Risk mitigation has taken on a new urgency for companies dealing with the events of the past year.

Most supply chain executives would agree that risk, whether real or perceived, is higher today than it’s been in years. And if the real risks-natural disasters, geopolitical, and cyber security, to name a few-weren’t sobering enough, the general unease brought about by high unemployment, economic uncertainty, and a host of other worries has pushed risk to the top of the list when it comes to supply chain concerns, according to numerous industry surveys.

The trick, of course, is pinning down ‘what’s real’ and addressing it. WT100 asked a number of executives for their take on the biggest risks facing global companies and how they’re being handled. Here’s what they had to say…


 

Manage what you can control

The disruption caused by Iceland’s volcanoes earlier this year, particularly for air cargo, was unique not only because of how profound the effect was, but mostly because it seemed so random. Yet, it’s the more mundane and simple disruptions that are often overlooked, believes Bas Dubbeldam, Vice President, Americas, for Agility.

“It’s important to organize the basic day-to-day functions, which will ultimately have a bigger impact on securing your supply chain against risk,” he says. By extension, that means forming stronger relationships with your supply chain partners, the result being increased reliability and continuity, says Dubbeldam.

One example is securing space for ocean freight. “We’re making a major push right now to assure customers that we can secure their freight (to get it on a vessel despite the current capacity crunch).”

Dubbeldam also mentions the risks associated with compliance. “Companies have to be very knowledgeable about various rules and regulations, which is why they should rely on their 3PL or freight forwarder,” he says, again emphasizing the value of relationships. “Leverage this expertise.”

For Famous Footwear, careful vetting of their carriers is one way an adherence to ‘basics’ and ‘managing what you can control’ pays off by reducing risk and cargo theft.

“We’ve always had a pretty good screening program for our carriers,” says Terri Reid, Director, Supply Chain & Transportation. “We ask lots of questions up front and check their safety ratings on the Federal Motor Carrier Safety Administration web site.” In addition, carriers are screened to make sure they perform employee background checks and that equipment has proper locking mechanisms. “We also conduct site visits to confirm what carriers are telling us,” explains Reid. “Some of the audits are announced, but some are surprise audits.”

The company also requires its carriers to have advanced communication and tracking equipment, says Reid. “We prefer Qualcomm systems and GPS tracking or some other kind of satellite tracking.” She also relies on a robust TMS system to provide in-transit visibility.

“Overall, we try and work with our carriers to make sure they’ve got best practices in place, and we even put some of this into our contracts and audit procedures.”

Despite the latest technology and stringent procedures, though, cargo theft is an ongoing problem for most companies, acknowledges Reid, and the sensitivity of the problem makes information-sharing difficult. Nonetheless, she’s seen a reduction in risk and loss over the past five years, which she credits to the measures and security systems that the company has put into place during that time.

At APL Logistics, safety ranks high as a risk that can be managed and controlled, says Marty Gordon, Director of Risk Management for the Americas. In fact, the company has put such an emphasis on safety that it has emerged as a competitive advantage, he notes.

In a way, selling the importance of safety has been easier in the past few years because employees want to avoid getting hurt on the job and potentially losing income. Simply put, “People want to go to work and come home the same way,” says Gordon. However, there’s a secondary benefit to improving safety at APL Logistics, he says, and that’s “economic and productivity.” Lower insurance premiums are one reward, “but a lot of RFPs from our customers now cover safety too. It’s a significant factor for them when considering a partner in their supply chain.”




 

Beware the cost of (non)compliance

Compliance is a common theme that arises during any discussion of global supply chain risks.

On that topic, “There tends to be three different types of companies,” observes Nathan Pieri, Senior Vice President of Marketing & Product Management for Management Dynamics. “The first are those that have their head in the sand. They don’t have a compliance department and are happy to ‘hand it off to someone else to figure out this compliance stuff.’ The second type covers those who are more tactically focused; the ones that want to devise a process or a tool for compliance. Lastly, there’s the strategic approach, where a company decides they want to manage risk and compliance and they view it as more than processes and solutions. These companies look at compliance on a global basis and they understand that it has ramifications throughout the enterprise.”

Pieri thinks there are more risks facing today’s supply chains, and it’s worse for companies that don’t have a solid infrastructure in place. “For instance, would you know if your supplier is in trouble? If you don’t have a way to see the early warning signs, like they’re late on deliveries or they’re short-shipping, you might not have the intelligence you need and you probably don’t have a contingency plan.”

Technology is obviously a crucial tool. “Technology helps you connect outside the four walls and helps you monitor the health of the supply chain.” It can also be scaled up or down fairly easily, he adds.

Cloud computing is also advancing the goals of visibility, connectedness, and compliance. “We’ve developed an export on-demand solution,” says Pieri. “It’s a cloud-based compliance solution targeted towards small- and medium-sized companies that really struggle with implementing a full compliance process. It’s right-sized in terms of what it does and how much it costs.”

Another solution that is attracting interest is end-use compliance, says Pieri. “This is really at the heart of knowing your customer. A lot of companies now are working with their sales teams and their front lines to really understand who’s buying their product (if it’s being exported to a foreign country), what the intended use is, and then screen them before they even get into the order management system.” This is especially important if a company’s product can be considered ‘dual use,’ in other words, can be used for biological warfare or weapons.

Indeed, compliance with various customs and other government agency rules and regulations is not only important from a national security standpoint, but from a fines, penalties, and forfeitures aspect as well.

According to Susan Kohn Ross, an international trade attorney with Mitchell Silberberg & Knupp LLP and a member of WT100’s editorial advisory board, “what would have amounted to a significant fine a few years ago is now turning into a criminal case.” Furthermore, companies are under increasing pressure to deal with more regulations, such as Sarbanes-Oxley, while pending financial reforms will “ratchet things up even more,” she says. Meanwhile, the trend towards 100 percent screening of cargo continues to gain ground, even though most in the trade community don’t believe that’s the best way to secure global supply chains.

“Congress can’t seem to let go of the ‘100 percent cargo screening’ idea,’” confirms Ross. And, she believes the trade community bears some responsibility for that, because “during a hearing or testimony, no one from the trade stands up and asks: ‘How is this going to be fast, and how is this going to be paid for?’”

While Ross feels U.S. Customs and Border Protection (CBP) genuinely does its best with the pers.onnel and resources it has, there are some areas that can be improved upon, starting with the Customs-Trade Partnership Against Terrorism (C-TPAT) program. According to Ross, CBP and/or its counterparts don’t always know what freight is being shipped by C-TPAT certified vendors. “They (U.S. importers) are supposed to get front-of-line benefits, so why don’t the inspectors have this information?”

Another question Ross poses concerns risk management for a shipment, or targeting, as it’s sometimes called. “Currently, they’re not able do this until a vessel is within 5 days of arrival at a U.S. port. Yet, they’ve been unable to explain to the trade community why this date can’t be pushed back.”

Ross points out other risks that companies don’t always consider. “Take identity theft, for example. Pick any major corporation and they will tell you that they’ve had their identity stolen,” which paves the way for counterfeiting and many other abuses by criminals. Cyber security is another threat, and there are many others facing companies these days, reminds Ross. She mentions a committee she’s involved with that recently discussed corporate security. “Specifically, the topic was hiring foreign nationals, and the question raised was, ‘How do you know the person you’re hiring isn’t spying for your competition?’”

Coincidentally, Ross’ comments were made during the same week that one of the most dramatic post-Cold War episodes of espionage played out between the U.S. and Russia, which ended with a ‘spy swap’ in Vienna, Austria last month.




 

The materialization of Supply Chain 2.0

From his point of view, Subhash Chowdary, CEO of Aankhen Inc., the lack of information in the supply chain constitutes the number one risk by far. “If you have twenty different versions of ‘the truth’ or outdated information, that’s a huge part of the risk equation,” he says. Notwithstanding the complexities inherent in global supply chains, Chowdary says it’s really not that hard to gather information, it’s just that companies have been going about it all wrong.

“It gets back to how we initially designed our systems and how we thought about things,” he begins. “For example, as it exists today, supply chain information relies predominantly on EDI. That’s because, historically, we didn’t trust anyone in the supply chain. We all had to send whatever information we had-the carriers, the shippers-everyone was sending something just to say, ‘I sent it.’ Was that accurate or useful? No. But, we figured any information was better than nothing at all. Meanwhile, we overlooked the fact that the one player in the supply chain that did have all the information was the shipper.”

Chowdary likens it to “looking backwards. For years, we’ve been looking at the wrong end of the supply chain (the end rather than the origin).”

He cites another example of how supply chain management has gotten off the path in recent years due to misguided initiatives. “RFID,” he says. “Wal-mart and the Department of Defense hyped RFID ten years ago, yet it’s irrelevant in the supply chain. So many smart people wasted a lot of time in using RFID in the supply chain (when it was really about what happens between the shelf and the back office). The problem is you cannot wire the world with RFID readers. Furthermore, we made the mistake of looking at the wrong end of the supply chain again. We tried to track the item in the box using RFID, but we didn’t even know where the container was!”

Fortunately, that’s starting to change, and quickly, with “new sources of data” that provide factual, accurate, real-time information, says Chowdary. The cost is coming down on these next-generation devices too, he says. “They used to cost hundreds of dollars, now they’re about fifteen dollars, and when the Chinese get into it, they’ll cost in the single digits. It will be like the cell phone, which has a GPS in it, a camera, all those technologies are becoming commoditized.”

The implications for the supply chain are incredible, adds Chowdary. “It takes on average about 45 days to ship a container from China to the U.S. During that time, the container typically moves only 20 to 21 days. The rest of the time the goods are just sitting. Think about how much time we can cut out of the supply chain. Then, think about the financial implications. That’s the power of what we’re talking about-real-time visibility at this level with factual information.”

Chowdary sums up the concept as “Supply Chain 2.0-a different approach to managing and building future supply chains without the burdens of existing processes and bad data.”

Naturally, the promise of Supply Chain 2.0 together with the access to timely, accurate data is key to mitigating risk. Chowdary equates the concept to the ongoing Gulf oil spill. “Instead of worrying about how to clean the whole ocean, the focus needs to be on stopping the leak,” he explains. Likewise, the focus needs to be on the source (origin) of data in the supply chain, not on various parties supplying various pieces of information along the way. In that way, when everyone is looking at the same source of data from the beginning, it facilitates “automated captured data,” explains Chowdary. “Now, when you have automated captured data, you get a 45-day advantage in lead-time information,” he says, referring to the example of the container that takes 45 days to travel from China to the U.S.

Chowdary also lists other examples of how these new sources of data and next-generation devices will mitigate risk in the supply chain. “If a container was dropped somewhere, would anyone report it? Probably not. The consumer who bought the stereo and went home and plugged it in, only to find out it didn’t work would be the one to find out. Or, if a container with agricultural products was left in the sun and the temperature rose to 110 degrees, would anyone report that? When rail tankers overturn in an urban area everyone starts to scramble, especially if some of the cars are carrying toxic chemicals. Often times, they scramble because they lack information,” he says, adding that we now have the technology to avoid these scenarios.




 

Asking 'what if?'

Dealing with risk is similar to the whack-a-mole game-hit one and another pops up somewhere else. On the other hand, while it’s true that new and novel risks will continue to challenge global supply chains, there’s an emerging sense that executives are better prepared and have better tools at their disposal to deal with what’s around the corner.

“More companies are paying attention to supply chain risk,” states Valerie Bonebrake, Senior Vice President, Global Supply Chain Services at Tompkins Associates. “They have risk assessment built into their individual business units. They’re doing a better job of identifying risk, rating the risk in terms of impact and probability, and then developing plans around those.”

The caveat, though, is “How deep are they going?” asks Bonebrake. “If you asked British Petroleum prior to the Gulf oil spill, they would have said that they had a plan in place in the event of a spill. But, obviously their plan and what they claimed it could do in an emergency was not adequate. So, you may have something on paper, but are you really testing it out?”

According to Bonebrake, “Companies need to work backwards from consumption to source. You need to map the supply chain and identify the points of risk.”

Playing the ‘what if’ game is a useful exercise, she says. “When it come to risk, companies need to consider ‘What’s the recovery time?’ ‘What are my alternatives?’ and ‘How likely is it that this (risk) will occur?’”

Staying on top of risk is tough, particularly with so many variables in flux-currency exchange rates, fuel prices, port strikes, natural disasters, cargo and IPR theft-and the list goes on. Nonetheless, if there’s something to be salvaged from the seemingly endless and unusual risks that befell supply chains this last year, it’s that executives are more attuned than ever to what can be described as the ‘new normal.’

In the meantime, it’s not too early to start thinking about the solar storm in 2012 that NASA has warned about.  Wt