Understanding Corporate Security
Financial Times (London, England) (Page 11)
July 14, 2004
In 2002, the strike by dockworkers on the west coast of the US revealed just how easy it is to bring industry
to a grinding halt. The action paralysed the movement of freight across the Pacific, leaving retailers and
manufacturers short of goods and essential parts, and Asian producers with products piling up at their
factories and warehouses.
It is not only the potential of dockworkers to lay down their tools that is causing concern. The global
transport system has come under intense scrutiny since the September 11 terrorist attacks, which raised the
grim prospect of a container being used to transport bombs, nuclear material or chemical weapons. As a
result, the US has increasingly been taking measures to secure the supply chain from such events. Manifests
for US-bound containers must now be submitted 24 hours before loading. Importers who sign up to the
Customs- Trade Partnership Against Terrorism, introduced by US customs to maintain security processes
throughout the supply chain, are being held to account - with the speedy processing of goods into the US as
an incentive. And, as part of the Container Security Initiative, teams of US inspectors are working in foreign
ports to help inspect high-risk shipments before they reach the US. A plethora of new technologies - from
RFID (radio frequency identification) technology to high-speed X-ray systems - have emerged as IT
companies try to persuade shippers, port authorities and government agencies that their gadgets will provide
"The trick is to be able to integrate all this in a coherent and logical way," says Ron Maehl, vice-president of
Boeing's network-enabled solutions group. "Because the way you would deal with containers going through
Rotterdam could be very different to the way you deal with containers going through Marseilles." Boeing is
running pilot schemes at the ports of Los Angeles/Long Beach and New York/New Jersey as part of Operation
Safe Commerce, a US federally-funded initiative that is enlisting the private sector to evaluate ways of
improving the security of container shipments. Using two test supply chains - high-value aircraft parts from
Scotland being shipped to New York and containers full of flowerpots going from the Philippines to Los
Angeles - the idea is to find ways of integrating information about containers and their movements with IT
networks and databases to give the whole supply chain visibility, making any terrorist activity easier to
detect. However, terrorist attacks on shipments are not the only threat to the global supply chain. Accidents
at factories, natural disasters and suppliers going out of business are all potential risks against which
companies must protect themselves. And the success of just-in-time manufacturing - whereby companies
produce exactly the right quantity of goods at the right time, thereby reducing the amount of stock held -
means that supply chains are increasingly vulnerable to the slightest disruptions.
"Companies are trying to get it just right, to get tighter and tighter with their key partners so everyone can
operate in a perfect environment with minimum investment and minimum waste," says Ed Starr, a partner in
the supply chain management practice at Accenture, the consultants. "And there are more tools and practices
that enable increases in sophistication, which is great. But it does give you less room for error and more
exposure to any hiccups." Such hiccups come in all shapes and sizes and affect companies in different ways.
At one extreme, certain events impact companies in all sectors, regardless of size. Port closures would hold
up all imports and exports, affecting thousands of businesses across a country. At the other extreme,
incidents such as a factory fire may only hit one company, but for the organisation involved the impact on
business operations could be drastic. Certain events may hit one sector particularly badly. In addition to
causing the death of more than 2,000 people, the 1999 earthquake in Taiwan revealed the dependence of
computer makers on the country's supply of microchips, memory and motherboards. Leading chipmakers lost
several days' production, mainly due to power shortages, creating a knock-on effect throughout the industry.
At MIT's centre for transportation and logistics, a research project called The Supply Chain Response to
Terrorism has identified the following types of disruption: Disruption in supply of raw materials and parts.
This particularly affects companies operating on a just-in-time basis, because minimal inventory means they
must respond extremely quickly to prevent customers being adversely impacted. Transport disruption.
Companies that rely on international shipments are more exposed to this risk. Theft and tampering.
Companies in the food and pharmaceutical sectors are particularly vulnerable here. Disruption in
communication and information flow. Companies relying on e-commerce will be affected if electronic
communications and transactions cannot function, particularly if they outsource their manufacturing and need
to co-ordinate a complex network of suppliers, contractors, carriers and customers.
Companies need to conduct a careful analysis of exactly which types of supply chain disruptions would be
most likely to affect their particular business, the likelihood of such an event and what the maximum damage
to the business would be. However, a careful balance needs to be struck between security and the efficiency
of business operations. "The real challenge is the tactics you might take to hedge against the broad
disruptions versus the more narrow ones," says Mr Starr. "And they are almost contradictory - so if there's an
industry-level shortage of certain products, you want to be tied deeply to one supplier who can supply the
additional amounts on the margins. But if there's an individual supplier who has a disaster and can't meet
schedules, you don't want to be locked up with them - so it's balancing the risk across objectives." Yossi
Sheffi, director of the MIT centre, argues that businesses that build flexibility into their products and
processes can make their operations more robust.
He cites Hewlett-Packard's strategy in Europe, where its printers are sold in a number of markets, requiring
instructions in different languages and a variety of power supply adaptors. The company redesigned both the
machines and its distribution network. It now manufactures standardised printers that are sent to a
centralised European distribution centre where the right language and power cords are fitted. Such "lean
flexibility", he argues, makes companies less exposed to disruptions in the supply chain. "Companies that are
used to long production lines, low cost, taking inventory out of the system and shipping full boat loads are
more vulnerable," he says. "Those that are more agile day- to-day are more resilient because, by the very
nature of their operations, they're used to changing on the fly and moving rapidly between different parts of
Copyright 2004 The Financial Times Limited
Financial Times (London, England)
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