Dangerous World For Logistics

December 8, 2006
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After years of highlighting fuel costs and capacity shortages, the 16th Annual State of Logistics Report from the Council of Supply Chain Management Professionals this year concentrated on what had been an underreported concern in the industry: security.

“More disruptions are occurring and are having a more significant impact,” wrote supply chain consultant and report author Rosalyn Wilson, including acts of international aggression and the fact that “severe weather that strikes anywhere on the globe is now more likely to threaten far-flung global supply chains.”

Released in June, Wilson’s report seemed prescient, as news of a foiled terrorist plot against London airliners broke later in the summer. But security and continuity concerns have long been on the minds of industry professionals.

“Imagine if someone got a nuke into New Jersey harbor, Los Angeles, or any of the big ports and blew it up,” said Jon Toles, president of Supply Chain Solutions subsidiary Supply Chain Shipping. “It would be 9-11 all over again. Everything would shut down. And in my opinion, I don’t think it’s a matter of if something like that will happen, but when.”

As is standard practice for its industry, Rockford manufacturer Wolverine World Wide is reliant on an assortment of global sources. At any given time, product is en route from China, Brazil, the Dominican Republic and other locales in Asia and South America to its distribution centers in Seattle, New Jersey and Los Angeles

One of the steps Wolverine has taken to protect its business is to join the Customs-Trade Partnership Against Terrorism to Secure the Supply Chain. The Department of Homeland Security program provides an express lane of sorts through Customs and Border Protection, with less thorough inspections, a decreased frequency of whole-container inspections and more reliance on self-policing. In return, the member company submits to exhaustive standards, documentation and audits for each step of its supply chain.

Wolverine recently completed its final set of validations for its offshore sources, clearing the way for Tier 3 importer status, the highest ranking attainable under C-TPAT. Fewer than 200 companies nationwide are currently certified at that level.

“The higher level of designation, the more secure your supply chain, and the more likely you’ll be one of the first let back into the country when the threat level increases,” said Phillip Roy, Wolverine vice president of global logistics.

Aside from its benefits during the worst-case scenario of a border lockdown, the designation provides substantial benefits in everyday operations. The decrease in box-by-box, whole-container searches alone should cover the cost of the certification, said Toles, whose company is currently seeking its own Tier 3 status and provides consulting to other firms on the process. A search can easily cost companies thousands of dollars, without factoring in the cost of time or sales.

“Let’s say you’re Meijer and you’ve got hot cargo coming in that needs to be on the shelf for a newspaper ad this weekend, and then customs grabs it,” he said. “You get a couple of those, and the C-TPAT pays for itself.”

Satisfying the certification requirements is not an easy task, however, and companies should anticipate the validation process to grow in difficulty at the same pace as the screening process.

Bruce Ferrin, a professor of logistics at WesternMichiganUniversity, attributed this to an assortment of trends in the supply chain world. Since the Sept. 11 terrorist attacks, the government has been slowly ramping up its screening efforts, and only in the recent past have large-scale searches become commonplace. Customs officials are ill-prepared to limit the disruption and responded with C-TPAT, which essentially allows them to approach members with pre-2001 standards of security.

The problem with the C-TPAT, according to Ferrin, is that the supply chain is going to become more extended with each passing year. As areas develop economically, the supply of low-cost labor decreases, and sourcing facilities will be forced to relocate. This is already happening in China, where manufacturing operations are spreading away from the coast and into rural areas. Companies may have to choose between the low-cost source and the C-TPAT certification, as customs officials are unlikely to travel to remote regions for validation trips. As of the third quarter, auditors had yet to travel to Indonesia, the Philippines, Malaysia, Vietnam and Cambodia

C-TPAT and similar programs, such as the drug-trafficking-oriented Customs Carrier Initiative and Canada’s Free and Secure Trade Program, do not apply only to ports. Many of the same issues these programs address are seen in the trucking and air freight industries. Ferrin has doubts that any such designations will be able to entirely eliminate the threat of screening or other disruptions, and suggests that companies with lean or just-in-time operations will eventually repatriate offshore assets.

In the State of the Logistics Report, screening was only one of several potential security concerns. There remains the threat of violence local to the offshore region, as well as inclement weather.

“The weather and environmental stuff is actually a bit easier to predict,” said Andrew Dailey, a founding member of the Michigan Homeland Security Consortium and principal of GeoCritical LLC in FortGratiot. “The manmade stuff is harder, but you can take a look at the country’s stability and the presence of major actors and assess your exposure.”

GeoCritical provides a tracking service for global companies to monitor their supply chains for possible environmental, geopolitical and financial disruption. This month marks the beginning of cyclone season in Australia, for instance, which his company will be watching closely. The presence of al-Qaida in a region could lead to sourcing maneuvers, as could the hint of an Avian flu outbreak.

“It really comes down to the sophistication of your business continuity plan,” Dailey said. “You should have a mechanism to scan for early warning signs, but executives need to know what to do when they receive that intelligence.”

LaMont Walker, senior counsel for Warner Norcross & Judd in Grand Rapids, dealt with similar circumstances as senior managing counselin charge of worldwide procurement and supply chain management for Dell Inc., the Texas-based computer conglomerate that inspired author Thomas Friedman’s Dell Theory of Conflict Prevention from his landmark book on globalization, “The World Is Flat.”

Walker argues that there is no negative impact from a disruptive event, provided it is felt equally by a business and its competition. He saw this during SARS outbreaks in regions populated by electronics suppliers.

“Everyone was using the same suppliers in Asia, so no company was disadvantaged compared to another,” he said.    

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