Challenges
What risks are impacting your bottom line?
High Tech Industry Challenges
To stay competitive, companies are pushed to seek new global markets and to outsource their production.
Today, many companies are forced to utilize low-cost regions such as China and India just to survive. With the tempting cost-savings globalization has to offer, comes considerable risk.
Unfortunately, companies don’t have an adequate understanding of the magnitude of this risk. Without the proper planning and tools in place, they are open targets to two main categories of risk – counterfeiting and unauthorized sales channels.
These risks affect every facet of your business. They affect your bottom line, stock value, and can end a product even before it is launched.
What’s really driving these risks?
Cost cutting techniques and practices. Back in the early 1990s, company managers turned their production departments into well-oiled machines incorporating just-in-time and lean manufacturing techniques, reducing costs from the processes by which they got electronic components to the right places. More recently global outsourcing was added to the list of cost-saving supply chain solutions. However, these practices brought about considerable risks from counterfeits and gray market sales.
More demanding customers leading to demand fluctuations, shorter product lifecycles, greater product variety and price sensitivity have pushed manufacturers to seek new global markets, to outsource their production and find new ways to have a more lean operation. According to a Deloitte report on Supply Chain Risk Management there is a trend toward concentration and globalization, resulting in downsizing and outsourcing production locations and/or sales outlets, with an emphasis on greater efficiency and economies of scale. All of these activities are making manufacturers more vulnerable to risks such as counterfeits and unauthorized distribution.
Globalization and outsourcing to low cost regions such as China and India have made the situation significantly more challenging. Companies are struggling with a significantly increased counterfeit and unauthorized distribution problem.
Lean manufacturing techniques are another trend that
can lead to potential enterprise risks.
According to a research report by Mark Hillman, AMR Research analyst, “As firms race to incorporate global sourcing strategies, integrate contract manufacturing relationships and deal with the increasing number of events that can cause disruptions, managing risk is an increasingly critical need. At stake are billions of dollars of stock market capitalization, market share losses, or even the possibility of going out of business because of an inadequate understanding of the magnitude of these risks.”
Pharmaceutical Industry Challenges
Counterfeit Pharmaceuticals…A Serious Threat to Patient Safety
The Manufacturer’s Bottom Line and Reputation Are in Jeopardy
Pharmaceutical counterfeiting is on the rise in the United States and around the globe, potentially putting at risk the health of millions of patients who take for granted that the prescription medicines they buy are safe and effective. Counterfeit drugs are dangerous by their very nature, because they are not produced under safe manufacturing conditions and they are not inspected by regulatory authorities. Therefore, it is impossible for consumers to know what ingredients these products may actually contain.
Often people think that pharmaceutical distribution in the US is safeguarded from counterfeits. Unfortunately, although the US has some of the most stringent regulations, counterfeits that are produced all over the world without meeting US regulatory requirements, are sold over the internet to US consumers. And, these illegal internet sales continue to increase.
Why is there an increase in counterfeit drugs? There is a growing involvement in the drug supply chain of under-regulated wholesalers and repackagers, a proliferation of Internet pharmacies, advancements in technology that make it easier for criminals to make counterfeit drugs, and the increased importation of medicines from Canada and other countries.
Some of the larger pharmaceutical companies are trying to educate the public about the need for caution when purchasing their medicines and the importance of closing our borders to these potentially dangerous products. Since large and sophisticated criminal organizations with global reach are now behind much of the counterfeiting problem, drug manufacturers are trying to address this problem globally.
Luxury Goods Industry Challenges
The counterfeit and gray market luxury goods trade is estimated at $300-600 billion. The proliferation of e-commerce and internet sales has provided counterfeit and gray market operators with ready access to consumers and markets. The number of visitors to counterfeit e-marketplaces jumped threefold annually last year. And while footwear has been the top commodity seized since 2006, handbags/wallets/backpacks experienced a more than 100% increase in counterfeit activity over the 2007-08 period. Given the current economic environment, the number of counterfeit sites will only increase.
For example, in February 2009, US Customs and Border Patrol (CBP) seized more than 25,000 Italian, French, and German designer shirts with a retail value of $5.7 million at Miami International Airport. The goods were produced in China and on their way to the Dominican Republic, but seized because of trademark violations.
Not only are the counterfeiters making copies, they are making “supercopies” that employees of well-known luxury goods manufacturers cannot distinguish from legitimate product. The high profit margins achieved through selling counterfeits and gray market products make this a very attractive business for organized crime. The damage that these perpetrators do to manufacturers’ brands and revenues cannot be understated. Nor can the associated job loss.
Every Counterfeit Purchased Equals a Sale Lost
In a recent NRF survey, 85% of respondents said that they had been a victim of organized retail crime in the past 12 months – and 63% responded that they had experienced an increase in e-fencing of their goods over the same time period. Losses to counterfeit not only damage brand, image, and revenues, they hurt channel loyalty. Heavily discounted gray market products and distributors selling cross-region are the main reasons that channel partner loyalty erodes. The counterfeiters are extremely sophisticated, copying everything from ad campaigns to the product itself. While many retailers acknowledge that entirely stopping counterfeiting may never happen, each counterfeiter or gray market participant stopped bolsters brand, image, and revenues.