Tuesday, June 10, 2008

AMR - $250B Counterfeit Problem

May 19, 2008
New Momentum Carving a Slice Out of the $250B Counterfeit Problem by Bruce Richardson
A few weeks ago, we met with old friend Stu Clifton, chairman and CEO of New Momentum, a software company set up in February 2005. The company’s products are built on top of an advanced search engine that can read and interpret unstructured data.
About 18 months ago, New Momentum www.newmo.com met with a West Coast tech leader to discuss working together. Somehow the conversation shifted to brand protection and security. New Momentum let this prospect pilot the software for 30 days. In that period, the brand protection manager discovered 500 instances of potential counterfeiters, gray market sales channels, and some unsavory practices.
Here’s how it works. Imagine your company produces a quality electronic component known by its part number, say AMR2008. With its advanced search technology, New Momentum gathers data from a variety of sources on the global open market. These sources include bulletin boards, forums, gray market, and the like. If anyone is selling AMR2008 at an inappropriate discount, volume, or date, a code is listed in an alert on the user’s dashboard. Complete contact information on the company selling the questionable product is provided. Even though the database is global, with the websites potentially in a foreign language, the part numbers are always in English.
We talked to one of New Momentum’s early customers, a company that is using the software to monitor offshore sites and collect push e-mails. New Momentum gathers the raw data from both sources, collates it, and forwards it to the customer to verify whether the products are from legitimate channels or the gray market, or whether they may be counterfeit or modified.
New Momentum’s risk management software also includes an application that focuses on protecting companies from supplier interruptions. Using AMR2008 as an example again, the software provides trending information on price, availability, and lead time so that the user can avoid getting into a constrained situation. Should buyers find themselves in one, the system scans a database of some 90 million parts to see where to find AMR2008. It contains transactional and parametric data on that part as well as data on alternative parts. It also alerts buyers to any news related to key suppliers.
Caveat emptor: products without the original precious metals or parts
A major concern for tech companies is fake product returns. For example, some buyers purchase products for the precious metals or to reuse the high-priced components they strip out. One tech company found customers were taking out a $400 circuit board, replacing it with a $30 board, and sending it back to the manufacturer. Manufacturing would then replace the cheaper board with another $400 board and sent it back into the field. The touch time was so quick on incoming boards that it took a long time to notice the pattern.
New Momentum’s customer described cases in which people were buying mil-spec products from the manufacturer: They opened them up and took out the $22 mil-spec chip, replaced that part with a used $2 chip, remarketed the unit as the higher end mil-spec product through the gray market, and resold the $22 chips as well.
Armed with the data, the customer proceeded to investigate the supplier. This often turns into a game of Whack-a-Mole: a supplier is put out of business, only to resurface a short time later under a new company name.
When we asked the customer about the amount of attention given to gray markets versus counterfeit, he said his previous employer had 30 people targeting gray markets and one on counterfeits five years ago. Two years later, 40 are in the anti-counterfeit group and 5 are tracking gray market sales.
The real benefit of products like New Momentum’s www.newmo.com is the prevention of brand degradation and commoditization, especially for counterfeit products that look close enough to the real item, a la the Apple-like HiPhone or the Mont Blanc knockoffs selling for a couple of dollars.
I closed my discussion with the customer by asking him what he would like to see next from New Momentum. Without taking a breath, he replied, “New Momentum allows us to see who is selling fakes. Now I want to know who’s buying them.”
Next C-level title: Chief brand protection officer?
While I found it incredible so few companies had a brand protection officer or department, I bet that is going to change quickly.
I also found out that there are few technology companies looking to offer software or services for brand protection. Many tech companies seem to be developing their own products for internal use, but I’m not sure how other industries manage this. I suspect through armies of people and by working closely with government agencies.
What do you think about the impact that counterfeits and fakes are having on legitimate brand owners? Is Consumer Reports understating or overstating the size and effect on brand owners? Does your company have a good strategy in place?
As always, I welcome your feedback and ideas. Post a comment at the blog, firsthingmonday.net, e-mail me at brichardson@amrresearch.com, or share your ideas over a Prickly Pear Margarita at our upcoming Supply Chain Executive Conference (May 28–30, The Phoenician Resort, Scottsdale, Arizona). www.newmo.com

Global Health Crisis

“Counterfeit medicines are a threat to our communities and must be stopped. This problem is not isolated to a handful of countries; it is present everywhere and it is gaining momentum. It is not a problem of one person, it is a problem of all people. It is not a problem of one country, it is a problem of all nations.” – Dr. Howard Zucker, Assistant Director-General for Health Technology and Pharmaceuticals, World Health Organization


Counterfeit Challenges