Clearinghouse could help to combat product fraud

A supply chain clearinghouse could provide one of the best ways to combat the growing problem of product fraud that costs industry between US $10 and $15 billion each year. The Grocery Manufacturers Association and the consulting firm A.T. Kearney made that recommendation in a recent study on that issue.

The report, Consumer Product Fraud—Detection and Deterrence: Strengthening Collaboration to Advance Brand Integrity and Product Safety, outlined the need for retailers and suppliers to use a clearinghouse to collect and share information. Such a central repository could keep a library of samples for reference, which could be used to verify and validate products against adulteration or counterfeiting. Adulteration occurs when a finished product or component is diluted with an ingredient of lesser value, contains an ersatz substitute, or conceals damage or contamination. A recent example of an adulterated product is the infant formula and milk contaminated with the chemical melamine, which caused fatalities in China.

As companies delegate more product testing responsibilities to suppliers, they must step up their verification efforts, and that's where a shared library of ingredient and component standards becomes a useful tool for detecting adulteration. When suppliers perform the testing, said A.T. Kearney partner Jim Morehouse, effective verification still requires the manufacturer's control over the testing procedures. In particular, Morehouse said, manufacturers should define the standards and testing requirements as well as determine which tests to use and when and where to perform them.

The report urged manufacturers to conduct a thorough assessment of their supply chains to ascertain where the risks of product adulteration lie and take steps to strengthen their ability to detect altered ingredients. Companies also should be extra vigilant when it comes to activities involving their brands, both within and outside their supply chains. In this regard, Morehouse recommended working with transportation providers and retail partners to help monitor product channels. Finally, Morehouse said, manufacturers need to be more alert to signs of potential problems, such as unusually cheap prices. "Ingredient prices should no longer signal just a bargain or discount," he said. "[They] should also signal potential for fraudulent activity."

To download a copy of the report, go to the Grocery Manufacturers Association (GMA) website.