ISSUE: A confidential customer notified the manufacturer that they had discovered large amounts of their 2nd generation product available for sale on the internet. This product had not been made available to the public at the time of the discovery.
RESPONSE: An immediate investigation began and online sellers were identified on 2 major internet marketplaces. At one internet retailer, this product had made it all of the way into their legitimate warehouses and was being fulfilled under their brand.
Upon a closer look at the manufacturer, it was determined that the product ramp up (NPI) had suffered some setbacks due to cosmetic failures. More that 10,000 pieces of the product with a total retail value of $600,000 USD were scrapped due to the defects. The manufacturer had contracted with a scrap vendor to remove regular waste from the site (cardboard, plastics, metals, etc.) and asked this same vendor to scrap the customer product. As agreed, the scrap vendor provided a certificate of destruction for all units.
A downstream analysis was conducted and it was discovered that this vendor had sub-contracted to a 3rd party provider for the purposes of destruction. After identifying the 3rd party, interviews were conducted with the owner and management team. The owner stated that they had a robust and well-documented process for handling the secured destruction of the units. As part of this process, the owner stated that they took digital photographs of the scrapping from the time of receiving up to the point of grinding the materials. Those photographs were then supplied to the investigators for review.
Utilizing proprietary forensic techniques, it was determined that the historical pictures had been taken 1 hour before the photo evidence was provided to the investigation team. A deeper review also determined that the devices were NOT destroyed in accordance with the agreement and were currently being stored/sold out of a warehouse on the West Coast of the US.
When confronted with the evidence, the owner of the 3rd party scrapping company admitted that they resold the functioning units to a warehouse retailer and destroyed the non-working units.
RESULTS: The customer declined to prosecute in this matter and the manufacturer coordinated the return of all outstanding materials with the original scrap vendor. The recovery costs were transferred to the manufacturer. Although recovery costs were minor, the business relationship between the customer and the manufacturer were impacted at an unknown value.