Manufacturers and distributors have generally overlooked one of the primary contributors to piracy – gray market goods – according to Archstone Consulting, a leading management strategy and operations consultancy. Speaking at the National Electronics Distributors Association’s (NEDA) annual executive conference in Chicago this week, Archstone consulting found that nearly 83% of the members surveyed found that gray market leakage was having an equal or greater financial impact on their business as counterfeit products or theft.
“In this uncertain economic environment, manufacturers and distributors need to aggressively combat piracy, particularly as it relates to gray market goods,” commented John Ferreira, keynote speaker at the NEDA conference and Industrial Manufacturing Practice Leader at Archstone Consulting. “Few companies have aggressively attacked one of the primary contributors to gray market – a key element that is completely within their own sphere of control – their operational practices deployed to manage the global supply chain. Gray market goods still represent over $125 billion in lost revenue in the U.S., resulting in approximately 750,000 jobs lost.”
Gray market goods is the unauthorized leakage of real product into the marketplace, resulting in the manufacturer not receiving full payment including: Leaking of excess inventory via unauthorized channels, Product that is sold illegally, and distributors misreporting damaged or destroyed product that is sold into the market. The costs and detrimental impact on businesses are profound and include lost revenues, reduced profits, decline in customer satisfaction and a deteriorated brand, among others.
“The issue of piracy and gray market goods is one of the most important concerns facing the electronics industry today,” stated Robin Gray, Executive Vice President of NEDA. “Mr. Ferreira’s discussion reinforced the need for our members to evaluate their business practices and operations to ensure that best practices are implemented to address some of the key root causes of gray market piracy.”
According to Ferreira, there are three root cause drivers behind gray market leakage including:
• Financial Health of Partner in the Network – Financially weak partners may bypass their SLA’s, distribution or pricing controls and play the pricing or regional arbitrage game to gain financial benefit.
• Internal Operating Practices – Practices and policies deployed across the globe can work at cross purposes and influence leakage into the gray market.
• Business Model – A company’s business model may provide gaps for unauthorized distributors to gain access and penetrate a poorly managed network.
Mr. Ferreira concluded, “As global distribution networks and supply chains continue to expand and channels become more competitive, manufactures will need to understand the size of the gray market leakage, identify the root causes, develop mitigation opportunities and finally, build the roadmap and action plan to re-gaining lost revenue.”
About Archstone Consulting
Archstone Consulting is a leading, independent Strategy & Change, Operations, CFO Advisory and Brand Innovation management consultancy, specializing in delivering strategic, operational, IT and CFO advisory services to the consumer products, retail, life sciences, manufacturing, and services sectors. Archstone Consulting offers experienced support, efficient execution and measurable results.
Complimenting this industry expertise is The Hazelton Group, one of the Archstone Consulting companies. The Hazelton Group is a leading, research-based brand innovation firm, specializing in growth through new product innovation, brand positioning and rejuvenation and global brand development. Headquartered in Stamford, Connecticut, Archstone Consulting has offices in Amsterdam, Chicago, London, New York, San Francisco and Toronto. For additional information, please visit the company's newly-designed website at www.archstoneconsulting.com.
About NEDA
NEDA is a not-for-profit trade association representing distributors of electronic components and their manufacturer-suppliers. Dedicated to the enhancement of the distributor-manufacturer relationship, NEDA represents companies involved in the distribution of electronic components and parts, computer and computer peripheral components and test, measurement and control equipment and their manufacturer-suppliers.
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