By Donna DelMonte, Bob Goodman and Erin Kane
Illegal trade in counterfeits is a substantial and growing threat to the competitiveness of legitimate industry. It deprives companies of revenue and profit, undermines brand value, puts consumers at risk and results in lost jobs. In the auto industry alone, the Federal Trade Commission estimates that an additional 250,000 American workers would be needed if counterfeit parts were eliminated. The auto parts industry has turned up such a variety of fake parts being sold in the United States that entire cars could be built. With counterfeit auto parts, the concern goes beyond monetary losses. Fake parts are cheaper for a reason: counterfeiters cut corners and use poor quality materials, and the consumer pays the price in the end. Elsewhere, the pharmaceutical industry and the food industry also face real and present dangers, beyond direct financial losses, from counterfeiting and diversion.
As a key leader in your company's supply and demand chain management processes, how are you and your company seeking to improve product and supply chain security? Effective supply and demand chain management is often measured by having the "right product at the right place at the right time." In conventional terms, clear market and demand knowledge drives commercial success in meeting customers' needs. Either the right product is at the right place at the right time, or a potential sale or manufacturing window is lost. Companies continue to invest in their integrated supply chain functions to improve sales and operations planning (S&OP) capabilities to create strategic advantages while improving cash flows and working capital. However, from a secure supply chain perspective, what is your company doing to ensure that the "right product" is actually delivered to the right place at the right time?
Increasing Complexity, Growing Exposure
Firstly, what exactly does "right product" mean? In the conventional context, the right product is a demand-driven concept that can be loosely defined as a product with features and functions that meet a customer's needs. Operationally though, the definition of the "right product" should also include that 1) the product is genuine and 2) the product was delivered through its authorized distribution channel. In other words, the right product is not a counterfeit and has not been diverted. In this context, supply and demand chain management processes extend beyond S&OP and operational metrics to include ensuring the authenticity of products and product handoffs to make certain that customers really receive that for which they are paying.
No one can argue with the fact that our economy has become progressively more globalized. As a result, our supply chains have become long, complex and, at the same time, quite porous. With increasing complexity, supply chain managers have an increasingly difficult role to ensure legitimate product reaches the intended consumer and illegitimate product stays out of the supply chain. In fact, most supply chains are so complex today that few business people know the actual path of their product from manufacturer to customer. It is often difficult to answer questions like: How many handoffs are there? Who is the actual manufacturer? Who are the carriers? Who are the brokers? Who operates the warehouses? Where are the warehouses? When the answers to these questions are not clear, supply chains are highly vulnerable to being compromised with counterfeits and "grey market" activity.
Securing products and supply chains is a multi-pronged effort comprised of several key success factors. These factors include cross-functional teams, clearly defined metrics, authentication technologies, enforcement protocols, program governance and executive sponsorship. Anti-counterfeit and anti-diversion technologies can and should be an integral part of a comprehensive program as they are most effective when utilized in the context of an overarching business goal. Supply chain executives have a responsibility to their business partners to work collectively and collaboratively to ensure tools and processes are in place that supports the delivery of the "right product."