Impact of counterfeiting on efficient supply chain management and avoidance mechanisms

Abstract

A porous supply chain poses hazards to customers and it costs the industry an estimated $200 billion (OECD report) of loss of International trade. There is a need for countrywide deployment of technology solutions to secure a brand or product and also help build integrity within the supply chain. The current preventative measures in place are either redundant or are in some stage of testing. This report provides insight into the problem of counterfeiting and the spectrum of solutions that could be effectively used to combat its effects. We analyse the hazard of counterfeiting from two aspects – business analytics and system dynamics. In business analytics we look at the participants in the supply chain and how do they contribute to the menace of counterfeiting. The short-term and long-term effect of counterfeiting and how should they handle the problem. We also look at various ant-counterfeiting mechanisms in place such as RFID, bar codes, trace and track, coding and marking. In particular we define and analyze Securespin Systems’ solution to handle counterfeiting. We identify loopholes in the model and illustrate situations where the solution is rendered ineffective. The approach of e-pedigrees being increasing adopted in US has been included as a case study in the Appendix. We are the first to use system dynamics approach to counterfeiting. In the system dynamics approach we present the whole ecosystem through a causal loop diagram. The CLD helps us in identifying the interaction between the various factors through feedback loops and causal loops. From the causal loop diagram we identify bottlenecks in managing counterfeit given a particular technology in place. We use stock and flow diagram to study and simulate the market dynamics. We assume that anti-counterfeiting technology is the key determinant of competition and difference in the adoption rate of technology determines the market share of each firm and its effect on counterfeiting with increase in the adoption rate. We observe that there is a churn in adoption rate of anti-counterfeiting measures by various companies in the simulated results. That is firms try to implement a successful technology being followed by another firm or try to do better to gain competitive advantage. Also, we observe that as the adoption rate of the industry increases the level of technology available to the counterfeiter decreases. We feel there is a need for further fine-tuning of these results on the basis of real-life data which is currently unavailable. The actual data will serve as training data set increasing the accuracy of our model. In the last section of the report on the basis of business analytics and system dynamics we make recommendations for every stakeholder. The need is for an overall strategy to manage the counterfeiter's criminal intent that reduces damage to brands and health of people, at an affordable cost. This includes stringent regulatory mechanisms, state-of-art technology, maximum customer awareness and strict transit control.