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TransportGistics Products Solutions should not be more complicated than the problems they are trying to solve!
Generate, Distribute and Manage Bills of Lading on the Web
Tracing and Tracking information in a central location to all authorized users
Freight Bill Management, Shipment Information, Cost Control Portal
Communicate routing guides rules of engagement and carrier selection
Extend visibility & gain accountability to the desktop by tracking shipments & goods
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SUPPLY CHAIN INTEGRITY,A Basis to Upset Gray Market Distribution Executive Summary
The extreme challenges of gray market
distribution and counterfeiting are increasing at an alarming rate.
Not only are the direct costs of counterfeiting and gray market
distribution sizable, they continually drain corporate strength and
distract the corporate knowledgebase from its core competencies.
Absent effective controls, the convergence of these two destructive
business forms, if left unchallenged and uncontrolled will
eventually sap the life of every affected company. Description, Size and Scope Supply chain integrity describes a chain that is sound and free of corrupting influences. Its size and scope ranges across the entire commercial relationship. The wealth of data produced by its function and purpose provide all of the appropriate information necessary to exceed the challenges of gray market distribution.
As the world economy continues to expand, established companies will face an increasing number of new competitors and gray market distributors alike. An expanding market presents new challenges, many of which can be addressed with traditional solutions, but an expanding global economy brings with it new cultures and associated business rules. It therefore demands new solutions and methods. As new markets appear and traditional markets change, demands for product, and opportunities for profit can severely tax the security of the supply chain laying it bare to gray market pressure. The ever-changing global marketplace requires an appreciation and understanding of those cultures and business rules, philosophies and operating styles. Traditional methods that have been used successfully and employed in well established markets, now requires supply chain integrity to ward off the exigencies of uncontrolled gray market distribution.
Description of the Situation Gray market distribution is typically a well orchestrated program that delivers authentic products into well defined and established markets as well as new and ever changing global markets. Gray market distribution generally occurs as a consequence of overproduction and/or overstock. However, it can also be motivated by new and shifting market demands not reasonably anticipated by the manufacturer or primary distributor.
Resulting from overproduction, usually recognized at the manufacturing level, gray market distribution can be initiated and engineered by the manufacturer or primary distributor. An overflow of authorized customer returns can also cause the manufacturer or primary distributor to engage in gray market distribution. These forms of gray market distribution are properly described as “discreet distribution”. Responding to excessive inventory levels that are no longer capable of being digested by the authorized marketplace, manufacturers and primary distributors will contact “trusted” second tier resellers and offer them authentic products for distribution into markets that are not supposed to compete in first tier distribution channels.
Retailers carrying extremely high inventories of non-performing products, when faced with the inability to sell the authentic merchandise to their regular class of trade, for which returns are no longer accepted, will “dump” authentic products into unauthorized distribution channels and markets. In some cases multilevel retailers whose respective stores deal with other classes of trade will offer the authentic merchandise to “family” stores who are not authorized by the manufacturer or primary distributors to sell such products. In other instances and as desperation increases they will simply dump merchandise into lesser and lesser qualified markets and channels.
New and changing markets that are not presently served may cause opportunistic predators to seek out authorized distributors in order to acquire those products for resale into those unanticipated markets.
Discreet distribution, dumping and unauthorized acquisition are essentially similar with the differences manifesting themselves in the initiator. The results for the most part are the same; authentic merchandise being sold in unauthorized distribution channels and markets. Similar results usually cause similar effects, whether discreetly disposed of, dumped or speciously acquired and disposed; gray market distribution will result in, at least the following general conditions:
In addition to these types of gray market distribution, there are companies that specialize in buying “promotions and spiffs”. These merchandise types can be identical to standard merchandise or be of a special size and/or packaging. Essentially operating as commodities traders, these gray marketers purchase large quantities of this category of merchandise; they either resell immediately or wait for the promotion or spiff to end. They offer the merchandise into both the authorized and unauthorized markets and distribution channels at a price that is below the manufacturers’ then current selling price, but obviously higher than the spiff or promotion price. If there was ever a description for a love hate relationship in business, this activity certainly qualifies. Whatever the stated motivation for the original promotion, quick, large volume sales usually satisfy short term objectives. Eventually these super buyers/wholesalers will directly compete in the same markets with the manufacturer.
The interesting and important phenomenon about gray market distribution is that although it has become an effective means of disposing of excess production and overstocking, rarely do the initiators want to be identified or associated with the activity. This posture lends itself to creating, at least the perception that preventative means are in place and that controls do exist, generally in at least two forms: real and contrived. In most cases, if not all, gray market distributors go to great lengths to create schemes of innocence and disassociation.
Forecasting may be a primary contributor to gray market distribution; its definition clearly establishes that it is not precise. Driven by a legitimate and necessary business tool, perhaps there should be no shame in gray market distribution and the appearance of innocence may be completely unwarranted. Nonetheless, this seems to be the historic and current characterization and is treated accordingly by the business community. The need for manufacturers and primary distributors to disassociate themselves from gray market activity may in fact be significant contributor to the alarming rate at which gray market distribution is increasing.
Notwithstanding anything to the contrary, gray market distribution will continue as a viable solution for overstocking and over production. To remain an effective solution, gray market distribution must be controlled. Left uncontrolled it will unfairly compete with authorized markets and distribution channels eventually destroying those competitors, the product and brand integrity and maybe even the manufacturer.
There are rules associated with gray market distribution. The intent of some is merely for posture, appearance, and public consumption while others are designed to properly control the flow in order to prevent the conditions identified above from occurring. Discreet distribution typically has a higher level of control and imposes more severe price and market conditions on the gray market distributors than would occur in dumping. Consequently, gray markets are defined broadly: somewhat controlled and uncontrolled. Price point, region, and country restrictions can serve as operating rules, but to be meaningful, they must be enforced. “Dumped” merchandise can show up anywhere at anytime. As an example, seasonal influences can cause products to show up in flea markets and unauthorized retailers whose class of trade may negatively affect the status of the product and company.
Flagrant violators who are authorized resellers can face the harshest of penalties including the loss of the product line and in some cases complete loss of the entire line. In many cases, gray market distribution is a violation of the Terms of Sale/Purchase and actions at law can be commenced. However, love hate relationships are symbiotic, consequently there is usually more bluster than imposed penalty; this then is the essence of the gray market life cycle and will probably continue as long as overproduction, excess inventory and opportunity exists.
If you accept this notion, and believe that gray market distribution, at an extreme can sap the life of its victims, a compromise, based upon a viable alternative must be the objective. Accepting this premise next requires processes and procedures to identify and control gray market distribution so that it can be properly managed and effectively controlled.
Scope and Approach As the world economy continues to expand, established companies will face new competitors and markets. An expanding market presents new challenges, many of which can be addressed with traditional solutions, but an expanding global economy brings with it new cultures and associated business rules. It therefore demands new solutions and methods. Achieving the competitive advantage and protecting market position in an ever-changing global marketplace requires an appreciation and understanding of cultures and business rules, philosophies and operating styles. Traditional methods that have been used successfully in well established markets may have to be replaced.
If we accept the notion that gray market distribution has a place in business, than the primary issues that must be addressed are control and the ability to distinguish between acceptable and unacceptable forms of gray market distribution, while making a place for discreet distribution. To effectively control, timely and accurate information is required. Information that flows from the transaction stream best satisfies these objectives and does so proactively. A proactive stance satisfies the need to distinguish between the gray market forms and offers an excellent opportunity to maximize control because it effectively anticipates what may occur from the institution of a well orchestrated plan.
If gray market distribution is not recognized or appreciated as a dynamic and complex process, capable of penetrating a limitless number of points throughout the entire supply chain, its treatment will be relegated to simple, reactive solutions. As an example, improved forecasting, in consideration of its definition, “to estimate in advance” can only go so far and is therefore incapable of effective treatment. Other historical methods for dealing with gray market distribution appear to focus on symptomatic treatment. As authentic merchandise surfaces in unauthorized markets and distribution channels some manufacturers may look for particular markings on the packaging as a means to identify the source. However, as each new marking capability is discovered and employed, gray market distributors find new ways and sources for “washing the markings”.
The enormity of the supply chain presents other opportunities to gray marketers. Moving from raw material through the finishing process, the very nature of logistics and transportation can provide predators with the ability to remove authentic products from the supply chain as they move through various hubs, assembly, and distribution points. While such theft is more probable during seasonal peaks because of the ability to move those products quickly, nonetheless, they can fill authorized markets and distribution channels creating the same problems that occur from discreet distribution and dumping.
Freight Transportation Management Capabilities The supply chain is the corporate blood line to the market place! Its length, breadth, and scope offer an unlimited number of opportunities for gray market distribution. Accepting the premise that gray market distribution occurs by design as well as default, appropriate programs that can effectively address the extreme challenges of gray market distribution are required to prevent:
As the omnipresent and operative component of the supply chain, transportation is uniquely capable of providing timely, accurate, and ubiquitous information. As the driving force of the supply chain, transportation is always positioned on the frontline of commerce. Consequently, transportation is highly capable of tackling the extreme challenges presented by the rapidly expanding global economy and can achieve the objectives of early identification, control, and management as well as distinguishing between discreet distribution and the other forms.
The three (3) forms of gray market distribution: discreet, dumping and theft may require unique treatment, but in all cases, effective treatment begins with identification.
Paramount to effective identification is the ability to thoroughly trace and track all shipments, including but limited to the products therein. Today’s freight paradigm views the entire life cycle of “freight” beginning with its first recognition simply as an entity and continuing through description, identification and ultimate consumption. The freight lifecycle provides access to the entire transaction stream and provides the necessary data from the following penetration points: pre-shipment, in-transit, and post-shipment. Examining the buy-in and sell through analysis in conjunction with the freight lifecycle data/information will identify exceptions in consumption. Such exceptions can be an excellent entry point ultimately capable of identifying the source of the gray market.
Discreet distribution programs must be acknowledged, at least at the appropriate corporate levels. Each transportation management function such as: routing, document preparation, auditing, payment processing, or tracking have unique advantages
Design and data specifications for selection the specific transportation management function such as routing, document preparation, auditing, payment processing or tracking
“Dumping” identification and control are also best addressed with the buy-in and sell-through analysis. Typical shipment transaction data is usually sufficient when used in conjunction with those analyses and can readily achieve the objectives of control and management.
Theft situations demand greater visibility of the supply chain with specific emphasis on the purchasing and receiving parts of the freight life cycle. Of equal importance is the routing component. Proactive and tight control including live counts at appropriate points during transportation will reduce and possibly eliminate access to finished products or components. Incremental and connective transportation management solutions such as RoutingGuides will control carrier selection and the products they handle.
Terms of Sale/Purchase and the Freight Terms, followed by Bill of Lading data, freight bill, delivery data, (all of which are available from the freight lifecycle) when coupled with other databases such as accounting and sales will present the most comprehensive information and achieve category distinction, control, maintenance, and analysis.
Many of our previous white papers have discussed the importance of freight transportation as a process, function, and information base. Additionally, they have addressed the importance of thorough carrier negotiations that embrace appropriate exploitation of the trading partner relationship. The wealth of data contained in the entire freight transportation process, singularly and collectively, when interrogated by effective tracing and tracking systems such as TRaIDS that respect pre-shipment, in-transit and post-shipment activities and document “who, when and where” are necessary to address the complexity and dynamism of gray market distribution. Through pattern recognition, not only can the objectives of each form of gray market distribution be satisfied, the data is capable of presenting new, legitimate markets for consideration.
Finally, capable of producing a natural collaboration of information and process, transportation makes the entire supply chain visible. Reverse engineering of the gray market process offers those companies that understand the importance of gray market distinction, identification, control, and maintenance, with insight into gray market operations. From this perspective and coupled with a well orchestrated plan, control and maintenance of the gray market can continually improve.
Conclusion The ever expanding global economy continually increases the vagaries under which commerce is conducted. Gray market distribution has been and will probably continue as an effective means to deal with overproduction and excess inventory. At risk are those companies that fail to recognize the influence of rapidly expanding global markets because of the new cultures and business rules that are part and parcel of such expansion and resulting market. As the engine of the supply chain and its position on the frontline of commerce, transportation is a primary source and transportation management tools offer the solutions that can effectively motivate supply chain integrity and meet or exceed the extreme challenges of gray market distribution.
TransportGistics is a global, multi-product and services company that provides market leading, simple, incremental solutions for transportation management and logistics functions within the supply chain.
TransportGistics commitment to education is portrayed through its advancement of professional logistics and transportation programs. Its white paper site presents important and timely transportation and logistics subjects each month, and is regularly visited by more than 125,000 clients and readers representing companies in the private and public sectors, universities and governments, worldwide. TransportGistics is a founding partner at the Center of Excellence in Wireless Internet and Information Technology at the State University of New York-Stony Brook.
Continuation Please consider this white paper as a continuum in this subject area, succeeding white papers will address common issues and address them with common solutions. We encourage our readers to direct any specific questions or comments to papers@transportgistics.com.
Disclaimer The information presented herein represents the opinion of the author, but not necessarily the opinion of TransportGistics, Inc. This white paper is not presented as a legal position or as a recommendation.
“Freight Lifecycle Management”, “Convergence” and “Today’s Freight Paradigm” are sales marks of TransportGistics, Inc.
All content copyright by TransportGistics, Inc. All rights are reserved. The authors of the articles retain the copyright to their articles. No material may be reproduced electronically or in print without the express written permission from the individual authors and/or TransportGistics, Inc. (papers@transportgistics.com)
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