1.2 An introduction to the evolution of technology solutions for securing the products’ supply chain

‘Covert’ security elements were traditionally restricted to authorized stakeholders such as producers, brand owners, or enforcement officials, yet an increasing number of security elements can be authenticated by smartphones (for example, digital watermarks, copy detection patterns, Near Field Communication (NFC)). As a result, it has become common practice to let consumers, as well as other supply chain intermediaries and retailers, verify the authenticity of covert authentication elements.

The above technologies mainly serve the purpose of authenticating a product or, more often, its packaging, telling if it is genuine or not. To control products’ movements along the supply chain, track and trace technologies are needed and the combination of authentication and track and trace may serve as a more effective barrier to the infiltration of fake and illegitimate products within the legal supply chain.

Several types of authentication elements can be used to distinguish authentic goods from phony items, including holograms, colour-shifting inks, security threads, QR codes, data matrix codes, micro-printing, anti-forgery inks, bar-code technology, digital watermarks and copy detection patterns, to mention a few. On the other hand, tracking and tracing mainly relies on two identification methods: optical barcodes (e.g. QR codes, data matrix) and radio frequency identification (RFID), which can be applied either separately or jointly and with optical identification methods being more widespread. QR codes and data matrix codes may however be used for authentication if used in combination with an authentication element which is verified simultaneously.11

Operationally, and for both optical and RFID technology, the process of securing and controlling the movement of products with authentication and track and trace may start as early as the manufacturing stage and may continue in the distribution and retail phases, depending on the type of product, the producer/government’s requirements, and the relevant regulations in place12 .

The technological evolution in supply chain security mechanisms has been combined with the progressive transformation of industries which were facing the need to quickly circulate mass market products globally while controlling their location and protecting from a series of evolving threats posed by criminals to the integrity of the supply chain.

Two examples can be briefly mentioned to show how technology evolved in the area of supply chain security. The first one relates to rapid technology evolution in relation to tools to authenticate and subsequently track and trace products. The second one refers to the possibility of adapting tools initially created for specific purposes (tax collection in this specific case) to a modified criminal environment, where the purpose of collecting taxes progressively met the purpose of protecting the integrity of the supply chain.

11 For more information see: The European Observatory on Infringements of Intellectual Property Rights (EUIPO). (2021). AntiCounterfeiting Technology Guide. Retrieved from https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/ observatory/documents/reports/2021_Anti_Counterfeiting_Technology_Guide/2021_Anti_Counterfeiting_Technology_Guide_en.pdf 12 A complete overview of these elements can be found in the 2016 report “Ensuring supply chain security: the role of anticounterfeiting technologies”. The report was published in 2016, consequently, the information presented might not consider the latest developments in technology. The present report focuses on current risks and possible responses, including the presentation of innovative submissions based on up-to-date technology solutions. To access the previous report, see: UNICRI (2016), “Ensuring supply chain security: the role of anti-counterfeiting technologies”, http://www.unicri.it/index.php/ensuring-supply-chains-securityrole-anti-counterfeiting-technologies

Example 1

In 1952, with the patent of the barcoding system, technology had already begun to play a decisive role for the control of the production of goods and for securing the supply chain. In this period, barcodes progressively became an innovative solution to manage operations in the manufacture and distribution of products, and eventually they facilitated the integration of other technology solutions to consolidate information. The relevance of data management increased in 1960 with the invention of computer systems that were able to transfer data between devices, enabling the exchange of electronic business documents. Globalization and the growth of the scale in production also led to the creation of a new computerised tracking system that provided near real time information about packages for delivery by FedEx in 1985. This end-to-end visibility system enabled drivers to use portable handheld computers to scan pickups and deliveries, allowing the monitoring of the status of a shipment through the stages of the supply chain.

The development of more secure code systems continued, and in 1987, David Allais developed the first 2D barcode, enabling a larger amount of data storage and better encryption. Later, in 1994, the QR code system was invented by Masahiro Hara from the Japanese company Denso Wave to track vehicles during manufacturing. The company has held the patent rights since its creation but has decided not to exercise them, which allowed the widespread adoption of the technology. These improvements were highly relevant since coding plays a central role in the current authentication and monitoring technology.

In 2000, another major development occurred when radio-frequency identification (RFID) was developed at the MIT Auto-ID Centre. The code-carrying technology uses data stored in a microchip where the tag’s antenna receives electromagnetic energy from an RFID reader’s antenna, and eventually, the tag sends the frequency waves back to the reader to be interpreted. The integration of RFID to objects was essential to generate track-and-trace solutions using a database and to establish the technology for automatic identification and data capture (AIDC).

Furthermore, monitoring of the processes and information security went through important changes. In 2009, technology security solutions had a breakthrough when a developer or developers working under the pseudonym Satoshi Nakamoto published a white paper establishing the model for a blockchain and a blockchain database. The use of blockchain in the supply chain adds a layer of security in the peer-to-peer interaction and exchange of data by eliminating intermediaries and by storing data which are immutable.

Example 2

Governments have also directly taken measures to protect national commerce and tax revenue. To achieve this, they developed the tax stamp system in the 17th century. A tax stamp is an easily recognizable government-approved mark, applied to a product to guarantee that the correct amount of taxes has been paid. Tax stamps are required by many countries as a way of ensuring taxpayers’ compliance by monitoring production. The rationale for tax stamps stems from the primary goal of tax administration, which is to “collect taxes and duties payable in accordance with the law.”13 Tax administrations put in place strategies and structures to guarantee that non-compliance with tax obligations is kept to a minimum.

With the evolution of illicit trade and the rise of counterfeiting and smuggling, tax stamps have progressively acquired a new function, namely contributing to products’ authentication and allowing for the tracking and tracing of products to which they are affixed. In simple terms, tax stamps are nowadays one of the means used by governments to ensure that an excisable item is original and is put into commerce via authorised channels.

13 Centre for Tax Policy and Administration (2008), Forum on Tax Administration: Compliance sub-group, final report, “Monitoring taxpayers’ compliance: A practical guide based on Revenue body experience”, available at: http://www.oecd.gov