A U.S. manufacturer of high-technology products noticed its sales were dropping precipitously in one area of the globe. Upon further investigation, the manufacturer found that its products were being illegally copied at a factory in China and then being sold as authentic goods.
This manufacturer, $2.6 billion Analog Devices Inc., successfully prosecuted the counterfeiter and stopped the flow of bogus goods. This time, anyway.
Counterfeiting costs the U.S. economy between $200 million and $250 million per year.
Unfortunately, ADI’s case is the exception rather than the rule. Small and midsize manufacturers rarely have the resources to deal with counterfeiters in court. However, there are many ways that don’t require lawyers and deep pocketbooks that smaller companies can protect themselves, and their customers, against counterfeit goods.
One way is through strict vigilance of your supply chain. For example, Sparton Corp., a $200 million manufacturer of subassemblies for the aerospace, government, and medical equipment markets, must guarantee the quality of its work. If it doesn’t, it risks losing some very significant customers. One of the challenges Sparton faces is sourcing “legacy” parts, devices that its suppliers no longer make for one reason or another. “We are dealing with product designs that date back to the mid-1970s,” says David W. Hockenbrocht, CEO of Sparton. “We use parts that aren’t always available through the ‘Class A’ arena.”
When possible, Sparton buys parts directly from component vendors or through vendor-authorized distributors. If parts aren’t available through those channels, Sparton turns to brokers, companies that buy and sell excess and obsolete parts in the open market. Brokers buy from multiple sources, so tracing the origin of open-market components is difficult. Additionally, component vendors won’t guarantee the performance of parts bought in the open market. This increases the risk, and cost, of procuring a substandard or counterfeit part.
Sparton carefully vets all of its suppliers. “Developing ‘trust and verify’ relationships with suppliers is key,” says Hockenbrocht. This involves the following:
- Periodic audits of distributor and broker practices and processes to determine competency and build trust
- Regular evaluation of the distributor’s and broker’s supply chain to determine whether they are purchasing in high-risk markets
“This is only a reflection of what Sparton does,” says Hockenbrocht. “We are not saying we have it nailed, but we do have a process to identify and isolate counterfeit parts.”