The Shipping News: Security Pays Off

Supply chain security

Investing in security at ports, borders and other junctions of the global supply chain has been a tough sell for security executives—even for manufacturers and shippers who face post-9/11 government mandates. Part of the problem is that it's easy to track security costs but tough to pinpoint returns. Now Stanford University researchers have a message for CSOs seeking to manage risks like lost, stolen or delayed shipments: Don't focus on costs. Invest in business processes, because improved customer service and supply chain visibility will benefit security too.

A new Stanford report, "Innovators in Supply Chain Security," sponsored by the National Association of Manufacturers and IBM, studied the security-related investments of 11 manufacturers and three logistics service companies. It found that 38 percent of the companies recorded fewer product losses, 37 percent saw less product tampering, and 30 percent noted improvements in identifying, responding to and resolving supply chain problems. Along with these reduced risks came process improvements such as fewer cargo delays (49 percent), fewer cargo inspections (48 percent) and faster shipments (29 percent).

"If you focus only on the direct benefits of security investments, then it's really hard to justify them," says Barchi Peleg-Gillai, director of research at Stanford's Global Supply Chain Management Forum. "You're taking initiatives to try to prevent some unforeseeable event that might take place, to minimize the risk. It's hard to quantify what might be the impact on the company if such an event takes place."

Companies in the study that made investments to improve day-to-day operations including security found quantifiable benefits to both business efficiency and risk management. The study is available at www.nam.org.

Executives for both IBM and Con-Way, one of the logistics companies, say the biggest payoff for their supply chains was improving the predictability of the movement of goods. Their experiences could help other companies to justify the investments needed to comply with security rules like C-TPAT, while also giving some additional insight to policy-makers considering changes to existing rules, says Randal Mullett, vice president of government relations at Con-Way.

The study "will help government entities know who is bearing the cost, and who is benefiting" from supply chain security, Mullett says.

Copyright © 2006 IDG Communications, Inc.

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