Beyond Compromise - Protecting Your Brand

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1 July 2009 Beyond Compromise - Protecting Your Brand How to implement an effective brand protection and product traceability solution? Your brand is vulnerable to many forms of compromise. Protecting that identity is crucial in today s competitive markets. There are many ways in which your brand can be damaged, and it s important to be aware of them in order to make sure that your company is taking the proper precautions to avoid and combat these dangerous pitfalls. Contact Markem-Imaje David Habib Product Manager - Strategic Accounts and Solutions dhabib@markem-imaje.com Diversion A product that is sold legitimately in other parts of the world at lower prices - or even donatedmay be diverted to unintended regions and sold at a lower cost than the prevailing market value. Backfilling A substantial amount of product that has been illegally diverted leaves a void in the market, which may be filled with substandard product. These substitutes could be defective or epired units of your own brand, which should have been destroyed. Alternatively, counterfeit products that appear to be identical to your brand, but are inferior or potentially even dangerous substitutes, are inserted into the market without your knowledge. Counterfeiting The manufacturing and packaging of look-alike brand identified products is a multibillion dollar industry that continues to grow at a rapid pace. Legitimate retailers and distributors, let alone consumers, are usually ill-equipped to tell the difference between yours and a cleverly counterfeited brand. Inability to Divert Diversion of product is not always a bad thing. If you sell umbrellas, it may be a good idea to divert goods originally destined to a drought area to locations eperiencing unepected heavy rains. In an emergency it s good to be able to quickly divert medical supplies to a disaster area. If you don t have a mechanism for this type of supply chain visibility of products by code date, your brand may lose out on opportunistic market changes, sales and/or good will and publicity. Life Cycle Mismanagement Food, beverage, dairy, pharmaceuticals and many other products have epiration dates, which if not carefully monitored, could result in products being put on the shelf shortly before or even after they are out of date. Illegible Codes The ability to closely monitor the codes being printed on each product, at all levels within the packaging line process, is critical to most industries. Wrong, missing or illegible codes could lead to fines, product recalls, and potentially products not being accepted by the retailer or customer. All of these consequences could affect your brand perception for identity and quality. Wrong or illegible codes impinge on the brand in many ways including additional labor costs, product and packaging materials, disposal of the used materials and packaging line time to potentially rework the product versus recoding and marking and verifying the mark on the product correctly the first time.

2 Territory and Channel Conflict In some industries, sales & franchisee territories are closely controlled by the industry or even legally mandated. The inability to closely monitor the flow of product within as well as between various territories may result in serious territory or channel conflicts, legal epenses and regulatory penalties, including heavy fines. Inadequate Product Recalls The best product recalls are the ones that never happen. The net best are those in which the manufacturer was able to immediately identify which products were suspect and recall them from the marketplace with surgical precision (a specific range of units, cases or pallets, by a specific serial number and/or code date/manufacturing line). The Costs of Compromise Brand compromise is a particularly insidious form of risk because there are multiple costs that tend to be high and long lasting. In addition, once the brand has been compromised, the resulting damage is difficult to repair. Figure One shows the various kinds of compromise and the types of costs that might be associated with each. Let s consider a specific eample: The toothpaste manufacturer who initiated a massive recall when it was found that fillers used in their products were causing customers to become ill. Subsequently, the company learned that the defective product was not its own, but an almost identical looking counterfeit brand that was manufactured in a third world country. Although the toothpaste manufacturer was innocent, it still incurred the following costs: Logistics of removing and destroying legitimate productmost of it perfectly good. Costs of goods to replace product removed from the shelf. Increased manufacturing costs to make replacement product. Disrupted product flow and loss of sales because of removal of large amounts of product from the distribution system. Costs of tracking down the source of the defective product. Legal costs to protect against lawsuits. Increased burden on sales force with many additional hours required to repair damaged relationships in the distribution channel. Inestimable loss of consumer goodwill toward the brand. Loss of brand value (i.e., margins) as the brand image is being repaired. The manufacturer spent millions upon millions to defend its brand immediately and even more over the following years as it worked to restore its brand image. While the cost of most forms of compromise may not be as dramatic as those cited in this eample, they are almost always far reaching and far in ecess of the cost of simple measures that can be taken in advance during the manufacturing and packaging operations to protect the brand. The following eamples from the manufacturing plants of major brand owners around the world show how careful attention to the product ID function has resulted in reduced production and distribution costs, improved supply chain performance and product traceability. All Industries at Risk Some industries are particularly vulnerable to many of the forms of product compromises cited above, and no industry is immune to the problem. For eample, the pharmaceutical industry is very aware of brand compromise; in fact, industry sources estimate that counterfeiting alone cost the industry over $10 billion in The bottling industry has a special problem managing flow of products within mandated territories. In this instance, the compromise may result in severe legally mandated penalties. Even the produce industry is looking into standards that will make it possible to trace every unit of fruits and vegetables from the farm to the shelf in the grocery store. The goal is to have full traceability by Cost of advertising and public relations to inform the public of the potential threat as well as the results of the findings.

3 How well-equipped are companies to protect their brand against the various forms of compromise? A study recently performed by the FDA in Q is very instructive. It looked at 40 different consumer products to determine the degree to which the manufacturer could trace where the product was in the supply chain at any given time. In just four instances, the manufacturer was able to trace a unit in the field back to where and when it was manufactured. In 14 cases, the manufacturer had partial traceability of its product. In 22 instances, neither the place nor the time of manufacture could be determined from the information found on the shelved products (unit or salable level). In these cases, a product compromise incident could result in a nightmare scenario comparable to the toothpaste eample. The good news is that most manufacturers have the ability to quickly implement cost-effective brand protection and product traceability solutions that take advantage of many product identification and data networking systems that already eist at their manufacturing plants or they can add these systems at minimal costs versus the alternatives. Anatomy of a Viable Solution There is nothing you can do to eliminate the potential risk of a compromised brand. Accidents happen. Criminals take advantage. What you can do, however, is dramatically attenuate the cost of a compromise incident by being able to detect an event quickly and respond to it decisively. It all begins by instituting positive identification and traceability of your product from its origin through to its ultimate destination. Once in place, that traceability solution can be readily integrated into your ERP system to rapidly and effectively respond to the needed changes in local and global demand or in real-time to criminal brand attacks. 1. Technology: The technology required for implementing an effective brand protection/traceability solution includes: Labeling and Coding Materials: Appropriate labeling system materials that preserve the required information and provide coding fleibility to frustrate theft and counterfeiting. These might include: ink or laser-printed codes directly on the product; coding with light shifting inks; conventional variable printing, 1D and 2D barcodes and nano-printing on labels; labels with holograms, RIFD tags as well as other customized chemistries and technologies. Intelligent Marking and Coding Equipment. These include a variety of digital systems which may print directly on the product, container or labels. They provide the right level of automated marking and coding at each stage, along with bidirectional communications to accept variable and dynamic labeling and coding template information per print and to return information to confirm that all product units and packages have been appropriately marked or coded. In the event of a brand compromise, the network makes it possible to immediately trace the genealogy of pallets, packages, and product units back to their source and to detect stolen, inappropriately diverted or counterfeited goods. Local and wide area networks. These networks allow the manufacturer to deploy a variety of brand protection strategies and, in the event of an emergency, obtain actionable information at the plant, regional and global levels. Markem-Imaje has developed a simple framework for helping managers evaluate their requirements for implementing a responsive brand protection/product traceability solution. Just four categories cover all of the bases:

4 Software: Standard scalable and configurable software at the plant and enterprise level makes it possible to communicate with the networked intelligent printing and marking equipment as well as packaging line equipment. These systems are required to communicate in a native language to digital coders and PLC devices in order to deliver critical information in realtime to packaging line and to return invaluable information back to the manufacturer s ERP system. These software applications need to notify operators when a problem eists and stop lines if printed codes are not correct or if they are not legible on the products. This integration of coding devices, packaging equipment, packaging materials and networked devices is only performed with software that can scale with the operation and with your company over time. This makes it possible to monitor the flow of goods through the distribution channel in real-time or trace goods back to their source in the event of a compromise. 2. Compatibility Most manufacturers already have local and wide area networks, an assortment of digital marking and coding equipment and an ERP system, however, they are typically islands of automation without integration between the systems. With these integrated and interoperable systems in place, it is possible to devise an effective brand protection/product traceability solution while incurring only moderate incremental costs for additional digital marking and coding equipment, perhaps some upgraded materials and the critical communications and data management software to link plant level equipment to coders via networks and subsequently to ERP systems. The new brand protection/traceability system can be implemented epeditiously, and will work seamlessly as long as the materials, equipment and software are compatible. after the coding process. Product cases can be side-coded with dynamic and variable data as soon as they are filled. As cases are added to pallets in a palletizer operation, the multiple levels of genealogy information is gathered and stored within a traceability database. This discipline gives the manufacturer positive control of brand protection information throughout the manufacturing and packaging process up to the point where the goods are shrink-wrapped on the pallet. Achieving this level of certitude may involve relocating marking and labeling equipment or purchasing additional equipment, software and consultancy services. However, the level of brand protection this product traceability provides is worth the modest epense. 4. Sustainability The final consideration deals with how well the brand protection/ product traceability solution will hold up over time. It requires manufacturers to answer questions such as the following: does the system provide enough marking and coding fleibility to keep counterfeiters on their toes? Will the intelligent marking and coding systems maintain their compatibility with evolving network and ERP system technologies? Does this system lend itself to eisting and emerging green manufacturing and packaging requirements? Does the system adhere to best practices established in your own and similar industries? Are the marking and coding and information management capabilities capable of evolving to meet yet-to-be established regulatory requirements? By understanding and answering the considerations appropriate to each of these four categories, manufacturers will be in a position to implement a robust brand protection/product traceability strategy that will allow them to respond effectively to rapidly emerging product redistribution opportunities and incipient brand compromise situations. Such a system will be adequate to current needs and scalable to meet future challenges and opportunities. 3. Timing Marking and coding should occur at the earliest possible opportunity as the products move through the various stages of manufacturing and packaging. Sell before dates and lot with plant/line markings can go on a bottle just before it is filled. Lot coding with dynamic and/or serialized information should happen during the packaging process. Verification of correct and legible codes must be verified or the line stopped directly

5 How Markem-Imaje Can Help Markem-Imaje is a leader in developing and implementing effective brand protection/product traceability solutions for some of the world s leading manufacturers. We provide: Equipment: A variety of advanced marking and coding technologies (CIJ, SCIJ, laser, hot melt ink, direct, thermal transfer, Print and Apply) with integrated network communications. Software: Field-proven CoLOS software allows for remote management of coding strategies and label templates at the plant level and transforms labeling and dynamic data into actionable information at the plant and enterprise level. CoLOS Traceability Solutions is a scaleable architecture that builds upon the CoLOS family of products to maintain information in a standard database that supports the controls needed at the packaging line. CoLOS is the glue that communicates data from the packaging line with the ERP to insure the smooth and seamless flow of data and information. Compatibility: Markem-Imaje works closely with advanced packaging and labeling materials providers to insure substrate compatibility with the chemistries and technologies required to print correct and legible codes every time. Eperience: Numerous enterprise-level projects have been implemented or are underway around the globe. Service: In addition to superior equipment and software, Markem-Imaje supports its customers with a worldwide network of technicians and implementation consultants all from a single vendor. Figure 1: Some costs associated with various forms of brand compromise Liability Sales Recall Logistics Manufacturing Costs Adv. & PR Brand Value Good Will Sales Force Disruption Regulatory Penalties Diversion Backfilling Counterfeiting Inability to Divert (Supply Chain Visability & Management) Illegible Codes Life Cycle Mismanagement Territory and Channel Conflict Inadequate Product Recall For more information on brand protection, please visit us at Congress Street Keene, NH United States of America Tel: Fa: Airport Road Kennesaw, GA United States of America Tel: Fa: