How Secure is your Supply Chain?

As supply chains, we have invested and worked diligently to improve our performance by attacking inefficiencies from the day to day operations. We have employed methodologies like lean, six-sigma and used sophisticated techniques such as optimization to help derive maximum profits, increase shareholder value, minimize costs and gain control over our supply chain. But events which are not under our direct control or influence can still significantly disrupt our supply chains. In the current climate we are both more closely managed and hopefully protected by government agencies but this is not enough to keep our supply chains secure.  Time and again we will need to challenge ourselves as to how we can better prepare supply chains to react to these unforeseen and uncontrollable events.

The onus of making the supply chains secure and stable is not just with the participating firms but also on the government. Post 9/11 certain initiatives have been taken by U.S. Government to evaluate and minimize the risk involved in international transportation of goods. Some of these include:

1. Customs-Trade Partnership Against Terrorism (C-TPAT): Is a joint business-government initiative to strengthen U.S. border security. The program acknowledges that importers rely on all supply chain partners (carriers, brokers, warehouse operators and manufacturers) to ensure the integrity of their security practices. It rewards carriers and shippers that certify the use of best security practices with expedited processing at U.S. ports of entry.
2. Container Security Initiative (CSI): Launched in 2002, its purpose is to increase security for container cargo shipped to United States. Under CSI, the United States and governments of some trading partners are working toward a series of bilateral agreements to permit exchange of customs officers and more screening of shipments at outbound ports.
3. The Smart and Secure Tradelane Initiative (SST): Under SST, three large seaport operators, representing over 70 percent of the world's container traffic, will collaborate to develop automated tracking, detection, and security technology for containers entering U.S. ports. Eventually, containers leaving the participating ports will be equipped with special seals to detect tampering during transit.
4. Free and Secure Trade (FAST): This is a joint Canada-United States initiative involving the Canada Border Services Agency and the United States Customs and Border Protection. The program offers pre-authorized importers, carriers and drivers expedited clearance processes for eligible goods.

Other initiatives outside the U.S. include the publication of the ISO/PAS 28000:2005 standard "Specification for security management systems for the supply chain" by the International Organization for Standardization (ISO); the development of the Framework of Standards to Secure and Facilitate Global Trade by members of the World Customs Organization (WCO); a series of measures that were presented by the European Commission to accelerate implementation of the WCO Framework, including the Authorized Economic Operator (AEO) program; as well as various initiatives that were taken by the World Trade Organization (WTO) to better facilitate trade.

Firms have been taking multiple steps – either voluntarily or to meet mandated government regulations – to ensure safe transit of their goods across international borders. Still investing in supply chain security is considered an added cost and firms are reluctant to go down this path. Instead they try to increase the flexibility of their operations by using postponement techniques, generic parts, diversifying the supplier base and empowering the employees to take necessary actions in the face of unexpected events.  There is a good chance many companies are overlooking a hidden opportunity to comply and leverage the incremental requirements imposed by government agencies using the new processes, additional information and proactive activities to their advantage.     

To date many organizations have found it difficult to justify security investments and are therefore averse to invest beyond the minimum requirements. But companies should take heed from the results of a recent study  conducted by Stanford University. The study reports that companies that invest in supply chain security see substantial benefits that outweigh the costs of security implementation. The companies surveyed report that they have achieved significant “collateral” benefits beyond reducing their risk and vulnerability. Among the study’s major findings, the companies collectively

• Reduced their Customs inspections by 48%
• Increased the automated handling of their imports by 43%
• Reduced transit times by 29%
• Improved on-time shipping to customers by 30%
• Reduced theft in inventory management by 38%
• Reduced excess inventory by 14%; and
• Improved their asset visibility in the supply chain by 50%

The results clearly indicate that in addition to mitigating risk, investments in supply chain security can provide significant business value to the organization and can also be used as a competitive advantage.

It is important to remember that such benefits are not realized automatically. Companies need to be creative in determining ways—often times in collaboration with their business partners—to gain the most benefits from their security investments. Taking inspiration from the results achieved, companies should start dialogue with their partners to effectively meet the government requirements and regulations, collectively invest in technologies that enable superior supply chain security, reduce effects of infrastructure loss and enable faster recovery. Some of the existing solutions like Network Connectivity can also be leveraged to track "real-time" visibility to inventory. Supply Chain Network Design tools can also be used to consider "what-if" analysis to better prepare for unforeseen events.

As a result of greater security concerns the rules have changed around information for products in transit.  No longer is this information limited to when an object leaves point A and arrives at point B. In the current state, companies need to be sure that the containers are not tampered with during transit so all events are documented. The data must be tracked real time with use of emerging technologies like RFID and GPS. Customs authorities also require that complete details of contents of the container and where it has traveled be sent to them 24 hours prior to landing so that its clearance can be expedited. Companies are also exploring the use of “smart containers” which use sensors to detect subtle changes in the environment, such as a door being opened, or variations in light, temperature, vibration or volume which might indicate the container has been tampered with. In some cases armed guards have been used to transport goods reducing the dangers of theft and tampering. Various physical site security mechanisms such as fencing, I.D. badges, access limitations etc. have also been used by firms to counter threats.

Given the significant financial ramifications of supply chain disruptions companies can no longer ignore the risks introduced by events outside of our control.  In fact more companies must take preventive steps to increase the security of their supply chains. In addition to their own initiatives, companies should look for the opportunities to extract value in meeting the stringent regulations put forth by the governments. In the spirit of survival of the fittest, firms everywhere need to make that compelling business case and invest in supply chain security initiatives.  It is time to learn from and join the innovators and leaders who have invested and reaped substantial benefits while securing their supply chains for today and tomorrow.