Breaking counterfeit: Validating supply chains using blockchain
It’s an unfortunate truth, but we’ve all inadvertently purchased a counterfeit product at one point in our lives. The modern consumer market is saturated with them. In recent years, counterfeit manufacturers have entered big-name online retailers looking to make a profit from reproducing, and then selling, knock-off versions of our favorite brands.
And, unbeknownst to us, we buy them, often at a premium, with little to no way of verifying their authenticity. In fact, counterfeit and pirated products are projected to drain $4.2trn from the global economy, and will put 5.4mn legitimate jobs at risk by 2022, according to the International Chamber of Commerce (ICC).
It’s a problem that most of us recognise, but few fully understand. Imagine purchasing a top-of-the-line product online. You see the picture, as well as the description, but how do you verify that what you receive in the mail is what you intended to purchase? As a consumer, this process can be extremely time-consuming and confusing. And as we enter an age where online retailers are increasingly the platform of choice for most buyers, many do not want to waste time validating their product.
In searching for practical solutions, blockchain technology, which has gained international notoriety for being the mechanism behind cryptocurrencies like bitcoin, may hold the key to ensuring confidence in an increasingly uncertain consumer system. Blockchain provides users with a decentralised ledger that can store an entire history of transactions across a shared database. This record can be accessed and verified from virtually any location in the world, making the authentication of counterfeit goods a seamless process — whether you’re located in the United States or in Singapore.
For distributors, this technology holds tremendous potential for highlighting transparency across multiple vendors. In today’s globalised market, a single product often uses parts that come from different sources, which can be difficult to coordinate. As a result, even the most ethical company can fall victim to incorporating counterfeit goods in their final product. However, with blockchain, companies can store all of this information on one, secure record. Every time a product changes hands, the transaction is stored on the blockchain. Every time a product is transferred to another location, that information is recorded.
For consumers, having access to this kind of data has the potential to completely transform their understanding of a product before they purchase it, serving as the first line of defense against counterfeit schemes. Before blockchain, much of this vetting responsibility was delegated to the retailer. Now, the policing power has been placed into the hands of the person that matters most: the buyer.
And while large-scale retailers try their best to verify the integrity of the products they sell, many let fraudulent practices slip through the cracks. Amazon was recently implicated in selling a counterfeit version of popular headphone accessory “The Anchor.” The phony product, according to a statement by Anchor founder and creator Casey Hopkins, was reverse engineered to look exactly like the original but with lower quality products.
Amazon has since responded to Hopkins, stating that while the company invests heavily into dedicated teams of software engineers that continuously refine their anti-counterfeiting program, some of the onus falls on the consumer to recognise when a product is a counterfeit. If this is truly the case, how are smaller-scale companies expected to protect the integrity of their products against counterfeiters who are are experts at deceiving the general public?
Companies using blockchain are already working to address this problem, providing heightened security for both the manufacturers selling their products and the consumers buying them. Here at Sweetbridge, we are working to create an accounting protocol that aims to be one of the first tools to increase supply chain transparency on the blockchain. Using this technology, organisations will be able to better understand the financial strength of the vendors they interact with, and consumers will be able to better understand the origin of the products before they buy them. It’s a win-win scenario.
While blockchain’s use-cases are certainly promising, conquering the counterfeit epidemic won’t happen overnight. Seizures of counterfeit items by the U.S. Customs and Border Protection continue to rise year after year, with more than 31,000 seizures occurring in 2016 alone — representing roughly $1.38bn in value. When one faulty product is discovered, it seems that two more arise.
To truly effect change, members of the supply chain, from big-budget online retailers to local manufacturers, must work together to demand greater accountability from the systems that keep their businesses afloat. Using blockchain, this can be a reality. And, sooner than you might expect, customers and manufacturers alike will be able to ensure that what arrives on your doorstep is exactly what you intended it to be.
Procurement Outsourcing: Partnering with Outside Experts
In coming years, supply and demand will fluctuate, new technology will change the way procurement teams operate, and skilled workers will be in short supply. Outsourcing procurement is now a priority. Explained John Piatek, GEP Vice President and Thought Leadership Council Chairman: “In the face of wild swings in consumer demand, trade wars, tariffs, and lockdowns...supply chains bent and frequently broke.” Therefore, companies need to know how to recover.
The Rise of Strategic Procurement
The pandemic placed procurement on a higher level within business operations. Executive boards that previously overlooked or undersold the value of procurement started to sit procurement managers around the table with strategic advisors to mitigate risks, optimise costs, and drive growth. ‘‘This year has demonstrated the importance of bringing CPOs into C-suite conversations”, explained Jennifer Brown, Principal, Deloitte Consulting. “They bring significant value to the table.”
Procurement teams now race to find skilled, third-party vendors to provide services they can neither afford nor prioritise. “Outsourcing of S2C can give companies access to expertise, capabilities, and scale they may not have in-house,” said Iliana Filyanova, Partner for McKinsey’s Manufacturing & Supply Chain. For example, expert outside firms can analyse market conditions, supply specialised goods such as semiconductors or uniquely designed parts, and help develop a strong IT infrastructure.
To be clear, if your team can skillfully outsource, a whole new world opens up: you can rapidly adjust to market conditions, scale up when demand spikes, and scale down when dips hit.
First, you can cut costs. Suppliers in Southeast Asia and other low-cost countries can provide large amounts of materials and products at excellent prices without the political backlash that often accompanies offshoring. But outsourcing has several advantages. When you get specialists on board, you can shorten development times, hire additional staff without having to train them, and digitise your procurement systems thanks to IT experts.
- Increases focus on core tasks
- Provides staff more time to fulfil their priorities
- Supplies next-gen technology expertise
- Reduces operational costs
- Helps prevent duplicate payments
These benefits only accrue, however, if your team carefully defines the scope of the operation. When you try to hit the bull’s-eye on a dartboard, you aim directly at the centre. It takes a certain angle, force, and skill. Likewise, procurement teams must figure out what and how much to outsource. Outsourcing still requires spending, and teams will want to get good data before they sign a final contract. In addition, staff members should be on board with the rationale and objectives of the outsourcing project—otherwise, your darts will miss their target.
How To Successfully Outsource Procurement
According to McKinsey, teams should focus on three main steps.
- Determine which categories to outsource. Focus on non-core business areas. These are any services that support your core product, such as freight and shipping, facilities, and IT infrastructure.
- Select the right metrics. Build supplier scorecards, in which your team decides upon two to three key criteria such as low unit prices, supply chain resilience, and quality of product.
- Partner with the appropriate people. Ask potential firms questions to assess their domain expertise; diversify your search to take in a variety of global organisations, and consider their technical skills—even if you’re not hiring the vendor for IT.
If these focus areas seem too broad, Deloitte recommends a phase-by-phase process.
Deloitte: The Seven Stages of Outsourcing
Starting the Search
First, companies should Assess and Prepare. These steps include defining vendor requirements and starting to engage. In these phases, you may do some background research but not engage with them directly. Web searches can yield initial results, and consultants can also help—especially those who know the strengths and weaknesses of your industry. After you have your list narrowed down, you can produce a strong, detailed RFP.
Naturally, your RFP will attract the relevant suppliers, and you’ll be able to move to Evaluate. If you’ve chosen strong metrics, two to three top vendor proposals should stand out. Be forewarned, Deloitte said: the next part is tricky. Committing, or negotiating your final contracts, will lock you into a potentially multi-year collaboration with a vendor. Take your time: you can deliberate over competing offers, as well as request that additional support be built into the contract.
Negotiating the Best Deal
Advocate for your best interests! “I moved forward to negotiate with a current contract manufacturer with whom we had an important volume commitment with high prices,” said Elodie Cramer, Associate Director of Biogen. “We were in a single-source situation, with no active alternatives.” She opted to pursue dual sourcing, as well as insist on open vendor discussions. At the conclusion of the talks, she had bartered better terms: 29% lower costs, 75% less volume commitment, and improved vendor quality and service.
Additionally, teams should discuss details such as how to optimise taxes, meet regulatory compliance, and protect ESG standards. Safety-catch measures like these may seem to extend the outsourcing process, but they’ll ensure that you don’t end up spending more over the long term. Compliance, after all, can drive 30% to 50% of savings, and talking about it upfront is for the best for all concerned.
Closing the Case
Once you’ve reached acceptable terms, you can Transition, handing the project work and resources over to your vendor, and Optimise, following up to manage and improve the relationship. Don’t forget to dot your i’s and cross your t’s—Deloitte even recommends an end checklist. Sign the contract; create a people transition plan; complete consultations with any oversight committees. After signing the paper with a flourish, you can then rest easily, confident that you’ve followed a strategic outsourcing system.
Companies To Emulate
Procter & Gamble, Unilever, Slack, Alibaba, Acer: even major multinational companies seek to outsource specific systems, technical skills, or materials. When Unilever integrated its ERP platforms into a single system, outsourcing saved the company an annual €700 million. Slack outsourced its universally-known colourful design label to MetaLab. Alibaba outsourced to US firms to compete with eBay. Acer outsourced manufacturing to maintain a small, agile team. As a result, these companies improved their international reputations, offset their internal weaknesses, and built strong vendor partnerships.
As executives increasingly turn to procurement to make their global operations less costly and more resilient, teams that strategically outsource work will stand a better chance of bringing good news to the next management meeting. Said Ryan Flynn, Principal, Deloitte Consulting: “CPOs are uniquely positioned to help their organizations navigate a historically disruptive time and build the agility required to thrive.”
Yet to do so, they must act with intent. “Successful outsourcing—outsourcing that drives transformation and helps achieve broad strategic goals—requires companies to follow a disciplined process,” wrote Deloitte. In short: Outsourcing initiatives succeed not by luck, but by design.