orc in the food & drug industry€¦ · laser coding & branding. laser coding: a technology...

ORC in the Food & Drug Industry:

Are we to blame?

Who We Are…• Harris Teeter Supermarkets: Regional Upscale Grocery

Chain w/200 Stores based in Matthews, NC

• Operate in 8 States (NC, SC, VA, GA, Fl, TN, MD & DE)*Also operate in the District of Columbia

• Operate Grocery, Frozen Food and Perishable Distribution Centers, and a Milk/Ice Cream Dairy

Who We Are…

Detecting & Preventing ORC

A Harris Teeter Perspective

CCTV SystemFunctionality

Advanced Public View Monitor

Typical Loss/Recovery: Between $700-$900 per Incident

Laser Coding & Branding

Laser Coding: a technology used to “burn” a Label into the substrate, or layer of packaging

Laser Coding is achieved by one of three processes:

1. Coating Removal: The laser is absorbed by the surface coating which it vaporizes to reveal a contrasting substrate underneath.

2. Etching: The laser vaporizes material from the surface of the substrate without producing any color change. The resulting marklooks similar to an embossed print.

3. Thermochemical: The laser changes the material by heating it to a sufficiently high temperature to break molecular bonds. Thenew material formed by this process may have a different color, thus producing a discernable mark.

1. Coating Removal: The laser is absorbed by the surface coating which it vaporizes to reveal a contrasting substrate underneath.

Laser Coding & Branding

Supply & Demand

The Economics of ORC

Terminology & Definitions:

(Retail) Market*:

Gray Market**:

The business of buying or selling goodsat prices below those set by an official regulatory agency. (i.e., Diversion)

The market for the sale of goods or services to consumers rather than producers or intermediaries.

Gray Mkt Challenge?

Knowing what is legitimate or illegitimate** Source: http://www.thefreedictionary.com* Source: http://financial-dictionary.thefreedictionary.com/Retail+Market

Retail MarketSupply & Demand

Scenario

2. Retailer XYZ puts a 30% Markup on the Analgesics, grossing $157,625,000.

3. Assuming Retailer XYZ has zero-growth in size or market share the following year, how many cases of product do theyneed to replenish their shelves?

1. Retailer XYZ makes wholesale purchases of Analgesics from Broker ABC Inc., totaling $125,000,000 (5 million cases), annually.

(3% shrink at cost is factored in)

Answer: 5 million cases of analgesics. (Demand!)

Gray MarketSupply & Demand

Scenario1. Broker ABC makes purchases of Analgesics from an illegitimate

source (stolen product) totaling $100,000,000 (5 million cases), annually.

2. Broker puts a 25% Markup on the Analgesics and sells themto Retailer XYZ grossing $125,000,000.

3. Assuming Retailer XYZ has zero-growth in size or market share the following year, how many cases of product does Broker ABC need to purchase to replenish their own shelves?

(Demand!)Answer: 5 million cases of analgesics.

Let’s CompareRetailer XYZ

(Retail Market)Broker ABC, Inc

(Gray Market)

Sells 5 million casesBuys 5 million casesBuys 5 million casesSells 5 million cases

Buys 5 million cases

Buys 5 million casesSells 5 million casesSells 5 million cases

Sells 5 million casesSells 5 million casesBuys 5 million cases

Buys 5 million cases

The Difference Between Markets?

Nothing!

There is no difference between these two markets! They both operate, in equal measure, by the principles of

Supply & Demand!

Economic Cycle of ORC

Illegitimate Broker

Sells to Wholesaler

Fence sells to Illegitimate Brokers

Consumers Create Demand

Retailer supplies the Demand

ORC

Are we to blame?

Wholesaler (“Legitimate”Broker) sells to retailer

Boosters steal fromRetailer & sell to Fence

Why is This Importantto Understand?

Current Industry Initiatives on ORC:

•Focus on the Supply Chain* Boosters* Fences* Cargo Theft* “Cleaning” houses (EAS tag Removal, ink cleansing, etc)* Repack Operations

• ORC Investigative Teams* Implemented to impact the Supply Chain

Supply Demand* Boosters

* Fences

* Cargo Theft

* Cleaning houses

* Repack Operations

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How do we do This?

Build an Anti-ORC Buying Program!

Step 1: Meet with your executives and explain this process.

Step 2: Get a Commitment That Your Company Will NOT Purchase Stolen Product! (This may entail revamping incentive structure for buyers)

Step 3: Communicate Expectations (i.e., send vendors letters, establish procedures for violations, etc.).

Step 4: Audit for Compliance!

“We believe that if you are truly committed to eliminatingORC, then you must be equally committed to not

purchasing illegally diverted product”.

Harris Teeter Philosophy

Harris Teeter’s Initiatives on ORC:

• We do NOT “primarily” focus on the Supply Chain

• Our focus is spread evenly among Supply &Demand

• We do NOT have an “ORC Investigative Team”

Harris Teeter’s Initiatives on ORC:

Senior Management Team that is…

* Committed to ensuring we do not buy suspicious or illegally diverted product

* Requires an Audit to ensure compliance

What we DO have:

Is Your Company Buying and Selling Stolen Product?

How Do You Know?

Identifying Stolen Product:

Lot Numbers:• According to FMI’s “Thieves’ Market” video production,

Lot Numbers are the best indicator of illegally diverted product.

By a Show of Hands:

How many of you think it’s possiblethat your company buys stolen

Merchandise?

“No problem can withstand the assault of sustained thinking”.

Questions?

ORC in the Food & Drug Industry:Are We to Blame?