Last modified: October 21, 2016
The world has become focused on scouring the internet for trails of cheaper products, including obtaining and maintaining parts inventory management. Unfortunately, the old adage of “buyer beware” seems to have been lost amid the chaos. But, it continues to ring true in both the storyboards of movies, much like the secret life of Christian Grey in Fifty Shades of Grey, and realities of finding lower-cost products.
Before you divulge cheaper purchasing prices to stakeholders and upper-level managers, beware of the sexy low prices found in this Grey market of both opportunity and grave risk.
Grey market is a modified form of the illegal black market. Parts and products may look reputable and appear identical to the OEM’s specifications, but they are counterfeit. According to Computer Weekly, the IT products’ grey market, which includes helpdesk support systems, analytics platforms and enterprise resource planning (ERP) systems, is estimated to be worth more than $31 billion.
For example, a Cisco networking kit on the grey market may sell for 70 percent less than its OEM pricing. In reality, the counterfeit copies may lack customer support, ability to integrate with existing systems or another system that is not even marketed as a Cisco product. In other words, the counterfeit product could actually be a counterfeit of a counterfeit, so you never know what type of product or part you may be purchasing.
In 2008, according to Global Purchasing, more than $58 billion worth of technology were part of the grey market, including counterfeit personal electronics, such as personal computers, digital cameras, appliances and other electronic components. Most significantly, the grey market products and parts made up approximately 8 percent of the industry, so more retailers, distributors and service parts suppliers could be seeing an impact from the counterfeit market even when not necessarily purchasing counterfeit products.
Based on this information, the global value of the grey market is approximately $725 billion, and $667 billion worth of non-grey market electronics. While this seems promising, the threat of the grey market remains very real and impactful to honest, non-grey companies in manufacturing and throughout the supply chain and its processes for parts inventory management.
The service parts supply chain depends on several factors, which include the following:
While each of these factors inherently leads to a nearly infinite number of subsequent factors and processes, they all rely on a common factor: consumers.
Consumers drive all supply chains, including business-to-business supply chains and reverse logistics supply chains. Now, if you compare the costs found in legitimate supply chains to the costs found in counterfeit supply chains, the counterfeit supply chains likely have a lower profit-to-product margin. However, the rise of smartphones and app-based selling of products and parts have created a misconception among consumers.
Consumers believe many of the products they purchase are legitimate. But, if these products falter, their counterfeit nature may make them incompatible with legitimate after-market parts. In other words, the legitimate after-market parts supply chain, including all associated parts inventory management processes, experience lost opportunities. Meanwhile, consumers that can simply spend less to repair a counterfeit product by purchasing a second counterfeit product will probably do so.
This example is based on assumptions, but the grey market is also built on the same assumptions. Rather than trying to define what is and is not factual, you need to assume these activities are occurring more frequently than you realize. As a result, you must conclude purchasing the cheapest products and parts does not equate to purchasing the most-valuable parts.
Let’s face facts. Everyone wants a bargain; everyone wants to save money. Obviously, some people have plenty of money to purchase whatever they want, and businesses often have extra cash flow or working capital available to make larger purchases at discounted prices. However, counterfeit parts make the whole system susceptible to the counterfeit-infection. Consequently, numerous actions have been taken to try to reduce its potential impact.
The U.S. Government passed the National Defense Authorization Act (NDAA), explains Computer World, with the specific requirements of tracking service parts life cycles from their origination within the supply chain. This action allows all users of air defense parts to know where the parts were manufactured, who manufactured the parts, what materials were used in their creation and their legitimacy.
For example, entities involved in management of service parts, such as Flash Global, should adhere to the requirements set by NDAA by carefully monitoring all movements of a product’s lifecycle. This includes tracking of the product lifecycle from raw material to finished product and if returned or recycled.
The solution to the problem is quite simple. Manufacturers, distributors, purchasers and entities in reverse logistics must band together to create a more accountable supply chain, one that incorporates a well-planned process for parts inventory management. But, a possible solution to all of these concerns may already exist in the form of another innovative technology, blockchain technology.
Blockchain technology is behind the currency giant, Bitcoin. It enables users of Bitcoin to track funds back to their actual origination. In a sense, it is like looking at the history logs of money, so if the same technology can be applied in other aspects of life, including manufacturing, reports Forbes magazine, it has the potential to virtually eliminate the counterfeit market found online.
Blockchain technology is also being leveraged to find solutions to other crises around the globe, but currently, these solutions are limited to those involving finances. Ultimately, this technology is the definitive, lasting solution to dealing with the grey market shams in all supply chains.
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