Combating Counterfeiters in the Global Supply Chain

Nov. 19, 2009
A rigorous internal quality standard, based on an inspection program of all incoming parts can help to keep the supply chain pure.

Product counterfeiting is a multi-billion-dollar underground economy that poses a serious threat to the legitimate global economy, including commerce and the public's safety.

Many North American manufacturers have exported the production and assembly of their products to different parts of the world to maximize profits. Consequently, they grapple with long, complex supply chains, which can often be difficult to audit. The products themselves are also becoming more complicated as manufacturers combine components and services from multiple suppliers. As a result, both products as a whole and their individual components are at risk of being counterfeit.

Protecting global supply chain integrity is of the utmost importance for manufacturers whose reputations are at stake. To effectively safeguard against counterfeiting, there are several steps that manufacturers can take at each point in their production process.

Establish a System for Tracking Product Components

To combat the insurgency of counterfeit products, members of the supply chain should collaborate to institute a better component tracking system. A rigorous internal quality standard, based on an inspection program of all incoming parts can help to keep the supply chain pure.

It is important to document dates and lot codes, and photograph all products to maximize traceability if a product is found to be counterfeit or sub-standard. Manufacturers should also perform due diligence when working with new component suppliers.

Implement Safety and Performance Standards

Establishing a system of checks and balances throughout the supply chain can help manufacturers detect counterfeit components easily and in a timely manner. Frequent and random testing and retesting of product samples will aid in exposing counterfeit components. In addition, internal quality assurance inspectors should be encouraged to act as whistle-blowers if they spot something suspicious.

As manufacturing continues to grow abroad, many certification and product evaluation organizations, including CSA International and OnSpeX, are setting up labs around the world in order to provide localized services. This global network approach shortens testing and certification times since products don't have to be shipped to North America for testing. It also helps to identify potential problems sooner, enabling certified products to be introduced to the market in a timely manner.

Be Proactive in Protecting Designs and Production Techniques

The trend towards manufacturing outsourcing by Western industries to Asia has enabled counterfeiters to learn and copy designs and production techniques. Foreign governments have traditionally been seen as overwhelmed in enforcing intellectual property statutes while corruption at the law enforcement level is a problem in various regions.

In response to this scenario, it is important to incorporate proactive measures to help ward off intellectual property thefts. According to a recent report, one athletic shoe manufacturer now limits access to its trade show booths at various events to prevent would-be counterfeiters from taking samples and pictures. A large clothing retailer hired a former FBI agent specializing in global intellectual property as its first senior director for brand protection. A computer networking equipment maker now adds technology into some of its products that detects counterfeit and other illegitimate hardware on a customer's network. By remaining one step ahead of counterfeiters, these companies have been able to preserve the integrity of their products and brands.

Educate Your Consumers About Legitimate Certification Marks

Consumers, retailers and manufacturers need to be concerned with counterfeit items that enter the market, and also be aware of the widespread use of counterfeit certification marks. Counterfeiters know that in order to pass their products off as legitimate goods, in many product categories, they must include counterfeit certification marks in order to gain market entry.

These counterfeit marks undermine the entire global system of standards, testing and certification that has been put in place to protect the interest of retailers, regulators, product manufacturers and most importantly, consumers. They also present a real danger to the public as counterfeiters often use substandard materials or bypass safety features in order to make a profit. If left unchecked, counterfeit certification marks can enable unsafe or deficient products to gain widespread access to the North American market -- a direct safety risk to consumers.

Many legitimate certification marks use covert security features to help prevent unauthorized duplication. But raising awareness about the risk of counterfeit products and educating consumers about the processes needed to identify legitimate certification marks is critical. Globally, manufacturers, retailers and regulators must work to ensure messages are delivered and consumers are protected.

The Need for Collaboration Among Agencies

The underground nature of product counterfeiting means we will likely never understand the true economic impact of counterfeiting on the economy. Investigative agencies including the U.S. Department of Homeland Security, the Federal Bureau of Investigation and international police services such as INTERPOL estimate the impact to be hundreds of billions of dollars annually. The costs include the loss of sales revenue, taxes and jobs due to declining sales of legitimate products. Counterfeit products also compromise brand integrity and consumer confidence, and increase the risk of legal action and unfavorable publicity to stakeholders.

In 2008 at a summit at INTERPOL headquarters in Lyon, France, 11 of the world's leading certification peer organizations joined together to form the Certification Industry Anti-Counterfeiting Coalition under the aegis of INTERPOL. The summit served as the cornerstone to launch Operation Overshock, an on-going global operation that is targeting products bearing counterfeit certification marks. The operation includes an integrated task force consisting of relevant international police and customers agencies in partnership with certification bodies from around the world.

As globalization continues and more manufacturing activities are set up abroad, the complexities of the supply chain are likely to grow. Looking ahead, it is critical that all parties operating in the supply chain collaborate and share information worldwide to help prevent counterfeiting and ensure the quality and safety of consumer products.

Doug Geralde is Director, Regulator Relations, for CSA Group. Headquartered in Toronto, Ontario, Canada, CSA Group is an independent, not-for-profit membership association serving business, industry, government and consumers. CSA Group consists of three divisions: CSA Standards, a leading solutions-based standards organization; CSA International, which provides testing and certification services; and OnSpeX, a provider of consumer product evaluation, inspection and advisory services for retailers and manufacturers.

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