RSM Resources

Think of supply chain security and you might associate it with thebiggest multinational corporations — global giants with their JamesBond-esque tracking devices, high-tech ID badges and steely-eyedguards. The reality is that all types of organizations, includingmidsized companies, can benefit from implementing supply chain securitymeasures. Even moderate enhancements in how you send, receive and trackgoods can improve efficiency, inventory management, and cycle andshipping time.

In a groundbreaking report by Stanford Universityand The Manufacturing Institute, researchers measured the advantagesthat come from strengthening supply chain security.

"This newstudy quantifies for the first time the significant business value ofsupply chain security investments, confirming a broad range of benefitsthat can have a positive impact on a company’s bottom line," says JerryJasinowski, president of The Manufacturing Institute, the research andeducation arm of the National Association of Manufacturers. Therefore,the findings will help companies justify security-related investments,he says.

The manufacturers and logistics providersparticipating in this study are recognized innovators in supply chainsecurity. They all reported receiving the expected security benefitsfrom their investments — such as reduced vulnerability to global actsof terrorism, natural disasters and energy shortages — but they alsocould quantify extra benefits, including:

• Transit times reduced 29 percent.
• On-time shipping to customers improved 30 percent.
• Time taken to identify problems dropped 21 percent.
• Inventory theft dropped 38 percent.
• Automated handling of imports went up 43 percent.
• Excess inventory was cut 14 percent.

"Theresults clearly demonstrate that, in addition to lower risk and highersecurity, investments in supply chain security can provide significantbusiness value to organizations by helping them to improve internaloperations, strengthen relationships with their customers and increasetheir profitability overall," says Theo Fletcher, vice president forimport compliance and supply chain security at IBM. "If it’s donecorrectly, supply chain security can be a competitive advantage."

Finding the gaps

TheInstitute for Supply Management, which counts more than 40,000 supplychain managers around the world in its membership, recommends thatmidsized companies wanting to strengthen security begin by evaluatingvulnerabilities in their systems, including potential internal andexternal security gaps. For example:

• How does your organization secure its physical perimeter, including office, warehouse and manufacturing facilities?
• How do you monitor entrances, production areas and storage spaces?
• What is the process for screening and hiring employees — for example, how does your organization perform background checks?
• What process validates suppliers and transportation providers?
• What are the procedures for identifying visitors and delivery and maintenance workers?
• Do you maintain a dedicated security department, staffed by personnel with expertise in business and physical security?

It’s also essential to evaluate your shipping practices:

• Track where packages and containers originate.
• Establish whether shipments are direct or schedule stops along the way.
• Determine who has access to packages and containers.
• Identify what kinds of security checks you conduct for drivers and other employees.
• Inventory the security checks and security verifications carriers and other vendors use.

Building a secure environment

Onceyou identify your vulnerabilities, take immediate steps to close thosegaps. Angeline Edsinger, director of corporate purchasing and sourcingfor Longs Drug Stores, advises companies to address the high-risk areasfirst.

"For a retailer, it could simply be the return policy,"she says. "For example, there have been situations when a shoplifterattempts to return stolen goods to a store without a receipt or with aself-manufactured receipt. The retailer has to track the customer’spropensity for such behavior and take appropriate action if thebehavior becomes habitual. Additional levels of security may includeadding more closed-circuit TVs, burglar monitoring, guard service, andsecurity tags that trigger alarms or rupture ink."

Edsingeradds that loss management goes beyond limiting theft by employees orcustomers: "Poor discipline in inventory management, poor return andexchange policies, poor accounting practices, or a lack of regularaudits all reduce the profit of a company."

Physical securitymeasures — the locks, fences and surveillance that protect a facility,its employees and assets, for example, or tamper seals for containersand inventory — are other key areas for supply chain security.Procedural approaches to security are also critical, including criminalbackground checks for new hires, badges for employees, andidentification checks for visitors and vendors that verify their nameand affiliation.

At the same time, improving security comes at a price that you have to weigh against the risk of loss.

"Manymidsized companies do a return on investment, or ROI, analysis of thesecurity problem before making the capital investment," Edsinger says."One example of balancing cost-benefit is the new trend toward radiofrequency identification, known as RFID, to track items. RFID can beused effectively to tag high-margin or high-risk items, but RFID tagsare too costly for placement on all products."

After conductinga comprehensive analysis of their own security needs, Longs Drug Storeshas instituted several measures to better protect their supply chain,including installing electronic article surveillance, making policychanges to actively combat losses, and radically transforming itslogistics infrastructure with increased self-distribution, rather thanrelying on third-party delivery.

"Together, we expect all of these efforts to improve security, profitability and shareholder value," Edsinger says.

Thereport from Stanford University and the Manufacturing Instituteemphasizes that, given the potentially huge financial ramifications ofsupply chain disruptions, more companies feel compelled to takestrategic, preventive steps to increase security. Adds Stanford’s Dr.Barchi Gillai, who co-authored the study, "Given their broad range ofdirect and collateral benefits, security investments should not beconsidered as a financial burden, but rather as an opportunity forimproving business performance and profitability."