Infusing Technology to Mitigate Risk in the Supply Chain

W H I T E P A P E R Infusing Technology to Mitigate Risk in the Supply Chain

Lean, efficient, and secure supply chains are the lifeblood of most retail organizations. Supply chain management key tasks are to source, procure, and move goods from development stages to store level as cost-effectively as possible, and in the most timely manner. Millions of dollars worth of cargo and hundreds of in-transit shipments are moving through the supply chain at any given time. This growing volume and increased reliance on global suppliers opens up the supply chain to increased risks that can not only cause monetary loss, but could damage a company brand. In addition, the movement of goods is being impacted by increased inspections by government agencies at border crossings, potentially leading to increased costs to the retailer and slower through-put-times. Understanding and managing risk in your supply chain is an imperative. Unfortunately, most companies still rely on manual processes to manage supply chain risk which are not only inefficient, but also exposes their companies to breaches. With a focus on automated risk solutions, retailers are in a stronger position to mitigate risk and more efficiently deliver goods throughout every point of the value chain. 1

The Task at Hand The supply chain is becoming increasingly complex. In addition to the complexity and tighter response time required due to consumer demand and customer-centric strategies, there are more governmentmandated compliances, especially around Pharmaceutical and Chain of custody requirements. Furthermore, reliance on supplier partners, raw material providers, third-party manufacturers, and transportation providers intensifies the need for visibility of goods and effective fulfillment throughout every stage of the demand chain. When you add global expansion and the related financial and economic volatility into the mix, retailers are facing more complex sourcing issues, many of which require certifications. Without insight into these and other business issues, retailers run the risk of missing delivery deadlines and jeopardizing the safety of merchandise during shipments, two factors that can increase operating costs, strain partner relationships or, worse, ruin a brand s reputation. However, manual processes only intensify the severity of these issues. Manual processes are inefficient to keep up with industry changes, supply chain risks, partner updates, and how to evaluate and respond to updates. Manual processes do not allow companies to quickly and efficiently evaluate an issue or assess the resources needed to mitigate risk, said Charles Babb, product manager with BSI Supply Chain Group. With data entering the supply chain from so many directions, manually driven companies find it difficult, if not impossible, to attain an accurate, error-free view of historical data and risk. Most companies also don t have any way to monitor and measure the many complex trends caused by macro-trends, including economic swings, political instability, changes in customs trade programs and anti-western terrorism treats just to name a few. The good news is that retailers are eager to address these issues. For example, 59% of retailers are making it a priority to improve their visibility into risk factors, efficiencies and performance, while 54% expect tighter supply chain processes to improve customer service, according to a study conducted by BSI. The third priority for companies is to improve their ability to predict, assess and manage (supply chain) risk, the study said. (The study, called Creating a Secure Supply Chain, was comprised of responses from 226 logistics and supply chain managers across a variety of companies, including manufacturers, wholesale and retailers (14%), as well as other supply chain businesses, such as third-party logistics (3PL) companies and transportation services.) The retail industry has been making significant strides and investing in supply chain operations for more than a decade, with key focus areas on responsiveness, security and accuracy. In fact, 69% of retailers report that accuracy tops their list of mission-critical supply chain performance metrics, according to The 10th Annual Retail Horizons, Benchmarks for 2011, Forecasts for 2012, a report from Washington, D.C.-based National Retail Federation and KPMG. 59% of retailers are making it a priority to improve their visibility into risk factors, efficiencies and performance, while 54% expect tighter supply chain processes to improve customer service, according to a study conducted by BSI. Creating an Automated Path While many retailers are making efforts to improve these areas, their current approaches are missing the mark. Too many are still approaching the task with Band-Aid remedies, such as assigning unequipped teams to manage the task. Arming them simply with a manual process will not create results. Retailers that leverage and integrate automated solutions within their supply chain risk solutions are in a stronger position to improve (and even slash) operating expenses, improve supply chain efficiencies and support increased continuity within supply chain operations. Automating supply chain risk processes is not without its challenges, but it is attainable. The key to a successful initiative is to have an established, clear list of prerequisites for desired solutions as well as potential technology partners. Among the areas to focus on are: A majority of companies are adopting stronger supply chain initiatives moving forward. In fact, 72% of companies reported their top supply priority was to reduce supply chain costs, while 65% are eager to control operating costs, according to the BSI report. Overall, retailers need a solution that delivers insight and visibility into the supply chain to improve effectiveness of supplier partnerships and collaboration. In fact, 29% of retailers are increasing their collaborative efforts among core suppliers as a means of competing in such a competitive marketplace, according to data from Aberdeen Group, Boston. All points illustrate how automated solutions have never been more important. A user-friendly solution; A solution that provides deeper visibility into potential risk factors; and Capabilities that will help the company keep a firm grasp on their operating costs. 2

Finding the Solution Data proves that automation of supply chain security programs can deliver the visibility retailers need to meet business goals. While 37% of retailers are already reaping the benefits of automated configurations, 18% of companies are currently evaluating how to make this transition, with another 24% considering making this commitment within the next 24 months, the BSI study said. 73% of retailers reported that supply chain security has become an extremely or very important priority within their company s business plans, according to BSI data. While many companies are improving supply chain processes in an effort to accomplish critical business goals, supply chain security is just as high a priority. In fact, 73% of retailers reported that supply chain security has become an extremely or very important priority within their company s business plans, according to BSI data. This attention is apparent, especially as the supply chain becomes more complex from both sourcing as well as fulfillment standpoints. As retailers expand their operations globally, they follow suit by establishing new partnerships with international supply chain partners, Babb explained. And because of the renewed emphasis on supply chain security, it s more important than ever to keep a close eye on risk factors. BSI is one company that is working with the industry to ensure that they can protect the supply chain from vulnerabilities as both international and domestic goods travel from country to country. By implementing the Supplier Compliance Manager (SCM) solution, retailers have access to a Web-based tool designed to facilitate and effectively manage supplier risk assessments. Risk algorithms and supplier assessments are infused with BSI s cargo disruption data and risk-based assessments. This process is compliant with government-mandated and voluntary programs, including: Customs-Trade Partnership Against Terrorism (C-TPAT): This voluntary supply chain security program, led by U.S. Customs and Border Protection (CBP), focuses on improving the security of private companies supply chains with respect to terrorism; Partners in Protection (PIP): This program, established by the Canada Border Services Agency (CBSA), enlists the cooperation of private industry to enhance border and trade chain security, combat organized crime and terrorism, and help detect and prevent contraband smuggling; and Authorized Economic Operator (AEO): These are authorized parties involved in the international movement of goods. AEOs are approved on behalf of a national Customs administration, as long as they comply with WCO or equivalent supply chain security standards. In addition to adhering to industry trading standards, global business partners also need to find ways to foster collaboration across supply chain best practices. When relying on manual processes, language barriers often get in the way, and there are no guarantees paperwork gets received in a timely manner, Babb said. Automated processes can eliminate these issues. BSI can help retailers achieve this higher level of accuracy and security among supply chain operations. The company s (SCM) tool incorporates an electronic questionnaire for suppliers. Rather than rely on spreadsheets, individual emails or paper-based forms and faxes, this automated solution allows suppliers to complete forms on a secure portal. For example if the supplier and merchandise is pre-approved and deemed C-TPAT compliant, cargo will be inspected less frequently when entering ports. Non-C-TPAT compliant containers are subject to inspection, which holds up merchandise at ports, a process that costs suppliers capital and time, Babb explained. Moreover, even C-TPAT containers are subject to inspection at a reduced rate depending on tier level. By adding intelligence and automating the process, companies are saving money and resources. When relying on manual processes, language barriers often get in the way, and there are no guarantees paperwork gets received in a timely manner, Babb said. Automated processes can eliminate these issues. 3

Managing Risk Exposure: SCREEN BSI s Supply Chain Risk Exposure Evaluation Network (SCREEN) solution supports the creation and management of global risk-based supply chain security programs. A Web-based intelligence tool, SCREEN presents unique, proprietary risk data and BSI-generated analysis related to global supply chain security risk exposure, then provides trade and compliance information to more than 200 countries. BSI s threat analysis and security countermeasure recommendations in areas such as in-transit security, supplier minimum-security criteria and cargo chain-of-custody controls help SCREEN users identify and understand supply chain security threats and aids in developing tailored approaches to improve business continuity and compliance. In addition to using real-time intelligence to provide potential routing threats due to terrorist activity, weather or federal mandates, it also feeds this data to our SCM tool, Babb explained. Both tools are software-as-a-service (SaaS) solutions that are licensed by retailers and managed in a secure data center. SCM automatically pulls from the retailer s prerequisite compliance questionnaire and sends this specific document via email to retailers business partners. As they respond, information is added to BSI s database and can be shared with customs organizations, which use this specified information to track merchandise in transit from these suppliers. Not only does customs know these suppliers are compliant and confirmed to be trustworthy, imported merchandise is accepted and confirmed quicker, he said. Our software allows retailers to mitigate risk before data is shared with government agencies, which can hold up suspicious shipments due to potential risk or threats. Tying it All Together By adding a variation of these intelligence tools, retailers are primed to save time and resources, as well as mitigate risk from the supply chain. Specifically, the tools can help retailers manufacturer partners avoid unnecessary inspections, as well as related fees. If an importer gets inspected three or four times, it can be a costly proposition, Babb said. The fewer times containers are stopped for inspection not only saves retailers capital, it also increases merchandise speed to market. This is good news for the 80% of companies that are concerned with the additional costs that accrue during supply chain breaches, according to BSI s data. Meanwhile, 70% struggle with the additional resources, including labor, hours and budgets that are allocated during supply-chain disruptions, and 55% feel breaches are jeopardizing time to market, product launches and product quality (43%) all factors that are contributing to lost business. These are only a few business challenges that make it imperative to operate a more secure supply chain and move this endeavor to the top of retailers priority lists. But without the proper tools in place, retailers become vulnerable to breaches that can cripple operations and stall supply chain processes all which impact the customer experience, brand loyalty and, ultimately, sales. By automating supply chain operations, retailers are positioned to combat any breakdowns within the network. By automating risk assessment in their supply chain, retailers are primed to: Operate a lean operation that works cost-effectively and efficiently to control costs; Manage tighter delivery schedules that are developed to promptly fulfill customer orders, safely ship product and protect intellectual property; Maintain brand integrity; and Run a socially responsible supply chain. Of course, efforts are ongoing and remain a journey. However, by adopting more automated solutions, retailers can define risk management policies, establish security initiatives and attain compliance with global standards. For more information on risk management in the supply chain, visit: supplychainsecurity.com BSI America Professional Services Inc. 4250 Drinkwater Boulevard Ste 210 Scottsdale, AZ 85251 Tel: 480 421 5099 Email: supplychainsolutions@bsigroup.com 4