Building the Secure Supply Chain

The threats may be new, but the tools and processes for ensuring your company's supply chain is secure are the same solutions you have been using to keep your goods moving efficiently through the chain.


The threats may be new, but the tools and processes for ensuring your company's supply chain is secure are the same solutions you have been using to keep your goods moving efficiently through the chain.

Supply chain security is nothing new for The Neiman Marcus Group, Inc. (NMG), according to Jimmy Howell, the company's vice president of transportation and logistics. "As an importer and retailer of high-end, luxury goods, NMG has always focused on the security of our merchandise as it moves through our supply chain," Howell explains. But now, facing a new set of threats not only to the company itself but to society at large, Neiman Marcus and other major U.S. importers are finding that the tools and processes they used in the past to keep their goods secure are also helping them deal with the realities of the post-9/11 supply chain.

A Monumental Challenge

To get an idea of the scope of the supply chain security challenge for a nation as tied to imports as the United States, consider a few statistics from the U.S. Bureau of Customs and Border Protection (CBP): more than 48 million full cargo containers move between major seaports around the world each year, and more than 6 million of those containers arrive in U.S. ports by ship, comprising nearly half of the total value of goods imported into the country. That doesn't count the more than 11 million trucks and 2 million rail cars that arrive in the country each year, which bring in approximately another 10 million containers. In all, more than $1 trillion worth of goods flow into the country annually.

Physically inspecting every single container entering the country would be a monumental task. As Michael Laden, president of Target Customs Brokers, a subsidiary of retailer Target Corp., noted in testimony before Congress in December 2001, "Given the technology and resources available today, it is impractical and impossible to search or examine 100 percent" of the cargo coming into the country. In fact, the International Mass Retail Association and the West Coat Waterfront Coalition, in a joint statement to Congress for a hearing on container security in March 2002, estimated that inspecting just 10 percent of the total number of containers entering U.S. ports on an annual basis not only would require hundreds of millions of dollars in additional funding but also would take 37 years.

On the other hand, the risks of not improving the physical security of importers' supply chains are clearly too high to ignore. The greatest menace is that a "dirty bomb," a chemical or biological threat or some other weapon of mass destruction could slip into the country inside a container. But even smaller disruptions could have a devastating effect on importers, too. Should an explosion inside a single container at one port prompt the federal government to shut down all U.S. ports temporarily, even a brief closure could cause significant economic hardships; witness last year's West Coast port closures, which, according to economists' estimates, cost the nation $2 billion a day. At the extreme end of the imaginable-risk spectrum, South Carolina Senator Fritz Hollings, in a statement issued in March, cited a Booz Allen Hamilton analysis concluding that "the economy would collapse within 20 days following an attack on a U.S. port."

Beyond the broader economic risks, importers clearly have a direct stake in ensuring that their own supply chains are secure. In a September 2002 report entitled "Trade Security: A Wildcard in Supply Chain Management," Adrian Gonzalez, a senior analyst with consultancy ARC Advisory Group, writes, "No company wants to see its name on the front page of the Wall Street Journal being linked to a shipping container blowing up at a busy port...." Gonzalez notes that such a company could face financial losses, including a sharp drop in share value, as well as criminal prosecution for non-compliance with trade regulations, in addition to the overall disruption of the enterprise's supply and demand chain.

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