Visualizing Supply-Chain Security

MayJun06-62

Earlier this year, a firestorm of public outcry was set off with the announcement that the Dubai-based ports operator DP World would take over management of six major US ports. Critics from both political parties and wide-ranging public debate focused on perceived security concerns given two of the September 11th terrorists were residents of the Middle East country.

Among the lessons learned from the DP World ports debate is that security…and most notably the inner workings of supply-chain security…is misunderstood by the American public. Unfortunately the misunderstanding goes much deeper than just the average American citizen. The radio talk shows, print media, and television news highlighted often inaccurate portrayals of the issues surrounding supply-chain security.

With that said, the DP World debacle has once again illuminated the vital importance of not only port security, but end-to-end supply-chain security. After all, while thecontrol and management of our ports and waterways is important, ports and the terminals that sit within them are just one of the many important stakeholders in a modern international supply chain. And, as with any chain, it is only as strong as the weakest link.

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Attributes of a Good Supply-Chain Security Program

First and foremost, the loss prevention department must be engaged and become an integrated part of the entire supply strategy. Prior to 9/11, supply-chain and logistics practitioners rarely, if ever, voluntarily collaborated with their partners in loss prevention. The cause of that failure to communicate was partially because LP professionals didn’t do a good job of marketing their expertise and partially because supply-chain professionals simply didn’t understand the benefits of a well-run supply-chain security program.

Visualizing Supply-Chain Security

Since that time, many supply-chain professionals have recognized the importance of having loss prevention as a partner in their supply-chain strategies. Loss prevention’s  nvolvement not only lends credibility to the operation, but their expertise as a consultant is invaluable.

If your company is international in scope, it is absolutely imperative that the loss prevention organization be engaged and involved in the operations, not only to assist in the  development  and subsequent implementation of a C-TPAT (Customs-Trade Partnership Against Terrorism) program and other required security programs, but for ongoing support.

With that in mind, the following criteria should be used when evaluating your supply chain from a security perspective.

  • A comprehensive end-to-end analysis in an effort to identify supply-chain vulnerabilities and weaknesses must be conducted.
  • The program must be developed to secure the supply chain and mitigate vulnerabilities. It should be intelligence led and risk based.
  • The company must intimately know and have confidence in its vendors and suppliers.
  • The company must clearly communicate its expectations and requirements concerning security to both internal and external supply-chain stakeholders.
  • The company must have a vibrant anomaly recognition program and escalation protocol.

During the initial examination of your supply chain, you might consider concentrating your efforts in the following five key areas:

  • Fortified or improved security to prevent pilferage or contamination, Improved visibility,
  • Increased supply-chain velocity, because cargo at rest is cargo at risk,
  • Reduced costs, and
  • Improved compliance with Customs and other government agency requirements.

Of course, one of the first challenges that we repeatedly hear from senior management is, “What’s this going to cost?” This is a normal question for senior management to ask. Therefore, be prepared to answer it. There are almost always opportunities to actually reduce costs, and if you as loss prevention can identify them and help drive the company to take advantage of them, then you will become a hero with senior management and capitalizing on the true win-win situation.

Visualizing the Entire Supply Chain

Go to the receiving dock of any of your stores and look out at the direction your goods came from when they are delivered to your dock. Can you visualize the journey your merchandise takes from the factory where it’s made all the way to your store’s dock? Do you understand the path the goods follow, the processes along the way and the numerous perils and pitfalls on that path that the merchandise could encounter? Have you conducted a thorough and comprehensive review of your entire supply chain from factory floor to store floor?

This visualization is often difficult for many of us in loss prevention to achieve because we are unfamiliar with the supply chain, logistics, Customs, distribution, and all of the processes involved in moving our goods safely and efficiently. We really can’t see the supply chain easily because our goods have limited visibility as they move along this path.

Unfortunately, over the last thirty years or so supply-chain management professionals have removed a lot of the checks and balances that used to be there for the sake of efficiency and productivity improvements. As a result, retailers will often book into their stores’ inventory records goods that are supposed to be there, but we really may never know if, in fact, they actually arrived. And this as we know is inventory shortage.

Critical Steps to Supply-Chain Security

Let’s see if we can better understand this supply-chain “path” from the factory to the dock and what some of the perils might be along the way, from the risk of losses due to cargo theft and illegal diversion to the risks of contraband being illicitly introduced into our shipments.

Vetting Your Suppliers and Vendors. The first step in any international supply chain is identifying a manufacturer or supplier offering a product or raw material that your  company desires. In today’s security-conscious world, it is incumbent upon all companies importing product or raw material to know who your suppliers and vendors are. This in itself can be a difficult task.

In some cases, depending on the size of an import program, this might mean collecting data and other security information on literally hundreds, or thousands of suppliers.  urthermore, if the product lines your company imports are not static, the vendor matrix is quite likely to be a moving target, as suppliers are constantly being added or deleted from the list.

Companies engaged in international trade must first develop programs to collect and analyze this data using sophisticated risk models. The Internet is proving to be a very  seful tool for this type of exercise. In other circles software providers are also developing tools for accumulating and analyzing this type of information.

Once the data is aggregated, in addition to running it through the company’s risk model, diligent importers must also ensure that selected suppliers are not on the government’s restricted or denied-party list. This can be quite tricky, because the lists as published by the Departments of Commerce and Treasury are voluminous and contain not only company names, but individual names as well. Textile importers must also consult US Customs and Border Protection’s 592-A list of convicted transshippers to ensure that the manufacturers they are purchasing from are not named on the list.

Restrictions on Subcontracting. Another issue that importers frequently run into…or are not aware of…is subcontracting. Sometimes, if an order is exceptionally large or a manufacturer has certain time or production constraints, they will subcontract all or part of an order to other factories. It is absolutely critical that your company has visibility to such subcontracting transactions, because without it you cannot stipulate with certainty that you know who is making and shipping your product.

Many importers are placing restrictive language about the use of subcontractors in their purchase order terms and conditions. In fact, some companies have even instituted a penalty for using unknown or unauthorized subcontractors.

Speaking of purchase order terms and conditions, the covenants spelled out in this document should be routinely reviewed and modified to ensure that they clearly articulate yourcompany’s expectations regarding supply-chain security. Like any contractual language, the purchase order terms and conditions spell out the exact terms of the sale and  purchase.

Increased Visibility of Shipments. The next important step in supply-chain security for foreign commerce comes as the purchase order is issued. Providing your freight  orwarders, consolidators, carriers, and brokers with a copy of the purchase order increases visibility within your supply chain and just makes good business sense. It allows other supply-chain stakeholders to authenticate the shipment as it moves along its journey.

When the factory calls the consolidator or freight forwarder to book the consignment, they should be required to provide purchase order details that can be cross-referenced in the  forwarder’s system to ensure that it is coming from an approved supplier. This is critical check and balance that should be incorporated into any international supply-chain operation. Allowing your freight forwarder to blindly accept shipments from unknown vendors would certainly not be considered or viewed as a best practice by Customs.

Anomaly Recognition and Escalation Procedures.Another critical attribute of a good supply-chain security program is anomaly recognition and well-defined escalation procedures. Anomalies can come in many forms and are difficult to define with precision. A well-designed supply-chain security program will not only have the ability to detect an anomaly, but will know what to do with the critical information in terms of escalation.

World-Class Partners. The last critical characteristic of a good supply chain is having world-class partners and other stakeholders involved who can be your eyes and ears in the field. When applicable and to protect the integrity of the supply chain, each of these other partners should be C-TPAT certified. This layering effect is a strong force multiplier that adds to the veracity of your program.

The Importance of Supply-Chain Visibility

Thomas L. Friedman, in his best selling book, The World is Flat, calls “supply chaining” a major contributor to flattening the world, making commerce more efficient, and world trade more productive. He uses the world’s largest retailer, Wal-Mart, as a very successful example in supply-chain leadership. He refers to the Wal-Mart supply chain as “‘The Wal-Mart Symphony’ in multiple movements, with no finale. It just plays over and over 24/7/365: delivery, sorting, packing, distribution, buying, manufacturing, recording, delivery, sorting, packing…”

Wal-Mart moves over 2.3 billion general merchandise cartons a year down its supply chain into its stores through horizontal collaboration among suppliers, shipping companies, carriers, and other processors. That is why Wal-Mart and other leading retailers like Target are pushing hard for supply-chain visibility.

What does the term “supply-chain visibility” really mean, and why is it important?

Being able to see what is in the global supply chain, anywhere, any time is becoming more and more important for better logistics management, inventory data integrity improvement, and for critical supply-chain security applications.

RFID Technology. To provide businesses of all types with better visibility of their supply chains, oftentimes the term “RFID” is the first thing we hear. This is because this evolving technology is being driven by the major retailers and by the US Department of Defense.

RFID, which stands for “radio frequency identification,” is generally used to describe transponders or tags containing data that are attached to objects and are automatically read using a networked reader infrastructure. Passive RFID tags are powered wirelessly by reading devices and have the potential to provide information automatically and at low cost.

These reader networks allow non-line-of-sight reception and capture of the coded data that is stored in a microchip affixed to a tag that has an antenna embedded in it. The readers are capable of proximity data capture. The identify of the object on which the tag is affixed is accomplished by accessing a database that contains list of products associated with the codes.

By having these readers located throughout the supply chain, from the factories to the docks to the POS, RFID is one way to provide visibility within the supply chain.

Microwire Technology. But RFID isn’t the only visibility enabler. Other interesting emerging technologies also provide the needed visibility within the supply chain forglobal trade.

One example of these emerging technologies is “microwire technology.” This brand new technology is amorphous glass-coated microwire about the diameter of a human hair and anywhere from onehalf to one inch in length and is suited for a variety of applications in both the commercial space as well as for the government.

These mircrowires are extremely sensitive magnetic sensors that can be widely applied due to the range of magnetic properties they contain and will provide visibility, possibly more effective and efficiently than RFID. Microwires are less expensive then RFID, can be read through metal shielding, and can be easily concealed as they are virtually invisible.

Provide visibility while being virtually invisible? It’s hard to fathom, but this technology can effectively compete with RFID and offer a solution to a wide range of issues, including counterfeiting, illegal diversion, product tampering, and retail theft as well as cargo theft and transportation security.

Location-Based Technology. Another technology that supplies visibility of cargo while in transit is a form of location-based technology utilizing GPS, AGPS, Globalstar,Iridium, Immersat, or mobile telephone networks.

Globalstar and Iridium use the low earth orbit (LEO) satellite system. Global positioning systems (GPS), assisted global position systems (AGPS), Globalstar, Iridium,and the various cellular phone system technologies can all provide different, long-range tracking capabilities either alone or in combination with each other.

For example, there are several different types of covert cargo tracking devices available on the market today. These devices might differ from each other depending upon which cellular platform they use to communicate, whether they “push” their latitude/ longitude location out, how frequently they transmit their location, and what is the expectedbattery life to a “pull” technology that queries the tracking device to determine where it is at any given time.
The advantage in “push” technology is the ability to transmit location on a “near real-time” basis, enabling fast security breach detection, investigation, recovery, and resolution, including arrest and successful adjudication.

The original security application for location-based covert and portable cargo tracking systems has now been broadened into other areas of logistics management. These additional applications have created visibility and have helped to drive costs down and improve reliability.

Ongoing Logistics Education

Knowing what the boxes contain that are stacked on pallets that are enclosed in containers is no easy task. It requires reliable suppliers, including manufacturers, shippers, wholesalers, and carriers. It requires trust as well as the ability to verify and validate throughout the supply chain.

So now go back to the store’s receiving dock and look upstream at the path your product was to have taken to get to your store. Is it easier now to visualize? Can you see and understand both the perils as well as the opportunities along the way?

For more education to help clarify this visualization process, loss prevention professionals should become more active in several retail associations loss prevention programs. Both the Retail Industry Leaders Association (RILA) and the National Retail Federation (NRF) offer good educational opportunities on logistics. The International Cargo SecurityCouncil (ICSC) not only addresses the educational needs, but also offers forums where you can meet and talk with security representatives from some of your suppliers, carrier investigators, and members of law enforcement who are dedicated to ensuring the security of the global supply chain.

Supply-chain loss prevention represents a new frontier in loss prevention and will continue to be an area of growth for our industry. Well-run companies will consider it a critical component of a complete loss prevention toolbox.

EDITOR’S NOTE: To read more on this topic, see the Supply-Chain Security category on LPM’s site.

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