Securing the supply chain: What you need to know today
David Hannon, News and Transportation Editor -- Purchasing, 1/15/2004 2:00:00 AM
The long-lasting impact of Sept. 11, 2001 has made security a top priority for logistics and supply chain professionals. Even if security was not already a top priority for most shippers, new regulations from the U.S. Customs and Border Patrol in 2003 pushed security right up the "to-do" list by offering potentially fewer inspections on inbound shipments for shippers in compliance with regulations. Today, not only are shippers being asked to get their cargo from point A to point B in a cheaper, faster manner—but also in a much more secure environment.
Containerized shipping has seen the most regulatory attention to date. According to Customs information, 90% of all cargo worldwide moves by container and in the U.S., almost half of incoming trade (by value) arrives on board container ships. That amounts to seven million cargo containers offloaded at U.S. seaports each year. To streamline the inspection of these containers, the Container Security Initiative was established, which places U.S. inspectors at foreign ports to inspect containers before they reach U.S. borders, creating delays in some cases. In November, Customs released a final rule on advanced notifications that requires manifests be filed in all modes before shipping, similar to the 24-hour rule issued for maritime shipments earlier in the year.
But of most direct concern to shippers is the Customs-Trade Partnership Against Terrorism (C-TPAT), a joint venture between Customs and business where shippers assess their own security readiness and submit to inspections for C-TPAT certification. If certified, those shippers' imports will be subjected to fewer inspections and delays when coming into the U.S.
"All major shippers, importers and third-party logistics providers are working to get C-TPAT certified," says Adrian Gonzalez of ARC Advisory Group in Dedham, Mass. "Part of the reason why you see such a high adoption in the C-TPAT program is because there was a level of collaboration between the government and the shipping community in establishing that program."
One shipper's tale
One of the companies most affected by regulations on imported shipments is Canon USA of Lake Success, N.Y., which imports almost all of the products it sells in the U.S from Asian manufacturing sites. As such, Canon has always had a close relationship with Customs and was one of the companies consulted during the drafting of recent regulations. Canon made presentations to other shippers about the new Customs programs to explain the details and answer questions.
Frank Pollack, senior logistics manager at Canon USA says the requirements and inspections for C-TPAT are the most pressing issues for his organization. Canon spent close to two years preparing its facilities and supply chain for the inspection by Customs to qualify for the program. As part of that preparation, Canon brought in an independent third-party auditor to review its security and make recommendations for improving it. All new hires are reviewed by that agency as well.
In mid-2003, the company made a presentation to Customs inspectors, which covered everything from the role and operations of its New York logistics headquarters to manufacturing sites in China and the Pacific Rim that feed the Canon programs.
"We showed them photographs of the facilities and explained to them how the electronic data is transmitted," says Pollack. "That data includes security information in the form of container seals and bill of lading information. We have an ETA (estimated time of arrival) program that tells us when a shipment is coming in and ties it into the container and seal numbers. We verify the information on arrival to make sure it matches up. As far as Customs is concerned it is a closed system and certainly passed their criteria."
Canon is not yet certified for C-TPAT, but expects that certification soon. Pollack said Customs originally planned to inspect several overseas Canon facilities, but after its thorough presentation and demonstration, inspectors decided overseas inspections were not necessary.
Jim Gordon, vice president of Canon USA's logistics division, says Canon evaluates the security capabilities of its current and potential logistics providers more carefully today than in the past. Longtime Canon logistics partner Nippon Express of Japan has adopted the same security standards as Canon to ensure the processes are the same at Canon and Nippon facilities when it comes to security issues like inspections and background checks.
Canon is also a member of the National Cargo Security Council (NCSC), a group of shippers, carriers and law enforcement agencies that share best practices around security. Canon participates in a flash alert program through NCSC where information on stolen trailers is shared among members. Canon is considering expanding the list to its key customers as well.
"We had the national meeting of the NCSC two weeks ago in Washington, D.C. and I spent a lot of time talking to the director of security at another major U.S. shipper about best practices in combating theft," says Gordon.
Having an alert network and sharing best practices can come in handy at times. For example, in the wake of a crime ring that had thieves posing as trucking providers two years ago, Canon implemented a driver identification program that requires truckers to show licenses before freight is signed over to them. When Canon first implemented that program, some of the drivers and carriers balked, because their licenses included their social security numbers or other personal information. Canon called some of the objecting carriers and explained that it had to be done. Some carriers responded by giving their drivers identification badges without personal information. That kind of program can be shared with other shippers under NCSC to both alert them to scams and provide feasible solutions.
Cost/benefit analysis
From a cost perspective, Canon understands there are additional expenses for updates, but believes they are a worthwhile investment from both safety and customer service perspectives. Internal and external customers are provided better information on when a shipment can be expected and improved transit times under C-TPAT through fewer Customs inspections.
Gordon says the inspections under the Container Security Initiative have created a 24-hour delay on most shipments coming from Asian ports, but the delay is consistent enough so it is transparent at the operational level. "We have the advantage where the shipment is coming from our own manufacturing sites, so we are controlling the loading and can share that information."
But there are those that feel that security and productivity are at direct odds with each other in logistics today. Chelsea White, chair of the Transportation and Logistics School of Industrial and Systems Engineering at the Georgia Institute of Technology, says the increased security restrictions and risks are beginning to affect the design of some supply chains. Delays—or the potential for delays—have led some shippers to move away from just-in-time models in favor of more traditional inventory models. White sees an anti-globalization trend happening where some manufacturers are increasing domestic supply bases to limit the border crossings. "It may make sense to have a supplier close by who may cost more and have lower quality, but they are close and can do 10-20% of the work, with the agreement that they can give some surge capability if there is any major disruption," says White.
Michael Barr, associate director of the global cross border organization at Procter & Gamble in Cincinnati, says his group has recommended P&G build up slightly higher inventory than in the past and work more with domestic suppliers. But so far, those recommendations have not been implemented to any large extent within P&G.
White's group conducted research that looked into the effect of the Container Security Initiative (CSI) on global shipping productivity. Under CSI, U.S. Customs places inspectors at foreign ports to inspect cargo before it leaves, long before it reaches the U.S. White says, on paper, the CSI program looked to provide some productivity benefits by resolving uncertainty earlier in the supply chain, which would allow better planning. But, in fact, White's examination of the CSI program found no productivity benefits.
The research found that if a container is delayed by inspection leaving Singapore on a boat and it misses the boat, then it has to wait several days to sail. If it is inspected in a U.S. port on the other end and gets delayed, it can be on another truck much sooner, limiting the delay time.
"This program is at best zero in terms of productivity improvement and at worst significantly negative," White reports, saying that notification of delays in shipment will not change a shippers' mix of expedited shipments. "If you know where your assets are in your supply chain but you have no way of using that information because you do not expedite the information is not useful. The only time it is worthwhile is if you have a decision to expedite or not. We have downgraded our optimism on the value of that information and we're more skeptical about the value of such IT investments."
White feels there is value in being able to tell customers where a shipment is, rather than using the information for internal productivity improvements. "That has been the impetus of package express—the ability for customers to log on and find out where their products are. It has only been recently that package express carriers are using that information from a process point of view."
Technology
Technology is playing a big role in securing the supply chain today, but many organizations in today's cost-conscious environment want technology that is twofold. Shippers are looking for tools that will provide increased visibility for security and process improvement. Barr says P&G has implemented visibility tools to streamline shipping processes and reduce costs, which improve security as a "valuable side benefit."
Canon is focusing technology investments around electronic container seals and information networks to track the status of seals. Knowing if a seal is broken when a container arrives is valuable for security purposes, but knowing if it has been tampered with in mid-transit is even more valuable from a productivity standpoint.
One of the new technologies that could streamline the visibility efforts is the smart container, which has RFID and radiation detection capabilities built into the container. The smart container was unveiled in October by J. Brooks Company, RAE Systems, and Savi Technology and includes an inter-connected sensor system that automatically detects intrusions, senses interior environmental changes in temperature or humidity, detects hazardous cargo such as radioactive materials, and wirelessly communicates its location and security status to a global information network in real-time.
Gonzalez points out that some shippers can get too involved with evaluating and implementing technology and overlook the basics—like locking the front gate to a chemical plant or having enough security personnel to question suspicious people in the area of loading docks and warehouses.
Some companies that have a presence in Mexico or Central America have gone to the lengths of using decoy trucks and armed guards to deter criminal activity.
What's Hot
06/15/2005Survey: Supply chain risks decreasing
10/01/2009Strategic Supply Chain Management- TOC
01/06/2009
Now Playing: 