially no matter how rigorously businesses screened and selected their suppliers. Here are a few main test and audit strategies to enable detecting fake parts early.
• Test and audit any part that has never been used by the businesses (new part from an existing qualified supplier, or a part from a newly qualified supplier).
• Continually test and audit critical components to ensure the parts’ quality even when such parts have been used in building the end products before.
• Test and audit the end products to re-validate product functionality against specifications to verify that new parts do not compromise end product quality.
Make it difficult or costly for the forgers to counterfeit end products
Businesses should also make their end products difficult or very costly to forge. There exist different mechanisms, varying in cost and complexity, for businesses to achieve this goal to dissuade would-be copycats. Below are a couple of leading methods:
• Use seals, labels, and packaging tapes that are difficult or costly to imitate on the inside and outside of the products and the packages. Holographic stickers, self destructive hologram labels, dot-matrix kinematic effect labels, and some other counterfeit and tamper resistant labels have been increasingly used for anti-counterfeiting because of these merits.
• Attach RFID tags to end products to allow businesses to trace their transitory path and history to guard against counterfeits from creeping into distribution centers and warehouses before reaching the end retail stores. Wal-Mart and the United States Department of Defense published in 2005 requirements for their vendors to place RFID tags on all shipments. Walmart and Sam’s Club started enforcing this requirement by 2008.
Impair forgers by exposing them and taking litigation actions
When forgers know that they can be found, publicized and sued, they will be less inclined to commit the deeds. To accomplish this effect, businesses should expose counterfeiters to as many highly impactful private and governmental associations and sites as possible. The former exposes the counterfeiters and their counterfeits to a large customer audience whereas the latter enables government authorities to identify these counterfeits and take counter measures.
• Expose counterfeiters by reporting the counterfeit incidents to all pertinent parties, including customers, suppliers, industry pertinent associations, government entities, social media (Facebook, Twitter, etc.), etc. to rapidly make the forgery incidents known to a wide audience and governing authorities.
• Pursue litigation against counterfeiters to recuperate business losses, punish the offenders, and warn off would-be forgers.
Terminate counterfeiters’ sales and distribution channels
Businesses should leverage custom authorities around the world to destroy seized forgeries, and also curb the counterfeiters’ sales and distribution channels. These are among the least costly measures that could be used very effectively to hurt counterfeiters.
• Register the trademarks of their core brands in the countries where they distribute, where they manufacture, where their suppliers reside, and where known counterfeiters manufacture their fakes. Many countries do not have legal means to protect unregistered brands. By registering their trademarks, businesses are effectively empowering those governing authorities to go after the counterfeiters and their counterfeits – many local customs authorities destroy counterfeits when they were seized.
• Monitor their retail partners’ physical stores as well as major online trade sites such as eBay, Amazon, Alibaba, Tradekey, Tradezone, etc., to identify fakes. Once identified, businesses should request retail partners to stop selling the fakes and the online sites to unlist the counterfeits.
Businesses should tackle counterfeiting at two fronts. One is to fight the fake source (materials, components or parts), and the other is to fight the fake end products. There are multiple strategies of anti-counterfeiting on these two fronts. Although there can never be one set of anti-counterfeiting strategies to fight off counterfeits 100 percent, the tactics suggested by REMIT should give businesses a very powerful arsenal to do the job effectively.
Keywords: supply chain risk management, supply chain management, value chain, REMIT, brand protection, anti-counterfeiting initiatives, intellectual property protection