ARC Report Examines Optimal Approaches To Secure & Lean Supply Chains

ARC report examines optimal approaches to secure and lean supply chains

Jeff Berman, Senior Editor -- 8/9/2007

DEDHAM, Mass.-In today's somewhat unsteady times, there is often a general feeling that one can never be too secure, but that is not necessarily the case when it comes to the importance companies place on securing their supply chains.
This sentiment, according to "Building Lean and Secure Supply Chains," a report recently published by ARC Advisory Group, is commonplace by companies that often take a finance-first approach to supply chain security initiatives.

The reasons for this approach vary, but a significant factor of this is largely centered on financials, with companies taking a "cost-centric perspective of supply chain security, thus keeping their investments to a minimum," coupled with the belief that the chances of a "highly disruptive" event are low, according to the report. But, as the report points out, improved supply chain security is actually the byproduct of creating a "more transparent, agile, and responsive supply chain, which requires companies to have a more detailed understanding of their trading partners and processes."

"As supply chains have become much more fragmented and global, companies are having a hard time putting together the right process controls and visibility in place," said Adrian Gonzalez, director of ARC Advisory Group's Logistics Executive Council and author of the report.

Gonzalez said this is not only true from a security standpoint to make sure nothing dangerous is slipped into a container, for example, but also from a business standpoint to make sure the correct raw materials are being used in products-to prevent a supply chain disruption, which recently happened with the recent toy recall by Fisher-Price- and for companies to also have good visibility and know who they are working with.

Gonzalez' main recommendation to companies is that they should strengthen and improve the visibility and process controls they have-and use-up and down the supply chain. By doing this, he said, their supply chains will be more secure.

He added that things like the recent toy recall are more likely to occur than an act of terrorism from a corporate perspective, and the investment that companies are going to start making to ensure they have good traceability and understanding of product flow up and down the supply chain will - as a byproduct-create a more secure and transparent supply chain.

From a security perspective, Gonzalez said that many of these processes are "system-based" and require buy-in from different areas.
"Ports need to do their part, and trucking companies, ocean carriers, and government needs to do their part, too, he said. "What has been the biggest problem is that everyone has been waiting for somebody else to take the lead until [security] becomes a mandate of for the government to make investments into a particular area."

Lead time reduction
Another thing taking on added importance in making supply chains more secure and transparent, said Gonzalez is lead time reduction and reducing lead time variability, which is beginning to take on added importance by shippers.

"With supply chains becoming more global, they are also becoming longer and need to carry extra safety stock," said Gonzalez. "And for companies to 'justify' security as part of these lead time reduction initiatives and reduce safety stocks, they need to understand what is causing that variability in lead time[s] to figure out why it sometimes takes and extra two or three days for freight to move through one port compared to another."

Having the ability to reduce the lead time variability, will, in turn, help companies reduce safety stocks, said Gonzalez. And he noted this will help them take the steps needed to get corporate buy-in and build a business case around as well.
"By default, having the better visibility and process controls in place-and a better understanding of what your supply chain looks like and the people and processes involved-ends up creating a more secure supply chain," said Gonzalez.

And regulatory things, including 24-hour manifests, CBP's 10+2 information requirements, among others, are currently as close to a mandate as one can get and provide shippers with the type of relevant information they need to share with their freight forwarders and carriers to comply with certain regulations, and is forcing them to make investments in that area he said.

Lean-specific and demand driven
The concept of "managing inventory and not minimizing it" brought up in the ARC report by Michael Knight, BP Refining Supply Chain Advisor Michael Knight hones in on demand-driven supply chains.

And part of this vision, said Gonzalez, can be attributed to the belief that taking demand-driven supply chain approaches can take inventory out of supply chains, so they can run effectively with as little inventory as possible.

"The reality for a lot of industries is not to completely eliminate excess inventory, because that is not realistic," said Gonzalez. "From a systems perspective, inventory is needed due to lead time or raw materials constraints. It is more about having the right inventory at the right place at the right time and being able to manage it and have the ability to manage in-transit inventory when needed."