Many manufacturers believe that if they only added 1:1 tracking—serial numbers, RFID tracking, or QR codes—to their products, then their diversion problems would be resolved. In working with 600+ manufacturers, Vorys eControl has observed the gamut when it comes to manufacturers investing in track and trace. In this piece, we dispel some misconceptions, share some considerations, and highlight some common pitfalls of this strategy.
Tracking and tracing your products will not necessarily resolve your diversion challenges. Indeed, many manufacturers come to Vorys with serialized products, QR codes, and the like. They're still struggling with rampant unauthorized sellers on Amazon and elsewhere. Another common misconception is that the brand has to implement track and trace for an effective eControl program. This is simply not true, as the vast majority of brands that we work with cannot track and trace their products.
Operationally implementing track and trace can quickly become overwhelming and expensive. Some of the considerations brands should be aware of include, but are not limited to:
Brands can easily defeat the purpose of track and trace if their third-party sellers have not opted out of co-mingling their inventory inside Amazon warehouses with FBA inventory. For example, a brand sells serialized products to (i) Seller A and (ii) Distributor B who supplies Seller C. Sellers are not supposed to sell on Amazon without the brand’s separate consent. Seller A and Seller C have not received that permission. Nevertheless, both Sellers A and C are impermissibly selling on Amazon, using Amazon fulfillment, and have not opted out of co-mingling.
As such, their respective inventory is getting mixed with each other’s. It's happening inside Amazon warehouses, as well as getting mixed with any other unauthorized sellers who are commingling the brand’s product in an Amazon fulfillment center. The brand sees an unknown storefront name on Amazon (“Unknown Seller 123”) and decides to perform a test buy. The goal is to determine who is impermissibly selling on Amazon. When the brand receives the product bought from “Unknown Seller 123,” it is ultimately receiving a co-mingled product. So, it is not going to know which seller shipped that product to the Amazon warehouse.
Thus, any of the following scenarios could occur:
As you can see, commingling inventory often thwarts the benefits of track and trace and does not provide a clear answer as to whom is diverting the product. As such, Vorys often recommends that the brand contractually obligates its third-party sellers using FBA to opt out of commingling for many reasons, including supporting track and trace.
Some manufacturers take the step of adding a track and trace feature to the product packaging rather than the physical product. Sophisticated counterfeiters may be able to easily replicate this feature on product packaging, as QR codes are relatively easy to create. As such, the brand may want to consider a tracing method inside the physical product or a secret QR code on the product packaging in addition to tracing methods on the product packaging.
Brands committed to track and trace may be doing a good job of tracking product sales except when it comes to their own D2C sales. In addition to being mindful of D2C promotions that invite diversion, brands also need to trace the products that they sell to end users, whether it be through their own proprietary website, a phone or fax order, or a catalog order.
Even if a brand and its downstream distributors and retailers are fully committed to track and trace, errors and failures are inevitable. It is common for products to not be tracked as they should because of various issues, including with the recording or software systems, rendering track and trace not entirely reliable.
