Preventing Product Diversion

Written by: Jean Champlain, Supplier Development Manager

Just when you think you’ve made it through the most difficult challenges in the supply chain, another problem often catches people by surprise.  It’s product diversion.

Product diversion is when an unauthorized party sells a product outside of authorized distribution channels. It is an increasing practice and one that presents a serious hurdle to profits.

The way these unauthorized retailers and e-commerce sites obtain the products often involves reaching out to an authorized seller of the product. For example, many manufacturers have a signed contract with various salons or shops to exclusively sell their products. These salons, in turn, sell the products per their contract. However, there are salons who don’t respect the deal, that work within the “black market.” The salons or shops that are in the “black market” enter into deals with a third party that offers to buy the items in bulk. The third party then sells the item to an unauthorized seller. The unauthorized seller then sells the items on websites such as eBay and Amazon.

Apart from profit lost, the danger of diverted products going through these unauthorized channels is high for both the consumer and manufacturer. For example, products can be tampered with during the process and the quality level on those diverted products can change. It could cause serious health problems or high damage accidents in consumer hands.  In addition, the manufacturer can receive negative reviews from the public. For example, if a consumer, who has used Brand X cosmetic product for years bought from store at $10 per unit, and then suddenly found the same Brand X cosmetic product sold at $8 per unit on Amazon, cheaper than in store, and has a severe allergic reaction to it, he/she may be tempted to post a negative review.  The problem is that the blame is not on Brand X, but on whoever tampered with the product before it was sent to the consumer. Although the blame is on someone else, Brand X will receive the negative review that will discourage other consumers from purchasing the product. Because product diversion. The impact on the brand can be significant in many respects as it relates to product diversion.

How do you prevent product diversion?

Organizations seeking to stop and prevent product diversion should consider adopting zero tolerance policies within the organization and between several authorized sellers. In essence, a zero tolerance policy must be supported by actual financial consequences to mold authorized distributors’ behaviors.

This structure to ensure zero tolerance policies should start by identifying the potential risk of product diversion within its business distribution channel, and by an internal education within personnel to understand the impact or product diversion that will cause to their organization’s profit.

Another option is to use a tracking system on the packaging. That system consists of placing a discreet tracking sticker on the packaging. It will allow the organization to track what channels the product went through and where it ends up. This type of tracking can occur with just a simple connection to the Internet. A tracking sticker can also help to authenticate the product if the organization wants to conduct an investigation.  A more common method is to inform your consumers of the authorized resellers and to be aware of diverted products from unauthorized parties. The organization can do this by putting a list on its official website listing authorized sellers.

Regular one day on-site surveillance is recommended at the manufacturer to evaluate the level of prevention system established both by the manufacture and its various sellers and distributions. Assessment areas of focus include:

  • ANTI-DIVERSION POLICY
  • SELECTION OF SELLER / DISTRIBUTOR
  • NON-DIVERSION AGREEMENT
  • CONTROL OF AUTHORIZED SELLER / DISTRIBUTOR
  • CONTROL OF UNAUTHORIZED SELLER

Pro QC International also provides on-site product diversion evaluations that can be customized to meet your objectives. Contact us for more information.

Environmental Impacts & Solutions Within the Textile & Garment Industry

Written by: Stephen Moglia, Business Development Manager

Sustainability, green fashion, circular economy: we hear and see those words almost everywhere now. They multiply with the growing interest of consumers and companies for the environmental impacts of the industry. In fact, the textile industry has become the second most polluting industry in the world, right after oil, as stated at the sixth edition of the Copenhagen Fashion Summit last May. Globalised, complex, including a wide range of techniques, the textile industry affects the planet on many different levels, including very sensitive areas such as water, air pollution, chemicals, electricity consumption or waste. Being aware of the impacts of production processes has now become essential.

Moreover, damaging the environment also has an impact on humans, whether it is the workers, the consumers or people leaving nearby a factory. Cotton illustrates this in a tragic way. It is a very affordable fabric, widely used to make inexpensive clothes. To boost the production and fight the worms that attack the plants, a lot of farmers worldwide use pesticides. Those pesticides contain extremely toxic substances such as metals (aluminium, nickel, lead), barium or ethion that was banned in Europe. Farmers, in contact with those chemicals can get more cancer, liver and kidney diseases. The chemicals also cause freshwater pollution affecting a wider range of people. Hopefully more and more farmers are turning to organic cotton that is more respectful of the environment and uses no such pesticides. (Article Reference)

Another example is chrome tanning that was also banned from Europe for being too toxic. This tanning is faster, easier than other techniques. However, the leather is weaker and doesn’t last as long, thus creating more waste. Chrome is a heavy metal and damages the environment in the same kind of way pesticides do. It infiltrates the water and in contact with the skin can also have an impact on the consumer’s health. (Article Reference)

Brands, then, have a responsibility: choosing well where they source their materials and where they out-source the production. The consumer, getting information easily on internet is more and more aware of those issues, which reflects in its purchasing choices. Sustainability concerns have only been increasing since the 1990s and in 2015, 66% of global consumers were willing to pay more for environmentally sustainable products. It damages the image of brands to be involved in environmental or social scandals. On the contrary, sustainability can be a real marketing opportunity. Showing concern, sharing the origin of the materials, revealing « who made [the] clothes » attracts customers, reassured that the product they are buying is safe for themselves and the planet. It is part of the « look good, feel good » trend when buyers don’t want to feel guilty wearing their favourite sweater. (Article Reference)

Transparency is trendy, however it is not always easy for brands to control their supply chain. How can a company based in Europe, or North America be sure of the quality of the products they buy in Asia? How can it know in which conditions clothes were made and with which means? The information given by the factories can be altered or fake, a website, mails, phone calls, those are only words and chosen images. It is also tricky for brands to plan a visit of the factories of their suppliers and manufacturers. When knowing someone is coming to check on the working conditions or on quality, it happens often that companies adjust their installations only for a day, adding fake security signs, changing displayed products or hiring more people to show wealth.

This is when audits can be extremely useful. The information obtained is more accurate and real. For environmental responsibilities, audits are made according to the ISO 14000 environmental standard, covering energy usage, renewable energy, greenhouse gas emissions, materials and waste reduction, life cycle management, supplier’s supply chain activities and more. ISO 14000 audits can be combined with SA8000 for social responsibility for a more thorough inspection, helping brands to have a better control on their supply chain and with time, to select their most reliable partners.

These audits can be applied to various fields such as footwear, garments, accessories, textiles, bags, soft toys, electrical & lighting, gifts, home & garden, hardware, furniture, industrial & construction, sporting equipment & fitness, toys, assemblies & molds, maintenance solutions, automotive parts, and medical devices.

Review an example report ISO 14001 here.

How does your organization ensure sustainability and environmental stewardship?

(Image Source)

 

Pro QC and Quality 4.0: Providing Added Value Solutions

Written by: Yingchao Siu, Business Development Manager

I recently had the privilege of joining the annual ASQ World Conference on Quality and Improvement held in Seattle, Washington. It is the world’s largest quality conference bringing together a wealth of quality professionals from all over the world to exchange ideas and interact with other leaders within a variety of industries.

The theme this year was “The Innovation of You.” Sessions focused on topics ranging from Quality Fundamentals, Risk and Change, Building and Sustaining a Culture of Quality, to Future of Quality. I had the opportunity to experience great knowledge first hand from quality experts and also to meet and network with other quality professionals from across the globe.

Initially, my primary goal was to improve my own knowledge base. I wanted to increase my proficiency in communicating on a technical level with potential clients. In the end, I came away with a lot more. I realized that for quality professionals, quality begins at home. Continuous education is vital for all staff to ensure each and every one of us is able to play our role in strengthening and maintaining a culture of quality within the company. We don’t just sell quality services, Pro QC aims to exude quality and show clients that we practice what we preach.

Secondly, and perhaps most striking, was the feeling that quality is a thriving organism, changing, growing and developing. The significance of this for us as a company is in understanding the potential we have as we navigate the blue oceans opening up in the sea of disruptive technologies and disrupted markets. In this blog post “Reflecting on the Advantages of Technology on QC.” we reflected on just how much our operational environment has changed over the years.

Pro QC is not just a company which endeavours to provide inspection services or quality audits. Pro QC strives to stand out as a provider of solutions drawing on our extensive experience in quality, going above and beyond the traditional roles of quality engineers to fulfil the role of problem solver and adviser to our clients.

Overall, the ASQ World Conference of Quality and Improvement was educational and professionally inspiring. In addition to my participation as an attendee of the conference, our U.S. team was exhibiting. This year marks the 7th consecutive year Pro QC has exhibited at the event. Involvement in events such as this one is both indicative of our professionalism and the direction of the company within the future of quality.

China Sourcing Alternatives: Thailand

Written by: Daniel Ben-Ezra, Pro QC Country Manager 

Many companies are looking for alternatives to China these days with regards to their supply chain. Most often the driver is costs. We’re seeing an increasing number of clients contemplating a shift, or already being in the process of implementing one towards other Asian nations with regards to their manufacturing base. This post is the first of a series discussing alternative options to China, and starts with Thailand.

Despite not being a low-cost production base, Thailand is seen as a viable option by many companies to set up a manufacturing unit or to source from. This stems from its reliable business environment, well-developed logistics infrastructure, vast natural resources and existing functional industrial base. The government of Thailand is also taking active steps towards improving the country’s position by pushing investments in technical equipment, allocation of SEZs along its borders, and developing cluster structures.

As share of GDP, major product categories produced in Thailand include food items, metal and construction materials, rubber, plastics, electrical appliances, cars and related components, jewelry and handicrafts. Coupled with its natural resources and easy connectivity with other ASEAN countries (notably Cambodia, Laos, Myanmar and Vietnam), Thailand makes a strong case for itself as alternative to China for specific product categories.

A downside to manufacturing in Thailand is that its labour pool is relatively expensive and unemployment stands at low rates. In order to tackle this, the Thai government has come up with the strategic decision of allocating 10 SEZs (Special Economic Zones) in the years coming. Planned along the borders, companies locating themselves within these zones would be able to enjoy low-cost, easily-commuting workers from areas such as Tak and Kanchanaburi (bordering Myanmar); Sa Kaeo and Trat (Cambodia), Mukadahan, Chiang Rai, Nong Khai and Nakhon Phanom (Laos); and Songkhla and Narathiwat (Malaysa). Other incentives to attract FDI include infrastructure creation, fast processing of licensing and permission applications and creating one-stop service centres with customs checkpoints. Additional incentives are planned for companies active in specific sectors, which include tax reductions, low or zero import duties for parts & materials exported afterwards, low interest loans and more.

Similar to China’s Made in 2025 initiative, Thailand 4.0 is a key element in the government’s mid to long term strategic development plan. It aims to create the foundation for production of high value added products and services, and focuses extensively on technology and innovation. Despite hefty competition from China specifically in that regard, manufacturers are moving into Thailand also for risk diversification and access to the ASEAN market.

Pro QC’s team of quality engineers are based in Bangkok and surrounding areas, from where we are able to provide nationwide coverage. For those companies looking to explore possibilities in Thailand with regards to their supply chain, we offer a variety of solutions. The careful screening of vendors is naturally a highly critical process that will influence subsequent developments. Popular services in this regard include our Supplier Verification and Quality Process Audits. Sample reports can be downloaded here.

What’s a Living Wage?

A question that comes up often when sourcing abroad is determining what the living wage is and how well suppliers stack up.

Article 23 of the United Nations Universal Declaration of Human Rights states that “everyone who works has the right to just and favorable remuneration ensuring for himself and for his family an existence worthy of human dignity.” And, it’s even noted that Plato and Aristotle discussed the concept as they both argued for “an income that considers needs, particularly those that ensure the communal good.”

How are Living Wages calculated?

“A living wage is the minimum income necessary for a worker to meet their basic needs. This is not the same as subsistence which refers to a biological minimum. Needs are defined to include food, housing, and other essential needs such as clothing. The goal of a living wage is to allow a worker to afford a basic but decent standard of living. Due to the flexible nature of the term ‘needs’, there is not one universally accepted measure of what a living wage is and as such it varies by location and household type.”

Social Accountability International identifies the Living Wage calculation as follows:

To verify wages for suppliers, auditors check records over a period of time and conduct employee interviews. Applicable standards include SA8000, ISO 26000, various or organizational-specific such as WalMart or the Electronics Industry Citizenship Coalition.

Social Accountability International posts Living Wage Reports for various areas within China, Africa, Vietnam, etc.  View the SAI page here. 

Within the United States, MIT provides Living Wage estimates based on states here. 

To learn more about supplier social audits and view example example reports, visit Pro QC’s website.