Strengthening the Weakest Link: Security

When you absolutely need an overnight shipment from overseas, it can be difficult to know when you'll actually get the ordered goods.

Recently, I needed some key components from an overseas OEM. I had products that were waiting for parts, and asked the overseas OEM to ship Federal Express P1 in order to meet our customer's requirement deadline. The OEM was willing to drop everything to package and ship the inventory, but there was no guarantee that Customs and paperwork wouldn't jam the gears and stop the package's forward progress.

On another order, I had to make an ocean shipment that needed to be on a particular transport ship leaving port on a particular day. The export operations were held up over paperwork errors that were out of my control.

As the supply chain has taken on global proportions, major changes have been incorporated to process both the volume and content of goods being transported every day. Information technology, along with instant, world-wide access to the Internet, has introduced many innovative concepts and practices that help make shipments faster and more traceable. However, because of the events of Sept. 11, 2001, anti-terrorism strategies have become essential. These strategies have led to a major shift in thinking about international trade.

As trade has become global, the security threats have also become global, and now require policies and procedures to keep the flow of goods secure. Security involves inspection, document verification, and originator authentication.

Because of these heightened safety and security concerns, businesses and governments need to work in a more integrated fashion; processing new data and auditing requirements, focusing more intensely on supply chains, and government-to-government collaboration.

Information technology, as well as the use of standards, have become key enablers for the international trade environment.

In addition to single-trader inspections, there are multiple actors and vectors in every supply chain. Goods travel through global supply chains and, at different moments in time, different parts of the supply chains have access to the goods and the information about the goods. One weak link is sufficient to disrupt the security of the whole chain.

A shift of control from a single trader to a whole supply chain is necessary. The trader is now seen as part of a global supply chain, and a green-lane situation can be achieved only if the whole supply chain is secure. As a result, supply chain management has become much more important.

I mentioned earlier the tremendous amount of goods moving through the supply chain. This puts huge demands on inspection authorities. For example, it's estimated that the planned increase from scanning 3 percent of US-bound containers at ports of origin to scanning 100 percent, as required by the government, would need a $150 billion investment by ports that ship to the United States. Eventually, consumers would have to pay for these extra transaction costs. The higher risk leads to more control, but becoming 100 percent safe is theoretically, as well as practically, impossible.

In a previous article, I introduced ITAIDE's innovations to accelerate the supply chain. The concept of trusted traders and trusted supply chains (trusted in both fiscal and security concerns), has been successfully piloted, tested, and proven by four major business-sector companies, including IBM Corp. (NYSE: IBM), along with their information technology partners. Customs have preapproved the participating companies' entire supply chains and issued certifications of trust that expedite their shipments through the customs operations. (See: ITAIDE: Towards Safer, More Secure Supply Chains.)

Imagine the supply chain highway as Fast-Trak lanes, where the driver doesn't have to stop and pay a toll for every bridge crossing. The holder of the pass pays once per month, and arrives at their destination sooner as a result of not having to wait in line to pay the bridge toll. The driver's name and contact information is on file in a central database, and the time from point to point is accelerated because the bridge authority trusts that the driver is going to pay his monthly bill.

I know that businesses in the US resist more government regulation, but this isn't regulation in the classic sense. This is a two-way street where the business can earn a trusted status via internal control approvals that lead to the trusted certificate.

This approach moves away from the traditional antagonistic relationship based on distrust. A relationship in which governments are perceived as a source of administrative burden, eager to interrupt supply chains with frequent inspections at the border, and companies are seen as potential suspects. This new approach, a so-called Public-Private Partnership (PPP), relies on trust relationships between businesses and governments, and builds on the overlap between the societal interests of governments, and the business interests of companies.

This new perspective relies on delegation of control from government agencies to businesses, and inspection differentiation between trusted and non-trusted companies. This approach facilitates legitimate trade by considerably reducing the number of physical inspections, which in turn enables governments to focus their scarce resources on control of the non-trusted traders.

If the supplier I had ordered those parts from (the situation I mentioned at the beginning of this article) had been pre-approved and trusted, I would have received the components on time. As it turned out, I waited seven days for the parts to clear customs. Our customer took the equipment on time, but we had to promise to send a field team to install the late parts when they came in.

As I recall, we sent a technician all the way across the country, paid for a hotel and three meals, and cab fare to and from the airports. Needless to say, we did not make any money on that order.