Securing the Supply Chain
Smart shippers take the necessary steps to protect their products, shipments, and logistics operations.
Victims of theft and disaster often lament the sense of powerlessness that follows a break-in, robbery, fire, or flood. For shippers, the devastation is multiplied, as product loss or damage can cause significant financial burden and hurt market share.
Just as precautions and planning can help homeowners secure and protect their residences, shippers can take steps to ensure their shipments are safely stored and transported. On a larger scale, government agencies and private sector entities can work together to create initiatives and legislation that boost cargo transportation efficiency and security. Technology tools provide advantages through shipment visibility and access to documentation.
In the following pages, industry experts explain how to avoid threats to warehoused goods, conduct a global security assessment of trading partners, and benefit from renewed government and private sector attention to supply chain security initiatives.
How Safe is Your Warehoused Product?
Choosing a well-prepared warehousing provider ensures your stored goods are in capable hands.
A food company lost $6 million of product in a Texas warehouse fire; wine growers lost tens of millions in a recent warehouse fire in California. The food company was more concerned about losing seven days of market share because its product could not be immediately replaced. In the wine warehouse fire, small vineyards lost entire seasons of output and could not replace inventory.
Until recently, companies that outsourced storage and distribution to third-party warehouses focused more on price than protection. Today, they are giving more consideration to preventing market share loss and disrupted distribution.
Shippers who use third-party logistics (3PL) providers to inventory and distribute their product may wonder how to select an adequately protected facility. You can begin by making sure your service provider addresses the following issues to keep your goods safe.
Fire. All facilities should be protected by a National Fire Protection Association-approved sprinkler system. No fire company will fight a warehouse fire if the existing sprinkler system cannot contain it. Instead, they will act to contain the fire and prevent it from spreading to adjoining facilities or property.
In addition, all sprinkler systems must be central-station monitored. Too often, a sprinkler head goes off during the night and significant damage occurs because no alarm sounds.
Theft. Do the facilities have adequate alarm systems to help prevent break-in and theft? Alarm systems also need to be modified to address the type of products stored. High-value and high-target products require above-average alarm systems that include motion detectors and video surveillance. As with fire protection, all systems should be central-station monitored.
Inventory Shortage. Product disappearance is a leading cause of loss in all warehouses, not just 3PL facilities. Eighty percent of these losses are employee-related. Ensure that the facility conducts employee screening and periodic drug testing. Background checks of all new employees are a must.
Also ask what form of “count systems” the 3PL employs. High-target products, such as electronics, health and beauty aids, pharmaceuticals, and highly marketable consumer products, should have at least a three- to four-count system.
Emergency Response Plans. Most well-managed 3PLs have a written disaster plan, also known as an emergency response program. The 3PL should be happy to share the contingency plans it has established to ensure minimal service interruption if its facilities go down.
During Hurricane Rita, one 3PL sustained damage to 12 of its buildings. Fortunately for its customers, the operation was well-prepared. It had contractors on call to make temporary repairs and emergency generators to provide electrical power for the buildings and computer systems. The company even had provisions to house employees who had lost their homes or were unable to commute to work. Even with a major disaster such as Rita, the business remained functional.
Insurance. Request that your insurance carrier or risk manager physically inspect all proposed facilities prior to moving in. Too often, contracts are signed and product is moved in before the insurance carrier is notified. Your insurance carrier can order a loss-control inspection to determine if the facility is adequately protected. The inspection could result in some major recommendations that would entail significant investment by the 3PL, assuming it is willing to comply.
Be aware that 3PLs do not insure your product for loss or damage unless required in your contract. Professional 3PLs do carry Warehouse Legal Liability, but that coverage only protects the 3PL for loss or damage to your product as a result of its negligent acts.
By doing a little security homework, you can help protect your company from losing product, market share, and customers.
William W. Clark, CPCU, is president, Warehouse Insurance Management Company, 714-283-8693
Managing Global Security Assessments
The Customs-Trade Partnership Against Terrorism program makes cargo security optimization the private sector’s responsibility.
Establishing a secure supply chain is both a worthy and necessary objective in a world where terrorism is a daily threat. Yet the vastness of the global supply chain makes it impossible for U.S. Customs and Border Protection (CBP) to secure every link in every chain leading to U.S. borders.
CBP has several options at its disposal to keep products secure. One is the authority to institute new regulations, such as the Importer Security Filing, which added new reporting requirements for ocean cargo. Another is the ability to implement voluntary government – business initiatives. Such programs, in which CBP delegates certain security assessment functions to the private sector, rely on cooperative relationships to enhance U.S. border security.
One program growing in prominence is the Customs-Trade Partnership Against Terrorism (C-TPAT). It operates on the principle that stakeholders in the international supply chain— importers, carriers, consolidators, customs brokers, manufacturers, and others— are best positioned to optimize cargo security.
Under C-TPAT, companies verify the integrity of their security practices and those of their supply chain partners. In return, C-TPAT members become eligible for a number of benefits, including fewer CBP inspections and priority processing during inspections. Companies that participate in the program save time and money— and gain the competitive advantage of faster speed to market. Being C-TPAT-certified is a business credential that is increasingly considered a decisive vendor selection factor at all levels of the supply chain. Thus, there is ample incentive for businesses of all sizes to participate in C-TPAT.
In Good Company
The United States is not alone in enlisting the support of private industry to secure supply chains. After all, countries in every corner of the world face ongoing security threats. As of January 2010, CBP had signed mutual recognition arrangements with:
- New Zealand Customs Service’s Secure Export Scheme Program
- Canada Border Services Agency’s Partners in Protection (PIP) Program
- Jordan Customs Department’s Golden List Program
- Japan Customs and Tariff Bureau’s Authorized Economic Operator Program
CBP is currently working to reach agreements with Korean Customs, Singapore Customs, and the European Union’s Authorized Economic Operator Program.
CBP identifies five major benefits of establishing recognition arrangements with other countries:
- Efficiency: C-TPAT staff does not validate overseas facilities already certified by a foreign partnership program.
- Risk Assessment Tool: C-TPAT recognizes a foreign partnership program participant’s status and uses it as a risk-assessment factor. C-TPAT validations thus focus on another segment of the importer’s supply chain.
- Less Redundancy/Duplication of Efforts: Foreign firms do not have to go through two separate validation visits. Plus, companies only have to undergo one revalidation visit.
- Common Standard/Trade Facilitation: Companies only have to conform to one set of security requirements because C-TPAT’s minimum security criteria are the standard worldwide.
- Transparency: Closer collaboration, similar security platforms, and increased information exchange should make commerce more transparent and expedite goods movement.
With these benefits, firms might be eager to sign up. Only certain businesses, however, may apply for C-TPAT certification. They include:
- U.S. importers of record
- U.S./Canada highway carriers and U.S./Mexico highway carriers
- Rail, sea, and air carriers
- U.S. marine port authority and terminal operators
- U.S. airfreight consolidators, ocean transportation intermediaries, and non-vessel-operating common carriers
- Mexican and Canadian manufacturers
- Select foreign manufacturers
- Licensed U.S. customs brokers
Firms interested in other countries’ limitations on eligible businesses should consult that nation’s Customs organization.
Next, businesses must understand that becoming certified members of these programs can be a labor-intensive process and maintaining certification can be equally challenging. There are also costs associated with meeting and maintaining the program requirements.
For instance, CBP estimates that it takes five hours to complete the C-TPAT online application form, which solicits information about the company, requires completion of a supply chain security profile, and mandates acceptance of a voluntary participation agreement.
The supply chain security profile involves a detailed self-assessment of supply chain security procedures using C-TPAT security criteria. It evaluates factors such as how the firm handles goods, its systems and provisions for physical and personnel security, access controls, packing manifest oversight, and employee training. If CBP approves the application, it then assigns a supply chain security specialist to evaluate the firm’s supply chain and make recommendations for improvement prior to C-TPAT certification.
After C-TPAT membership is approved, the company must adhere to C-TPAT provisions per the signed agreement. This means it must self-assess security systems, submit security questionnaires, develop security enhancement plans, and communicate C-TPAT guidelines to companies in its supply chain. This may be the greatest challenge of C-TPAT membership: managing the security assessment process to maintain certification.
A Formidable Task
The security assessment process can be formidable. Let’s say a company has an overseas vendor that uses a freight forwarder, and that forwarder uses truckers. Products go to the company’s broker, then to the freight forwarders it uses. A company’s supply chain could be extensive, involving 20, 50, or hundreds of vendors. Just developing and sending the appropriate security assessment is a complex task, not to mention evaluating responses and assigning risks.
Technology to assist firms in managing global security assessments automates many labor-intensive processes. Depending on the technology selected, the system may ask a company to enter all the individual partners comprising its supply chain. Then, the firm can go to a library of survey questions that contains survey items geared to the specific partner type and program to be assessed. Next, the firm can automatically compile the requisite security assessment for that firm and specific program.
Depending on the technology, the solution might have the capability to e-mail partners unique links to the specific assessment they need to complete. In turn, the system provides the rater the ability to review responses and assign points.
The entire security assessment process is managed automatically: building assessment items, sending assessment requests, compiling responses, resending assessments periodically, identifying problem areas, and handling efforts to reassess and remedy problems. Plus, the system provides a complete audit trail of all actions taken by the company to ensure its partners are secure and addressing weaknesses.
Technology can give a company the following insights into its supply chain:
- An overall ranking of each supply chain partner’s security risk.
- Individual security rankings of each partner for specific security elements such as training, site security, and manifest preparation.
- An overall security ranking for the company’s entire global supply chain across all assessment categories.
- A composite ranking of the company’s entire global supply chain for a specific security element.
Assessing the benefits
Participating in global security assessment programs delivers benefits to firms and their supply chain partners, including fewer inspections, delays, and audits. It also grants vendors and importers preferred status because being certified eliminates many security concerns when a firm opts to include that vendor in its supply chain.
The advantages do not belong to large firms alone. Small and medium-sized businesses can also leverage the benefits of C-TPAT and other security assessment programs. Affordable technology exists to help businesses of every size manage the process. And technology’s sophistication in handling all existing security assessment programs simultaneously, and the number of processes it manages and how well, goes a long way in maintaining certifications and minimizing the costs to do so.
Felix Pekar is chief operating officer, QuestaWeb, Inc., 908-233-2300
A New Era for Global Supply Chain Technology
High-tech advancements and a commitment to new initiatives help boost security in the logistics sector.
In business and trade sectors, common practices become obsolete and new ones evolve. In some industries, such as biomedical research, this evolution occurs rapidly. In other, more historically entrenched industries, it comes at a slower pace. Slower change is not necessarily the industry’s fault, but it impacts the capacity of technology development. If there is no incentive for change, companies will spend their resources in areas other than technology.
The events of Sept. 11, 2001 created the incentive to develop smart technology for the global supply system, and drove private sector technology research and development for the logistics sector.
The global supply chain is made up of disparate countries, cultures, languages, business practices, and Customs administrations. For business to spend money and time on research and development, there must be a financial return to satisfy management and owners while complying with government mandates.
After Sept. 11, the federal government created the Department of Homeland Security (DHS), as well as programs that impacted the supply chain and its industry components. It marked the beginning of a new era of concern and commitment to research and development in securing the supply chain, while making it more visible, efficient, and revenue producing.
Accurate, Consistent Data
Although Sept. 11 may have been a defining moment and catalyst for the United States, support for technology within the global trade community began before the attacks. The first support for an electronic supply chain began when the World Customs Organization (WCO) adopted the Revised Kyoto Convention of 1999. This Convention developed guidelines for electronically transmitting information to Customs’ computerized systems.
After the Convention made the first organizational step in moving the global supply chain toward the electronic age, a series of agreements and laws further defined electronic data use and implementation, including U.S. Customs and Border Protection’s (CBP) Customs Trade Partnership Against Terrorism (C-TPAT) and Importer Security Filing (ISF), and the International Standards Organization’s ISO 28000.
These laws, agreements, and programs share a common thread. Their goal is to facilitate trade and improve security through electronically capturing and communicating defined logistical data throughout the global supply chain from origin to destination. Analyzing this evolution reveals the new role and importance of electronic data acquisition and use, demanding a new era in supply chain security.
The transition to the electronic age within the global logistics arena requires that data must be accurate, timely, and consistent in format and content. The obstacles to obtaining reliable and seamless communication have significantly improved and will continue to change with technology. Cell phones and their evolution in both cost and functionality provide a clear example of technology’s impact on logistics. The supply chain has gone digital.
This new-era technology has been aggressively supported by the European Union’s Seventh Framework Program (FP7), which is designed to ensure member states reach growth and competitiveness goals in the global marketplace.
Within the FP7 Program, the INTEGRITY and SMART-CM initiatives are research programs designed to implement smart technology throughout the maritime environment. Their activity over the past three years has included input from all stakeholders in the global logistics community, including technology providers, port operators, Customs, carriers, forwarders, and shippers.
Parallel to the research conducted by the FP7 Program and the DHS, the WCO has recently established its own technology department. This new department is focused on facilitating communication with the private sector to better understand and implement technology to allow members to become more efficient in managing data and collecting duties.
The idea of a new era of smart technology has led to increased cooperation among stakeholders in the global supply chain. In September 2010, the Cargo Intelligence and Security Association (CISA) met with Under Secretary of Homeland Security Science and Technology Dr. Tara O’Toole and CBP Deputy Commissioner Todd Owens and Director Pat Simmons to discuss the private sector’s role as a DHS resource.
This discussion confirmed the new era of openness and the DHS’s interest in discovering what technologies the private sector has already developed to meet market needs. The private sector’s understanding of business needs can guide the direction and path the DHS takes to accomplish its mission, while at the same time supporting the private sector in its role. This cooperation will ultimately benefit all of us in promoting security and businesses’ bottom line.
Another mark of the new era is the commercial sector’s first steps toward embracing supply chain technology. As the commercial sector assesses supply chain visibility and efficiency, companies are realizing the return on investment data represents.
The fact that various market leaders are issuing requests for quotation for large volumes of smart container security devices confirms that manufacturers recognize the value of this data. Increased supply chain control and communication provide access to, and better handling of, quality control data, risk management processes, container location tracking, chain of custody documentation, inventory control, and customer service issues.
slow but steady progress
In his book The Box, Marc Levinson outlines the difficulties supply chain pioneer Malcom McLean encountered in gaining acceptance for the sea container. Today, the value of McLean’s invention seems obvious, but it took him more than nine years of hard work to finally gain industry acceptance.
Since Sept. 11, many developments affecting global supply chain technology have occurred, including trade agreements and programs, laws, administration changes, and economic challenges.
All these developments have been part of how the collaboration between the market, government, and technology has matured. This maturity has allowed the time needed to properly integrate smart technology into all sectors and to move forward to a new era for global supply chain technology.
Ed Harrison is president of the Cargo Intelligence and Security Association and CEO of Powers International, 704-825-4741