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November 11, 2008

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Antonio Lau

Dealing with counterfeit products in the supply chain, manufacturers have to conduct tight IT control and better product design. According to my interviews with Hong Kong manufacturers, the counterfeit products start from design knowledge leakage. On the other hand, reverse engineering of a new product is possible but not a serious problem as the product quality of a copied product is usually poorer as the tacit knowledge of developing the product can not be easily understood by outsiders and it takes time for the outsiders to develop it.

The first key to protect the design knowledge is IT management. Computer Aided Design (CAD) has become a way to store the design knowledge. In one case, a senior engineer told me that his new product ideas (in their pilot engineering only) suddenly became a new product launched by its competitor. After investigation, the product idea lost due to CAP drawing leakage. Therefore, it is critical to secure the CAD files so that such files are not available to competitors or even other internal parties, such as non-engineering staff. Multiple encryption and authorization levels are needed. To protect the design and technological knowledge, one manufacturer said that their plant did not allow the engineers to connect to the Internet and use USB. All data have to be stored in Intranet. For sharing, the engineers need to get approval from senior management. While complained by the engineers about the difficult to share knowledge across the supply chain, it is inconvenient but necessary to keep the knowledge in-house. Further research on how to balance IT control and knowledge sharing across the supply chain.

The second key is product design. As noted by the author, product modularization should consider the knowledge leakage issues. Keeping core technologies in a module without sharing detailed information with supply chain partners is important. One manufacturer told me that they did not involve suppliers in new modular product development due to the risk of knowledge leakage even through the suppliers have better technological knowledge on the new product project. While the manufacturer considered using modular design to protect the knowledge, he found that no existing design methods can be adopted or way to justify the cost of the design method. Without research support or design tools, the manufacturers would not adopt early supplier involvement or even early customer involvement, which may affect their business performance.

As noted by the author, research on the captioned issue is very few. As a top-tier journal in the field, JOM may take the lead to call for more studies in this area. In particular, if the counterfeit products involve food or drugs, they may lead to serious health problems, e.g. 4000 pets illness in US and Chinese melamine scandal.

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