Supply Chain Security

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  • 1. Supply Chain Security: A Maturity Model for Loss Prevention Anthony Lee, CPP 6 February 2007
  • 2. Agenda Security Threats and Risks Supply Chain Security Guidelines Major Security Challenges Loss Prevention Maturity Model
  • 3. Supply Chain Security Supply chain security management is the application of policies, procedures, and technology to protect supply chain assets (product, facilities, equipment, information and personnel) from theft, damage, or terrorism, and to prevent the introduction of unauthorised contraband, people or weapons of mass destruction into the supply chain.
  • 4. International Trade International trade is a key driver of global economic growth 80% of general cargo is transported in containers 18 million containers daily across 7 oceans Global cargo supply chains are complex and involve many parties Global trading system cannot afford the consequences of a catastrophic attack
  • 5. Security Threats Terrorism Organised Crime and Cargo Theft Hijacking and Piracy Drug/human smuggling Illegal weapons Counterfeit goods Illegal exports of licensed materials/technology
  • 6. Cargo Theft US$40 Billion stolen worldwide annually (2000 report) CIA reported as much as 50% due to organised crime Majority of thefts (80% +) due to collusion with employees High value items that are easily disposed are main targets
  • 7. Cargo Theft Internal thefts of high value items within warehouse Thefts in cargo warehouses along supply chain Exit facility in loaded vehicle using fraudulent paperwork Hijack of cargo trucks Piracy of sea shipments Armed robbery at warehouses People are the weakest link
  • 8. Supply Chain Security Programs WCO Framework of Standards ISO/PAS 28000 Outlines Security Mgmt. for Supply Chain ICAO Annex 17 for Regulated Agents Regime TAPA Freight Security Requirements Customs-Trade Partnership against Terrorism (CTPAT)
  • 9. Supply Chain Security Guidelines Singapore will launch Secure Trade Partnership in mid 2007 Consistent with other key international supply chain security guidelines Holistic stance bolsters entire network Goals… not prescriptive specific measures Voluntary national program
  • 10. Key Objectives of Supply Chain Security Guidelines To make it difficult for terrorists to make use of the supply chain To emphasise the importance of a total supply chain security approach to cargo security To help local companies gain a source of competitive advantage To profile SGP as a secure transport and trading hub To encourage companies to secure their own processes within supply chains
  • 11. Players in the Supply Chain Suppliers Manufacturers Warehouse Operators and Owners Transporters Terminal Operators Sea and Air Freight Operators
  • 12. Players in the Supply Chain 1. Suppliers Includes parties engaged in import, export, trading, wholesale activity and retail 2. Manufacturers Includes parties engaged in processing, assembly, manufacturing and provision of other value-added activities to manufactured goods
  • 13. Players in the Supply Chain 3. Warehouse Operators and Owners Includes users of warehouse space, distribution centres, freight forwarders who own or operate warehouse facilities, and cargo consolidators 4. Transporters Includes road and rail hauliers, parties who own or operate vehicles involved in road or rail haulage and freight forwarders providing land transport services
  • 14. Players in the Supply Chain 5. Terminal Operators Includes airport operators, ground handlers, marine terminal operators, stevedores, and operators of cargo consolidation points 6. Sea and Air Freight Operators Includes shipping lines, air cargo carriers, non- vessel-operating common carriers (NVOCC) and agents for such entities
  • 15. Supply Chain Security ALL players have to be involved It involves securing every node and link along the chain A chain is only as strong as its weakest link Start with safe/secure packing of a shipment from point of origin to final point of deconsolidation It is about secure custodian of cargo at every point along the supply chain
  • 16. 12 Elements of Supply Chain Security Guidelines Physical Security Risk Analysis Access Control Conveyance Security Business Partner Security Incident Management/Investigations Crisis Management and Disaster Recovery Education and Training Awareness Documentation Processing Security Information Security Personnel Security Procedural Security
  • 17. Implementation of Guidelines Inline with requirement of WCO certification of “Authorised Economic Operator” status Phased approach – Start as voluntary program Companies to engage in self-assessment process against the security guidelines Customs will administer a validation and certification process Does not exempt companies from complying with existing regulations and legislation
  • 18. Major Security Challenges Supply Chain involves many players Multiple modes of transport Various types of intermediaries Several government agencies globally Complexity of the system leads to challenges Security Directors need C-suite support… The Human element…
  • 19. Typical Business Priorities Achieve profitable growth Increase gross margin Reduce operating cost and improve balance sheet metrics Justify Capex by ROI Create a high performance culture
  • 20. Supply Chain Performance Efficiency The system’s core capability measured in terms of speed, cost and volume of shipments Shipment Reliability Ensures that goods arrive within a specified timeframe with a minimum of loss from theft and accident Shipment Transparency Ensure that cargo is legitimately represented to authorities and legal for transport Fault Tolerance The system’s ability to respond to disruptions and failures of isolated components to ensure business continuity Resilience Ability to return to normal operating conditions quickly after disruption of service
  • 21. Supply Chain Security – Collateral Benefits Efficiency Visibility Reduced inspections Improved asset visibility Increased automated handling More timely shipping information Less process deviation Reduced inaccurate shipping data Shorter transit time Resiliency Inventory Management & Customer Shorter problem resolution time Relations Quicker response to a problem Reduced theft/loss/pilferage Reduced time to identify a problem Decreased tampering Less Customer attrition Source: Masssachusetts Institute of Technology, White Paper, May 2005
  • 22. Benefit of Supply Chain Security Study by Stanford University’s Manufacturing Institute 11 manufacturers and 3 third-party logistics providers 14 companies got more than a return on their security investments in supply chain security Reduce cargo inspections by 48% average Reduce transit times by 29% average Delivery times fell by 28% Theft, loss of freight and tampering fall by 90% Damages reduced by 50% Source: Traffic World, 7 Aug 2006
  • 23. The Human Element Security relies on people People perpetrate criminal and terrorist acts People are key to preventive measures But to make Security work, people have to be engaged, be supportive and willing, and see and feel the benefits
  • 24. Management of Cargo Area Poor physical working environment People who write Procedures and Processes rarely do the job Staff have little knowledge of: Airport and Freight Company requirements Company policies Procedures and Processes Emergency Procedures
  • 25. Why Staff Violate Procedures If followed to the letter, job wouldn’t get done Staff are not aware that procedure exists Staff prefer to rely on own skills and experience Use of informal procedures (black books) In recent studies, 67% of all human performance problems have been traced to bad procedures (incorrect, absent or unworkable)
  • 26. Situational Factors Time pressure High workload Unworkable procedures Inadequate equipment Bad working conditions Supervisors turn blind eye
  • 27. What are the solutions? Risk management… to add value in long term Safety and Security Culture Proper management control of operations Staff have to see benefits – ‘feel safer’ Monitoring mustn’t seem like punishment Focus groups – staff are key; they know the weak links in the processes Top management has to set examples
  • 28. Loss Prevention Maturity Model Synergy Process Compliance Security Culture Basic Security
  • 29. Level 1: Basic Security Measures Maturity Indicators at Level 1 - Adhoc Security Leader Lack of standards or measurements CCTV Lack best practice or industry models Access Control Inconsistent/spotty controls Alarm System Loose accountability Security Screening Undetectable and unmeasured losses Guarding Physical Barriers
  • 30. Level 1: Basic Security Major emphasis in preventing external thefts Deterrence against internal thefts Local Security Champion to drive initiatives Basic physical security infrastructure Access control and CCTV surveillance Security guarding and response Metal detector screening Depth in depth
  • 31. Level 2: Security Behaviour Measures Maturity Indicators at Level 2 – Repeatable Losses Metrics Standards applied with consistency but Education & Awareness lack best practice or industry models Photo ID Badges Poor organizational accountability Security Committee Poor efficiencies/limited metrics Audits and Self Checks Tactical remediations Security Procedures Vertical organizational communication/ Background Checks little sharing
  • 32. Level 2: Security Behaviour Major focus in preventing external/internal thefts Deterrence against inventory damages and shipment losses Improved documentation of security procedures Security training and awareness program Develop a loss prevention mindset Self-driven security program Security metrics and measurement
  • 33. Level 3: Process Compliance Measures Maturity Indicators at Level 3 - Managed Security Controls Organizational accountability Check and Balances Broad organizational communication Segregation of Duties and sharing Transport security language Use of best practice standards Contract Review Strategic remediations Investigations Controlled/forecasted lossses IT Security Best Practices Formal metrics/cost efficiencies
  • 34. Level 3: Process Compliance Major emphasis in thefts, shipment losses and inventory damages Deterrence against fraud and conspiracy Optimise loss compensation Enforcement of security and inventory controls Quality control of operational processes Segregation of duties for accountability Security language in transport contracts
  • 35. Level 4: Synergy Measures Maturity Indicators at Level 4 - Optimised Trend Analysis Balanced protection with business needs Fraud Prevention Continuous improvement program Source Development Horizontal and vertical communication Reward Program Best practice modelling Benchmarking Cost optimization based on metrics Security Standards Executive sponsorship Integrated Security
  • 36. Level 4: Synergy Loss prevention is part of normal business Detailed security metrics and measurement Prevention and detection of losses and fraud Security focus to meet customer expectations and to maximise profits “3S” culture – Service, Safety and Security Security involvement at all levels
  • 37. Summary of Maturity Model Risk management approach…add value Business solutions for business issues Progressive security portfolio Flexibility in budget planning Grow a self-directed security environment Maturity indicators of progress
  • 38. Thank You Supply Chain Security: A Maturity Model for Loss Prevention