Unprecedented disruptions in the supply chain and shortages of raw materials may be contributing to a rise in counterfeit products, posing a significant threat to both businesses and consumers.
Given the ongoing challenges in the supply chain, Adem Kulauzovic, Director of Automation at Domino, explores the role of serialisation and track-and-trace options in safeguarding businesses from illicit trade.
The great supply chain disruption
If we believed that the challenges arising from the COVID-19 pandemic and the swift global lockdowns were transient, the reality has proven otherwise.
Nations worldwide are now grappling with an unprecedented level of supply chain disruption. The demand for products, spanning food and beverage, electronics, and high-value items, has reached record highs. Concurrently, shortages in workforce, components, and raw materials, coupled with logistics and transportation issues, as well as disruptions in energy supply, have converged to create a perfect storm in the global supply chain.
The pandemic has magnified vulnerabilities in the market, introducing both direct and indirect impacts on the global buying and selling of goods. According to the International Chamber of Commerce’s Intellectual Property Roadmap 2020, the COVID-19 pandemic has induced the most significant adverse effect on supply chain security in history.
The conflicting dynamics of surging demand and a scarcity of parts and products have exposed vulnerabilities in the supply chain, providing opportunities for criminal organizations to exploit the situation. They engage in selling counterfeit goods, often of substandard quality, cheaply made, or even hazardous.
Counterfeit products
Counterfeit products can be categorized into two types – deceptive and non-deceptive. Non-deceptive counterfeits are easily discernible by consumers based on factors such as price, quality, and sales location. Consumers are aware of the “buyer beware” nature when dealing with certain market street vendors or online sellers offering high-end luxury brands at a fraction of the retail price.
Deceptive counterfeit products, on the other hand, closely mimic authentic products in price and packaging but not in quality. Consumers order items they believe to be genuine but receive something inferior that may deteriorate after a few weeks of use or, in more severe cases, pose direct harm. Such counterfeit products often arise when demand surpasses supply, leading consumers to seek products from third-party retailers and illegitimate vendors.
Studies indicate that over 25% of consumers have unwittingly purchased counterfeit products online. In a recent test conducted by the U.S. Government Accountability Office, it was suggested that up to two out of every five brand-name products available online through third-party retailers could be counterfeits.
Counterfeit products extend beyond high-end designer brands, electronics, and fashion. Some of the most prevalent counterfeit goods in the marketplace include:
- Makeup
- Skincare
- Supplements
- Medication
Counterfeit materials
Counterfeit raw materials present a significant concern, especially during supply chain disruptions. When there is a shortage of raw materials due to disruptions, counterfeit alternatives may emerge to fill the gap. Even under normal demand conditions, counterfeiters might exploit vulnerabilities in supply chains by offering below-average prices. These threats infiltrate legitimate supply chains, jeopardizing both businesses and consumers.
The current surge in counterfeit chips for semiconductors exemplifies this challenge. Counterfeit and substandard chips have perennially plagued the semiconductor supply chain. However, in the current scenario of global supply chain upheaval, businesses worldwide are struggling to procure the necessary chips for a variety of electronic products, amplifying the magnitude of the issue.
This issue extends beyond semiconductor chips, as counterfeit components and raw materials pose health and safety risks across various industries.
How do counterfeit products affect businesses and consumers?
The production and sale of counterfeit goods can impact a business in various ways. Beyond the initial loss in sales, counterfeit products, if substandard, have the potential to damage the reputation of the genuine brand and strain relationships with business partners. Legitimate businesses are also left to contend with the repercussions of counterfeit products, necessitating the expenditure of time and resources to combat the issue.
Moreover, counterfeit products pose a significant threat to consumers. While fake designer sunglasses may seem harmless, lacking the UV protection found in authentic, regulated products could have adverse effects on consumers’ eye health. Counterfeit medicines, supplements, and personal care items may contain harmful or untested ingredients or prove entirely unsuitable for their intended purpose, leading to potentially devastating consequences. A tragic illustration of this occurred in 2004 when counterfeit infant formula in China, containing below-legal levels of protein, iron, and zinc, resulted in the deaths of at least 50 infants.
How to deal with counterfeit products
The most impactful strategy to combat counterfeiting involves collaboration, with supply chain partners, consumers, and authorities working collectively to identify counterfeit products, share information, and prosecute perpetrators. For businesses, a key initiative is to ensure that products are endowed with distinctive identifiers that can be employed to authenticate their legitimacy.
In recent times, various countries worldwide have enacted legislation mandating unique identifiers and product-level serialization in specific sectors. These measures aim to facilitate track and trace capabilities, preventing the perpetuation of illegal, stolen, or counterfeit products within the supply chain. Regulatory initiatives encompass:
- 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 exempt from product serialization requirements can derive valuable insights from the implementation of the aforementioned regulations. These regulations are underpinned by databases and systems that enable the tracking and tracing of serialized products, allowing retailers to assess the effectiveness of their goods. The same technology can extend this capability to logistics partners, retailers, and consumers, irrespective of legal mandates for a brand to do so.
A serialized QR code or Data Matrix code, readable via smartphones, can serve as a means to authenticate a product once it reaches the consumer. Incorporating a 2D code is cost-effective and relatively simple. Once on the product packaging, a quick scan can guide consumers to a website for product legitimacy verification. While counterfeiters can replicate the appearance of product packaging, generating a unique QR code for identification becomes an obstacle for them.
In certain sectors, implementing item-level serialization might pose challenges in the short term. Nevertheless, incorporating a serialized code on individual boxes or pallets can still facilitate information sharing, ensuring that counterfeit products infiltrating legitimate supply chains are prevented from reaching consumers.
Example: Amazon Transparency
During the recent PACKEXPO Las Vegas tradeshow, Domino collaborated with the Amazon Transparency group to address the rising threat of counterfeit products. Together, we introduced a practical solution utilizing serialized 2D codes to combat this issue.
The solution, Amazon Transparency, is a service for product serialization, aiming to identify individual products and prevent the distribution of counterfeit items to consumers. Brands join Amazon Transparency and affix individual Transparency-enabled codes to their product packaging. Amazon conducts scans on each code to ensure only authentic products are dispatched.
On the consumer end, individuals can verify the products they receive by scanning the code using Amazon’s Transparency app. The app displays a green checkmark for valid codes and a red X for invalid ones. Additionally, brands can use the app to offer consumers additional unit-level product information, such as manufacturing details, enhanced product information, warranty details, and usage instructions.
Codico is here to help tackle the issue of counterfeit products
Counterfeit products extend beyond high-end luxury items, posing a global challenge across various industries, including industrial goods, electronics, automotive, food and beverage, and personal care. With the current widespread disruptions in global supply chains, the threat of counterfeit products is more significant than ever.
As a leading provider of coding and marking solutions, Domino has played a pivotal role in assisting brands across diverse sectors by implementing serialization for products. We offer automated tools and cloud technology to facilitate information sharing and enhance transparency in supply chains.
If you seek guidance on fortifying your operations against counterfeiting, ensuring consumer safety, and safeguarding your brand, please reach out. We possess the products and expertise necessary to help you address the issue of counterfeit products effectively.
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/
