Spo Shpg Times 6/7/06

Supply chain security benefits far outweigh costs: study
Big savings in many areas, including shipping times, inventory control

(SINGAPORE) Companies that spend on supply chain security can expect a comparative advantage far outweighing the costs of implementing the security processes, says a new study by Stanford University.

The study by the California university and the Manufacturing Institute - a grouping of the 35 largest manufacturing companies in the US - and in conjunction with IBM, quantified for the first time the benefits of investing in supply chain security.

Eleven major manufacturers and three logistics service providers all considered innovators in their markets and who import into the US were interviewed and assessed for the study, said IBM's vice-president for import compliance and supply chain security, Theo W Fletcher. 'The results clearly showed that the companies realised significant benefits as a result of investing in supply chain security,' said Mr Fletcher, speaking to BT ahead of the two-day Apec Symposium on Total Supply Chain Security, which begins today.

The companies collectively reduced their Customs inspections by 48 per cent, increased the automated handling of their imports by 43 per cent and saw a 29 per cent reduction in transit times.

Their asset visibility in the supply chain improved by 50 per cent and there was a 30 per cent improvement in on-time shipping to their customers.

'These are very significant findings because it's the first time the industry has been able to quantify the benefits.'

The companies also reduced time taken to identify problems by 21 per cent and the time taken for problem solving dropped by 31 per cent.

In terms of inventory management they saw a reduction in theft by 38 per cent, excess inventory was reduced by 14 per cent and they reduced customer attrition by 26 per cent. 'These are very significant findings because it's the first time that the industry has actually been able to quantify the benefits that have been derived from investing in supply chain security,' said Mr Fletcher.

'The benefits are substantial and far outweigh the costs of investing in these supply chain security initiatives,' he said, citing the example of IBM, which each day processes 25,000 Customs declarations for US$68 million worth of goods.

'What I'm looking to do is to make sure my supply chain is secure and to drive efficiencies across my supply chain,' he said, adding that IBM procures over US$40 billion worth of goods annually.

Mr Fletcher estimates that up to 98 per cent of IBM's manufacturing production supply chain is covered by security processes. 'If we, collectively, as all industry and government, work together to identify what is needed to ensure that our supply chains are secure, we will see benefits.'

But he cautioned that any supply chain security framework must be voluntary, it must have clear trade benefits and it must be globally universal.

The World Customs Organisation (WCO) and its industry consulting group of 30 companies, of which IBM is one, is putting the final touches on the Framework of Standards to Secure and Facilitate Global Trade, unanimously agreed upon by the WCO's 169 member countries.

'The next key step will be for those countries who want to be early adopters and be aggressive in the implementation to start the process of implementing it and work with the industry on pilots to test each step,' Mr Fletcher said.