Counterfeits Remain High Stakes (And High Dollar) Game.

Governance and Legal ComplianceReputational RiskRiskRisk MitigationSupply Disruption+-

In this guest post, GT Nexus' Diane Palmquist highlights the sustained impact of counterfeiting on supply chains and warns against underestimating the risks ahead.  

Fifty-five people died in 1989, when Patnair Flight 394 crashed off the coast of Denmark. Several bolts securing the tail section failed mid-flight. They proved to be fake parts, investigators said, and they couldn't hold up to the stress of flight. It's among the deadliest examples of what can go wrong when counterfeit parts enter the supply chain.

The investigation into Flight 394 indicated spotty maintenance records and no record of where those faulty parts came from. But it's more likely the airline bought those parts from a trusted dealer than it got them through a broker it didn't trust.

Counterfeit parts are a problem. They've been a problem for a long time, and likely will be for years to come. They creep into the supply chain, seemingly without bias toward any specific industry. As a result the statistics behind the global counterfeiting trade are murky. However, many estimates indicate counterfeiting is worth several hundred billion dollars as an industry unto itself. We still don't have a handle on exactly how many counterfeits enter circulation today.

That's perhaps why counterfeits still keep procurement leaders up at night. Particularly those that enter the supply chain through seemingly legitimate channels. As Todd Snelgrove, global manager of value at Swedish bearing company SKF, said at a recent event:

“I used to think of counterfeiting as something that affects consumer brands. But industrial parts counterfeiting, that can cause death. Things can blow up, and we have a full time global team where [identifying counterfeits is] all they do. We work with a bunch of other manufacturers to try to stop this. But we've got some suppliers that have sub-suppliers that have other suppliers, and we need to go further into the supply chain to see where that is and make sure that these things aren't creeping into our own supply chain because of the risk it can cause, ethically and economically.”

Today's supply chains are a vast matrix of partners and suppliers scattered across the globe. A company can't just concern itself with the components it gets directly from the supplier it works with – it also has to consider the relationships that occur further down the chain. And the threat continues to evolve.

New technology like 3D printing could make it even easier for bad actors to make counterfeit parts. If all it takes is a schematic and a printer to fabricate parts that look every bit as authentic as something sold by a manufacturer, what's to keep those parts from making it into an airplane?

Those in procurement face the very direct challenge in identifying the right suppliers, but there's always that concern that somewhere down the line, false goods are sold to one of those suppliers' suppliers. As long as there's money to be made in the creation of counterfeit goods, it will remain a problem that procurement leaders have to consider. Indeed, there's no easy fix.

Advancements in visibility and traceability give us hope that, if we can't completely stop counterfeiters, we can at least stop the flow of fake goods into the supply chain. End-to-end traceability paves the way to watch items throughout the whole product cycle, to verify lots and serial numbers, and to reduce the risk to a company's reputation that comes when poorly made fakes lead to accidents, injuries or even death.

Diane Palmquist is the VP manufacturing industry solution at GT Nexus.

This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.


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