Product counterfeiting: A key concern of the modern supply chain

Despite the tools available to procurement officers, counterfeit goods still plague retail supply chains.

When a person pays top dollar for a brand-name product, he or she expects to receive that item - no exceptions. Therefore, if a knock-off product were to be delivered to that individual's home, the retailer that posted the item on its website would likely have to contend with legal action.

It's a prospect that merchants would rather avoid, yet it's a reality many of them experience on an annual basis - especially during the holiday shopping season. Purchasing management and supplier relationship assessment serve as the first lines of defense against product fabrication.

Counterfeiting: the basics 

According to the International AntiCounterfeiting Coalition, the United States Department of Homeland Security seized counterfeit goods valued at $1.7 billion at U.S. borders and ports in 2013. The IACC maintained that consumer demand for certain products and inadequate supply is inciting the demand for fabricated items. Globally, the trafficking of such goods is growing steadily on an annual basis.

The source noted that counterfeiters typically exploit consumer desire for affordable goods. Overall, this practice negatively impacts the retail industry and its customers in a number of ways:

  1. Poses a physical danger: More often than not, counterfeit products are made with substandard materials, some of which may not be approved by regulatory bodies. This means that some substances may cause harm to children or even adults. 
  2. Puts your identity at risk: Retailers that sell counterfeit goods may actually embed malware throughout their websites that steal payment card information once an order is submitted.
  3. Supports child labor: Counterfeit goods are often made by suppliers that don't report to any authorities that proactively assess environments for human rights abuses. At times, child labor can fall through the cracks. 
  4. Bolsters organized crime: The IACC linked sales profits from counterfeit merchandise to underground criminal figures and even terrorist organizations. 

Obviously, these reasons are enough for enterprises to take action that eradicates counterfeit goods from their supply chains. 

E-commerce company taking a stand 

As companies such as Amazon offer their customers a wide variety of goods, from electronics to furniture, it's easy for poor procurement practices to let fabricated items fall through the cracks. It's a factor that Alibaba Group, a Chinese enterprise that runs China's most popular e-commerce marketplace, Taobao, has taken into consideration. 

Reuters noted that Taobao "has unwittingly become one of the largest counterfeit trading sites in the world," but noted that Alibaba isn't ignorant of this factor. Alibaba CEO Jonathan Lu told the press that the company bears a "serious responsibility in this fight against counterfeits." The executive isn't just talk, either - in January 2013, Alibaba invested $161 million in an effort to identify and eradicate counterfeit products from its websites. 

Has the investment led to anything tangible? The source acknowledged Alibaba's reports that stated the company has successfully blocked more than 90 million products from its e-commerce marketplaces. While this is certainly notable progress, China's State Administration of Industry and Commerce discovered that an estimated 10.6 percent of all goods sold through Alibaba's websites were either fraudulent or suspected of being fabricated. 

What's the best approach? 

Never leave a supplier unaccounted. For companies such as Taobao and Amazon, which offer merchants the opportunity to sell products through them, conducting a thorough review of their sourcing practices is a must. Although there's an argument to be made that such a tactic would cause some retailers to refrain from using those venues, it's a measure that can ensure a marketplace's reputation or practices are never scrutinized for the worst. 

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  1. I don´t think we can limit the range of counterfeited products to only those products where customers have a desire for affordable goods. My experience shows a much broader scope of the problem. Every successful product that is technically not too complex (like a Xbox or PlayStation etc.) will be counterfeited if there is a broad market for it. Even huge steel pipes are counterfeited. The targeted product just need to have this specification: "successful, preferably high profit margin, broad market, technically not too complex"