Dynamic simulations of market surveillance
actions
Ivan Hendrikx, member, IEEE, Bojan D. Jovanoski, Nikola Tuneski
 that products comply with the requirements set out in the
Abstract—The Regulation No. 765/2008 of the European
parliament and of the Council, Art. 2, no. 17, defines market
surveillance as: “activities carried out and measures taken by
public authorities to ensure that products comply with the
requirements set out in the relevant Community harmonization
legislation and do not endanger health, safety or any other aspect
of public interest protection.”
This paper presents a dynamic market surveillance model that
takes into account the three most relevant actors within the MS
system: the market surveillance authority, the consumers (users of
the products) and the economic operators; defines satisfactory
indices for each of them, together with a set of action rules when
the value of the index is below or above some (predefined) limiting
value. Afterwards, computer simulation is done for a real case, the
results are studied and adequate conclusions are drawn.
The model given in the paper is a pioneering work and can be
further developed and improved. Nevertheless, it still encompasses
very well the interaction between the three parties and follows the
directions given in EU Regulation No. 765/2008. It shows the
dynamics of the market surveillance system and offers insight into
its parameters. Thus, it can be used when improving an existing or
creating a new market surveillance system.
Index Terms—conformity assessment, decision-making,
dynamic model, market surveillance, satisfactory indices,
simulation.
I. INTRODUCTION
T HE power of supply and demand of products on the
international market is stronger than ever and it sometimes
overshadows other basic needs and natural processes. The
suppliers want to provide as much products as possible, thus
gaining more profit and competitive advantage. Consumers
have more demanding needs than ever (more variations, higher
quality, faster responses, etc.) and want to buy products at their
best (read: lowest) price possible, [1]. Suppliers are striving to
meet consumers’ needs, but somewhere in that process few fail
and provide products that are below the required standards [2].
This brings the necessity of market surveillance (MS).
Regulation No. 765/2008 ([3]) of the European parliament
gives the following definition of market surveillance:
“‘market surveillance’ shall mean the activities carried
out and measures taken by public authorities to ensure
Ivan Hendrikx, Market surveillance expert, ESTH, Zonhoven, Belgium (e-
mail: hendrikx.ivan@gmail.com).
B.D. Jovanovski, Ss. Cyril and Methodius University in Skopje, Faculty of
Mechanical Engineering, Skopje, R. Macedonia
bojan.jovanoski@mf.edu.mk).
relevant Community harmonization legislation and do
not endanger health, safety or any other aspect of public
interest protection.” (Art. 2, no. 17)
The market surveillance authorities are facing difficulties in
deciding upon the policies and actions that need to be taken.
The much needed conformity assessment infrastructure is
underprovided. Generally, there is pre-market and post-market
surveillance. The latter is much easier to conduct and with
bigger chances for quantification. The aforementioned
Regulation 765/2008 provides for a framework to develop MS
system by identifying, in general terms, the responsibilities and
identity of the MS authorities (Art. 16 and 17); MS resources
(Art. 18); MS measures (Art. 19, 20, 21); penalties for
economic operators (Art. 41). From those requirements, we
would like to point out the following
“Member States shall organize and carry out market
surveillance as provided for in this Chapter” (Art. 16. no.
1)
“Member States shall entrust market surveillance
authorities with the powers, resources and knowledge
necessary for the proper performance of their tasks.”
(Art. 18, no. 3)
“Market surveillance authorities shall perform
appropriate checks on the characteristics of products on
an adequate scale” (Art. 19, no. 1)
“The Member States shall lay down rules on penalties
for economic operators. The penalties provided for shall
be effective, proportionate and dissuasive” (Art. 41)
Similar goals are found with the UNECE’s Working Party on
Regulatory Cooperation and Standardization Policies claiming
that a country has to maintain a market surveillance system due
to 2 (two) reasons:
 Unsafe, counterfeited and products not conforming to legal
requirements shall not be allowed to be put and remain on the
market.
 Fair market conditions should prevail. Suppliers which
follow the rules and bear the administrative costs and delays
due to regulations should not be disadvantaged compared to
those who do not comply with the rules, [4].
“The responsibility for market surveillance rests with the
authorities. All countries and UNECE countries in
particular, have, in most cases, a legal duty to enforce the
N. Tuneski, Ss. Cyril and Methodius University in Skopje, Faculty of
Mechanical Engineering, Skopje, R. Macedonia (e-mail:
nikola.tuneski@mf.edu.mk).
(e-mail:
1
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legal framework for which they were designated as

Market Surveillance Authority.
The national Market Surveillance Authorities need to
have adequate resources at their disposal to ensure that
they can deal with the volume of imported products, the
needed dangerous product notifications and the technical
complexity of the regulations and the standards.”, [4].
In [5] the idea of an “International model” of technical
regulation is proposed, see Figure 1. A model that is general in
its kind and one that should be followed when harmonization of
technical regulations is favored by countries. This is especially
helpful for countries with less developed MS systems and ones
that need to further develop them. The (national) technical
regulation interacts, guides and aids the MS system, so that the
burden is not entirely on this authority.
So, the questions arise: What kind of a system needs to be
developed? What kind of governmental body needs to be
introduced (if not present)? What budget needs to be allocated
to it? What kind of new conformity assessment schemes should
be developed or which old ones to be improved for better
decision making processes? Even the well-established MS
systems have sometimes troubles explaining the benefit of the
planned budget, the cost-benefit analysis of the actions, etc.
Based on the EU Regulation 765/2008 and the “International
Model L” (Figure 1), pioneering work has been initiated to
develop a dynamic MS model that can be used for simulations
and as a tool for creating new or improving the existing policies
about the market surveillance system. It will be elaborated in
the next section, along with an example and conclusions from
it.
II. THE MODEL PREPARATION
The authors recognize three main actors (entities) within the
market surveillance (MS) system: the MS authority, the
consumers/users of the products and the economic operators
(EOs).
Because of its pioneering effort, the model of a MS system
that is introduced in this paper is a generic one. The main
simplifications that can be removed in the further development
of the model are following:
 It will assume a homogeneous situation on the market, i.e.
market consisting of only one product (service) from one
economic operator.
 It will be a deterministic model neglecting randomness within
the system.
 There will be no delay in the responses of the system.
Secondary assumptions for building the MS model are the
following:
 The MS authority has a budget between Cmin and Cmax
and these bounds are constant over time.
 The cost of inspection of one item ( c ) is constant over time.
 The minimal acceptable fraction of conforming items on the
market ( f min ) is also constant over time and it depends on
the risk level of the product that is to be chosen between Low,
Medium, High and Serious, with value of f min , 80%, 90%,
95% and 99%, respectively.
Fig.1. The “International Model L”
 The MS authority will consider a lot as "acceptable" if the
fraction of conforming items in the sample is greater than or
equal to the minimal acceptable value f min after accounting
for the statistical and measurement error (statistical error, due
to the fact that the lot will be accepted/rejected upon
measurements of a sample, much smaller than the lot; and
measurement error, due to the imperfection of the
measurement equipment), i.e., if the fraction of conforming
items in the sample is greater than or equal to

f min  f min  EU ,
where the term EU is the upper limit of the error of the
inspection. Its value, which depends on the statistical error
and the measurement error, determines the cost and the
quality of the inspection process. Namely, lower errors mean
higher costs, but at the same time provide lower producer and
consumer risk (lower risk that the conforming product will
fail the inspection or non-conforming product to pass the
inspection). This is well explained in [6] and [7].
 All the parameters given above ( Cmin , Cmax , c , f min ) are
fixed over time. Also, the rates by which the MS authority
increases/decreases the budget, as well as the rates by which
the economic operator improves/worsens the production are
constant over time.
Nevertheless, in the next sections it will be presented that
even in this version the model captures the behavior of a given
MS system and is certainly a good starting point for further
development.
When creating the model of a MS system we were driven by
the proposition that through time, each of the three actors
perform some action depending weather or not they are satisfied
with the current situation. So, satisfactory indices and their
lower limits for each of the three actors of the MS system were
defined, along with a set of action rules that follow the
satisfaction/dissatisfaction of each actor.
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The paper proceeds with introduction and explanation of the

satisfactory indices, their limit values and the set of action rules. 2) Consumers
By a similar reasoning as in the case of the MS authority, the
A. Satisfactory indices and their limit values
consumers would like to have higher fraction of conforming
The formulas for satisfactory indices that will be given in this items on the market and lower error (higher precision) of the
section are obtained aiming to follow the natural inspection.
correspondence between the level of satisfaction of an actor in This leads to the consumers' satisfactory index
the MS system and the basic parameters that influence its f t 
satisfaction. CSI  t    MSASI  t   C  t 
E t 
1) MS authority and its lower limit
It is evident that the MS authority would like to have higher
f
fraction of conforming items on the market with lower costs CSI L  min  MSASI L  Cmax .
and lower error (higher precision) of the inspection. EU
This philosophy, at moment t , is captured with the following The value CSI L correspond to the sensitivity of the
MS authority satisfactory index: customers. It is evident that the MS authority's and the
f t  consumers' satisfactory indices, as well as their limit values, are
MSASI  t   .
C t   E t  closely related.

Here, f  t  is the statistical estimate of the fraction of 3) Economic operator

conforming items on the market at the moment t , C  t  is the If the fraction of conforming items on the market is smaller
than its corrected minimal acceptable value ( f  t   f min

) and
cost of the inspection in moment t and E  t  is the error of the
inspection. the inspection is precise enough to detect it ( E  t   EU ), then
From the theory of statistics the error of the inspection, E  t  the inspected product is rejected from the market and the
economic operator is certainly not satisfied. Otherwise, the EO
, can be calculated as is satisfied. Analytically, this can be written as
E  t   S 2  t   Sm
2
, 0, if f  t   f min and E  t   EU
 
EOSI  t    .
where Sm is the measurement error and S  t  is the standard 
1, otherwise
deviation of the estimate of the fraction conforming at the One can say that the satisfactory index of the economic
moment t : operator is too static and should have some parameters, but in
f  t   1  f  t   fact it inherits all the parameters from the MS authority’s and
S t   the consumers’ satisfactory indices due to the two conditions
n t  used in its definition.
with n  t   C  t  c (whole part of the number) being the B. Action rules
sample size at moment t . Each of the actors in the MS system performs certain
Bearing in mind that x 1  x  is a decreasing function on the action(s) if their satisfactory index is below or above the
corresponding limit value. This model sticks to the basic
interval  0.5,1 , for the upper limit value of the standard (natural) actions:
deviation (lowest tolerable precision of the inspection) we can Action 1: If the MS authority is not satisfied, then the inspection
chose budget is increased by percentage C1 and at most reaches
f min  1  f min  Cmax .
SU  Action 2: If the MS authority is satisfied, but the consumers are
Cmin c not satisfied, then the inspection budget is increased by
and for the upper limit value of the error of the inspection (the percentage C 2 and at most reaches Cmax .
correction factor) EU (of the minimal acceptable value of the Action 3: If the economic operator is not satisfied, i.e. the lot
fraction conforming items in the sample) has been rejected, then the production is improved, i.e., the
fraction conforming increases by a percentage f 1 , and at most
EU  h  SU2  Sm
2
.
reaches 1.
Here h is a ‘guard-band’ factor ([8], [9]). Action 4: If the MS authority and the consumers are satisfied,
Finally, for the lower limit value of the MS authority then the budget is decreased by a percentage C3 and at most
satisfactory index:
reaches Cmax .

f min Action 5: If the economic operator is satisfied, then the
MSASI L  .
Cmax  EU production worsens by a percentage f 2 , but do not go below
The value MSASI L corresponds to the sensitivity of the MS f min . This happens unwillingly or switching rules in quality
authority. control are applied.
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For the parameters that appear in the action rules we can say
the following:
 The values of Cmin , Cmax , ΔC1 and ΔC3 characterize the
MS authority’s policy, its willingness and capability to
improve the market.
 The value of ΔC 2 indicates the consumers’ influence on the
MS authority.
 The value of Δf 1 and Δf 2 characterizes the EO's
willingness and capability to improve and control the
production.
 Parameters Cmin , Cmax , ΔC1 , ΔC 2 , ΔC3 , Δf 1 and Δf 2
, in this, simplified model, have fixed values that do not vary
over time.

III. PRACTICAL CASE

In this section we will consider the MS model with specified Fig. 2. Output graphs from MATLAB software for the data given in Table 1.
parameter values (given in Table 1) and based on it, receive
conclusions (in the next section) about its relation with real life 2. Time interval a to b: The budget still increases and the error
market surveillance, the potential for application of the model, of the inspection decreases below its upper limit, i.e. the
as well as directions for its improvement. inspection becomes more serious. This results with
rejection of the products from the market and dissatisfaction
TABLE 1. of the EO. The EO takes measures that lead to increase the
VALUES OF THE PARAMETERS FOR THE PRACTICAL CASE. fraction of products conforming. Also, the consumers and
medium risk product rate of increasing of the budget the MS authority's satisfaction indices increase and at the
fmin  0.8 C1  C 2  20% moment b they become satisfied.
cost of inspection of one item rate of decreasing of the budget 3. Time interval b to c: The MS authority and the consumers
c  100 ΔC3  20% are satisfied, so the budget starts decreasing. The fraction
minimal budget rate of increasing fraction conforming conforming continues to increase, since the products are
Cmin  500 f 1  2.5% rejected and the EO is not satisfied. At the moment c all
maximal budget rate of decreasing fraction conforming three actors are satisfied, the budget is at its minimal value
Cmax  1000 f 2  1% and the fraction conforming is slightly above the acceptable
initial budget time increment (in months) lower limit. The error of the inspection is below its upper
Cinit  500 t  3 limit for the whole interval.
initial fraction conforming measurement error 4. Time interval c to infinity: All three actors (the MS
finit  0.6 Sm  1% authority, the consumers and the economic operator) are
‘guard-band’ factor satisfied. The fraction conforming is at its target value
h  1.05  
f min, and the budget is at its minimal value and the error
of the inspection is below its upper limit.
A MATLAB based software was developed that runs the
model through time with time increment Δt . The output of the
For fixed values of f min , c , Cmin , Cmax , finit , the MS
software is given in Figure 2.
The time period from the output graphs given on Figure 2 model can be used to find optimal values of the rest of the
can be divided into five intervals. parameters Cinit , ΔC1 , ΔC 2 , ΔC3 , Δf 1 and Δf 2 . Optimal,
1. Time interval 0 to a: The economic operator is satisfied, its in the sense that all three actors become satisfied in shortest
lots are accepted, although the fraction conforming is below time and with minimal costs. In that direction, the MATLAB
the minimal acceptable value since the error of the software was used to obtain the following conclusions.
inspection is too big. This is ‘so called’ false conforming.  The initial budget that guaranties shortest time (66 months)
That is why the fraction conforming stays stable. On the and lowest costs (16700) till all three actors reach the limit of
other hand, the budget increases since the consumers are not their satisfaction index, according to Figure 3, is Cinit  800
satisfied due to the large error of the inspection. Due to this
(all other parameters of the model have the values given in
the error of inspection decreases and at moment a it reaches
Table 1). So a bigger initial budget does not necessarily mean
its upper limit.
a better MS system. (In figure 3, NCR means Non-
Conformity Rate).
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Harmonization Based on Good Regulatory Practice for the Preparation,

Adoption and Application of Technical Regulations via the Use of
International Standards. [Online] Available:
http://www.unece.org/fileadmin/DAM/trade/wp6/Recommendations/Re
c_L.pdf.
[6] L. R. Pendrill, “Operating ‘cost’ characteristics in sampling by variable
and attribute,” Accred Qual Assur, vol. 51, no. 13, pp. 619–631, 2008.
[7] L. R. Pendrill, “Using measurement uncertainty in decision-making and
conformity assessment,” Metrologia, vol. 51, no. 4, pp. 206–218, 2014.
[8] R. Williams and C. Hawkins, "The economics of guardband placement,"
in Proceedings 24th IEEE international test conference, Baltimore, MD,
1993.
[9] D. Deaver, "Guardbanding with confidence," in NCSL workshop and
symposium, 1994.

Mr. Ivan Hendrikx, can look back at 40

years of experience in market
Fig. 3. Output graphs for variable initial budget.
surveillance, conformity assessment,
testing, accreditation and
Similar analysis can be done with any of the variables given
standardisation, demonstrating extensive
in Table 1 and can be adopted according the needs of any given
practice in policy development, planning
stakeholder.
and monitoring of market surveillance
activities as well as coordinating market
IV. CONCLUSIONS
surveillance institutions. This includes transposition and
Market surveillance systems exist in most country. This implementation of the EU New Legislative Framework
model tries to create a general picture regarding the dynamics (764/2008,
that happen in this system based on key variables. The purpose 765/2008, 768/2008) as well as New Approach
of the model is to experiment with these variables in order to directives/regulations, European market surveillance policy
present a set of scenarios when varying few inputs. The model formulation related to planning of annual sampling, testing
presented here is general and can be used by different and monitoring of surveillance actions. He can be reached at
stakeholders and their suitable purposes. A practical case is hendrikx.ivan@gmail.com.
presented only to show the dynamics of the model and its
potential. Few powerful analyses were presented showing that
a simple conclusion like “larger budget means better MS Mr. Bojan D. Jovanoski is an expert in
system” cannot be made. The authorities need to pay a lot of modeling and simulation, proficient in
attention and need to investigate with this model (or any other Discrete Event Simulation, System
known tool) when making capital decisions. Dynamics and Hybrid modeling. He holds a
The model is in its first version. However, it still PhD in Industrial Engineering and
encompasses very well the interaction between the three parties Management from the Ss. Cyril and
and follows the directions given in EU Regulation No Methodius University in Skopje,
765/2008. In order to bring the model closer to the reality, the Macedonia. He is currently working as an
authors propose and are already experimenting with: delays in assistant professor and is engaged in a lot of projects with the
the decision process, stochastics over the involved parameters industry.
and application of stratified statistics in order to catch the non- He has more than 30 papers in international journals related to
homogeneity of the market. modeling and simulation, quality management systems,
operations research and production, planning and control. His
main idea and goal is to apply simulation techniques in research
REFERENCES
and application projects. He can be reached at
[1] P. Kotler and L. K. Keller. Marketing Management. 14th ed.:Prentice Hall, bojan.jovanoski@mf.edu.mk.
2011.
[2] International Organization of Securities Commissions. (2012)
Technological Challenges to Effective Market Surveillance Issues and
Regulatory Tools. [Online]. Available: Mr. Nikola Tuneski, with his B.Sc. in
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD389.pdf Mechanical Engineering, M.Sc. in
[3] “Regulation (EC) No 765/2008 of the European Parliament and of the
Council”. Official Journal of the European Union (OJEU), 2008. mathematics (probability and statistics) and
[4] Working Party on Regulatory Cooperation and Standardization Policies. Ph.D. in pure mathematics (complex
(2009). Draft guide to the use of the general market surveillance analysis), has rare combination of
procedure, [Online]. Available: knowledge and skills in engineering
http://www.unece.org/fileadmin/DAM/trade/wp6/SectoralInitiatives/MA
RS/Slovakia_Oct09/GMSP3.pdf sciences, as well as in applied and pure
[5] UNECE Working Party on Technical Harmonization and Standardization mathematics. This, together with his
Policies. (2001). Recommendations on regulatory cooperation and proficiency in MATLAB programming led
standardization policies. International Model for Technical him to a respectful list of 3 published books, 44 original
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research papers published in well-known journals (13 of them

in journals with ISI Thomson Reuters impact factor),
participation with a presentation in 40 international conferences
and a position of Full Professor at the Ss. Cyril and Methodius
University in Skopje. He can be reached at
nikola.tuneski@mf.edu.mk.