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Unwelcome (Product) Diversions

Product diversion costs manufacturers millions, but often isn't technically illegal. CSOs say combating diversion involves equal parts investigation and corporate politicking.

We've also created Accu-Chek Customer Care training sessions for our customer representatives. They've done a wonderful job of filtering calls, and then letting us know when there could be a secondary product or a counterfeit issue.

We make sure that foreign product is registered differently with the FDA. We don't want that product back in the United States, so it has a different box and a different look. And it says, "For export only."

We've tried the holograms [on packaging]. We've tried stickers. But those can be duplicated in no time flat, especially in the Far East but also right here in the United States.

We liaison with the Internet based on a criminal case where we lost about $4 million in product. It was a former employee who sold every bit of it across the Internet. What happened was, this person went out and found several others to purchase this product. And so they were ordering the product under false pretense, shipping it across state lines and making a tremendous amount of money off it. Those folks are now under indictment. One has already been convicted.

So we do pursue it from our old vantage point of investigation. But it's critical to interface with the business units and lend your expertise to them. For instance, a simple change in the number of dots on a box, the forensics that can prove that it's not your glue that seals the box, lot number changes that indicate that it can only go to specific places—these things can tell us exactly where diverted product comes from. And that's borne out of our being burned several times.

Arnt: We do everything from bathroom and facial tissue to health-care products. We're now a health and hygiene company as opposed to just strictly a consumer products company. And obviously with the health products, we have put more controls in place there because of the concerns about product safety. A lot of our controls have to do with packaging—institutional packaging versus hospital packaging versus consumer packaging. Also labeling, although labeling is an interesting issue for us. Because in order to reduce costs for your consumer product packaging, your advertising and so forth, you will see more of the same labeling and packaging throughout the world. If it's got French, English and Spanish on it, that doesn't tell you much in terms of where that product came from.

The packaging does mean more. And then tracking of course. A lot of the big customers that we have (and one of our biggest is Wal-Mart) are requiring radio frequency identification tracking as part of the way we sell to them. This will have a lot of side benefits as this technology expands because it's going to be able to tell you a lot of things about where this product was in the supply chain, and where it should be. It just provides a tremendous amount of information that should help us in the long run, especially with diverted product.