Detecting counterfeit threats in clothing supply chains
Despite progress in better monitoring of potential human rights and social abuses by overseas suppliers, a recent uptick in counterfeiting and IP theft has prompted fresh worries in the American fashion industry
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These include "legacy threats," such as theft, cost manipulation, and diversion of output onto the black market," according to Norm Litterini, Washington DC-based risk, threats and analytics director at accounting network PwC.
“Threats in your supply chain are changing faster than your analogue tracking processes. One courageous person posting something on social media can change the world – and you need to be able to detect something like that.”
Despite global progress made against sweatshops, publicity surrounding abuses can still have significant potential to cause trouble for brands, says Litterini, a West Point graduate who spent more than two decades working on global crisis domain threats for the US military.
"Threats in your supply chain are changing faster than your analogue tracking processes. One courageous person posting something on social media can change the world – and you need to be able to detect something like that."
A recent report from the Organisation for Economic Cooperation & Development (OECD) shows fake and counterfeit goods constitute 3.3% of global trade, valued at US$509bn – figures that do not include domestically produced and consumed fake goods, or pirated products being distributed via the internet.
The goods making the biggest shares of seizures are footwear (22%), clothing (16%) and leather goods (13%), with most fake goods originating in China and Hong Kong, with other major points of origin including the United Arab Emirates (UAE), Turkey, Singapore, Thailand and India.
The countries being targeted the most were the United States, whose brands or patents were the focus of 24% of the fake products seized, followed by France at 17%, Italy (15%), Switzerland (11%) and Germany (9%).
As regards detecting counterfeiting, Litterini says industry can learn lessons from military cyberwarfare techniques, advanced data collection, analysis and associated controls. The automation that will make counterfeiting and fraud problems "more surmountable is already here today. The types of solutions that the fashion industry will find useful exist and they're out there in the national security realm."
“Adequate threat detection means collecting data from several levels into the supply chain.”
With such technology, versions of which are becoming available in the private sector, "the proverbial needle in the haystack is getting easier to detect," he told a webinar on 'A Needle in a Haystack: Supply Chain Threat Detection’ run by the US Fashion Industry Association (USFIA).
"The nefarious activities may differ, but the first upside is that all the bad guys who would like to operate in your supply chain have roughly the same playbook," and that is they launder money – an activity that banks, other financial institutions, accountants and other professionals have a duty to look out for and report.
Adequate threat detection means collecting data from several levels into the supply chain. Indeed, brands need to dig deeper, looking at contacts of contacts to see if their suppliers have known criminal links.
"The very same actors that we see in connection with narcotics, human traffickers and money launderers" may also target the clothing sector," says Litterini. "There are synergies between these groups, and they try not to be your top-tier customer. You've got to look out to your second, third and fourth level.
"The data's there and it's telling you that there's a certain list of hot vendors out there that you've got to be hitting. Counterfeiting is as bad as it's ever been. You need to address this, and other problems and it is doable."
Image courtesy of AHMAD FAIZAL YAHYA / Shutterstock.com
One useful strategy is to take a risk-based approach, focusing resources on poorly regulated jurisdictions where counterfeiting and IP theft is most likely to occur. There are also "hot locations," he explains, noting: "You've got to be monitoring, also protecting your IP, particularly if you're talking about Russia, China or other weakly regulated states."
In addition to IP theft, data protection and counterfeiting threats also tend to originate from these areas. He adds that clothing companies also needed to dig deep to make sure their supply chain members are not linked to entities and people covered by sanctions, for instance in Russia and Iran.
USFIA president Julia Hughes says anecdotal evidence points to some threats originating from within the supply chain itself. "We're hearing that sometimes the source for counterfeits is connected to who's in the supply chain taking the seconds or remainders and selling them."
This, of course, echoes Litterini's call for supply chain deep dive analysis, increasing and more sophisticated data collection, with surveillance systems being smarter and not just constituting a "data lake" that companies need to fish around in.
"It's got to be decision oriented," Litterini says of the systems that companies need. "It's got to be able to pass the 'so what' test. Do I drop that vendor or do I just need to make a phone call?"
And while the data costs needed to address these supply chain threats "tend to be pretty breathtaking across an organisation," he argues anything that prevents a company from being “the next headline" must surely justify it.
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