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2014

 

Over the last few decades there have been drastic upheavals in the manufacturing industry as a whole. But now the alarming increase of counterfeiting has surfaced to threaten the global supply chain.  Is the criminal underground solely to blame?  Or has the manufacturing industry unknowingly but directly contributed to this growing gray business?

This growth of counterfeiting can be attributed to the following forces:

  1. 1- A slumping economy
  2. 2- Low-cost advanced technology
  3. 3- Trade globalization
  4. 4- Consumer complicity
  5. 5- Channel and market expansion
  6. 6- Powerful global brands
  7. 7- Weak international regulations and enforcement

The main cause of this growth is the digital age; the Internet has turned counterfeiting into a low risk market by allowing these groups an unlimited access to the global market, low cost communications and free access to information of proprietary or confidential nature.  But most of all the Internet allows for anonymity. 

Given the emergence of the above seven reasons, supply chain managers should not be surprised by the manifestation of counterfeiting.  The efforts to protect intellectual property have been largely ineffective due to organizations all too eager to share their standard operating procedures, transfer tooling and share quality manufacturing training ideas.  In order to diminish these risks manufacturers must objectively assess their existing efforts by considering the following:

  1. 1- Conduct due diligence for facility security, inventory accountability and proper destruction of unsalable items?
  2. 2- Consistently audit external facilities that operate within our supply chain?
  3. 3- Ensure all retired but tangible assets are properly destroyed?
  4. 4- Do existing processes and procedures allow trusting the verification?

Companies that are unwilling or unable to meet these criteria will remain vulnerable to and enable the counterfeiters to continue their ‘gray market’ production.

Today there is a large cache of tools, practices and countermeasures available for use by manufacturers, especially for those firms operating in such places like China, Brazil, India and Paraguay. However, the industry as a whole will continue to struggle against counterfeiters until it correctly weighs the knowledge and unique outlook of supply chain counterparts. 

 

 

(Asian countries, in particular China, are responsible for the vast majority of counterfeit electronics reaching the U.S.)

The lack of a single entity or legislation to provide complete supply chain line protection has led many companies towards technology experts to assist in brand protection. In return manufacturers are allowing these technical experts inside knowledge to their best practices to integrate authentication solutions.  Clearly, we can see the dangers in continuing this activity.

Technological experts can and often do present a case for adopting ACF (anti-counterfeit) technologies. There is still resistance to this as many supply chain directors claim that visibility is detrimental to their success.  Suppliers, vendors and distributors as well are reluctant to collaborate.  This fear has been long doormat: a belief that sharing will diminish their value to the manufacturer and lose business. Manufacturers who hesitate in fighting counterfeiting can adhere to these principles:

  1. 1- Welcome the threat.  Campaign for the implementation of a zero-tolerance policy for violations by employees and or suppliers.
  2. 2- Protect Intellectual property by increasing control of production materials throughout the entire supply chain ( as picture below illustrates)

 

 

There are a number of available anti-counterfeit technologies available for companies.  Of course, even with these technologies due diligence for the best product for your company must be performed.   The due diligence should be based upon projected risk of the brand profile, active trade channels and target markets.   These options must be capable of full integration with company’s operations, upstream and downstream – sensory authentication, digital authentication and track and trace systems.   For those not familiar with these options perhaps a short summary of them will help:

  1. 1- Sensory authentication – overt and semi-overt packaging markings such as color changing inks or holograms.
  2. 2- Digital authentication – forensic markings, barcodes that authenticate by package or product scan.
  3. 3- Track & Trace system – custom built scanners that use unique identifiers to track product movement or retrace the chain of ownership through the supply chain.

  As with any solution these have their own strengths and weaknesses.  Sensory authentication can be vulnerable to duplication by counterfeiters.  Digital authentication adds a layer of security but must be used in conjunction with a corresponding device.  Track & trace solutions require the largest investment as it has a multi-layer approach to security of product.   This solution is mostly used by pharmaceutical companies.


 

Even before we bring in the technology experts perhaps a consultation with a brand expert is in order. These specialists can provide objective risk appraisal and advice on proper equipment and project delays such as unforeseen costs. 

As counterfeiting continues to grow as a ‘gray market’ supply chain leaders must invest in brand protection such as auditing SOP’s to revising distribution practices and implementing ACF solutions. 

Remember, no single company, technology practice or program can or will lessen this risk to the supply chain.  Only cooperation and collaboration from all – manufacturers, suppliers, vendors, distributors and legislators – will present a workable solution.  

The supply chains of most companies, large and small, exploit a world of opportunities. But increasing global exposure comes with an increasing range of risks. These companies’ complex networks of suppliers and customers are as diverse as the goods and resources they manage. Within the same supply chain, giant multinational companies can sit side-by side with small to medium enterprises (SMEs). Yet among companies large and small there is growing awareness that extreme weather and a changing climate pose new risks and opportunities to old ways of doing business.

 

Smart businesses know how to manage uncertainty. As their exposure to extreme weather increases, informed businesses are incorporating the risk of extreme weather into existing risk management. Meanwhile, business continuity planning is growing to embrace the need to think about how a changing climate impacts on business.

 

Worldwide companies are increasingly aware that their supply chains are exposed to greater weather extremes. International competition and cheap transportation have led to expansive supply chains linked by complex logistics, multiplying risks to business continuity. The Business Continuity Institute’s latest Horizon Scanning Survey, with results from 700 organizations in 62 countries, found 53% of the survey respondents were either ‘extremely concerned’ or ‘concerned’ about the impacts of adverse weather on their businesses (BCI 2013). Business leaders are now urging companies to think about climate change (Business Green, 2013).

 

Awareness and experience is turning into action, as leading companies large and small begin to respond to risks and opportunities. Yet there is little guidance for companies which see their supply chains might be at risk but aren’t sure how to respond. This guidance seeks to assist global and or growing global companies systematically to identify, assess, prioritize and act against risks and to seize opportunities that extreme weather and a changing climate pose to their supply chains. This guidance shows that it doesn’t take a climate expert or lots of time and resources to build resilience. Making targeted changes in supply chain operations can reduce risks and gain a competitive edge.

Why should businesses act?

Our climate is changing and will continue to change into the future. In the UK we are likely to experience more flooding and face warmer, possibly drier summers in future. Other parts of the world face even greater changes in temperature and extreme weather events than the UK does.

 

The costs of extreme weather to business are growing. Flooding in 2012 and 2013 alone was reported to have cost the economy 12 billion during the summer and autumn months (Gray 2012). Threats abroad can have significant impacts too. The effects of the Thai floods of 2011 rippled through international supply chains disrupting the supplies and logistics of many businesses. As well as bringing possible changes to the frequency and severity of extreme weather events, a changing climate is also about longer term incremental changes in average climate. Here, risks and opportunities will materialize over a longer period of time, such as changes in consumer habits and markets.

 

 

Value Stream mapping of supply chains in detail helps to identify risks and opportunities and to target investment towards identifying and taking action. For example, some companies which presently rely on overseas agricultural supplies are investing in research into opportunities for improving yields where a future climate may provide more favorable growing conditions. Switching to domestic suppliers can reduce the risks inherent in long distance transport logistics and supply planning. Some engineering design consultancies are also beginning to respond by taking account of future climate projections in today’s building designs.

 

Supply chains work best when each part works together. But risks in one part can flow into the others. For example, if procurement of commodities and raw materials from a supplier becomes limited due to climate-related influences, the absence of an operational buffer will affect a company’s internal manufacturing operations, placing customer order fulfillment at risk. Following direction will help business decision-makers identify how particular activities face particular risks and what to do in response, protecting against such forceful problems.

 

 

Just in Time versus Economic Order Quantity versus Stockpiling

                                   

Risks of disruption can vary significantly from company to company within a supply chain. Factors can include:

the size of the company

its geographical location

whether it supplies climatically sensitive materials

the distances and type of transport methods used

whether it’s a ‘just in time’ or stockpiling type of supplier

 

But in a lean supply chain it only takes one weak link to disrupt business for its partner companies, no matter how well prepared they are.

The JIT supply chain structure provides the minimum inventory required to support operations until the next delivery of supplies. This reduces the inventory held by a business and its carrying costs, at the same time, maximizing profits through a lean, efficiency-driven process.

The EOQ model is typically used when demand for a product is constant and each new order are delivered in full when an inventory reaches a reorder level. It’s aimed at minimizing the joint costs of ordering and holding inventory, whereas JIT only minimizes the costs of holding inventory.

Companies operating or reliant on a JIT model are more prone to upstream supply shocks. Impacts on one supplier in the chain can quickly manifest themselves as disruptions to downstream supply chain members. The Thai floods of 2011 represented the insurance industry's highest recorded flood loss event, with business disruption to over 14,000 companies’ worldwide (Lawton 2011). The floods were reported to have widely disrupted the international supply of motor and consumer electronic parts. In the UK, Honda cut production at its Swindon plant by 50% and delayed the launch of a new model. The Thai floods also raised the issue of reliance on ‘clustered’ industries where similar types of suppliers are grouped in the same region.

Although in the case of the Thai floods stockpiling in the downstream supply chain may have provided more resilience to upstream shocks, stockpiling itself has its own risks. These include damage to large quantities of stock stored in vulnerable locations. While neither model is fully resilient, companies need to begin to think through how climatic “assaults” may differ between these approaches.

 

 

Whether large or small, domestic or international all are being exposed to new business risks and opportunities as our climate changes. This framework will help businesses to identify new risks and opportunities within their supply chain and work out how to respond.

 

There are five steps or questions companies should be asking themselves to gauge their readiness of supply chains.  These questions will help you to look at and manage each part of your supply chain:  your supplier relationship, your internal supply chains, and your customer relationship.

 

  • Does the climate change manifest itself as a material issue?  Different parts of a supply chain will experience different impacts of a changing climate, with different levels of risk along the supply chain.  Should ask a series of questions of each – supplier, the firm and the customer.  Following are some sample questions:
  1. Located or stockpiling in a vulnerable location?
  2. Providing climatically sensitive materials?
  3. Transporting over long distances?
  4. Awareness of impact on staff/operations of prior weather events?
  5. Acknowledging climate change as a risk?
  6. At risk of not recovering quickly from an extreme event?

 

 

 

  • Gather evidence and information on past experience of weather disruptions to your supply chain. 
  • Organize a meeting with team members from supply chain management, risk management, customer relations and corporate responsibility.
  • Will they be robust in the face of a changing climate?
  • Consider which steps of this guidance can be integrated within existing processes and     management standards such as:  ISO 28000 (supply chain security), ISO 22301 (business continuity) or ISO 9001 (quality management)

 

  • Upon putting a plan into place an assessment of risks and opportunities are required. Dig deeper to understand how and where climate variability and change will affect your supply chain.

 

Successful business leaders already know how to manage risk. The changing climate may pose new risks to supply chains, but with the right information, business decision-makers can use familiar corporate tools to assess climate risks and opportunities.

 

The following sections ask a series of exploratory questions to encourage analysis and discussion on the risks and opportunities presented by a changing climate. Answers collected in this step can be used within a number of standard corporate processes including risk matrices, risk registers, country risk assessments and feasibility studies.

 

Procurement

  • Who are your suppliers, and who supplies them? Where are they located?
  • Are the suppliers you rely on going to be increasingly impacted by weather disasters or a changing climate?

 

Sourcing

  • What is your supplier distribution? Are they clustered in a single geographical area and so all vulnerable to the same disasters?
  • Have you sought out local suppliers to reduce risks of transport disruption?
  • Are the raw materials you rely on susceptible to damage or loss of quality from weather or climate change?
  • Have you looked at ways of moving towards multiple sourcing?

 

Negotiating

  • What do your supplier contracts say about disruption due to weather events?

 

Buying and pricing

  • Are the prices you pay directly or indirectly affected by weather events or climate change?

 

Supply collaboration

  • Do you have strong lines of communication for collaboration?
  • Do the strategic goals and climate awareness of your suppliers align with your company's goals and awareness?
  • Have you built trust and loyalty with your suppliers to foster collaboration during crises?

 

 

  • Think about the best practices or methods to build resilience.  Or in other words, prioritize and identify actions to be taken.

 

  • Which supply chain relationship holds the greatest risks? Your internal supply chain, relationships with your suppliers or with your customers?
  • Which of the identified risks pose the greatest threat to your supply chain?
  • Which opportunities offer the greatest benefit to your company?
  • Which opportunities is your company ready to seize?
  • What actions are considered good practice in today’s climate and are likely to offer benefits regardless of climate change?
  • Lastly, don’t wait to build resilience.  Climate change is an ongoing challenge. Having identified your actions, it’s now time to implement them. As you take action and manage your climate risk, it’s important to continually monitor your success. I suggest certain criteria to be used in managing, monitoring and measuring the risks:

 

Manage your risks

  • Identify periods in the business cycle where it’s opportune to implement actions. Examples might include when designing new facilities, or acquiring new assets and long-lived equipment.

 

        Monitor your progress

 

  • Monitor the continued relevance, effectiveness and performance of the actions by adopting a continued improvement approach. Design a ‘checklist’ or a monitoring and evaluation plan – ensure lessons learned can inform the ongoing process of ensuring resilience and how the actions may influence future planning and investments.

 

In conclusion I would like to leave you with several questions:

  • What can a small company do when its suppliers in Peru are in trouble?
  • How can you build resilience without .breaking the bank?
  • What emergency response options does a retail chain have after a natural disaster?