Cottrill Research, LLC

Keeping It Real: Fake Products are a Growing Concern in Supply Chains

Keeping It Real: Fake Products are a Growing Concern in Supply Chains

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Today, the rise of fake news is not the only growing area of concern relating to authenticity.

Like fake news, the increase of fake products in the supply chain is a growing phenomenon. Also similar to fake news, the creation and selling of fake products is not new and efforts to combat the production of counterfeit products can be traced throughout the centuries:

  • In 500 BC, to guarantee authentication, wet tablets of medicinal clay were stamped with a special seal by priestesses on the Greek island of Lemnos.
  • According to author Bee Wilson, in the Middle Ages to fight against fraud and keep bread from becoming poisonous, it was necessary for bakers to ensure that standard ingredients were used and to do this they made seals on their loaves. In 1757 alum was discovered in bread and by the 1800s birch bark and twigs were regularly used.
  • In the early 1900s opportunists used forged sketched designs of fashions modeled in Paris to sell replicas under fake couture labels overseas. Over the years designers tried various methods to make sure their pieces weren’t copied. Christian Dior used invisible ink, only visible under black light, to mark his designs.

Studies and research have revealed statistics and insights about this growing problem:

  • Robert Handfield, in a recent article, writes about counterfeit products on Amazon and cites a WSJ article that states 4,152 items for sale on Amazon.com’s site were found “that have been declared unsafe by federal agencies, are deceptively labeled or are banned by federal regulators—items that big-box retailers’ policies would bar from their shelves.” Dr. Handfield’s article goes on to explore findings from an SCRC (Supply Chain Resource Cooperative) study, funded by the Center for Advanced Purchasing Studies, that explain why counterfeiting is becoming such a massive problem. Reasons cited are: 1) most companies are unaware of where their product components originate, 2) the rapid rise of e-commerce sales allows for easy exploitation of consumers, and 3) “consumer behavior and a lack of education about the problem.”
  • Cited in a Boston Consulting Group/Cisco Systems publication:
    • Within the global pharmaceuticals space, between $75 billion and $200 billion in counterfeit drugs are sold each year.
    • In the electronics industry, fake parts cost component manufacturers about $100 billion annually.
    • In the European luxury goods market, about 10% of all items for sale are counterfeited, representing approximately $28 billion in lost value.
  • According to the U.S. Customs and Border Protection (CBP) website, CBP and U.S. Immigration and Customs Enforcement-Homeland Security Investigation seized 27,599 shipments that contained goods that violated Intellectual Property Rights in 2019. “The total estimated manufacturer’s suggested retail price (MSRP) of the seized goods, had they been genuine, increased to over $1.5 billion from nearly $1.4 billion in FY 2018. ”

Here is a sampling of tools that help in combating the production and selling of counterfeit products:

Notorious Markets List The Notorious Markets List (not exhaustive) is published annually by the Office of the United States Trade and provides a list of sites or affiliated networks of sites that reportedly “engages in or facilitates substantial piracy or counterfeiting to the detriment of U.S. creators and brand owners, as well as legitimate sellers and distributors.”

BonafiBonafi is a blockchain company based in Los Angeles that states their authentication process not only protects the brand, but also the sellers of the brand. Their solution starts with the Crypto-Tag which is embedded into each product, regardless of the product’s type of material, and serves as the Crypto-Engine. “As each item moves through the supply chain from distributors, to wholesalers, to retailers, additional data will be recorded onto the blockchain via the Crypto-Tag and enterprise applications.”

TBSx3TBSx3 is a blockchain technology platform out of Sydney, Australia. TBSx3, which stands for “to be sure, to be sure, to be sure,” uses blockchain technology to monitor and protect goods through the entire supply chain utilizing 3 layers of security. The first layer of protection allows a buyer to scan the ID code before a product is purchased to verify whether that identity is genuine. The second layer checks the logistics movements and the third layer warns the shopper if that particular ID has ever been used before.

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