Supply Chain Cost Savings Often Devoured by Cargo Theft

Supply Chain Cost Savings Often Devoured by Cargo Theft

Anna Kurghinyan | Feb 19, 2010 | Comments 1

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Who is Clareo?

My name is David Serafine and I am the President and CEO of Clareo Inc. I have spent the last 12 years designing supply chain security solutions in over 30 countries to date. I began my career working for a private security company, eventually being promoted to a district management position and finally directed the global supply chain security program for a fortune 50 company, which led to the creation of Clareo Inc.

Clareo Inc is a premium security solutions provider that focuses on designing secure global supply chain programs. The company was created in response, to what I believe to be very limiting, ineffective regional offerings that do not meet the unique aspects of global companies. Based on my experience, it was critical to offer a global suite of services and experience that accounted for unique risk variables, geographies and circumstances for companies… no more cookie cutter approaches.

Q. What are some primary factors that impact global supply chain programs?

I believe there are a number of factors that have impacted global supply chain efficiency and cost.

Theft:

Depending on which resource you cite, there is anywhere from $50-$100 billion lost each year due to theft, every penny of which is then tied right back to the increasing cost of the commodity. Theft impacts supply chains by increasing future premiums, impacting supplier availability, concessions, to angry customers, overtime re-build, loss of future sales in markets, etc. An enormous impact that is rarely tracked properly in companies

Global MRAs (such as C-TPAT):

Companies fail to understand the requirements of the upkeep to these programs, the programs themselves lack teeth and quite honestly, they were meant to be a very minimal baseline for companies to build their supply chain security programs on, not to define the “end state of their programs.” They are also myopic; they are based on one country’s perception of an acceptable minimum standard. Companies have allowed these programs to define their end goal to global supply chain programs and are unsure why their losses and costs continue to rise.

The silo effect:

The pressure to cut costs immediately has created a brutal cycle of chewing up vendors and the resulting “savings” is merely a snapshot of the day. I have numerous examples of companies “saving” money through a change yet every bit was lost in a few months due to theft, fraudulent damage claims, etc. These figures are rarely communicated across departments and the cycle starts all over again to find a cheaper provider. Total loss of visibility to build and ship of product:

The order of the day is to find someone to build the product on your behalf cheaper, ship it and deal with returns, etc. ODM production, while maybe cheaper on the front end, is taking away all visibility to the build and ship of a branded product. This is impacting brand integrity, increasing the risk of loss and further burying the root cause accountability for the product loss.

Q. How do most companies try and manage their supply chain security programs?

Some utilize insurance alone:

This would be what I would refer to as the worst case scenario within a global supply chain program. This literally encourages specific targeting of that commodity by organized gangs. This is merely a way to pass back any occurrence back to the consumer.

Some utilize point-to-point escorts:

This is the least efficient use of money, and in many countries, is also ineffective. Some resources are not properly licensed, others have no counter-surveillance training, are trying to keep up with a truck over varying geographies and weather conditions for hundreds of miles, etc.

Some use the newest “widget” that is claimed to be the panacea for all supply chains:

Technology has some applications… when it actually works. There are numerous issues with technology, particularly in certain countries and in the manner in which they are being used. Volume, cost, the ability to retrieve the device, ability of device to be located/defeated, type of container, etc all have an impact on success of this approach. The number one issue that I have found is that technology is almost always used as a reactive approach. Once the unit is stolen, the call is made and now the teams try and locate the losses sometimes through thousands of dots on a screen. The device “sleeps,” etc.

Q. What are some justifications by companies for not investing in proactive risk mitigation?

Insurance:

The number one response by companies is that they are insured. However, if you ask the vast majority of people in any company what it means to be “insured” relative to a cargo loss, the typical answer is “we get 100% of the money back from the loss” due to theft. If you ask someone in risk management what it actually means, they will be able to tell you what shortcomings are contained within the agreement when the theft takes place. 100% coverage is never the case in any circumstance for the issues I mentioned previously, however, even more so, if we are referring to most international shipments where there are limits on liability for losses.

“It’s not my product”

This is an easy answer, and again, pushes the loss accountability back to other people and ultimately to insurance. Clareo helps facilitate agreements between carriers and companies to ensure both have a vested interest in front end secure design solutions.

“We are C-TPAT certified”

Again, this is not going to stop a theft from taking place. This is a minimum facility standard and those, in and of themselves, will not necessarily prevent a theft from taking place. This is a minimum start for a global company to build a much more comprehensive layered program.

“We do not lose anything”

To that I argue one should bottle that and sell it. All commodities, in their inbound raw materials suppliers or outbound finished goods, will have loss. The better answer is “we do not know how much we are losing”…

Key points to consider in design

1.) One size does not fit all… do not let the latest widget dictate your global program.

2.) Multi-layer approach is critical, as is the point of origin risk and the point of destination risk.

3.) The program must have the ability to assess compliance, measure the results and evolve.

4.) Supply chain security needs to be a value in an organization and not a priority… priorities change daily. Values are inherent and stay constant. The commitment to these programs must be part of the commitments of companies to their customers to keep costs low long term and to keep the integrity of the product to the level they sell it. Value and not a priority.

Supply Chain Cost Savings Often Devoured by Cargo Theft

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