While brand protection often focuses on detecting and removing counterfeits from marketplaces, the most effective protection starts much earlier—in the supply chain. Many counterfeiting problems trace back to supply chain vulnerabilities: products diverted from authorized channels, manufacturing leakage, or inadequate controls that allow fakes to infiltrate legitimate distribution. Understanding and addressing these vulnerabilities is essential for comprehensive brand protection.
How Counterfeits Enter the Supply Chain
Manufacturing Vulnerabilities
Products can leak from manufacturing in several ways:
- Third-shift production: Contract manufacturers producing unauthorized units
- Material diversion: Raw materials used for unauthorized production
- Employee theft: Workers removing products from facilities
- Quality rejects: Failed inspection products sold instead of destroyed
- Former suppliers: Ex-manufacturers producing using retained knowledge
Distribution Diversion
Authorized products enter unauthorized channels through:
- Distributor leakage: Authorized distributors selling to unauthorized buyers
- Broker transactions: Products changing hands through gray market intermediaries
- International arbitrage: Products intended for one market sold in another
- Closeout sales: Excess inventory sold to liquidators
- Return fraud: Products "returned" but actually counterfeits, with authentic items resold
Commingling
Counterfeits mix with authentic products:
- Fulfillment center commingling: Third-party logistics mixing inventory
- Amazon FBA commingling: Seller inventory merged under same FNSKU
- Retailer inventory mixing: Counterfeits entering retail supply
These vulnerabilities fuel marketplace hijacking when diverted or counterfeit products appear on your listings.
Identifying Your Vulnerabilities
Supply Chain Mapping
Start by documenting your complete supply chain:
- All manufacturing locations and contract manufacturers
- Raw material and component suppliers
- Distribution partners at each tier
- Fulfillment and logistics providers
- Retail and marketplace channels
Risk Assessment
Evaluate each node for vulnerability:
- Physical security of facilities
- Personnel screening and access controls
- Inventory management practices
- History of security incidents
- Geographic and jurisdictional risks
Red Flags to Watch
Indicators of supply chain problems:
- Products appearing in unauthorized channels
- Unexplained inventory discrepancies
- Customer complaints from authorized channels about product quality
- Pricing that suggests gray market or counterfeit sources
- Geographic distribution patterns that don't match your authorized network
Supply Chain Security Controls
Manufacturing Controls
Contract Manufacturing
- Strong contracts with anti-counterfeiting provisions
- Regular audits of manufacturing facilities
- Material reconciliation requirements
- Production reporting and verification
- Secure destruction of defects and waste
Owned Manufacturing
- Access controls and surveillance
- Inventory management systems with reconciliation
- Employee screening and training
- Production monitoring and auditing
Distribution Controls
Authorized Reseller Programs
- Clear authorization criteria and application process
- Written agreements with anti-diversion clauses
- Territorial restrictions where appropriate
- Audit rights for compliance verification
- Consequences for policy violations
Distribution Monitoring
- Track product flow through authorized channels
- Monitor unauthorized channel appearance
- Investigate sources of diverted products
- Enforce against policy violators
Product Serialization
Unique identifiers on each product unit enable:
- Track and trace: Follow individual products through the supply chain
- Authentication: Verify products are genuine at any point
- Diversion detection: Identify when products appear outside authorized channels
- Recall management: Precisely identify affected products
Serialization works hand-in-hand with GTIN and barcode ownership for comprehensive product identification.
Serialization Implementation
- Assign unique identifiers at manufacturing
- Record serialization data in central database
- Track scanning events through supply chain
- Enable verification at any point (distribution, retail, consumer)
Packaging Security
Make products harder to counterfeit through packaging:
- Tamper-evident features: Seals that show if products were opened
- Authentication elements: Holograms, special inks, hidden features
- Unique packaging: Elements difficult for counterfeiters to replicate
- Consumer verification: QR codes or NFC enabling authentication
Addressing Amazon FBA Commingling
The Commingling Risk
Amazon's FBA program can commingle inventory from different sellers under the same FNSKU. If a counterfeiter also sells the same product through FBA, their fake inventory may be shipped to your customers.
Protection Strategies
- Manufacturer barcodes only: Opt out of commingling by requiring manufacturer barcodes
- Transparency program: Amazon's unit-level authentication program
- Product serialization: Add your own serialization for verification
- Regular test purchases: Monitor product quality from your FBA inventory
For more on Amazon-specific protection, see our complete Amazon guide.
Investigation and Response
When You Detect Supply Chain Issues
- Gather evidence: Document products appearing in unauthorized channels
- Trace source: Use serialization or other tracking to identify diversion point
- Investigate: Determine how products left authorized channels
- Take action: Address the root cause and enforce against violators
- Improve controls: Strengthen systems to prevent recurrence
Working with Investigation Firms
For serious supply chain issues, professional investigators can:
- Conduct undercover purchases to trace product sources
- Investigate manufacturing facilities
- Map counterfeit supply networks
- Gather evidence for legal action
Technology for Supply Chain Security
Track and Trace Systems
Technology solutions that provide:
- Serialization and labeling at manufacturing
- Scanning and tracking through distribution
- Authentication at point of sale or by consumers
- Analytics identifying diversion patterns
Blockchain for Supply Chain
Blockchain technology can provide:
- Immutable record of product journey
- Shared visibility across supply chain partners
- Verification of custody chain
Note: Blockchain tracks data about products, not the products themselves. It must be combined with physical verification to be effective against counterfeiting.
Building a Supply Chain Security Program
Organizational Considerations
Effective supply chain security requires:
- Cross-functional ownership: Supply chain, legal, sales all have roles
- Executive sponsorship: Senior support for necessary investments
- Partner collaboration: Working with distributors and retailers
- Continuous improvement: Regular assessment and enhancement
Implementation Roadmap
- Map your supply chain: Document all nodes and relationships
- Assess vulnerabilities: Identify highest-risk points
- Prioritize controls: Focus on biggest gaps first
- Implement solutions: Deploy appropriate security measures
- Monitor continuously: Track products and detect issues
- Respond and improve: Address issues and strengthen controls
The ROI of Supply Chain Security
Benefits Beyond Brand Protection
Supply chain security investments provide multiple returns:
- Counterfeit prevention: Fewer fakes reach consumers
- Gray market control: Better control of authorized distribution
- Operational visibility: Better understanding of product flow
- Recall efficiency: Faster, more precise product recalls
- Compliance: Meeting regulatory track-and-trace requirements
Understanding the true cost of counterfeits helps justify supply chain security investments.
Connecting Supply Chain to Marketplace Protection
Supply chain security and multi-channel marketplace protection work together. When you control your supply chain, fewer counterfeits appear on marketplaces. When you detect counterfeits on marketplaces, investigating their source often reveals supply chain gaps to address.
Taking Action
Strengthen your supply chain security systematically:
- Audit your current supply chain visibility and controls
- Identify the most significant vulnerability points
- Prioritize investments based on risk and impact
- Implement serialization for high-risk or high-value products
- Strengthen distribution agreements and monitoring
- Build investigation capability for when issues arise
BrandedOps helps brands connect the dots between supply chain intelligence and marketplace monitoring. When unauthorized products appear, our tools help trace their source and identify supply chain vulnerabilities that need to be addressed.
The most effective brand protection doesn't just remove counterfeits from marketplaces—it prevents them from reaching those marketplaces in the first place. Invest in your supply chain security, and you'll reduce counterfeiting at its source. Start your free brand audit today.
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