Collateral benefits

Collateral benefits

As a trade columnist and consultant, I can think of few professional events that can top the immense satisfaction of having one of your long-proposed strategies ultimately validated by industry. Such was the case this month when I read an article in Forbes about a new study from the National Association of Manufacturers that confirmed "substantial collateral benefits" were achieved by a number of test companies that had hardened their supply chains against terrorism, as well as other man-made and natural disruptions ("Terrorist's Loss, Consultant's Gain," Forbes.com, Aug. 1).

Beginning with my first security-related column in the JoC just three months after Sept. 11, 2001, ("Security as a Competitive Tool," Dec. 17, 2001), I have been advising companies to embrace emerging trade-security initiatives as they would other corporate quality programs. Improved security can improve cost, compliance and cycle time in an international supply chain. Selling trade security as a quality investment was easier for corporate boardrooms to relate to. Also, many existing quality operations, such as vendor product inspections and cargo container certifications, dovetailed nicely with security requirements.

As my experience in conducting C-TPAT security assessments grew, my subsequent columns also expanded to include my observations and confirmation of the direct correlation between the amount of quality control invested within a company's supply chain and the resulting cost savings, operational efficiencies, or both.

According to Jerry Jasinowski, president of The Manufacturing Institute, the current study "quantifies for the first time the significant business value of global supply-chain security investments, confirming a broad range of benefits that can have a positive impact on a company's bottom line. The findings will be of great value to companies that traditionally have found it challenging to justify security-related investments because they focused only on the direct benefits and not on the magnitude of the collateral benefits."

The NAM study was sponsored by IBM and conducted by Hau L. Lee of Stanford University's Global Supply Chain Management Forum. I had met Dr. Lee three years ago when I was invited to Stanford to attend the forum's 2003 Symposium on Smart and Secure Supply-Chains, which featured the capabilities of radio-frequency identification as a technology deterrent to terrorist threats within the global supply chain. Subsequent contributions by Dr. Lee have included the noted "Supply-Chain Security Without Tears," which addressed how to improve security in the post-Sept. 11 environment without jeopardizing supply-chain effectiveness. He points out that by leveraging the principles learned from the quality movement, strategies can be developed that prevent and mitigate security breaches, while also strengthening productivity.

While a relatively small number of companies were selected for the study - 11 large manufacturers and three logistics firms - all were chosen because of their recognized investments in securing their supply chains. The study, consisting of a questionnaire and follow-up interviews, revealed reported average reductions of 48 percent for Customs inspections upon import, 38 percent for theft and-or lost inventory, 29 percent in freight transit times, and 21 percent in the time required to identify problems.

These companies saw a 50 percent improvement in the visibility of goods within their supply chains, as well as a 30 percent overall improvement in on-time shipping to their customers.

"These are very significant findings because of the magnitude of the benefits realized," Leo Fletcher, vice president for import compliance and supply-chain security at IBM, said in announcing the study.

Granted, the authors of the study caution that these results don't represent an industry average, nor are they necessarily realized automatically. However, don't let this discourage those of you who may have yet to implement a supply-chain security initiative of your own. Begin by blueprinting your current supply chain, trade and logistics operations. This key exercise creates visibility and awareness as to the number of third-party service providers, processes, systems and cargo touch points currently required to move your goods. This alone often begins to identify immediate opportunities for improvement.

"If it's done correctly, supply-chain security can be a competitive advantage," adds Mr. Fletcher. I couldn't agree more.

William G. "Jerry" Peck is president and founder of Global Trade Management Solutions. He can be contacted at (815) 462-1732, or at wgpeck@comcast.net.