Logistics - PROC 5850 Walden Logistics - PROC 5850

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  • Questions: Should we add “Money flow” ? Is the “Return Channel” a process?
  • 21 4 Building block approach Source connects to supplier Deliver connects to customer Not all companies have make We can model as far up or down the supply chain as we view important (not limited to two tiers) Customers and / or suppliers can be internal or external
  • Logistics - PROC 5850 Walden Logistics - PROC 5850

    1. 1. Logistics - PROC 5850 Joe Walden [email_address]
    2. 2. <ul><li>Personal Background </li></ul><ul><li>Educational Background </li></ul><ul><li>Books, Articles, Presentations </li></ul><ul><li>Contact: Joe Walden </li></ul><ul><li>[email_address] </li></ul><ul><li>(760) 447-3651 </li></ul>
    3. 3. Syllabus <ul><li>Class 1: Jan 7 – Chapters 1 & 2, Supply Chain Security </li></ul><ul><li>Class 2: Jan 14 – Chapter 3 & 4 </li></ul><ul><li>Class 3: Jan 21 – Chapters 5 & 6 </li></ul><ul><li>Class 4: Jan 28 – review and mid term </li></ul><ul><li>Class 5: Feb 4 – Chapters 7 & 8 </li></ul><ul><li>Class 6: Feb 11 - Chapters 9 & 10 </li></ul><ul><li>Class 7: Feb 18 – Chapters 11, 13 </li></ul><ul><li>Class 8: Feb 25 – Chapter 15 and Reverse Logistics </li></ul><ul><li>Class 9: Mar 4 - Course Critique, Review, Final Exam </li></ul>
    4. 4. Class Slides and Information <ul><li>www.supplychainresearch.com </li></ul><ul><li>Slides will be posted/updated week prior to class – therefore the slides currently on the website may change as new stuff comes available </li></ul>
    5. 5. Grading <ul><li>Mid term 35% </li></ul><ul><li>Final exam 35% </li></ul><ul><li>Case Study 15% </li></ul><ul><li>Paper 15% </li></ul>
    6. 6. CHAPTER 1 Logistics’ Role in the Economy and the Organization
    7. 7. What in the world isn't logistics?
    8. 8. Importance of Supply Chain Management and The Art of War <ul><li>“ War is a matter of vital importance to the state; the province of life or death; the road to survival or ruin. It is mandatory that it be thoroughly studied.” </li></ul><ul><li>Supply Chain Management is a matter of vital importance to the company – the road to survival or ruin for the company. It is mandatory that it be thoroughly studied. </li></ul>
    9. 9. Business Logistics/Supply Chain—A Vital Subject The supply chain is simply another way of saying “the whole process of business.”
    10. 10. Logistics Defined Supply Chain Management Defined
    11. 11. Logistics and Supply Chain Importance <ul><li>>$1 Trillion annually on supply chains in US </li></ul><ul><li>~$600 Billion on transportation alone in US </li></ul><ul><li>70% of all goods in US are transported at some point in supply chain by trucks </li></ul>
    12. 12. Significance of Logistics
    13. 13. Chapter One: Logistics Role in the Economy and Organization <ul><ul><ul><ul><li>To identify how logistics affects the economy and </li></ul></ul></ul></ul><ul><ul><ul><ul><li>the performance of organizations </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To briefly explore how logistics has developed over time </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To understand how logistics contributes to value </li></ul></ul></ul></ul><ul><ul><ul><ul><li>creation (value-added) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To understand the concept of the systems approach </li></ul></ul></ul></ul><ul><ul><ul><ul><li>as it relates to logistics and marketing, the total cost </li></ul></ul></ul></ul><ul><ul><ul><ul><li>concept and profitability </li></ul></ul></ul></ul><ul><ul><ul><ul><li>To show how to recognize areas in which logistics </li></ul></ul></ul></ul><ul><ul><ul><ul><li>performance can be improved </li></ul></ul></ul></ul>
    14. 14. Table 1-1: The Cost of the Business Logistics System In Relation to Gross Domestic Product (GDP) In $ Billion Source: R. Wilson and R. Delaney, Twelfth Annual State of Logistics Report, 2001 10.1 1,006 39 590 377 2000 10.4 773 30 441 302 1995 11.4 659 25 351 283 1990 12.4 521 20 274 227 1985 16.1 451 17 214 220 1980 13.5 222 9 116 97 1975 14.7 153 6 91 56 1970 14.7 106 4 64 38 1965 14.7 78 3 44 31 1960 Logistics As a Percentage of GDP Total U.S. Logistics Cost Administrative Costs Transportation Costs Inventory Carrying Costs Year
    15. 15. Physical Distribution Costs Add one-third for inbound supply costs Source : Herb Davis & Company Logistics cost are about 10% of sales w/o purchasing costs $67.71 7.65% Total 22.25 1.72 Inventory carrying 2.79 0.41 Administration 4.58 0.43 Order entry 18.06 2.02 Warehousing $26.52 3.34% Transportation $/cwt. Percent of sales Category
    16. 16. Logistics: the right product, in the right quantity, in the right condition, at the right time, at the right place. These are the components of the Logistics metric for perfect order fulfillment.
    17. 17. Components of Logistics Management Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Management actions Planning Implementation Control Raw materials In-process inventory Finished goods Natural resources Human resources Financial resources Information resources Time and place utility Efficient movement to customer Proprietary asset Competitive advantage Logistics management Suppliers Customers Inputs into logistics Outputs of logistics Customer service Demand forecasting Inventory management Logistics communications Material handling Order processing Parts and service support Plant & warehouse site selection Procurement Packaging Reverse logistics Traffic and transportation Warehousing and storage Logistics activities
    18. 18. Customer service Demand forecasting Inventory management Logistics communications Material handling Order processing Parts and service support Plant & warehouse site selection Procurement Packaging Reverse logistics Traffic and transportation Warehousing and storage Security Customs Clearance Logistics activities
    19. 19. Marketing/Logistics Management Concept Customer satisfaction Integrated effort Company profit <ul><li>Suppliers </li></ul><ul><li>Intermediate customers </li></ul><ul><li>Final customers </li></ul><ul><li>Maximize long-term </li></ul><ul><li>profitability </li></ul><ul><li>Lowest total costs </li></ul><ul><li>given an acceptable </li></ul><ul><li>level of customer </li></ul><ul><li>service </li></ul><ul><li>Product </li></ul><ul><li>Price </li></ul><ul><li>Promotion </li></ul><ul><li>Place (distribution) </li></ul>
    20. 20. Cost Trade-offs in Marketing and Logistics Product Order processing and information costs Inventory carrying costs Place/customer service levels Order processing and information costs Price Lot quantity costs Warehousing costs Transportation costs LOGISTICS MARKETING
    21. 21. Relationship of Logistics Activities to Logistics Costs <ul><li>Customer service levels </li></ul><ul><li>Transportation costs </li></ul><ul><li>Warehousing costs </li></ul><ul><li>Order processing/information systems costs </li></ul><ul><li>Lot quantity costs </li></ul><ul><li>Inventory carrying costs </li></ul>
    22. 22. Key Logistics Activities <ul><li>Customer service </li></ul><ul><li>Demand forecasting </li></ul><ul><li>Inventory management </li></ul><ul><li>Logistics communications </li></ul><ul><li>Material handling </li></ul><ul><li>Order processing </li></ul><ul><li>Packaging </li></ul><ul><li>Parts and service support </li></ul><ul><li>Plant and warehouse site selection </li></ul><ul><li>Procurement </li></ul><ul><li>Reverse logistics </li></ul><ul><li>Traffic and transportation </li></ul><ul><li>Warehousing and storage </li></ul>
    23. 23. Strategic Profit Model $ Financial leverage Return on net worth Return on assets Net profit Net worth Total assets Net worth Net profit Total assets Net sales Total assets Net profit Net sales Net profit margin Net profit Gross margin Sales Sales Cost of goods sold Variable expenses Fixed expenses Accounts receivable Other current assets Inventory Sales Total assets Asset turnover Current assets Fixed assets Income taxes Total expenses = = x x + + + + + + - - - x % % $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
    24. 24. Strategic Profit Model $ 100K 40K 60K 20K 20K 40K 18K 100K 15K 40K 100K 155K 500K 655K 100K .15 2.7 Net worth = 3,000K .22 .5% 18 2K Financial leverage Return on net worth Return on assets Net profit Net worth Total assets Net worth Net profit Total assets Net sales Total assets Net profit Net sales Net profit margin Net profit Gross margin Sales Sales Cost of goods sold Variable expenses Fixed expenses Accounts receivable Other current assets Inventory Sales Total assets Asset turnover Current assets Fixed assets Income taxes Total expenses = = x x + + + + + + - - - x % % $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
    25. 25. Flow through the Supply Chain Customer Customer Customer Customer Customer Customer Supplier Supplier Supplier Distribution center Distribution center Manufacturing site Carrier Carrier Carrier Carrier Carrier Carrier
    26. 26. Future Challenges and Areas for Performance Improvement <ul><li>Supply Chain Management </li></ul><ul><li>Strategic Planning </li></ul><ul><li>Total Quality Management </li></ul><ul><li>Just-in-Time </li></ul><ul><li>Quick Response </li></ul><ul><li>Efficient Consumer Response </li></ul><ul><li>Logistics as a Competitive Weapon </li></ul>
    27. 27. Future Challenges and Areas for Performance Improvement (cont.) <ul><li>Accounting for logistics costs </li></ul><ul><li>Logistics as a boundary-spanning activity </li></ul><ul><li>Global logistics </li></ul><ul><li>Increasing skill requirements </li></ul><ul><li>Logistics information systems </li></ul><ul><li>Strategic alliances, partnerships, and outsourcing </li></ul><ul><li>Green marketing and reverse logistics </li></ul>
    28. 28. CHAPTER 2 Supply Chain Management
    29. 29. <ul><li>To show how supply chain management can </li></ul><ul><li>play a key role in achieving corporate success </li></ul><ul><li>To familiarize with the concept of supply </li></ul><ul><li>chain management </li></ul><ul><li>To describe the factors that influence supply </li></ul><ul><li>chain network structure, supply chain business processes, </li></ul><ul><li>and supply chain management components </li></ul><ul><li>Supply Chain Security issues </li></ul>Goals of this chapter:
    30. 30. Supply Chain Management The integration of key business processes from end user through original suppliers, that provides products, services, and information that add value for customers and other stakeholders.
    31. 31. Evolution of Supply Chain Management CR (2004) Prentice Hall, Inc.
    32. 32. Supply Chain Business Processes Tier 1 Supplier Tier 2 Supplier SUPPLY CHAIN MANAGEMENT Integrating and Managing Processes Across the Supply Chain Logistics Purchasing Marketing & Sales R&D Customer Consumer/End-user PRODUCT FLOW Production Finance Manufacturer Information Flow Source: Douglas M. Lambert, Martha C. Cooper, Janus D. Pagh, “Supply Chain Management: Implementation Issues and Research Opportunities”, The International Journal of Logistics Management , Vol. 9, No. 2, 1998, p. 2. CUSTOMER RELATIONSHIP MANAGEMENT CUSTOMER SERVICE MANAGEMENT DEMAND MANAGEMENT ORDER FULFILLMENT MANUFACTURING FLOW MANAGEMENT PROCUREMENT PRODUCT DEVELOPMENT AND COMMERCIALIZATION RETURNS
    33. 33. Supply Chain Network Structure Members of the Focal Company’s Supply Chain n n n n n n n Consumers / End-Customers Tier 3 to n customers 1 2 1 1 2 n 1 2 Initial Suppliers Tier 3 to n suppliers 1 2 3 1 2 1 2 3 1 Focal Company Tier 1 Customers Tier 2 Customers Tier 3 to Consumers/ End-Customers Tier 2 Suppliers Tier 1 Suppliers Tier 3 to Initial suppliers n 1
    34. 34. Types of Business Process Links <ul><li>Managed Process Links – important from company perspective </li></ul><ul><li>Monitored Process Links – not as critical </li></ul><ul><li>Not-Managed Process Links – not actively involved – often overlooked and may cause problems </li></ul><ul><li>Nonmember Process Links – part of supply chain but not direct supply chain </li></ul>
    35. 35. Underlying Process Vision Source: 3M Supply Chain Management Vision The key to achieving an integrated flow of product and information throughout the supply chain is to create a focused customer interface, a focused supplier interface, and an integrated, process-oriented, supply chain which is driven by the customer. Customer Relationship Management Procurement Fulfillment Customer Service Management Manufacturing Flow Management Demand Management Customer
    36. 36. Customer Relationship Management <ul><li>Customer service teams develop and implement customer partnering programs. </li></ul><ul><li>Product/service agreements are established. </li></ul><ul><li>New customer interfaces lead to improved communication and better predictions of customer demand and improve the way customers are serviced . </li></ul><ul><li>Teams identify and eliminate sources of production variability . </li></ul><ul><li>Key performance evaluation criteria (both level of service and customer profitability) are used to measure results. </li></ul><ul><li>Similar to first step in Six Sigma process </li></ul>
    37. 37. Customer Service Management <ul><li>Provides a single source of customer information , a point of contact for administration of the product/service agreement. </li></ul><ul><li>Conveys real-time information through interface with product and distribution operations. </li></ul><ul><li>Requires an on-line/real-time product and pricing information to assist customers with inquiries, order placement, and after-sales service. </li></ul><ul><li>Includes front line technical service that assists customers with product applications and recommendations. </li></ul>
    38. 38. Customer Order Fulfillment <ul><li>“ Customer need dates” and requirements drive the process. </li></ul><ul><li>Manufacturing, distribution, and transportation plans are integrated. </li></ul><ul><li>Strategic alliances with key supply chain members and carriers are formed to meet requirements and to reduce total-delivered-cost to customers </li></ul><ul><li>Key metrics: Required Delivery Date; Time Definite Delivery; On time delivery rates; perfect order fulfillment </li></ul>
    39. 39. Perfect Order Fulfillment <ul><li>Right product </li></ul><ul><li>Right Place </li></ul><ul><li>Right Quantity </li></ul><ul><li>Right time </li></ul><ul><li>Right condition </li></ul><ul><li>Is 99% good enough? </li></ul>
    40. 40. Perfect Order Fulfillment <ul><li>Right Product % x Right Place % x Right Quantity % x Right Time % x Right Condition % </li></ul><ul><li>Example: 99% x 99% x 99% x 99% x 99% = 95% Perfect Order Fulfillment </li></ul><ul><li>95% = 77.37% Perfect Order Fulfillment </li></ul>
    41. 41. Manufacturing Flow Management <ul><li>Product is pulled through the plant based on customer needs. </li></ul><ul><li>Manufacturing processes must flexibly respond to market changes with rapid changeover capabilities for mass customization. </li></ul><ul><li>Minimum lot sizes are planned to move toward a make to order environment. </li></ul><ul><li>Production priorities are driven by required delivery dates . </li></ul><ul><li>Managers concentrate on keeping setup/changeover costs very low. </li></ul>
    42. 42. Procurement <ul><li>Strategic plans of suppliers and company are aligned to focus resources on holding down costs and developing new products. </li></ul><ul><li>Supplier categorization and management is implemented on a corporate global basis, with purchasing in a strategic contracting role . </li></ul><ul><li>Purchase order transactions are integrated with the supply process to improve productivity and all areas of supplier performance. </li></ul>
    43. 43. Product Development <ul><li>Design what the customer wants/needs </li></ul><ul><li>Create a need for the product – 3M/iPod </li></ul>
    44. 44. Reengineering SCM Process Flow Chart Source: Douglas M. Lambert, Larry C. Guinipero, and Gary J. Ridenhower, “Supply Chain Management: A Key to Achieving Business Excellence in the 21st Century,” unpublished manuscript. All Rights reserved. <ul><li>Assess: </li></ul><ul><li>Culture </li></ul><ul><li>Strategies </li></ul><ul><li>Practices </li></ul><ul><li>Processes </li></ul>Mission statement Business requirements Implement business solution in supply chain New enterprise design for integrated process Revise/reengineer Strategic partnerships Organization structure Human resource capabilities Information systems Acceptable Not acceptable
    45. 45. IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT Information Architecture, Data Base Strategy, Information Visibility Technical Logistics Purchasing Finance & Accounting Sales & Marketing Business Processes Typical Functions Silos Manufac- turing C U S T O M E R S Demand Management Network Planning Capability Planning Sourcing Demand Planning Customer Relationship Management Requirements Definition Manufacturing Strategy Sourcing Strategy Customer Profitability Account Management Requirements Definition Customer Service Management Performance Specifications Coordinated Execution Account Administration Technical Service Manufacturing Flow Management Production Planning Integrated Supply Manufacturing Process Stability Fulfillment Distribution Management Plant Direct Selected Supplier(s) Distribution Cost Special Orders Product Development and Commercialization Process Specifications Material Specifications R & D Cost Product Design Business Plan Movement Requirements Priority Assessment Cost To Serve Tradeoff Analysis Process Requirements Environmental Requirements Packaging Specifications Prioritization Criteria S U P P L I E R S Procurement Integrated Planning Supplier Management Materials Cost Material Specifications Order Booking Inbound Flow Cost Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminate the functional barriers that artificially separate the process flows.
    46. 46. Overview Presentation Supply Chain Operations Reference-model (SCOR)
    47. 47. <ul><li>The SCC is an independent, not-for-profit, global corporation with membership open to all companies and organizations interested in applying and advancing state-of-the-art supply chain management systems and practices. </li></ul><ul><ul><li>Over 800 Company Members </li></ul></ul><ul><ul><li>Cross-industry representation </li></ul></ul><ul><ul><li>Chapters in Australia/New Zealand, Brazil, Europe, Japan, North America, Southern Africa, and South East Asia with petitions for additional chapters pending. </li></ul></ul><ul><li>The Supply-Chain Council (SCC) has developed and endorsed the Supply Chain Operations Reference-model (SCOR) as the cross-industry standard for supply chain management </li></ul>
    48. 48. SCC Organization - Chapters and Staffing Australia/New Zealand Chapter Sydney, Australia South East Asia Chapter Singapore Venture Inc. Japan Chapter Tokyo, Japan NEC SCC Global Headquarters Pittsburgh, Pennsylvania, USA Disney Europe Oslo, Norway Modus Media Southern Africa Johannesburg, South Africa UTi North America Chapter Brazil Chapter Effective 9/1/03
    49. 49. SCOR is structured around five distinct management processes Supplier Customer Customer’s Customer Suppliers’ Supplier Make Deliver Make Deliver Make Source Deliver Source Internal or External Internal or External Your Company Source SCOR Model Building Block Approach Processes Metrics Best Practice Technology Plan Source Deliver Return Return Return Return Return Return Return Return
    50. 50. Mapping material flow (D1) (D1) (S1) (SR1,SR3) (S1, D1) (SR1,DR1,DR3) (D2) (DR1) (S1, D1) (SR1, DR3) (S1, D1) (SR1,DR1,DR3) (S1, D1) (SR1,DR1,DR3) (S1) (SR1,SR3) (S1) (SR1,SR3) (S1) (SR1,SR3) (S1, S2, M1, D1) (SR1,,DR1) Latin American Suppliers Warehouse Other Suppliers Manufacturing European Supplier Warehouse Warehouse Warehouse
    51. 51. Linking Supply Chain Performance Attributes and Level 1 Metrics Performance Attribute Performance Attribute Definition Level 1 Metric Supply Chain Delivery Reliability The performance of the supply chain in delivering: the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation, to the correct customer. Delivery Performance Fill Rates Perfect Order Fulfillment Supply Chain Responsiveness The velocity at which a at which a supply chain provides products to the customer. Order Fulfillment Lead Times Supply Chain Flexibility The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage. Supply Chain Response Time Production Flexibility Supply Chain Costs The costs associated with operating the supply chain. Cost of Goods Sold Total Supply Chain Management Costs Value-Added Productivity Warranty / Returns Processing Costs Supply Chain Asset Management Efficiency The effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed and working capital.   Cash-to-Cash Cycle Time Inventory Days of Supply Asset Turns
    52. 52. Just In Time - Logistics or Supply Chain?
    53. 53. Just -in-Time <ul><li>According to APICS Dictionary: </li></ul><ul><li>“ A philosophy of manufacturing based on </li></ul><ul><li>planned elimination of all waste and on </li></ul><ul><li>continuous improvement of productivity.” </li></ul>
    54. 54. Just in Time <ul><li>The process is important not the actual “zero inventory” concept </li></ul><ul><li>First Step - document the existing flow of products or services - see the actual flow and determine which are value added </li></ul><ul><li>Second Step - determine the reasons for variations in flow and why a new flow may be needed </li></ul><ul><li>Implement change </li></ul><ul><li>Mistake proof </li></ul><ul><li>Start again at step 1 </li></ul>
    55. 55. 7 Wastes <ul><li>Waste of overproduction </li></ul><ul><li>Waste of waiting </li></ul><ul><li>Waste of transportation </li></ul><ul><li>Waste of Stocks </li></ul><ul><li>Waste of motion </li></ul><ul><li>Waste of making defects </li></ul><ul><li>Waste of processing - when product should not be made or process not used </li></ul><ul><li>(added by Walden) Waste of Meetings </li></ul>Source : Just-in-Time: Making it Happen
    56. 56. Supply Chain Security
    57. 57. Supply Chain Security <ul><li>What’s the cost of 9/11 to the Supply Chain? </li></ul><ul><li>Fortune Magazine - $50-80 billion a year </li></ul><ul><li>inefficient supply chains </li></ul><ul><li>higher transportation costs </li></ul><ul><li>increased inventory </li></ul>
    58. 59. Supply-to-stock Supply-to-order Choosing the Right Supply Chain Strategy <ul><li>Excess capacity </li></ul><ul><li>Quick changeovers </li></ul><ul><li>Short lead times </li></ul><ul><li>Flexible processing </li></ul><ul><li>Premium transportation </li></ul><ul><li>Single order processing </li></ul>Responsive supply chain <ul><li>Economical production runs </li></ul><ul><li>Finished goods inventories </li></ul><ul><li>Economical buy quantities </li></ul><ul><li>Large shipment sizes </li></ul><ul><li>Batch order processing </li></ul>Efficient supply chain
    59. 60. Supply Chain Security And Homeland Defense
    60. 61. Recent Headlines <ul><li>“ New Budget includes $10.2 Billion for Border Security.” </li></ul><ul><li>“ Battling the Bad Guys: 2005 Was a Tough Year” Dec 2005 Baseline Magazine </li></ul><ul><li>“ Major Data Theft Leads to Major Legal Problems” Baseline Magazine </li></ul><ul><li>“ Polo Ralph Lauren – Lost Point of Sale Data” </li></ul><ul><li>“ No One Stop Shopping to Stop Database Pilferages” E-Week, Dec 21, 2005 </li></ul>
    61. 62. Recent Headlines <ul><li>GAO Report: “Container Security – Expansion of Key Customs Programs Will Require Greater Attention to Critical Success Factors” </li></ul><ul><li>“ Security and Risk Strategy Become Integrated” – Top Trends for 2006, CIO Magazine, January 2006 </li></ul><ul><li>“ Computer Security Becomes More Critical” CIO Magazine, January 2006 </li></ul><ul><li>“ Supply Chain and Security Remain in the Forefront” </li></ul><ul><li>“ ISO Publishes Supply Chain Security Guidelines” Plant Engineering Magazine, Sep 06 </li></ul><ul><li>New Budget Includes $10.2 Billion Increase for Border Protection </li></ul>
    62. 63. <ul><li>“ Supply Chain Security Poses Opportunities, Obstacles” E-Week, Sep 23, 2005 </li></ul><ul><li>“ Supply Chain Risks Threaten the World’s Biggest Companies” Logistics Today – “Financial executives at some of the world’s biggest companies believe supply chain risks post the top threat to companies revenues.” </li></ul>Recent Headlines
    63. 64. Examples <ul><li>Major Distributor, Dec 2006 </li></ul><ul><li>Locks on trucks </li></ul><ul><li>SAFE Port Initiative </li></ul><ul><li>Scanning of Containers </li></ul><ul><li>C-TPAT </li></ul><ul><li>ISO Standards for Supply Chain Security </li></ul>
    64. 67. Terrorism Risk Insurance U.S. Terrorism Risk Insurance Act (TRIA) – Our 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.
    65. 68. Supply Chain Security <ul><li>“ We have proved to our management that good security is good business.” — Ann Lister of Texas Instruments </li></ul>
    66. 69. Risk <ul><li>Supply Chains are inherently complex, dynamic, and fluid, characterized by uncertainty, ambiguity, and friction. These characteristics cloud the operating environment: they create risks </li></ul>
    67. 70. Important? <ul><li>September 11, 2001 - $2 billion per day lost </li></ul><ul><li>Longshoremen Strike, 2002 – 300-500 ships backed up </li></ul><ul><li>Potential loss of attack to major port - $20 billion estimate </li></ul>
    68. 71. Problem? <ul><li>Terrorism </li></ul><ul><li>Obsolescence </li></ul><ul><li>Pilferage </li></ul><ul><li>Information Breach </li></ul><ul><li>Proprietary Data – Camera Phones; Thumb Drives </li></ul><ul><li>Cyberspace Security </li></ul><ul><li>RFID Data Security </li></ul><ul><li>66% of Sealift Containers arrive at 20 Major Ports </li></ul><ul><li>>58 % of all inbound containers come through New York/New Jersey, Los Angeles, Long Beach </li></ul><ul><li>~44% through Los Angeles/Long Beach in 2003 </li></ul><ul><li>Lengthening of Supply Chains – coupled with Globalization </li></ul><ul><li>Top 5 “Hottest Global Markets”: China, Mexico, Eastern Europe, Southeast Asia, India </li></ul>
    69. 72. Purpose of Risk Assessment <ul><li>Identify those areas of the supply chain that are vulnerable to interruptions of support flow. </li></ul><ul><li>People </li></ul><ul><li>Processes </li></ul><ul><li>Technologies </li></ul><ul><li>External events </li></ul>
    70. 73. Risk Assessment <ul><li>Terrorism </li></ul><ul><li>Port Security – over 12 million containers annually to the US; 200 million world wide </li></ul><ul><li>Port Security – 300 US Ports </li></ul><ul><li>Longshoremen Strike – 2002 </li></ul><ul><li>Potential Airport Attack – LAX; MPS; LGA </li></ul>
    71. 74. How do you identify Supply Chain Risks? <ul><li>You have to know your processes </li></ul><ul><li>Process maps </li></ul><ul><li>Understanding processes </li></ul><ul><li>Understanding where risks are </li></ul><ul><li>Internal Risks </li></ul><ul><li>External Risks </li></ul>
    72. 75. What are Supply Chain Hazards? <ul><li>Theft/Pilferage </li></ul><ul><li>Competition </li></ul><ul><li>Information Systems </li></ul><ul><li>Cell Phones </li></ul><ul><li>Thumb Drives </li></ul><ul><li>Camera Phones </li></ul><ul><li>Disgruntled Employees </li></ul><ul><li>Lack of Training </li></ul>
    73. 76. What is a Catastrophic Risk? <ul><li>Inaccurate receipts? </li></ul><ul><li>Customer Satisfaction? </li></ul><ul><li>Sloppy Warehousing? </li></ul><ul><li>National Emergency? </li></ul><ul><li>Hurricane? </li></ul><ul><li>Or, Only when it makes it to CNN? </li></ul>
    74. 77. New Problem? <ul><li>“ There were no ‘secure’ rear areas.” General Joseph Heiser on Vietnam Logistics </li></ul><ul><li>Sun Tzu – Chapter 1, The Art of War </li></ul><ul><li>Native Americans </li></ul><ul><li>American Civil War – Great Train Chase </li></ul><ul><li>Pirates of the Caribbean </li></ul>
    75. 78. <ul><li>Supply Chain Security must protect the path from the supplier to the customer. </li></ul><ul><li>End to End Security </li></ul><ul><li>End to End Visibility – RFID </li></ul><ul><li>Information Security </li></ul><ul><li>Personal Daily Obligation </li></ul><ul><li>Operational Security </li></ul><ul><li>Security and Velocity </li></ul>Supply Chain Security
    76. 79. Supply Chain Security A Global Perspective
    77. 80. Top 5 European Ports <ul><li>Rotterdam – 9.287 million TEUs in 2005 </li></ul><ul><li>Hamburg – 9.088 million TEUs </li></ul><ul><li>Antwerp – 6.488 million TEUs </li></ul><ul><li>Bremen – 3.735 million TEUs </li></ul><ul><li>Giora Tauro – 3.161 million TEUs </li></ul><ul><li>LA/Long Beach – 7.485 mil TEUs </li></ul>Source: Logistics Today, Feb 07, p.1, 20
    78. 81. Other Key Ports <ul><li>Singapore – 23.2 million TEUs </li></ul><ul><li>Hong Kong – 22.602 million </li></ul><ul><li>Shanghai – 18.080 million </li></ul><ul><li>Shenzhen – 16.2 million </li></ul><ul><li>Pusan – 11.94 million </li></ul>
    79. 82. Rotterdam <ul><li>> 900 intermodal barge moves daily to 72 locations </li></ul><ul><li>> 200 rail moves </li></ul><ul><li>220 million people within 600 miles of Rotterdam </li></ul>
    80. 83. Rail <ul><li>> 15% of cargo to Germany via rail </li></ul><ul><li>~ 13% of Belgium cargo </li></ul><ul><li>~ 14 of French cargo </li></ul><ul><li>US Rail – 4 major bridges over the Mississippi River </li></ul>
    81. 84. Other issues <ul><li>9000 distribution centers in the Netherlands </li></ul><ul><li>2000 - $64.4 billion USD in logistics and distribution in The Netherlands </li></ul>
    82. 85. Containers <ul><li>Cost to X-Ray containers </li></ul><ul><li>Manpower </li></ul><ul><li>Delays </li></ul><ul><li>Radiation </li></ul>
    83. 86. Why should you care about SC Security? <ul><li>Is it a US problem? </li></ul><ul><li>Global Problem </li></ul><ul><li>Heathrow Airport delays Superbowl weekend 2005 </li></ul><ul><li>RFID – is this the solution? </li></ul><ul><li>ISO Guidelines for SC Security </li></ul><ul><li>Terrorism Insurance </li></ul>
    84. 87. Transportation Worker Identification Credentials <ul><li>Port Employees </li></ul><ul><li>Long Shoremen </li></ul><ul><li>Unescorted access personnel </li></ul>
    85. 88. HR 1 <ul><li>Air Cargo Bill – phase in inspection of all air cargo </li></ul><ul><li>Sea Cargo – safe seal – shippers of >75K TEUs to US have 3 years to comply </li></ul>
    86. 89. C-TPAT <ul><li>Security Freight Initiative </li></ul><ul><li>Inspection of high risk containers @ >50 ports </li></ul>
    87. 90. Other issues <ul><li>theTruecosts.com – costs of piracy and fakes </li></ul><ul><li>Rotterdam – 19% of all European Volume </li></ul><ul><li>Amsterdam – 440 million metric tonnes </li></ul><ul><li>www.HIDC.com – Holland International Distribution Council </li></ul>
    88. 91. Orlando International Airport <ul><li>No staffing of doors for employee entrance to baggage claim areas </li></ul><ul><li>Guns smuggled into planes by employees </li></ul><ul><li>“ no requirement for us to staff those doors” OIA Spokesperson; TSA – “not my job!” </li></ul><ul><li>Identified as security issues in 2004 </li></ul><ul><li>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 </li></ul>Source: Mike Thomas, Orlando Sentinel, Mar 15, 2007, p. B-1
    89. 92. Air Cargo World 2/07 <ul><li>Bans on Russian Flights to Georgia </li></ul><ul><li>Unfit Antonovs – on list published by the International Civil Aviation Organization – 462 aircraft considered not air worthy </li></ul><ul><li>Not a terror threat but still a SC Threat </li></ul><ul><li>Mostly used throughout Africa </li></ul>
    90. 93. International BioTerrorism <ul><li>Peter Pan Peanut Butter – e coli – 2007 </li></ul><ul><li>E-coli from fresh Spinach – 2006 </li></ul><ul><li>Chi Chi’s e-coli – from green onions – 2003 </li></ul><ul><li>Taco Bell – e coli 2005 </li></ul><ul><li>None were terrorist attacks but impacted supply chains </li></ul><ul><li>US Salmonella scare 2008 </li></ul>
    91. 94. Risk Assessment <ul><li>“ If you do things the way you’ve always done them, you’ll get the same things you’ve always got.” </li></ul><ul><li>-Darrell Waltrip </li></ul>This is not your Dad’s Supply Chain! Security is an integral part of the Supply Chain and Homeland Defense
    92. 95. Leadership and Security LEADERSHIP VISION/ DIRECTION PURPOSE/ MOTIVATION SC SECURITY RISK MGMT ASSESSMENT/ TRAINING
    93. 96. Summary <ul><li>Direct link between supply chain security and homeland security </li></ul><ul><li>Logistics costs are large part of manufacturing costs </li></ul><ul><li>Savings in supply chain costs to bottom line </li></ul><ul><li>Logistics </li></ul><ul><li>Supply Chains </li></ul>
    94. 97. Next Class <ul><li>Chap 3 & Chap 4 </li></ul>

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