SCRC Executive Roundtable: Combating Counterfeit in the Supply Chain

This week the Supply Chain Resource Cooperative is holding an executive panel focused on the challenges of dealing with counterfeiting in the supply chain.  We will be hosting a number of major public and private sector participants including the Air Force, the Treasury, the pharmaceutical sector, consumer products sector, technology sector, and services sector.  All of these sectors have a common enemy:  counterfeit crime.  Most people don’t realize how big an issue this has become.  A report by Jeremy Wilson at Michigan State University, which hosts the country’s only Center for Anti-Counterfeiting and Product Protection, notes that counterfeiting has grown from a $30B trade problem in the 1980s, to $600B in trade.  Some project that this could soon cost nearly $1.8 trillion, which is more than the gross domestic product of most countries!  A summary of the potential impacts produced by the International Chamber of Commerce is shown below.  The roundtable is being hosted by NC State, and is a project funded by the Center for Advanced Purchasing Studies, in conjunction with Dr. Robert Handfield of NCSU and Dr. Anand Nair of Michigan State University.
Wilson notes that the explosion of counterfeiting is occurring for several reasons.  First, most companies don’t know (and often don’t care) about the origin of their product components.  Intermediary components are invisible to the general public, with the exception of ingestibles, which has recently become a bigger priority.  So this means that brand owners need to focus much more on mapping and monitoring their supply chain, something which we often refer to in the purchasing world as “supplier relationship management” (SRM).  Rule one of SRM is – know who you are buying from and who is in your supply chain!

Second, when it comes to combating counterfeit products, the Internet is not your friend.  The volume of sales through the Internet is growing at an exponential rate – but since  majority of counterfeits are marketed through an online presence, tracking down their origin is very difficult.  The general acceptance of online purchasing by consumers, combined with the financial rewards and minimal risks to the counterfeiters selling online, is the secret sauce for the explosion in sales of counterfeit goods.  Not surprisingly, most of these sites are based in China.  So brand owners should begin by focusing on the biggest and most frafficed sites, such as Taobao in China with approximately 130 million daily users, as well as Alibaba and Aliexpress.

Third, the problem here is also related to consumer behavior.  Most people “don’t care” if their product is counterfeit, and they don’t mind paying less even if it does violate intellectual property rights.  Most people would argue that “You can’t die from buying a fake T-shirt or downloading an unauthorized album”.  Well yes, you can actually – if the profits finance terrorism or organized crime like drugs, vice and illegal arms.  Which is not all that uncommon, by the way.  So the key here is going to be education of consumers as well as enterprises along the entire supply chain.

Why is education important?  Because the best solution to counterfeiting is to take away the demand.  It is one thing to buy fake toys, and shoddy fake Prada handbags.  Counterfeit criminals are producing fake airbags for cars, poorly produced engine parts for jet fighters that don’t meet FAA requirements, and fake parts for your vehicle, putting everyone at risk when we travel by car or commercial airlines.   Worst of all are fake pharmaceuticals, which have deadly effects.  It has been estimated that 80-90% of the pharmaceuticals in Africa, for instance, are counterfeit.  The World Health Organization also estimates that counterfeit drug sales total about $75B per year, which typically don’t contain any active ingredients whatsoever, and may be mixed with ingredients like lead.  But nobody really knows for sure just how bad the situation really is.

The obvious approach to combat counterfeiting is to move towards innovative security labeling technologies that permit track and trace.  Tracking is about recording information about movement of the product along the supply chain, tracing is the ability of operators to access information about the product.  However, that isn’t enough, because counterfeiters are a particularly nefarious bunch when it comes to outsmarting technology.  As such, technology providers are using multiple forms of “product authentication”, including overt (obvious to the naked eye), covert (specialized equipment such as microtext and UV fluorescent inks), and forensic solutions (molecular markers).

A good security labeling system must be relatively inexpensive, resistant to attacks, contain both overt and covert features, and allow law enforcement, customs, and brand owners to determine authenticity 100% of the time with 100% accuracy.  Labeling systems can make counterfeiters lives more difficult, but is unlikely to solve the problem entirely.  A multi-layered approach that requires true collaboration across multiple parties in the supply chain is what is really required.

So if an online deal sounds too good to be true… it probably is.  Counterfeiters don’t care about brand protection, safety concerns, or quality control.  So our complacency breeds the growth of their illegal activity. But at its core, combating counterfeiters is a much bigger problems, that involves in fact the entire supply chain.  Every party in the supply chain is involved, and a single enterprise acting alone will have no effect.  Criminals benefit when law enforcement, regulatory bodies, government entities, and private sector industry do nothing.

We hope that this roundtable will lead to some productive insights that will drive this research forward and contribute in a meaningful way to the prevention and deterrence of counterfeiting.