Category Archives: Risk Management

Do You Have a Chain of Custody in Your Global Logistics Operations?

If you have a significant global logistics operation, chances are that, by now, you have sophisticated tracking capabilities and can tell at any given time at least where your cargo was at one point during the last 24 hours. And this is good. But if you want to go beyond minimum import/export requirements that have emerged, and are continuing to emerge, in the US and EU, then you need more than continuous tracking and monitoring — you need chain of custody.

Chances are that, right now, you’re thinking this is nuts because “chain of custody”, thanks to CSI-like forensic cop dramas, is associated in your mind as a “police” or “forensics” requirement when a crime is being investigated and has nothing to do with your supply chain, but it’s a wrong association. And when one remembers that many of these laws were put in place to prevent terrorism and illegal goods (such as drugs), which regulators are expecting to occur in, or through, import/export operations, it starts to make sense. And it makes even more sense when one realizes that it’s (becoming) a requirement for C-TPAT, which is crucial for efficient import/export operations given the slowdowns that have resulted by all of the additional paperwork and inspections that have been added to the import/export process over the last decade.

So what is a chain of custody? It is a process that asserts:

  • the cargo is what it purports to be and in the quantity stated,
  • the cargo was in the continuous possession or control by the carrier who took charge of the cargo from the time it was loaded in the container at origin until the time it is delivered at final destination, and
  • there is evidence of the identify of each person or entity who had access to it during its movement and that the cargo remained in the same condition from the moment it was sealed in the container for transfer to the carrier who controlled possession until the moment that carrier released the cargo into the receipted custody of another.

This, in turn requires that the cargo is secured from the time it is packed, verified, and sealed at origin, as confirmed by an authorized agent, until the time it arrives at its final destination and is verified to have been secured the entire way. In addition, all information relating to the cargo, its container, its movement, the person(s) verifying and sealing the cargo, and the persons transporting it must be maintained securely in the container security control system.

This may require more work, and more certifications, but there are benefits to the shipper, consignee, carrier, and CBP, as discussed in this great article on Tracking and Chain of Custody: The Difference over on Maritime Executive Magazine. Select Benefits include the following

  • for the shipper
    • World-wide tracking and location of container for security and asset management
    • Lower insurance costs
    • Expedited entry of cargo by CBP and faster through-port time
  • for the consignee
    • Enhanced knowledge of shipper and carrier performance
    • Third-party verification of all supply chain data elements and reports
    • Increased or enhanced knowledge needed for 10+2 Program Importer Security Filings
  • for the carrier
    • Protection against claims by shippers that unauthorized contents were the results of carrier action
    • Automatic transmission to CBP of container data
    • Compliance with and protection within the new Rotterdam Rules impacting vessel carriers
  • for CBP
    • Knowledge of which containers need no inspection improving man-power efficiency
    • Elimination of third-party reporting of trade data
    • Evidentiary data for potential legal action

Peter Smith Nails Why the doctor Does Not Do Predictions

Traditionally, the New Year is a time to think about how we can become better people … and of course, the chance for writers and analysts to sit at their keyboards with a cold beer and make a list of wild guesses, predictions and ill-informed comments, desperately pretending we have some particular insight into the world!
Peter Smith, Ten New Year Resolutions for 2012, BravoSolution.com

the doctor has insight into what you need to do today, but has no more insight into what the Supply Management world of tomorrow will look like for your company beyond what anyone else has. He can predict what is likely, but all it takes is one earthquake, political uprising, or stock market crash to turn everything on its end. Fortuntately, Peter’s paper is filled with advice for today and not tomorrow.

In particular, the doctor likes resolutions:

2. I will make sure we do proper risk assessment on our key supply chains – and that doesn’t just mean our “top ten suppliers”.
How exactly are you keeping track of your key suppliers’ financial situation, their accreditations or quality record? What is your mitigation strategy in case of supplier failure or natural disaster, for each of your critical raw materials / sub-components? Do you have any sense of which firms at second or third tier level in your supply chains could actually cause your organization severe problems? What about corporate social responsibility issues? the doctor would bet that you are not keeping track of key suppliers’ financials, not keeping an eye on the quality metrics, don’t know which 2nd or 3rd tier suppliers could bring your supply chain to a grinding halt, or know about the poor working conditions at the factory in Da Nang.

5. I will put the supplier closer to the heart of our process and technology strategy
As Peter says, if the supplier screws up, you have failed in the eyes of the IT / Marketing / Production VP. So look at your supplier information, risk, development, relationship management strategy — closely. If you don’t help your supplier to succeed, you ultimately won’t succeed.

7. I will move to the next level of Spend Analytics sophistication.
As per SI’s recent white-paper on Spend Visibility: An Implementation Guide, almost any attempt by an organization to analyze spending patterns is likely to be fruitful, especially if there hasn’t been a serious prior attempt. It is easy to find thousands of breathless testimonials about a particular product or method — independent of the quality of the product or method — because almost any product or method will find savings if a spend visibility initiative has never been launched before. “In the land of the blind, the one-eyed man is king“. But, what is not so obvious is that this initial burst of savings is short-lived; and that many of the “quick saves” that result are unsustainable. The key question is what to do next; in other words, how to implement a true strategic spend visibility initiative that will return value and keep returning value over time. There are too many spend visibility products that are lying unused or on the shelf, after the first burst of excitement has passed; and too many organizations who are tired of hearing a spend visibility message that has no further relevance to them. That’s why you have to take spend analytics to the next level and why you should download the FREE, no registraiton required, Spend Visibility: An Implementation Guide today (if you haven’t already).

Risk Mitigation 2012: Economic

In our last post, we covered some potential mitigations for each of the top three geopolitical risks that we identified in our Risk 2011 series. In this post, we are going to cover some potential mitigations for each of the top three economic risks as we continue our series of posts inspired by the World Economic Forum‘s recently released 6th annual Global Risks report, 2011 edition.

03: Asset Price Collapse

Most of an organization’s capital is tied up in two things — its people and its assets. This includes its buildings, its inventory, and the raw materials that will be used to create future inventory. If all of a sudden the value of each of these assets drops 50% over night, the organization loses 50% of the value of these assets — and will likely sustain additional losses when it has to sell its inventory at a deep discount.

While asset price collapses can’t be prevented if a market is flooded, or a market is cornered, or asset prices are artificially inflated by collusion and then drop rapidly when the inflation cannot be maintained, it is often the case that impending asset price collapse can be predicted in advance. Asset prices rise and fall, and they always fall if they get to high. While the exact time, and degree, of collapse cannot always be predicted accurately, it’s often possible to predict an approximate time of collapse, and an approximate degree. If a price collapse is coming, the organization can reduce buys to minimal levels, sell off unnecessary assets in a controlled manner, or, if possible, hold onto them until such time as asset prices return to reasonable levels.

02: Extreme Energy Price Volatility

Today’s organizations are ultimately dependent upon three things – people, raw materials, and the energy required to transform the raw materials into the product the organization will sell. If oil doubles in price, that could make the difference between being able to produce the goods in China and import them into the US for sale at a profit and having to import them into the US for sale at a loss (or risk losing the entire inventory).

Energy price volatility is not going to go away. An organization has two options, try to predict the volatility and ride it out as best as it can, or try to restructure its operations such that it is not (as) dependent on volatile energy sources. There are two ways it can achieve this goal. First of all, it can focus on streamlining its operations to make them as lean as possible. Reducing the energy required is the first step. Secondly, it can invest in creating its own green energy sources to minimize its dependence on external sources. This will go a long way to not only stabilizing its energy costs, but to preventing energy spikes in the future.

01: Fiscal Crisis

The fiscal crisis can lead to many things — currency volatility, a credit crunch, and overall infrastructure fragility. Weakening currencies can cause costs to skyrocket. A credit crunch can severely restrict cash flow and make it almost impossible for an organization to temporarily borrow the cash it needs to secure the inventory required to produce the goods it plans to sell to create revenue and, eventually, generate profit. And infrastructure fragility, which weakens every time there is insufficient cash to invest in necessary maintenance, can result in transportation lanes, power plants, and basic utilities becoming unavailable overnight.

If the organization is a global multi-national, currency volatility can be mitigated by keeping keeping cash in multiple currencies. If a credit crunch is likely, the organization can reduce its expansion and investment plans to maintain enough cash on hand to continue operations without interruption. And if the infrastructure is becoming fragile, the organization can invest in infrastructure improvements. If the government will take loans (by selling bonds) to finance improvements, the organization can invest to insure continued availability of necessary public infrastructure. If not, the organization can invest in its own infrastructure to the greatest extent possible or relocate operations to where the infrastructure is strong and expected to stay strong.

Risk Mitigation 2012: Geopolitical

In our last post, we covered some potential mitigations for each of the top three environmental risks that we identified in our Risk 2011 series. In this post, we are going to cover some potential mitigations for each of the top three geopolitical risks as we continue our series of posts inspired by the World Economic Forum‘s recently released 6th annual Global Risks report, 2011 edition.

03: Corruption

Corruption can take many forms — bid rigging, bribery, collusion, fraud, embezzlement, organized crime, price fixing, and thievery just to name a few. Each of these can be devastating to your supply chain. Bid rigging, collusion, and price fixing can significantly increase your costs. Bribery and thievery can result in a loss of your IP and product plans which could negate years and tens of millions to hundreds of millions of research and development. Embezzlement and fraud could drain your organization of necessary operating capital and organized crime could result in an entire warehouse of inventory disappearing overnight.

While big rigging, collusion, and price fixing by your suppliers can’t be prevented, if the organization suspects it might be occurring, it can always invite new, unexpected, but pre-qualified, suppliers to a bid to minimize the possibility, or at least provide it with other options if multiple suppliers appear to be colluding. This is the best defence since, even if collusion and price fixing can be detected and proven, by the time government intervention occurs, it can be much too late.

And while one cannot prevent thieves from trying to steal your IP and products, steps can be taken to keep your IP secure. All electronic copies can be encrypted and kept secure on the network behind password protected firewalls, printed copies can be restricted to secure areas, and all unnecessary copies can be destroyed by destructive shredding. And your shipping plans can be kept on a need to know basis, and valuable merchandise can be kept in guarded secure warehouses.

Bribery, fraud, and embezzlement can also be prevented against to different degrees. With respect to bribery, an organization can watch for signs of an employee who recently improved his lifestyle significantly with no obvious means to do so (i.e. no recent inheritance or lottery win), determine if such employee had access to sensitive data, and the chance to sell it. In this case, if such an action was deemed likely, the organization could assume the data fell into the wrong hands and take preventative measures. With respect to embezzlement, an organization should insure that all transactions are reviewed by a second individual, and all transactions above a considerable amount should be co-reviewed by the CFO and another executive officer within two business days. And external audits should be conducted regularly. Other types of fraud could be harder to detect, but regular financial reviews are an organization’s best chance of detecting fraud before too much damage occurs.

02: Terrorism

Not only is terrorism on the rise, but so are the number of terrorist and extremist groups and agendas — and it’s almost impossible to predict which group will form, and be “crossed” by your organization well in advance of when it happens. But if an organization keeps up with global intelligence, it can keep up with what organizations have commercial, and corporate agendas, identify if it produces any goods or services that might be targeted by such groups, and identify if it operates in any high risk areas. If it does, it can take steps to protect its operations and its goods.

01: Geopolitical Conflict

Fortunately, most conflicts that would threaten an operation escalate over time. Again, if an organization keeps up with political happenings in a region, it can identify those regions most likely to be at risk of geopolitical conflict and determine if such conflict could impact operations or cut off supply. If factories could be cut off, the organization can identify back-up facilities and create plans for bringing them on-line quickly. If warehouses could be cut off, critical goods can be relocated. Knowing allows plans to be created.