Supply chain counterfeiting is a universal problem that plagues almost every industry. There are counterfeit electronic components, car parts, consumer goods, pharmaceuticals — even counterfeit wines. While manufacturers and distributors lose billions of dollars annually to counterfeit goods, the risks to consumers can be even greater. Faulty counterfeit auto parts or consumer products can overheat or catch fire, and more than 1 million people each year lose their lives due to counterfeit drugs.

While manufacturers, distributors, shippers and government agencies are actively working to remove counterfeit goods from the supply chain, it’s challenging to identify counterfeits. Counterfeit goods cost global brands more than $232 billion in 2018. The counterfeit drug market alone costs more than $200 billion per year — enough to bring 13 new drugs to market annually. Losses from counterfeit automotive parts are estimated to be $2.2 billion per year, not counting those from safety issues and legal liability. Counterfeit consumer electronics cost more than $100 billion per year, and bogus computer chips cost U.S. companies $7.5 billion annually, as well as 11,000 jobs.

Identifying counterfeit goods that enter the supply chain can be difficult, if not impossible. The only way to beat counterfeiters is to apply a foolproof means of authenticating goods from their point of origin to final delivery. New cloud-based security technology is now available that can create unique, foolproof digital identifiers for products so that they can be tracked at every point in the supply chain.

Why Counterfeit Parts Are Hard to Identify

Unfortunately, it falls to vendors to secure shipments of goods and components. There’s no centralized entity or system capable of dealing with counterfeit products, and government agencies and law enforcement aren’t up to the task.

For example, China is one of the world’s largest manufacturers and is also the world’s largest source of counterfeit goods, despite new crackdowns by government authorities. Since there’s no central policing authority to monitor the shipment of goods, it’s up to each country to do the best it can to eliminate phony products from imports and exports.

Another challenge is the quality of exported goods. Factory seconds are often passed off as quality goods. In the Chinese wholesale market, for example, Grade-A goods may be manufactured by factories licensed to make authentic branded products, while lesser-grade goods may be diverted as factory seconds or manufactured in the same factories using lower-grade materials. When low-grade units are passed off as quality products, even those managing the supply chain are unaware of when goods are phony.

Since there’s no way to police the counterfeiters, the best solution is to track manufactured goods. By creating a secure, open ecosystem for goods authentication that is easy to access and easy to use, suppliers can validate shipments from any vendors that are part of the authentication ecosystem.

Foolproof Identifiers Eliminate Counterfeits

Distributed ledger technology is ideal for applications such as secure authentication. Distributed ledgers are digital systems for authenticating assets or transactions by maintaining details in multiple cloud locations at the same time. Unlike conventional databases that use centralized data storage, a distributed ledger uses multiple nodes that have to work in tandem for authentication.

What makes distributed ledger technology ideal for authenticating goods shipments is that it is unhackable. The data is encrypted, and to access it authenticated users must be verified by each node to create a consensus of veracity. For goods in the supply chain, the advantage of using a distributed ledger system is that it enables end-to-end validation so goods can be authenticated at any point.

To validate and track goods and materials, you need to start with a digital identity ecosystem based on a distributed ledger. Individual manufacturers can create their own secure ecosystem, or a trade association or other group can create an open security consortium that members can join to secure goods in transit. Once the ecosystem is in place, any product can be given a unique identifier that is secured by the distributed ledger system. More importantly, anyone in the supply chain can authenticate goods using a QR code reader to scan the identifier.

Encrypted credentials are issued for each unit. You don’t need to know the actual contents of the package to authenticate it, so you can protect the identity of high-value goods while still validating the shipment. The QR code follows goods through the distribution channel and can be read at any time using a downloadable smartphone app or QR code reader. Since the identifiers are created using the distributed ledger system, the codes cannot be spoofed or counterfeited. The digital security ecosystem is capable of generating as many tracking codes as needed so even individual parts can be tracked, which can be useful for recalls as well as inventory management.

For example, in pharmaceuticals, every batch of drugs shipped can be labeled using a unique QR code that includes details about the manufacturing source, production date, formulation and the like. In the event of a problem or recall, every tainted unit can be identified using the QR code.

Distributed ledger and similar security technologies give vendors the tools they need to push counterfeiters out of the supply chain. If you can’t catch the criminals, you can certainly eliminate their profits by taking a tighter control of goods in transit. Cloud technology and innovations such as distributed ledger are cost-effective and foolproof, and the more manufacturers that embrace new security solutions for goods authentication, the fewer counterfeits will make their way into the supply chain.

Benjamin Kiunisala is head of customer engagement with TrustGrid Pty, Ltd.