One of the toughest question for a business leader to answer is "How much revenue are you losing to fakes and counterfeits?" The answer is often a range or an approximation or just a shrug of the shoulders. An even more difficult question to answer is "Do you know how counterfeits are stealing your revenue?"
Despite access to the best of technologies today, measuring the scale and scope of revenue leak from counterfeiting still remains a challenge.
1. Brands now reach every nook and corner of the globe. The geographical expanse makes it very difficult to secure supply chains and give visibility of vulnerabilities.
2. Supply chains themselves have become very complex. With super specialised vendors fragmented across geographies, and multiple distribution models to reach the end customer, it is difficult to keep track of how counterfeits might be getting in.
A radical new approach is needed to make headway and get visibility of where your brand value is leaking. An approach in which you have multiple allies in this fight, reporting where the leakage is happening in real time.
Imagine a world in which millions of your customers, partners and your own employees are verifying authenticity of your products and reporting fakes in real time. This will allow you to block sales of your brand’s fakes, and help you shut down prominent sources of supply of counterfeits.
However, until you have implemented a solution which can enable this world, you would do well to understand in broad terms where and how your value chain may be vulnerable so that you can plug the leaks. These vulnerabilities can lie within the brand’s authorised supply chain or may lie outside the brand's eco-system.
Vulnerabilities from Within
1. Raw Material Suppliers
Raw material suppliers, particularly packaging suppliers need to be closely monitored to ensure that genuine packaging material of the brand is not diverted to counterfeiters. Before appointing a supplier, do the due diligence and set legal, monitoring and governance mechanisms to ensure regular reporting of production, stock check audits, monitoring of wastage in the production process, audit of destruction of waste material etc.
2. Contract Manufacturing
3rd party manufacturing is another vulnerable point especially if the contract manufacturing is with a player from the unorganized sector. Once again, contractual oversight, monitoring mechanisms including surprise audits, and deterrent penal action are the tools at your disposal.
3. Own Manufacturing Facilities
Sometimes there is theft of raw materials or even finished products from your own facilities, manufacturing plant or company-owned warehouses. Strong perimeter security, material management practices and verification of employees as well as contractual labour are some of the measures to be adopted to bridge the loopholes.
4. C&F Agents and Transporters Third-party warehouses such as C&F agents and transporters are another potential leakage point. Transport sector is still very unorganized, and individual or small transporters are still used to carry the bulk of brands across value chains particularly at the last mile. There is huge scope for pilferage as well as infiltration during transportation. Typically, some genuine packs in a carton would be replaced by fake packs to mix it up.
Choice of reliable transport partners is key and is now easier with the advent of professional logistics companies with their own fleets equipped with GPS monitoring and digital locks for transparency and security. However, you still have to review their systems and processes to ensure secure carriage of your goods.
5. Own Distributors
One of the most critical roles, and one that’s often underutilized in this battle is that of the distributor. Working with a trustworthy group of authorized distributors can be a brand’s greatest weapon in this battle.
Distributors must be chosen after a thorough and diligent process, sometimes even more stringent than choosing your suppliers. You should also set a mechanism for vigilance and transparency to maintain and nurture trust-based relationships.
Vulnerabilities from Outside
This is the most vulnerable point in your value chain. Most companies do not have the resources to use only distributors to make their products available - particularly in smaller towns and villages. The wholesaler serves as an important bridge, but the channel has reputational issues as a source of counterfeits. Parallel supply chains of counterfeiters target these wholesalers and infiltrate this channel with counterfeits and lookalikes. Once again, genuine products are mixed with counterfeits.
It is important to have your ear to the ground, and gather intelligence from your own internal resources as well as third party investigators to ensure no infiltration is happening at major wholesalers. Ideally you can enable your internal team as well as your customers to find and report fakes in real time to you so that you can take immediate and deterrent enforcement action.
Retailers strongly prefer margin maximisation and are always on the lookout for a ‘good deal’, thereby becoming sitting ducks for counterfeiters. They buy not only from Brand distributors but also from agents, wholesalers and online. While some of them may be intentionally buying counterfeits, others may get genuinely duped. It is critical to enable them to differentiate between a genuine and a fake, so that they can verify before they buy.
How to Plug the Leak?
While no single precaution can guarantee protection against counterfeiting, a mixture of robust processes and control, and technology solutions can secure your value chain.
Process improvements include recruitment of partners across the value chain only after proper investigations and instituting robust contracts with the provision of monitoring mechanisms and surprise audits with them to ensure compliance.
Use of Technology
Technology has also emerged as a strong partner in protecting brands from internal and external attacks. Here are some ways in which technology can help.
1. Anti-Counterfeit Technology on the Product
Invest in a strong anti-counterfeiting technology which makes your product/ packaging difficult to copy. Anti-counterfeiting technologies include overt, covert and digital features such as tamper evident packaging features, 3D holograms, watermarks, UV markings, tracers and markers and serial identifiers such as QR codes which can run track & trace systems.
2. Easy Verification Platforms
Sign up for mobile, on the go platforms which allow your customers, employees and investigators to quickly tell the genuine and prevent sale of counterfeits in real time.
3. Intelligence Gathering
Create tools that allow internal and external teams to report counterfeits and infringements in real-time and allow powerful analytics to prioritise enforcement effort.
4. Forward and Backward Integration of core Business Applications
Brands should look at investing in core ERP across forward and backward supply chain in an integrated manner. This not only gives better control over the movement of raw materials, production and wastage. Extended distribution management applications help keep a tab on primary/ secondary/ tertiary sales.
5. Logistics Solutions
Keep an eye on your product on the move and keep counterfeiters at bay by investing in logistics solutions equipped with GPS monitoring and electronic locks.
Brand protection is a long game and holistic effort is required with every element of the value chain to make the program successful. Never ignore any vulnerability thinking it to be small as it would be exploited by the counterfeiters to their advantage. Remember, the least protected brand is the easiest target.
Watch out for my next blog on "Why should I use Anti-Counterfeiting Technology?". If you liked what you read, do share in your network. You can follow my articles on LinkedIn and Twitter, or subscribe to My blog.
Tanmay Jaswal is the Founder of Chkfake, a start-up that is disrupting the anti-counterfeiting industry by creating an eco-system of all stakeholders to join the fight against fakes together. The Chkfake mobile app allows users to verify genuineness of any product irrespective of category or brand.
Tanmay has 26 years of global experience in business leadership, marketing and strategy in companies like Coca-Cola and Shell and is an acknowledged authority on brand protection. He has headed the brand protection function for Shell globally and has extensive experience in this space over the last 8 years.