Counterfeit Materials:

A Growing Threat

James Morrow

Presenter

Agenda

• What is Counterfeit Material?

• Extent of Counterfeiting Problem

• Counterfeit Avoidance Strategies

• Detection Strategies

• Mitigation Strategies

• Solutions

• Summary

• Q&A

What is Counterfeit Material?

Counterfeit Material is a part (or substance) made or altered to imitate or resemble, an ‘approved part’ without authority or right; and with the intent to mislead or defraud by passing as original or genuine. ----FAA

The Size And Scope Of The Problem

• Any recognizable brand is at risk

• Impact to world trade: $350 –$500 billion per year

• Growing 10% a year

• 6 - 9% of all world trade is counterfeit

• 750,000 U.S Jobs Lost

The Size And Scope Of The Problem

• $16 billion in lost sales in vehicle aftermarket industry on a global basis annually

• $3 billion per year lost sales in the U.S. market

• Additional costs include:

Weakening of the brand

Anti-counterfeiting measures taken

Injuries, legal fees and investigations for vehicle accidents potentially caused by counterfeit parts

Warranty claims caused by counterfeit products

The Size And Scope Of The Problem

Materials Impacted • Refrigerants

• Adhesives

• Polymers

• Lubricants

• Colorants

• Fire Retardants

Counterfeit Avoidance Strategies

• Develop Anti-Counterfeiting Procurement Process

• Establish Chain of Custody Procedures

• Formally Assess Suppliers for Compliance

• Push Down Counterfeit Avoidance Guidance Through Supply Chain

• Initiate Obsolete Material Management

• Provide Counterfeit Awareness Training

Red Flags

• Items coming from source other than the original or authorized sources or from suspect locations

• Price too low or significantly different from history

• Scarce items are suddenly available

• Chain of ownership unverifiable

• No certificate of conformance

Red Flags

• Suspect product identification numbers, lot number/date code

• Prohibited materials present

• Item visual inspection

• Alterations or resurfacing

• Wrong size or design flaws

• Quality difference issues

• Package design and construction

• Size, shape, color, finish or materials

• Evidence of rework, repair or refinishing

Mitigation Strategies: Chain of Custody

• Mitigation strategies and authenticity testing should be developed using a risk-based approached

• Cross checking Independent suppliers and serial numbers against the GIDEP and/or ERAI

• Suspect or missing documentation triggers review process

• Review critical information to determine if detection testing must be completed

• Ensure process in place to quarantine items that require testing and verification

Mitigation: Suspect Item

• Immediately quarantine suspect item and clearly mark as nonconforming

• Locate any additional affected items in stock and in production, ensure they are quarantined

• Gather all chain of custody information and authenticity testing records associated with the suspect item(s)

Mitigation: Suspect Item

• Conduct additional testing (if applicable) in an effort to confirm if the item is counterfeit

• Engage the manufacturer for assistance

• If required, deploy the mitigation team for rework or replacement of suspect item(s) in conjunction with legal, and customer input

Anti-Counterfeiting Solutions

• Packaging graphics

• Chemical

• Biological

• DNA

• Serialization

• Security Sealing

Summary

• Counterfeit materials is growing threat which compromises your product’s performance

• Exposure to litigation related to performance and compliance

• Engage the manufacturer for assistance

• If you suspect an item to be a counterfeit, begin the mitigation procedures immediately

• The counterfeit risks must be controlled throughout the entire supply chain

Q&A

James Morrow