Supply-chain security not only costs shippers - it pays them back, according to a study of major shippers and logistics providers.
Post-9/11 security initiatives made everyone more aware of the vulnerability of modern extended supply chains to theft, disruptions and sabotage. Now, as industries such as high-tech, pharmaceuticals and food respond to increased scrutiny, shippers are more concerned about getting a return on their security investments.
A Stanford University study for The Manufacturing Institute, the research arm of the National Association of Manufacturers, for the first time quantifies how "supply-chain security investments improve business performance," said Lesley Sept, assistant director of Stanford's Global Supply Chain Management Forum.
Study participants - 11 manufacturers including IBM, Microsoft and Dow Chemical, and three third-party logistics providers - reported on average a 48 percent reduction in cargo examinations and inspections, and a 49 percent reduction in cargo delays as a result of implementing secure processes and technologies. The manufacturers experienced average reductions of 29 percent in transit times and a 28 percent in delivery time windows. Logistics service providers saw a 90 percent reduction in theft, tampering, pilferage and loss of freight, a 50 percent reduction in damages and a 75 percent reduction in inventory.
Jerry Jasinowski, president of The Manufacturing Institute, said he was "somewhat surprised" by the magnitude of the results. "This does seem to suggest that we ought not to look at investments in global security on the one hand as separate from investments in business performance on the other," he said. "It's important to look at those two as integrated systems."
Theo Fletcher, IBM's vice president of import compliance and supply chain security, agreed. "It's not just looking at (security as), 'If I implement this, I save this,' but looking at it as implementing a common process around the world," he said.
Fletcher said, "Clearly one of the advantages of implementing supply chain security is a reduction in theft." Security to limit such losses can be deceptively low-tech. IBM inspects cargo containers with a tape measure to assure the boxes don't contain hidden compartments. "You may think that is a little archaic, but I will tell you that empty trailers have been delivered to IBM with hidden compartments.
Personnel are a big factor in security programs. Arnold Allemang, senior adviser and member of the board at Dow Chemical, said his company conducts background checks on all drivers, and sometimes sends two drivers with one shipment to assure valuable cargo is never left unattended. "In my mind that is significant," he said. "As you improve your security, you reduce theft issues."
Technology is an important part of many security programs. Dow makes extensive use of radio-frequency identification systems to track shipments in transit; IBM uses global positioning systems to locate its trailers.
Smaller companies also can improve their business performance through enhanced security. IBM started a year ago insisting its suppliers and logistics providers sign contracts stipulating the need for increased security. Dow scrutinizes logistics providers to assure they can and will uniformly implement the chemical manufacturer's security policies.
"There's no difference in how we handle a tank truck shipment in the United States, or how we handle one in Brazil, or how we handle one in Germany or in Asia," Allemang said. "We have exactly the same requirements and we seek those people who ... will meet those requirements."