After an electrical incident, your investigators put together a report. It looks like you've done everything right. But it seems that a part failed unexpectedly, and your liability is limited.
This is until they discover that the part was purchased from an unauthorized dealer. The warranty isn't authentic, and the risk isn't mitigated. Thankfully, it's just a story because the outcome and the scope of the problem are worse.
There's a wide range of problems, from direct counterfeits and fake products to the risk of buying genuine parts from unauthorized distributors. Like cybercrime, there are growing risks from criminal enterprises that have put time and energy into the gray market. Especially when it comes to electrical products, the consequences of a counterfeit or inauthentic part are far-reaching. Replacing the part would be the easiest cost to pay, but an electrical incident can cause critical system downtime or serious injury.
In this article, we will cover the real risks of counterfeit products and unauthorized vendors. To learn more about steps you can take to protect your employees and businesses, watch our expert webinar, linked below.
Counterfeit Products Are a Big, Sophisticated Business
There's no doubt that counterfeit and unauthorized sales are a real and growing problem. Scammers know how powerful an attractive price is. Every department is under pressure to contribute to profitability. Procurement departments pride themselves on the ability to secure goods and services at advantageous rates, and smart scammers know how to take advantage of that.
But let's compare the savings from an attractive discount and the risks of a gray market buy:
Perhaps the biggest risk is ourselves and our culture. We live in a world full of easy access to product listings and prices on the web, where the landscape of consumer goods has taught us to check a few websites for a better price. Everyone is busy, and it's all too easy to assume that something is legitimate when it isn't.
If you google for the lowest price, you're taking on a risk. The risk of going with that attractive price, if it's not a trusted vendor, is now you've got to verify that trust. It might seem like a genuine product, but it likely won't be backed by a warranty. An inauthentic part creates risk, liability, and perhaps worse, it creates a burden for your entire system.
Real-World Case Study
A case study by Eaton shares how counterfeit molded circuit breakers were reported by a nuclear power plant. The utility company placed the order with a reseller that sourced the breakers from another broker. That broker shipped counterfeit and altered breakers to the reseller, where the receiving process in place failed to flag the brokers as counterfeit or altered.
The nuclear utility, however, conducted its own internal tests, including the use of tools from the original manufacturer (in this case, Eaton), and found inconsistencies. When those were reported to Eaton, testing and documentation were able to confirm that products were counterfeit and altered. Eaton was then able to help the nuclear power plant source the molded circuit breakers they needed through an authorized dealer.
The nuclear power plant could not risk a circuit breaker failing to operate as designed. They had a process in place, and it worked, but the reseller they had sourced through had a process that didn’t. In this case, the utility worked with the manufacturer, who had proven tools and investigative processes to help. Moreover, counterfeiters do the job so well that sometimes it is difficult to identify the differences with the naked eye.
The Big Picture Risk
What does it say about a business if procurement makes this kind of mistake? If you're a contractor or sub-contractor, and you've brought in a part, you're exposing your client and their end-users to financial and personal injury. You've demonstrated that your business will make decisions based on price instead of committing to the trust and service your clients expect of you.
In the case of equipment failure, clients could have risks far beyond the failure of a part. An electrical failure can cause security breaches. In the case of mission-critical systems, the financial impact of downtime could be counted in the millions a minute. Circuit breakers are part of vital electrical safety systems. If a circuit breaker fails, the results in a facility could be catastrophic.
If a third-party tester or commission agent finds a faulty part before it can cause serious damage, all that's been hurt is your reputation. You'll have a chance to remedy the error and demonstrate to your client improved procurement processes. But if a part stays in service and an auditor checks the system you've serviced down the line, and it's not compliant or up to code, you're risking legal and fines. It's not just the capital cost of replacing something that is supposed to last with lost production time and maintenance, you have committed a serious violation and exposed the rest of your trusted business partners, perhaps, to further scrutiny.
It Only Takes One
If a consumer buys something counterfeit, in most cases, they've only lost money - it's easy to put a price tag on the risk of hunting for a deal. Of course, if it's an electrical device, the battery may be a hazard. As a trusted business partner, it's almost impossible to put a price tag on the risk of buying a counterfeit or gray market piece of electrical equipment. When it comes to fault protection, it's worth making sure parts are sourced properly.
To learn more about what electrical equipment manufacturers and suppliers are doing to combat these risks, and what your can do to help protect your company and your clients, register for the live or recorded version of our webinar, "Buyer Beware: Understanding the Risks of Gray Market and Counterfeit Products."