On World Anti-Counterfeiting Day 2016 – counterattack counterfeiting

CounterfeitingAny brand that has gone through the peril of having counterfeit products circulated understands that addressing this issue is no mean feat. With the company’s reputation at stake, the task to identify and address this spurious supply can be exhaustive, time-consuming and complex. Counterfeiting can be considered a nightmare for any company, as it has the potential to cause havoc on several fronts – reputational, financial and organizational; however, many companies are yet to grasp the entirety of the impact it presents.

As the Global Anti –Counterfeiting Network pronounced today, 8 June 2016 as World Anti- Counterfeiting (WAC) Day this year – the eighteenth year since its establishment – it is an ideal time for some introspection on the subject.

It is a common misconception within the consumer products (CP) sector, that the issue of counterfeiting emanates from external forces and does not involve any connection with the company itself. Here are a few commonly observed insights which indicate gaps in a company’s own approved, or authorised, supply chain –

  • Counterfeiters found using genuine packaging material as a result of supply chain leakage, i.e. fresh samples of new packaging material launched by brands leaked through to counterfeiting networks within days of launch.
  • Middlemen or traders found to be dealing specifically in standalone, genuine packaging material which include plastic shrink sleeves, laminates, tubes, labels, and wrapper rolls.
  • Network of individuals solely supplying genuine packaging materials to counterfeiters spread across multiple states and cities

Therefore, the focus area needs to expand to the internal aspect of a supply chain, to identify the providers and suppliers of genuine material to such middlemen or traders, who seem to be benefitting from the counterfeit web, which has been built meticulously with elements from the approved/ authorised supply chain.

Infiltration point – supply chain

The source of ingredients or components – such as raw material and packaging are obtained by the domestic counterfeiter through a leakage or gap present in the supply chain of the brand itself.

Brands therefore need to look inward into their own systems and processes in the supply chain arena, and address internal gaps. These include weak documentation and implementation of stronger controls on their own supply chain, improper company enforcement action, and lack of awareness about the repercussions of flouting of rules in this regard.

A few prominent examples/ elements of how counterfeiting seeps through the cracks of a supply chain are:

  1. Outsourced contract manufacturing – Over the years, CP companies have resorted to outsourcing that comprises manufacturing of semi-finished or finished products. The weak controls at third party locations have led to leakage of packaging materials and finished products from 3P units
  2. Packaging material vendors – Companies approve the third party/ vendor(s) to manufacture the packaging material and supply it to their factories or contract manufacturer. The challenge herewith is to trust these third parties – do they operate ‘right’, have appropriate ‘checks’ or, focus on deriving maximum profit? Do they have appropriate and regularised process checks? Are the employee(s) working on the shop floor aware of the process loopholes?
  3. Scrap dealers – These are entities that buy scrap (expired and damaged goods) and divert them back to the market. A company’s finished product, which could be slow moving or are expired or damaged products, are sold to scrap dealers who then sell off the same to counterfeiters. Scrap dealers may also grease either company personnel, or third party employees to either supply good quality products in the garb of scrap, or supply them with packaging material and expired/ damaged goods.

Detection of such slow moving or obsolete stock or genuine packaging when it reaches the market get noticed as “counterfeit” stock being manufactured by rogue elements outside the supply chain. However, the real culprits for such situation is someone within company’s own supply chain. The outcome of these issues leads to a threat to quality, loss of trust, tarnished reputation and loss of sales or revenue. This may be not only through discounted sales of counterfeit products but also, through negative publicity through disgruntled consumers – who could either be aware or unaware of counterfeiting.

Forge a protective shield

Brands need to adopt a conscientious approach to mitigate risks stemming forth internally. It would be ideal for companies to have dedicated Global brand protection teams with well-outlined and sufficient budgets to tackle such issues, across markets

Building forensic insights into the business is an effective way to better equip the company with the right insights to curb any infiltration which could occur. This could be carried out through:

  1. Background checks: Scrutiny and proper checks of scrap vendors
  2. Consistent scrap process reviews: This avenue looks at detecting leakages within the company’s supply chain to find a weak link, through proactive reviews of scrap process that may exists within company owned of third party owned manufacturing units
  3. Regular market surveys and mystery shopping: these surveys at market hubs need to be carried out to ascertain the problem of availability and intensity of counterfeit products. It may include mystery shopping as a key component to obtain counterfeit samples.
  4. Target standalone counterfeiters: this avenue targets the kingpin/ counterfeit manufacturer whose supply chain network needs to be blocked/choked alongside

Follow @EY_India and track #EYForensic for regular updates

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