Supply Chain Security

“the single biggest threat facing American traders is

supply chain security”Website for C-T PAT

Why should you care about SC Security?

• Is it a US problem?• Global Problem• Heathrow Airport delays

Superbowl weekend 2005• RFID – is this the solution?• ISO Guidelines for SC Security• Terrorism Insurance

Supply Chain Security

What’s the cost of 9/11 to the Supply Chain?

Fortune Magazine - $50-80 billion a year

• inefficient supply chains• higher transportation costs• increased inventory

Problem?• Terrorism/Piracy• Obsolescence• Pilferage• Information Breach• Proprietary Data – Camera Phones; Thumb Drives• Cyberspace Security• RFID Data Security• 66% of Sealift Containers arrive at 20 Major Ports• >58 % of all inbound containers come through

New York/New Jersey, Los Angeles, Long Beach• ~44% through Los Angeles/Long Beach in 2003• Lengthening of Supply Chains – coupled with

Globalization

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Recent Headlines• IMB identifies rash of false shipments into North

Africa• Pirates intensify attacks in new areas, with first

Somali hijacking reported in Red Sea • Maersk Alabama Captain Held by Pirates• Peanut Corporation of America• Somali piracy is worst in world – BBC News• Russia Sends Warship to Somali Coast to

Fight Piracy – Bloomberg.com• UN adopts new Somalia piracy resolution

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Supply Chain Headlines

• “New Budget includes $10.2 Billion for Border Security.”

• “Battling the Bad Guys: 2005 Was a Tough Year” Dec 2005 Baseline Magazine

• “Major Data Theft Leads to Major Legal Problems” Baseline Magazine

• “Polo Ralph Lauren – Lost Point of Sale Data”

• “Somali pirates hijack fourth vessel in a week ,” January 2, 2010

More Headlines

• “Somali pirates hijack cargo ship near Seychelles,” April 11, 2010, AP News

• “Somali pirates attempt attack on Dutch warship,” March 17, 2010

• “New suite of ISO supply chain management standards to reduce risks of terrorism, piracy and fraud”

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Examples

• Major Distributor, Dec 2006

• Locks on trucks

• SAFE Port Initiative

• Scanning of Containers

• C-TPAT

• ISO Standards for Supply Chain Security

Threats in the international market-place know no borders.

Terrorism Risk Insurance

U.S. Terrorism Risk Insurance Act (TRIA) – property and casualty insurance experts are helping clients with interests in the United States make informed decisions about terrorism coverage.

U.S. President George W. Bush signed the Terrorism Risk Insurance Act (TRIA) into law in November 2002 to stimulate business investment that had slowed to a trickle after the events of September 11, 2001. The law creates a three-year federal program that backs up insurance companies and guarantees that certain terrorist-related claims will be paid.

TRIA is a short-term measure designed to give the insurance market time to recover and develop new solutions.

On December 26, 2007, the President signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2007 which extends the Terrorism Risk Insurance Act through December 31, 2014. The law extends the temporary federal Program that provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism.

Supply Chain Security

“We have proved to our management that good security is good business.”— Ann Lister of Texas Instruments

Risk

Supply Chains are inherently complex, dynamic, and fluid, characterized by uncertainty, ambiguity, and friction. These characteristics cloud the operating environment: they create risks

Risk Assessment

• Terrorism• Port Security – over 12 million

containers annually to the US; 200 million world wide

• Port Security – 300 US Ports• Longshoremen Strike – 2002• Potential Airport Attack – LAX;

MPS; LGA

Risk Assessment

“If you do things the way you’ve always done them, you’ll get the same things you’ve always got.”

-Darrell Waltrip

This is not your Dad’s Supply Chain!Security is an integral part of the Supply Chain and Homeland Defense

What are Supply Chain Hazards?

• Theft/Pilferage• Competition• Information Systems• Cell Phones• Thumb Drives• Camera Phones• Disgruntled Employees• Lack of Training

Problems?

• 66% of Sealift Containers arrive at 20 Major Ports

• >58 % of all inbound containers come through New York/New Jersey, Los Angeles, Long Beach

• ~44% through Los Angeles/Long Beach in 2003

• Lengthening of Supply Chains – coupled with Globalization

• Top 5 “Hottest Global Markets”: China, Mexico, Eastern Europe, Southeast Asia, India

What is a Catastrophic Risk?

• Inaccurate receipts?• Customer Satisfaction?• Sloppy Warehousing?• National Emergency?• Hurricane?• Or, Only when it makes it to

CNN?

Important?• September 11, 2001 - $2 billion per

day lost• Longshoremen Strike, 2002 – 300-500

ships backed up• Potential loss of attack to major port

- $20 billion estimate• 2008 estimate ~ 12 million

containers into US; up to 490 million containers world wide; 2009 - ~10 million containers

New Problem?

• “There were no ‘secure’ rear areas.” General Joseph Heiser on

Vietnam Logistics• Sun Tzu – Chapter 1, The Art of

War• Native Americans• American Civil War – Great Train

Chase• Pirates of the Caribbean

Supply Chain Security

A Global Perspective

Top 5 European Ports

• Rotterdam – 9.743 million TEUs in 2009

• Hamburg – 7.088 million TEUs (9.7 mil in 2008)

• Antwerp – 7.3 million TEUs (8.6 in 2008)

• Bremen – 4.565 million TEUs (5.5 in 2008)

• Valencia – 3.65 million (3.6 in 2008)

Other Key Ports

• Singapore – 25.87 million TEUs• Shanghai – 25 million• Hong Kong – 20.9 million • Shenzhen – 18.25 million• Pusan – 11.98 million

Rotterdam

• > 900 intermodal barge moves daily to 72 locations

• > 200 rail moves• 220 million people within 600

miles of Rotterdam

Rail

• > 15% of cargo to Germany via rail

• ~ 13% of Belgium cargo • ~ 14 of French cargo

• US Rail – 4 major bridges over the Mississippi River

Other issues

• 9000 distribution centers in the Netherlands

• 2000 - $64.4 billion USD in logistics and distribution in The Netherlands

SAFE Port Act

• The SAFE Port Act codified into law a number of programs to improve security of U.S. ports, such as:

• Additional requirements for maritime facilities

• Creation of the Transportation Worker Identification Credentials

• Establishment of interagency operational centers for port security

Safe Port Act

• Container Security Initiative• Foreign port assessments • Customs Trade Partnership

Against Terrorism

Container Security Initiative

• CSI consists of four core elements:• Using intelligence and automated

information to identify and target containers that pose a risk for terrorism.

• Pre-screening those containers that pose a risk at the port of departure before they arrive at U.S. ports.

• Using detection technology (X-Rays) to quickly pre-screen containers that pose a risk. Using smarter, tamper-evident containers.

Containers - Concerns

• Cost to X-Ray containers • Manpower• Delays• Radiation

Transportation Worker Identification Credentials

• Port Employees• Long Shoremen• Unescorted access personnel

C-TPAT• Voluntary• November 2001• 9000 members• Canada has a program very

similar to C-TPAT named FAST – Free and Secure Trade.

C-TPAT• According to US Customs and

Border Protection Agency, the benefits of participating in C-TPAT could include:– Playing an active role in the war

against terrorism – A reduced number of CBP

inspections. – Priority processing for CBP

inspections.

Orlando International Airport• No staffing of doors for employee entrance

to baggage claim areas• Guns smuggled into planes by employees• “no requirement for us to staff those

doors” OIA Spokesperson; TSA – “not my job!”

• Identified as security issues in 2004• 2006 – ½ of TSA Screeners failed test that

measured how well employees could identify explosives, guns and other weapons on the scanner – but can identify bottles of mouthwash and toothpaste

Source: Mike Thomas, Orlando Sentinel, Mar 15, 2007, p. B-1

Food Security

BioTerrorism?• Peter Pan Peanut Butter – e coli – 2007• E-coli from fresh Spinach – 2006• Chi Chi’s e-coli – from green onions –

2003• Taco Bell – e coli 2005• None were terrorist attacks but

impacted supply chains• US Salmonella/e-coli scare 2008• Salmonella epidemic 2009 - >3921

separate items recalled

Summary

• Direct link between supply chain security and homeland security

• Logistics costs are large part of manufacturing costs

• Savings in supply chain costs to bottom line