combating product counterfeiting risk to supply chain

Combating The Impact of Product Counterfeiting: Defining the Growing Risk to Supply Chain

Cost and Service Performance

Omar Keith Helferich PhD

September 23, 2010

© 2010 Michigan State University

Overview

• Source of Information and experience

• Review of Planning and Response during major disruption events

• Review of MSU National Center for Food Protection and Defense Research

• Recommendations to enhance Food Supply Protection


Research and Industry Perspective

• Michigan State Anti-Counterfeiting and Product Protection Program (A-CAPPP)

• National Center for Food Protection and Defense (NCFPD)-Food and Pharmaceuticals

• National Environmental Health Association

• Industry Sustainability Assessment


Review: Counterfeit in Food Safety

Counterfeit/ Economic Fraud

Food Defense/ Bioterrorism

Food Safety

Discussion Scope


Review: Counterfeit Actions

• Adulterator

• Tamperer

• Thief

• Over-runs/ Unauthorized Production

• Diversion

• Simulation or Look-a-likes

• Counterfeiter


Review: Supply Chain Aspects of the Food Threat

• The international supply chain

– Overview

– Diversion

– Transshipment

– Free Trade Zones

• SCM countermeasures and deterrents

– Integrated approach/ raise the stakes

– Coordinated activities/ countermeasures


Review: Food Fraud Scale

• The global counterfeit food threat is estimated at $49 billion, and the UK’s Food Standards Board (FSA) estimates the UK “level of fraud” around 10 percent. (Ravilious, 2006)


Review: Food Fraud Scope

• Product Substitution

• Product Up-labeling

• Product Adulteration

• Product Copy/ Unauthorized Refill

• Product “Freshening”


Review: Counterfeit Countermeasures

• Overt

• Covert

• Forensic

• Track-and-Trace

• Authentication

• Investigation

• Regulation

• …Standard Operating Procedures


Research and Field Experience: Over 25 years

Issues:

Chaos after an Incident

Public Health

Secondary Events

Communications & Infrastructure Damage

Economic and Public Services Recovery

• Safety & Environmental Health

engineering & research

• Coordinating Logistics for

• Red Cross Logistics & Mass Care

Field Volunteer during major events

• MSU Food Security Research Team

for DHS -2005-07

• Research in sustainability &

disaster planning & recovery

• Co-Developed initial white paper on

supply chain security following WTC

2001

Ground Zero

WTC 2001


Dimensions of SC Security: Incident Management Process(*)

1. Planning

2. Mitigation

3. Detection 4. Response

5. Recovery

Lessons

Learned

Supply Network Continuity Management Process

*Comprehensive *Simple *Flexible *Tested

*Revised for Changing Threats

Minimizes Loss & Disruption

* Drs. Helferich and Cook: 2002 CLM Research Results


Dimensions of Supply Chain Security: Impact Matrix

Attribute Scale Measure

Severity Minor to Massive Lives, Injuries, Fear, Dollars, Performance

Duration -

Impact

Minutes to Years Time

Geographical Local to Global Square Miles and Boundaries

Detectability Easy to Difficult Warning Systems and Awareness

Frequency Low to High Historical vs. Concern

Wind, Water, Disease, Fire, Explosion, Contamination, Radiation

Other SC Disruptions - Intentional/Unintentional


Dimensions of Supply Chain Security : Measures

• Ability to detect security incidents

• Reduction in the number of security incidents

• Increased resilience in recovery

• Changed risk profile –exposure vs. actual cost

• Changed cost with continuity programs, insurance vs. shrink, injuries, downtime, turnover, temporary substitution

• Improved security relative to competitors

• Improved ability to meet security requirements

• Relationships without recognition of potential risk vulnerabilities


Intentional and Accidental Food Contamination and Disease Outbreak Impacts

Year Event Impact

1984 Salad bar contaminated by religious cult 751 ill

1989 Detection of cyanide in Chilean grapes $200 M

1996 Outbreak of BSE in UK cattle $5.8 B

1997 Outbreak of FMD in Taiwan pork 3.85 M hogs

1999 Contamination of livestock feed with dioxin $850 M

2001 Outbreak of FMD in UK cattle $8.32 B

2003 Exotic Newcastle disease in US poultry $180 M

After 03 Spinach, Beef, Pet food, Toothpaste, Seafood, etc. $M to $B

Yearly Losses due to 5 major food borne pathogens in US food supply

$6.9 B


Food Supply Vulnerability (*) • Planning completed to prepare and respond to intentional disruptions is also

valuable for natural or accidental events.

• The severity and impacts of the incident are dependent on the agent and scenario, ability to accomplish the event, and efficiency and effectiveness of detection and response.

• Significant evidence has been found that indicates that agro terrorism is a target of terrorist groups.

• World Health Organization urges “farm to fork” contingency planning due to the potential impact of attacks on national food supply sources. WHO states the following as examples, but expects it could be much worse depending on the agent used:

• 1985- 170,000 sick in the US from contaminated pasteurized milk

• 1991- 300,000 infected with Hepatitis A from clams sourced in China

• 1994- 224,000 infected with salmonella from ice cream in US

* Dept of Homeland Security: Areas of Vulnerability: People, Physical & Processes


Introduction and Dimensions of Supply Chain Security

• The application of policies, procedures, and technology to protect SC assets (product, facilities, equipment, information, and personnel) from theft, damage, or terrorism and to prevent the introduction of unauthorized contraband, people, or weapons of mass destruction.

– Closs and McGarrell (2004)


MSU R&D Initiatives: DHS Supply Chain Security Benchmarking Objectives

• Define Supply Chain Security

• Identify status of supply chain security initiatives

• Identify competencies and capabilities that firms are using to enhance supply chain security

• Discuss benchmarking tool for improving supply chain security

This research was supported by the U.S. Department of Homeland Security (Grant number N-00014-04-1-0659), through a

grant awarded to the National Center for Food Protection and Defense at the University of Minnesota. Any opinions,

findings, conclusions, or recommendations expressed in this publication are those of the author (s) and do not represent

the policy or position of the Department of Homeland Security.


MSU DHS Research Supply Chain Security Impact: A State of Transition

• From – Corporate security

– Theft prevention

– Inside the company

– Vertically integrated supply chain with 1st tier suppliers

– Country or geographic

– Contingency planning

– Reactive

• To – Cross functional team

– To include anti-terrorism

– End-to-end supply chain

– Business model that includes 2nd and 3rd tier suppliers

– Global

– To include crisis management

– Proactive


MSU Research Conclusions

• Food supply chain firms are increasingly interested in protecting their supply chains to protect their customers and brand names.

• Firms must develop a broad range of competencies to achieve supply chain protection.

• Firms have seen performance improvements in detection and resiliency.

• In general, firms embarking on supply chain security initiatives will, at least initially, increase firm and supply chain operating cost.

• Better performance is linked to extended supply chain security efforts throughout the supply chain.


Where is Your Firm’s Security Program Opportunity? Vital Segments Priority Tools/ Methods Improvement Tasks/COAs

1. Senior Management Input Formalize Senior Mgt

Council

2. Risk Assessment Define and Prioritize Risks

3. Benchmarking Formal Benchmarking-MSU

4. Facility Security Risk

Assessment

Utilize Formal Risk

Assessment- Carver Shock

5. Baseline Security-

Protection

Top Priority Risks

6. Enhanced Security-

Protection

CRT Process for Unique

Incidents

7. Security Program Design SC Cross Functional &

Process Design

8. Plan and Process

Implementation

Independent Audits

9. Process Monitoring &

Control

In Line Security Process with

Balanced Scorecard Metrics

10. Process Review

Ongoing Measurement &

Learning

Accumulative Continuous Improvement


Assessment of Food Vulnerability: CARVER Plus Shock

• Assessment method most commonly used and recommended by both USDA and FDA is the CARVER plus Shock.

• This tool can be used to assess vulnerabilities within a system or infrastructure. Conducting the assessment allows focus on the most vulnerable points that pose the greatest risk.


Assessment of Food Vulnerability: CARVER Plus Shock

• CARVER plus Shock is an acronym for seven attributes used to evaluate the attractiveness of a target for attack:

– Criticality- measure of public & economic impacts

– Accessibility-ability to access target

– Recuperability- ability for system to recover

– Vulnerability- ease of accomplishing the attack

– Effect- amount of direct loss from attack

– Recognizability- ease of identifying the target

– Shock- combined measure of the physical, health, psychological and economic effects of attack


Summary of Key Learning's: Supply Chain & Security

. • Need for a “Baseline Process” based on Risk • Recognition that Security is not a “Quick Fix” • Promoting that “Security is everyone’s responsibility • Supply Chain concerns, not only enterprise or functional specialties • Noticed/addressed based upon crises and failures, not successes • Only as robust as the weakest link • Weakened by poor communications and technology, personality and

“turf” politics • Most successful when integrated into operations, not add-ons • Essential to business success with in-line process support of BU • In need of increased focus on Internal Access Control and Monitoring • In need of Increased focus on intentional incidents contaminations • Executive cross-functional security councils w/leveraged cross-functional

leaders to drive agenda


Combating Counterfeiting & Adulteration Supply Chain Risk

Supply Chain Counterfeiting

GAPS & Opportunities

Development of Prevention &

Mitigation Guidelines

Development of Supply Chain

Anti-Counterfeiting Internal

Standards

Recommended Process for

Standards Implementation &

Enforcement

Current &

Emerging

Guidelines,

Checklists,

Standards

Proven

Standards

Development

Processes

Best Practices

Risk Based

Analysis


DISRUPTION EVENTS

Natural

Criminal/Terrorist

Public Health

Process/Equipment

Law / Regulations

Response-based Business Model*

Globalization

Supply Network

Rationalization

Lean Inventory

Management

Risk and the Response-based Business Model

*Bowersox & Lahowchic, “Start Pulling Your Chain”


Dimensions of SC Security: Expectations- A Changing Future

• Secure supply chains – containing advanced security processes and procedures

• Resilient supply chains – able to react to unexpected disruptions quickly in order to restore normal operations

Rice and Caniato (2003), “Building a Secure and Resilient Supply Network,”

Supply Chain Management Review, September/October.


Proactive Environment

Supply Chain Mitigation Initiatives: Physical, People, & Process

Collaborative Arrangements Process Backup

Assets Backup General Parts Catalog

Shared Committed Inventory

Mitigation Pathway to Success Process

Continuity Training & Education

Mutual Aid Agreements

Executive Commitment

Sustaining

Excellence

Reactive Environment

Vision Team Process

Supply Chain Network Design

Control

Process Redesign

Increase Parts Inventory

Systems Backup

SC Protection: Potential Mitigation Programs

Critical Parts Inventory

Human Resource Backup- Cross Training


Average Percent Improvement Reported by

Manufacturers from SCS Investments

29 30

43

48

10

20

30

40

50

60

Perc

ent

Reduced Inspections

Increased Automated Handling

Less Process Deviation

Shorter Transit Time

Efficiency

9

30

50

0

10

20

30

40

50

60

Perc

ent

Improved Asset Visibility

More Timely Shipping Information

Reduced Inaccurate Shipping Data

Visibility

Reduced Time to Identify

21 23

31

0

5

10

15

20

25

30

35

Perc

ent

Shorter Problem

Resolution Time

Quicker Response to a

Problem

a Problem

Resiliency

Perc

ent

14

26

37 38

0

10

20

30

40

Reduced Theft/Loss/Pilferage

Decreased Tampering

Less Customer Attrition

Reduced Excess Inventory

Inventory Management & Customer Relations

Source: Innovators in Supply Chain Security: Better Security Drives Business Value – Stanford University White Paper, June 2006

Thank You!

SC Security ‘Brand Protection Pays’

Discussion and Feedback


Review: Packaging for Food and Product Protection (P-FAPP) Initiative

• The first step in the P-FAPP Product Protection Initiative is to create Teaching and Outreach Funding to develop university course content, to develop infrastructure, and to validate the long-term interest in the topic.

• Teaching and Outreach Funding Deliverables:

– Undergraduate/ graduate Product Protection On-line Course – June 2008 – Executive education: Offer a Product Protection ‘short course’ – September 2008 – Certificate/ degree program: In development – Continue the aggressive schedule of academic and industry presentations

• For information please contact MSU/P-FAPP directly: – John Spink, Director, P-FAPP, 517.381.4491, [email protected] – http://foodsafe.msu.edu/Packaging_for_Food_and_Product_Protection_Initiative.html

• Dr. Helferich may be reached at [email protected] or [email protected]

mailto:[email protected]

http://foodsafe.msu.edu/Packaging_for_Food_and_Product_Protection_Initiative.html



combating product counterfeiting risk to supply chain

Documents

michigan state university

food supplyprotection

global counterfeit food

experience review of

food safety discussion

supply chain aspects

chain cost

clm research results