Mastering supply chain security

Patrick M. Byrne -- Logistics Management, 7/1/2007

Counterfeiting and piracy are huge problems in virtually all countries. They sap profits in almost every industry, and can pose a financial and physical danger to millions of consumers. Imagine the safety implications of bogus brake pads, phony pharmaceuticals, or suspect seatbelts. Even when consumer safety is not threatened, fake or diverted products undermine revenues and reputations, and perpetrate a costly con on the public.

Some aspects of the counterfeiting and piracy problem are admittedly beyond businesses’ control. Yet many companies could be doing more when it comes to the supply chain. Lax supply chain security allows most counterfeit or stolen goods to infiltrate legitimate production, wholesale, and retail channels.

To help businesses improve supply chain security, Accenture recently worked with the Coalition Against Counterfeiting and Piracy (CACP) to develop a toolkit of best practices so that organizations can make their supply chains less susceptible to counterfeiting and piracy. Following are some of the toolkit’s recommendations.

Secure legitimate inputs.

Security begins with the assurance that components are authentic. To make this happen, companies may need to increase their scrutiny of exports and imports at international borders; reconfirm that manufacturing materials and equipment are purchased only from fully auditable company-authorized suppliers; and develop new ways to identify illicit behaviors in current or prospective business partners. They may also wish to consider stronger warnings (e.g., financial or civil penalties) to vendors that fail to deliver authentic product. Formal methods for rehabilitating repentant suppliers and replacing repeat offenders are equally worthwhile.

Securing legitimate inputs also means instituting tighter shipping policies. Companies should use seals on all containers, and note seal numbers on shipping manifests to protect containers from being opened and resealed. Tight inspection of carrier documents is also key and many organizations could benefit from closer partnerships with customs authorities to exchange information suspected of containing counterfeit products.

Verify legitimacy.

Counterfeiters prey on weaknesses in the legitimate supply chain. They often pose as law-abiding businesses and make legitimate purchases that are blended into orders that also include fake products. This is why all manufacturers must ensure that they sell only to qualified distributors or retailers, and that they:

train their sales people to determine the legitimacy of customers;

develop sales-staff incentives and penalties for (non) adherence to guidelines;

use investigators to track customer histories;

and refuse business with suspect organizations.

Equally important is ensuring that subcontractors only produce authorized merchandise. Companies should perform regular audits to be certain that subcontractors are not running “third shifts” to replicate product for distribution in the illegitimate market.

Manage unusable inventory.

Pirates and counterfeiters often troll scrap yards, waste repositories, and reclamation centers to obtain inferior goods discarded by the brand owner. Companies can deter them with certification policies that guarantee the appropriate disposal of production waste and unusable products. Some organizations donate excess or slightly flawed goods to trusted charities, which also keeps them from finding their way back into the illegitimate supply chain.

Monitor brand integrity.

Every company should monitor downstream activities and report intellectual property infringements. Collaborating with local law enforcement authorities is key. Organizations can and should register trademarks with domestic and foreign authorities, help law enforcement learn to recognize contraband, and share information about “bad apples.”

Another cornerstone is market intelligence, which includes carefully monitoring Internet auction sites, employing mystery shoppers to gather product samples and running tests to certify product authenticity. Savvy companies may also get ahead of the curve by developing subtle ways to differentiate their products from counterfeits. Some have created benign or nearly undetectable packaging or product flaws. Others rely on advanced technologies, such as bar code symbologies like GS1 DataBar (formerly known as Reduced Space Symbology) or other globally recognized 2D Composite symbologies; RFID tags; holograms and watermarks; anti-counterfeiting printing ink technologies; and covert features on products.

Additionally, committed companies frequently pursue legal remedies for trademark infringements. Many litigate even the smallest cases to demonstrate their commitment to countermanding illegal activity. They follow up with ex parte temporary restraining orders, orders of seizure and asset seizures. They also understand and leverage civil enforcement options, such as lawsuits against affiliated services, financiers, and landlords.

Efforts to combat counterfeiting and piracy—with excellence attained on multiple fronts—will help most companies stay on top of a growing problem.

Companies leading the fight against counterfeiting and piracy

At the forefront of the fight against counterfeiting and piracy, these companies are employing successful strategies.

Every year, fake valve and brake products put drivers at risk. That’s why Bendix rigorously pursues patent- and trademark-infringement actions, provides recognition training, and coordinates brand-protection and intellectual property programs.
Ford protects its consumers by meticulously managing safety issues associated with knockoff auto-glass, couplings, and even seat belts. Cornerstones of its anti-counterfeiting/piracy program include diligent use of control numbers and a full-time staff dedicated to undercover work.
To help keep consumers safe, Merck emphasizes consistent, documented distribution, labeling and packaging, as well as supply chain visibility measures that help it know where every shipment is going and when to expect receipt notifications.
New Balance combats footwear counterfeiters and trademark infringement with tightly controlled material flows; highly detailed, unambiguous documentation; and difficult-to-copy labels with imbedded code.
Many of the above approaches are built into the worldwide Brand Protection Program at Xerox, which is also part of the Customs-Trade Partnership Against Terrorism (C-TPAT). Working together, they perform inspections, audit shipments, and refine dock-security standards.

Author Information

Patrick M. Byrne is the managing partner of the Accenture Supply Chain Management practice, which helps clients improve their performance through supply chain strategy, sourcing and procurement, supply chain planning, manufacturing and design, fulfillment, and service management. Based in Reston, Va., he can be reached at pat.byrne@accenture.com.