Unparalleled supply chain disruptions and raw materials shortages could be leading to an increase in counterfeit products, which can pose a serious risk to businesses and consumers alike.
With supply chain disruption issues likely to continue for many months to come, Adem Kulauzovic, Director of Automation at Domino, discusses how options for serialisation and track and trace, can help brands to protect their business from illicit trade.
The great supply chain disruption
If we thought that the issues with supply and demand brought about by the COVID-19 pandemic and rapid global lockdowns were temporary, the world had other ideas.
Countries around the globe are now facing supply chain disruption like never before. Demand for products – in everything from food and beverage, electronics, and high-value goods – is at all-time high, while shortages of workers, components, and raw materials; transport and logistics issues; and disruptions in energy supply have combined to create a perfect storm within the global supply chain.
The pandemic has served to expand market vulnerabilities and introduced both direct and indirect impacts on the way global markets purchase and sell goods. Indeed, according to the International Chamber of Commerce’s (ICC) Intellectual Property Roadmap 2020, the COVID-19 pandemic created the most substantial negative supply chain security effect in history[i].
The conflicting rise in demand and shortage of parts and products has resulted in supply chain vulnerabilities that have been exploited by criminal organisations, selling counterfeit goods that are often sub-standard, cheaply made or even dangerous.
Counterfeit products can be divided into two categories – deceptive and non-deceptive. A non-deceptive counterfeit is where consumers can easily distinguish the fake product by its price, quality, and sales location. Consumers know it’s a ‘buyer beware’ type of situation when dealing with certain market street vendors, or online sellers who offers high-end, luxury brands for a fraction of the retail price.
Deceptive counterfeit products, on the other hand, are often identical to the authentic product in price and packaging but not in quality. Consumers place orders for items that they believe to be genuine but receive something else – something which at best may fall apart after a few weeks of use but could also cause them direct harm. These kinds of counterfeit products often emerge when demand outweighs supply and consumers turn to third-party retailers and non-legitimate vendors to find products they can’t source elsewhere.
Studies show that more than 25% of consumers have unwillingly purchased counterfeit products online. Shockingly, a recent test carried out by the U.S. Government Accountability Office, suggested that as many as two of every five brand name products available online through third-party retailers may be counterfeits.
Counterfeit products aren’t just limited to high-end designer brands, electronics, and fashion. Some of the most common counterfeit goods on the marketplace include:
Counterfeit raw materials can also pose a serious issue. When supply chains are disrupted, reduced availability of raw materials can lead to a rise in counterfeits which emerge to fill the gap in supply. Even in times of normal demand, counterfeiters may exploit weaknesses in supply chains by offering lower than normal prices. Such threats contaminate legitimate supply chains, putting both businesses and consumers at risk
We are seeing this issue today with the rise in counterfeit chips for semiconductors. Counterfeit and sub-standard chips are a constant problem in the semiconductor supply chain – but today, with global supply chains in turmoil, and business across the world struggling to get hold of the chips they need to create all manner of different electronic products, the issue is bigger than ever.
The issue is not limited to semiconductor chips – counterfeit components and raw materials create health and safety risks that affect a wide range of industries.
How do counterfeit products affect businesses and consumers?
The creation and sale of counterfeit products can affect a business in many ways – not only do counterfeit products result in an initial loss in sales, but if a product is substandard, it may harm the reputation of the legitimate brand, and damage relationships with business partners. Counterfeiters also leave legitimate businesses to deal with the fallout from counterfeits, and ultimately force brands to spend time and money fighting the issue.
Counterfeit products also pose a significant threat to consumers. A pair of fake designer sunglasses might seem innocent – but if they lack the UV protection of an authentic, regulated product, they could have a detrimental effect on consumers eye heath. Falsified medicines, supplements, and personal care products may contain harmful or untested ingredients or be completely unsuitable for their intended use – with potentially devastating effects. Such was the case in 2004, when counterfeit infant formula in China containing below legal levels of protein, iron, and zinc lead to the deaths of at least 50 infants.
How to deal with counterfeit products
The most effective action against counterfeiting is a collaborative one, where supply chain partners, consumers, and authorities work together to detect counterfeit products, share intelligence, and prosecute offenders. For businesses, a great place to start is in ensuring that products are equipped with unique identifiers which can be used to verify that a product is legitimate.
In recent years countries across the globe have introduced legislation requiring unique identifiers, and product-level serialisation in certain sectors, to facilitate track and trace, and stop illegal, stolen, or counterfeit products from persisting in the supply chain. Regulations include:
- EU Falsified Medicines Directive (FMD 2011/62/EU) – requires item-level serialisation of prescription pharmaceuticals to facilitate track and trace of prescription medical products throughout Europe.
- EU Medical Device Regulation (2017/745/EU) – requires item-level serialisation on medical devices and packaging, and registration on central EUDAMED database, to facilitate track and trace of medical devices throughout Europe.
- EU Tobacco Products Directive (2014/40/EU) – requires serialisation on tobacco packaging to facilitate track and trace of tobacco products throughout Europe.
- US Federal Drug Supply Chain Security Act (DSCSA) – requires item-level serialisation of prescription pharmaceuticals to facilitate track and trace of prescription medical products in the US.
- Russia’s Chestny ZNAK crypto code legislation – requires item-level serialisation of prescription and over-the-counter medicines, and various other products including tobacco and perfumes to facilitate track and trace within the Russian Federation.
Industries that are not required to serialise products can still learn from the implementation of the above regulations. These regulations are supported by databases and systems which facilitate the track and trace of serialised products to allow retailers to check the efficacy of their goods. The same technology can be used to provide this capability to logistics partners, retailers, and consumers, whether or not a brand is required to do so by law.
A serialised, smartphone-readable QR code or Data Matrix code can be used as a vehicle to verify the authenticity of a product once in the hands of a consumer. Adding a 2D code is cheap, and relatively straightforward – once on the product packaging, a simple scan can direct consumers to a website to verify the legitimacy of the product. Counterfeiters can easily replicate the look and feel of product packaging – but will be unable to create a QR code to uniquely identify products.
In some sectors it may not be possible to facilitate item-level serialisation in the short term – however, including a serialised code on individual boxes or pallets can still facilitate information sharing and ensure that counterfeit products which penetrate legitimate supply chains don’t end up in the hands of consumers.
Example: Amazon Transparency
At the recent PACKEXPO Las Vegas tradeshow Domino presented alongside the Amazon Transparency group, to discuss how brands can protect themselves from the risk of counterfeit products. Together, we have teamed up to deliver a viable solution to combat this growing presence in the market using serialised 2D codes.
The solution, Amazon Transparency, is a product serialisation service that helps to identify individual products and prevents counterfeit products from reaching customers. Brands enrol with Amazon Transparency and apply individual Transparency-enabled codes to their product packaging. Amazon scans each individual Transparency-enabled code to ensure that only authentic products are shipped.
At the other end of the chain, customers can authenticate the products that they receive by scanning the code using Amazon’s Transparency app – the app will show a green checkmark if the code is valid and a red X if it is not. Brands can also use the app to provide additional unit-level product information for consumers – this could include details of when and where a product was manufactured or enhanced product information including warranty details and instructions for use.
Codico is here to help tackle the issue of counterfeit products
Counterfeit products are not just an issue for high-end luxury goods. The fight against counterfeits is global, and reaches every industry from industrial goods, electronics, and automotive, to food and beverage, and personal care. Today, with industries around the world all facing the same issues with supply and demand, the risk of counterfeit products is more real than ever.
As a coding and marking supplier Domino has made great strides in supporting brands across sectors with serialising products, and in providing the automated tools and cloud technology necessary to share information and facilitate transparency in supply chains.
If you would like advice on how to counterfeit-proof your operations, safeguard consumers, and protect your brand, please get in touch. We have the products and experience that can help you to tackle the issue of counterfeit products.
Deter Counterfeit Products
[i]International Chamber of Commerce, ‘International Policy Roadmap 2020’, accessed 22nd October 2021, https://iccwbo.org/publication/icc-intellectual-property-roadmap-current-emerging-issues-business-policymakers/