Daily Archives: August 31, 2006

Quantifying the Value of Supply Chain Security Investments

As mentioned in a recent Industry Week article, recently the Stanford Global Supply Chain Management Forum, together with IBM, conducted a study in the manufacturing innovation series called Innovators in Supply Chain Security: Better Security Drives Business Value to determine if the significant levels of investment often required to improve supply chain security and mitigate risks was justified. This study, which was based on inputs from eleven manufacturers and three Logistics Service Providers (LSPs) that were considered “innovators” in supply chain security, clearly demonstrated that supply chain security provides quantifiable business value.

In addition to the collateral benefits of:

  • Higher supply chain visibility,
  • Improved supply chain efficiency,
  • Better customer satisfaction,
  • Improved Inventory Management, and
  • Reduced cycle and shipping time

The report quantified the following benefits that resulted in considerable cost reductions and savings for the study participants:

  • Improved Product Safety
    38% reduction in loss; 37% reduction in tampering
  • Improved Inventory Management
    14% reduction in excess inventory; 12% increase in on-time delivery
  • Improved Supply Chain Visibility
    50% increase in data access; 30% increase in data access timeliness
  • Improved Product Handling
    43% increase in the automated handling of goods
  • Process Improvements
    30% reduction in process deviation
  • More Efficient Customs Clearance
    49% reduction in cargo delays; 48% reduction in cargo inspections
  • Speed Improvements
    29% reduction in transit time; 28% reduction in delivery time windows
  • Resilience
    30% reduction in problem identification, response, and resolution times
  • Higher Customer Satisfaction
    26% reduction in customer attrition; 20% increase in new customers

Supply chain security challenges are becoming much more apparent with the rapid expansion of global trade. Currently, over 200 million containers are shipped to the world’s seaports annually, and the US receives approximately 17,000 containers today. With an average of only 6% of US containers physically inspected, increasing security concerns, and the recognition that security has to extend simply beyond asset protection, the US government has implemented and adopted a number of initiatives to minimize transportation risk. These initiatives include:

  • The Advanced Manifest Rule (AMR) / Advanced Cargo Information (ACI)
    that requires detailed cargo data for all modes to be submitted to the U.S. CBP before arrival and an ocean container is allowed into the U.S. only if detailed contents information has been electronically provided at least 24 hours before the container is due to be loaded on a ship at a foreign port of origin
  • The Container Security Initiative (CSI)
    being used by the U.S. government to push inspections and pre-screening upstream to originating ports
  • The Customs-Trade Partnership Against Terrorism (C-TPAT)
    a pseudo-voluntary security initiative that overviews security best practices and implementation procedures that will reduce inspections and expedite processing for participants
  • The Emergency Planning and Community Right-to-Know Act (EPCRA)
    that details information requiring environmental and safety hazards relating to hazardous materials to be given to people in the community
  • The Free and Secure Trade (FAST) initiative
    that allows low-risk goods being transported by trusted drivers via trusted carriers for trusted firms to pass rapidly through border crossings
  • The Smart and Secure Trade lanes (SST) program
    established by the container shipping industry to ensure the global security of cargo containers by way of a baseline infrastructure that will provide real-time visibility, physical security through non-intrusive, automated inspection and detection alerts, as well as a complete audit trail of a container’s journey

Failure to comply with any of these initiatives can lead to significant delays, and even disruptions, in your supply chain as the result of delayed loading, unloading, clearance through customs, or even diversions.

So what can you do to improve your security? Although the report did not focus on any specific initiatives, it did overview some of the measures taken by the companies that were interviewed. These measures included:

  • additional storage and transportation security
  • anti-piracy features / methods for identifying genuine products
  • product tracking tools / RFID
  • implementing measures to comply with voluntary security initiatives
  • advanced training programs
  • incorporation of security requirements into supplier contracts
  • development of a security knowledge base