Fraud within the supply chain can be prevented or mitigated with proper inventory management techniques.
There is increasing evidence that businesses need to be prepared for the occurrence of fraud within the supply chain, but companies on the whole remain unprepared. In a recent survey conducted by Deloitte Financial Advisory Services LLP, researchers found supply chain fraud comes from many sources, including employees, vendors and subcontractors. According to the survey, 28.9 percent of respondents experienced supply chain fraud, waste or abuse in the last year.
Fraud harms businesses and comes in many forms. For instance, according to Supply Chain Quarterly, a 2008 melamine contamination in Chinese milk products affected 250,000 people around the world and cost around $10 billion in total damages. In response to this situation and others like it, the Grocery Manufacturers Association and its Science and Education Foundation partnered with A.T. Kearney to study consumer product fraud in the food and beverage industry. The study found that even the best companies could afford to improve their food safety and quality programs.
Though this is an extreme example, companies shouldn't assume they are immune to fraud.
"Since every supply chain's unique risk profile stems from a mix of cultures, geographies, industries and subcontractors, developing an effective supply chain forensics program is often more art than science," said Mark Pearson, a principal of Deloitte. "But if you know where to look, red flags and other faint signals can help you focus limited resources to drive supply chain transparency and efficiency while reducing fraud, waste and abuse risks."
Here are some ways companies can use warehouse management software tied to their enterprise resource planning system to prevent and manage instances of fraud:
Track and Trace Products
According to InBoundLogistics, one place where fraud is likely to occur is during the returns process. When dealing with returns, online retailers should be aware of their products and monitor systems in case of fraud. Therefore, stringent inventory management techniques are needed to know which products are on the shelf and which are en route from being returned. Track and trace methods are essential in knowing where items are at each step of the supply chain.
To this end, effective data collection could strengthen companies' abilities to detect and prevent fraud. When each step of the supply chain is documented and inventory is controlled, it may be easier to spot when questionable instances occur. One big factor in determining whether supply chain fraud is taking place, according to Deloitte, is being able to notice those "red flags" that Pearson mentions. Proper inventory management techniques, including the use of software for accurate analysis of operations, will help businesses identify potential instances of fraud.
"With reputational, litigation and regulatory repercussions hanging in the balance, companies can't afford to dismiss supply chain fraud prevention and detection," said Larry Kivett, a partner at Deloitte. "Schemes constantly evolve and come from every direction, making vigilance crucial."