How Fake Products Enter Your Supply Chain

In commerce, a supply chain involved a system of resources, people, activities, information and organizations in supplying a product or service to consumers. Supply chain being long and sometime complex provides the opportunities for counterfeiters to target.

Fake products enter the system from many points without us knowing.

 The 4 key entry points are namely:

  1. Raw material supplies
  2. Manufacturing
  3. Distributions
  4. Point of sales

Let’s explore further in details.

1st Entry Point: Raw Material
Supplies

The 1st entry point can be during the supplies of raw
materials to factory for production. Companies have to ensure that the raw
materials that they receive are of quality. It is important to get qualified
trusted vendors for the supplies. It is less common for the fake products to
enter from this channel as it is quite easy to be tracked.  

2nd Entry Point: Manufacturing

For many brand owners, their productions are often outsourced to appointed factories.  Given that there are several OEM factories to manage, it opens up for fake products to enter. Furthermore, illegal overruns – where extra products are produced secretly is bound to arise. It becomes quite hard to detect without proper control in place. The illegal overrun products will then flow into distribution channels or sold directly to the consumers.

To tackle fake and illegal overruns in this stage, brand owners can introduce authentication security solutions (eg security labels, unique codes) as a controlled item. These items will be sent to the outsourced factories for application onto each of the finished products. As a controlled item, these security solutions are traceable. OEM factories is held accountable for them. Routine audit checks have to be conducted by the brand owner on these factories on the usage of the controlled item.

 

3rd Entry Point: Distribution Channels

Distributions channels contribute to the 3rd point of entry for the fake products into a supply chain. It can occur during distribution process to Distributors and Retailers. Visibility of products to 2nd and 3rd tiers distributors or retailers are often missing for the brand owner. Track and trace become hard as the products do not have digital identity. Companies often have difficulties to know what products are being delivered to which distributors and retailers. At international trade where different pricing strategies are required for different economies, issues such as grey marketing and product diversion becomes prominent. When illegitimate product diversion occurs brand owner and their authorized distributors often suffer loss of sales revenue.

To prevent counterfeit products entry in this stage, brand owner can provide digital identity for each product for authentication and tracking by their distributors. Upon receiving the goods, distributors can scan to check on their goods to see if they are genuine. Through this process, brand owner is able to determine the location scans and ensure no product diversions or fake products are introduced into the channels.

 

4th Entry Point: Point of Sales

Lastly, the point of sales, both Online and Offline forms the 4th entry point. Incidents of retail outlets selling fake products are widespread and often seen. In some cases, genuine products are sold together with the fakes, making it harder for brand owner, authorized distributor and enforcement to detect. Ad hoc inspections at the retail level will help to deter such illegal activities. However, a more effective and efficient way is to assist consumers in verifying their purchase. It is especially useful when product verification can be done on mobile phone. Company can do so by informing the consumers how to authenticate and provide incentive such as loyalty program in checking and buying genuine products.      

It is hard to prevent fake products to be selling on E-commerce. Internet has made selling online a breeze. Counterfeiters have also leverage and selling even more in the online space. To prevent that, companies will have to work with the online marketplace like Amazon, Alibaba, E-Bay to remove fake listings. Fake listings can be taken down if there is infringement of the Intellectual Property of the brand owner.   

 

In conclusion, being able to know where are the potential entry points of counterfeiting allows brand owner to take corresponding actions to tackle them along the supply chain. If company executives do not take action to protect their brands, they are actually helping the counterfeiters. The wrong approach taken to tackle the issue will only cause further harm to consumers, loss of rightful revenue and jobs. By securing the supply chain and helping consumers to authenticate products will be the first step to prevent further losses and drive business growth.

If you would like to learn more our product authentication and how we protect your brand against counterfeiting, check out this page here or contact us for a discussion.

Guankai

Guankai is a solution architect based in Singapore and the business development director of Nabcore Pte Ltd. He specializes in smart brand protection tracking solutions with 10 years of experience navigating the grey market in Asia. His focus is on designing interlocking smart applications for FMCG, industrial and automotive product and brand owners to prevent counterfeiting and enable post-purchase marketing engagement.

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