162 • Supply Chain Risk Management: An Emerging Discipline
Another new approach to mitigate the risk of counterfeit electronic
components is growing rapidly. According to a report by the U.S. Senate
Armed Services Committee, titled “Inquiry into Counterfeit Electronic
Parts in the Department of Defense Supply Chain,” an overwhelming
majority of more than a million counterfeit parts identied in the investi-
gation were sourced from a party other than the original manufacturer or
an authorized distributor.
In the electronics industry, and now others as well, aer a major risk
event or a problem with a key supplier within an industry, buyers oen
have no choice other than to begin sourcing in what is called the gray mar-
ket. A gray market is an unauthorized channel of distribution. However,
turning to the gray market and purchasing a part from a source other than
the original manufacturer or authorized distributors exposes the buyer
to not only substandard components but also increases their risk of pur-
chasing counterfeit components. As a result we have seen the birth of the
excess and obsolete (E&O) industry. Franchised E&O distributors with
guaranteed product traceability are lling a gap in supply chains result-
ing from just- in- time manufacturing and supply disruptions. By holding
excess and unsold factory stock and guaranteeing product traceability
back to the manufacturer, these distributors oer buyers a credible and
reliable source of product to mitigate counterfeit risk.
While the approaches presented here are not the only ways to coun-
ter the counterfeiters, they illustrate some of the creative thinking that
is occurring to try to stay one step ahead in an area that is a continu-
ous concern.
CONCLUDING THOUGHTS
is chapter highlights the darker side of human nature. When we think
about natural disasters, we think about things called “acts of God.” ese
acts are not caused directly by humans, although climate change propo-
nents will argue that this is not necessarily the case today. Something we
do know for certain is that every time an act of fraud, corruption, coun-
terfeiting, or the occurs, it is a man- made event. And man- made events
are preventable.
e problem with fraud, corruption, counterfeiting, and the, particu-
larly at a national level, is that these behaviors, particularly corruption,
Supply Chain Fraud, Corruption, Counterfeiting, and e • 163
correlate highly with poorer and less- successful countries. As a predictor
of failure, at one level corruption may have the most devastating eect of
any risk presented in this book. As the Austrian journalist Karl Krause
once commented, “Corruption is worse than prostitution. e latter might
endanger the morals of an individual. e former invariably endangers
the morals of the entire country.”
9
Summary of Key Points
• Bribery is trying to persuade someone, typically illegally or dishon-
estly, to act in one’s favor by oering a gi of money or other attrac-
tive inducement.
• A counterfeit is something made in imitation so as to be passed o
fraudulently or deceptively as genuine.
• e rst stage of a risk event tends to be denial. e second of the four
stages is severity (scope and scale). e third stage is blame (reality
sets in). e nal stage is resolution (where the lesson is learned).
• New organizations enacted to cut down on fraudulent activities
include Consumer Financial Protection Bureau and Customs Trade
Partnership against Terrorism. New regulations with this same
goal include the Dodd- Frank Wall Street Reform and Consumer
Protection Act and the Foreign Corrupt Practices Act.
• Tools against fraud and corruption include Navigant’s antibribery
onboarding portal called Decision Point, IHS’s “temperature check,”
and Verisk Crime Analytics’ CargoNet.
• An eective compliance program should consist of seven pillars: risk
assessment, due diligence, contract provisions, audit and monitor-
ing, governance and management, codes and policies, and training
and communications.
ENDNOTES
1. Riley, Charles. “Governments Lose Trust As Corruption Soars.” CNNMoney, July9,
2013, Accessed from www.cnnmoney.com.
2. Compliance Week Magazine and Kroll Anti- Bribery & Corruption Report, May
2013 Survey.
3. O’Toole, James. “Ralph Lauren Admits Bribery at Argentina Subsidiary.” CNNMoney,
April22, 2013, Accessed from www.cnnmoney.com.
4. Accessed from www.dictionary.com.
164 • Supply Chain Risk Management: An Emerging Discipline
5. Fulghum, David, Bill Sweetman, and Jill Dimascio. “China Chips: Counterfeit
Components Reveal Political Hype and Bureaucratic Muddle in Washington.”
Aviation Week and Space Technology, June4–11, 2012: 68.
6. European Banking Board terms and denitions.
7. Accessed from http://www.pwc.com/ us/ en/ cfodirect/ publications/ dataline/2012-
10-sec- adopts- conict- minerals- rule- public- and- nonpublic- companies- in- many-
industries- are- aected.jhtml.
8. USA Conference Board & Center for Responsible Enterprise & Trade Report,
August 2012.
9. Accessed from http://www.brainyquote.com/ quotes/ quotes/ k/karlkraus152098.html.
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