MW Quarterly Archive
From Our Market Blog
Security along the Supply Chain: The Logistics of Best Practices
It is an unfortunate reality that ‘freight at rest is freight at risk’ and electronics freight is among the highest at risk. The business case for securing freight along the entire supply chain is self-evident as yearly worldwide losses to businesses are in the billions of U.S. dollars according to the International Cargo Security Council (ICSC). The costs of product losses, insurance premiums and deductibles, and man-hours involved in case work also combine to be a significant amount. Added problems include re-sourcing of sometimes scarce product, price volatility, timeliness of re-delivery, and relationship problems with clients who do not receive or who cannot purchase product when expected.
A number of initiatives and best practices aim to guide businesses in the development of security plans for freight – further ensuring the resiliency of an organization.
Threats to product in the supply chain
Since the September 11, 2001 terrorist attacks, the business sector has increased awareness and resources
Product is vulnerable to theft and tampering throughout the logistics channel. It is perhaps worthwhile to define these terms: ‘theft’ is the unlawful removal in part or whole of the shipment of product, while ‘tampering’ refers to the unlawful disturbance of the shipment of product in part or whole. Tampering includes the removal of product from the packaging, the exchange of substandard or counterfeit product with the original quality product, or the introduction of other materials for illegal transportation or terrorist activity (e.g., piggy-backing illicit items such as illegal drugs or weapons).
The following is a condensed, generalized outline of the movement of freight from the Retail Industry Leaders Association (RILA).
Note that each arrow in the above diagram indicates a stopping, hence vulnerable, point in the chain. Freight is most vulnerable any time it is at rest. In the U.S., data from TAPA reveal that for the period of 2003 through March 2007, freight being moved by truck was at a 73.6% incident rate. This is a staggering rate of loss, particularly since most freight is, at some point, transported by truck (air freight and warehouse rates of loss were at 5.3% and 5.8%, respectively). It is, therefore, critical that supply chain partners engage in security best practices to guard against this vulnerability. The TAPA data also reveal that microprocessors have the highest incident rate among electronics; followed by home audio/video, and mobile phones (which have the highest dollar value loss), all other product types combined represent approximately 32% of all remaining incidents.
Securing freight in the supply chain
September 11 brought the security of transportation to the fore, particularly in the U.S., and new initiatives were installed to complement existing ones (e.g., C-TPAT and TAPA). Some recognized freight security programs are listed below.
Industry-driven programs:
- Transported Asset Protect Association (TAPA) (International)
- International Cargo Security Council (ICSC) (International)
- Smart and Secure Tradelanes (SST) (International)
- Business Alliance for Secure Commerce (BASC) (International with focus on the Americas)
Government-driven programs:
- World Customs Organization (WCO) (established 1952 as the CCC; Inter-governmental)
- Customs Trade Partnership Against Terrorism (C-TPAT) (U.S. Government)
- Container Security Initiative (CSI) (U.S. Government)
- Free and Secure Trade (FST) (Canadian Government)
- Advanced Manifest Rule (AMR) (U.S. Government)
- Partners in Protection (PIP) (Canadian Government partnering with industry)
Government and private sector initiatives focus on several critical supply chain security goals: facility management, cargo management, human resource management, and information management. As Scott Dedic, Chairman of ICSC underscores in his Message from the Chairman on the ICSC Web site, “supply-chain security is a mixture of process security, traditional security practices, government regulations, and business awareness and principles.”
Membership in the above programs and initiatives ensures not only that the latest security best practices are adhered to, but also that freight is moved into expedited lanes for handling and processing, thereby reducing security risks (particularly due to stoppages). Other important benefits to membership include the high level of peer instruction and knowledge sharing, workshops on technological changes improving freight movement, heightened levels of communication between supply chain partners and between businesses and customs personnel, and continued updates on strategies for remaining in compliance with the various worldwide government regulations.
Smith & Associates was one of the first independent electronic component distributors admitted to the US Department of Homeland Security’s C-TPAT program (Tier II member since December 2002), and one of the first independent distributors to be a member of TAPA (member since 2001). As part of Smith & Associates’ dedication to quality and to being a reliable value partner, Smith requires that all logistics vendors and carriers meet or exceed C-TPAT and/or TAPA standards.
Mitigating threats to freight
“Know your risks and partner with those companies that have specific security practice standards in place to minimize your losses and your risk of loss,” counsels Art Figueroa, Smith & Associates’ Manager of Corporate Security. Knowledge and awareness of risks and threats, consistency in the application of security programs, and communication among supply chain partners are some of the most important variables when it comes to mitigating risk from security breaches to freight.
In the electronics industry, business partners collaborate to ensure the security and accuracy of products throughout the supply chain. In terms of product quality, collaboration and communication adds a safeguard against substandard parts due to tampering. From a logistics and security standpoint, the importance of partnering with a top-tier independent distributor, such as Smith & Associates, is two-fold: assured security best practices for shipments, and ability to diversify the supplier base with a trusted vendor through their trusted value chain network.
Knowing where the global and local high-risk points are allows for the addition of measures to prevent disruption and loss. Having consistent programs in place that are practiced throughout all global locations by those handling freight is critical in ensuring that best practices are consistently applied. Keeping the communication lines open with your logistics providers is also necessary. Being informed of the moment and the location at which there are disruptions or stoppages in the progress of freight can add valuable time to respond to a potential threat and/or to mitigate the ramifications of damage to or loss of product.
According to Figueroa, some of the key issues to mitigating threats to freight are:
- Collaboration with carriers and vendors: keep the communication lines open; screen vendors and 3PL carriers so you know who your partners are and what their security processes are.
- Packaging matters: know where your product is going and take steps to keep the freight low-profile (e.g., cargo seals, simple boxes without logos, banding boxes to the pallet, black shrink wrap, etc.).
- Consistency: ensure that all office locations (including warehouses) follow a sound security plan for personnel, information, and access controls.
- Program participation: be involved in the appropriate government and industry-driven programs/associations (see above list) in order to build a network with others to share best practices and incorporate that knowledge into your individual business security plans.
- Review your security ROI: on a yearly basis, re-evaluate the investment in security infrastructure and programs versus the amount of losses as a result of stolen or tampered freight. What changes need to be made to reach your company’s balance point?
- Build on experiences: review prior and potential freight loss and tampering incidents on a frequent and regular basis. Reflect on the experiences and develop solutions to prevent future incidents and alter outcomes.
- Stay vigilant: unfortunately freight theft and tampering are prevalent in today’s complex global supply chains.
Build resiliency and security into the supply chain
The importance of resiliency has been gaining ground as supply chains became global then multi-layered with complex relationships between partners. Resiliency plans, more commonly called Business Continuity Plans (BCP) are necessarily part of disaster recovery plans (cf. “When disaster strikes…” MarketWatch Quarterly, this issue) and as such ought to be included in freight security plans. After all, freight disruptions are indeed supply chain disruptions. Being resilient not only provides companies with a strategic plan for disruption recovery, but can also be used to respond to new market conditions when a competitor suffers a disruption.
BCPs provide companies with a strategy for how to continue to conduct business, that is, recover, in the face of disruptions of any type. There are a multitude of software and business process guides for composing a BCP. Yet what is important in a BCP is having multiple layers of security and resilience. Furthermore, by including the BCP into even the mundane supply chain disruptions, today’s leading companies are finding a new blending point of demand-based management with business continuity planning and are able to maximize their supply holdings and market positions on a daily basis (cf. Hau and Wolfe, 2003).
While every freight shipment represents a potential security risk, firms can minimize their exposure to these risks by taking a proactive approach to freight security. Some key steps to a secure logistics chain include participating in industry and government associations, partnering with suppliers and customers to monitor freight throughout the channel, and having a well rehersed resiliency plan in case a disruption occurs.
References:
Dedic, Scott, 2007, “Message from the Chairman,” http://www.cargosecurity.com/ncsc/chairman_letter/ICSC_ChairMessage_2007.pdf.
International Cargo Security Council Web site http://www.cargosecurity.com/ncsc/.
Lee, Hau L., and Michael Wolfe, 2003, “Supply chain security without tears,” in Supply Chain Management Review January/February 2003, http://www.scmr.com/article/CA278114.html&.
Rice, Jr., James B. and Federico Caniato, 2003, “Building a secure and resilient supply network” in Supply Chain Management Review September/October 2003, pp. 22-30 http://www.scmr.com/article/CA331153.html.
Show/hide comment form
