Supply Chain Security

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Supply Chain Security Productivity

• Freight Security Issues
• Talking Freight Seminar Series
• 15 September 2004

Chelsea C. White III The Logistics Institute
2
Claim Outline

• Claim New U.S. security initiatives improve U.S.
  homeland security and have ancillary benefits,
  such as improved productivity and reduced
  pilferage (win-win).
• Outline
• CSI, pushing back the borders
• Off-shoring and supply chain productivity
• Importance of foreign trade to the U.S. economy
• Example

3
Claim Outline

• Claim New U.S. security initiatives improve U.S.
  homeland security and have ancillary benefits,
  such as improved productivity and reduced
  pilferage (win-win).
• Outline
• CSI, pushing back the borders
• Off-shoring and supply chain productivity
• Importance of foreign trade to the U.S. economy
• Example

4

• Goal
• Pre-screen ocean containers at foreign ports
• Stop contraband/weapon before departure
• Distribute screening processes
• The good
• Uses (potential) idle time at foreign ports to
  conduct screening
• Have forced shippers to improve asset visibility
• The not so good
• Information timing requirements
• Disruptive effects on port export or
  transshipment operations and supply chains?

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CSI 24 hour rule

• Carriers and/or NVOCCs must submit cargo
  declaration 24-hours prior to loading a vessel at
  a foreign port
• Much earlier than previous (hours prior to
  arrival)
• Freight description
• precise narrative or 6-digit commodity code
• No more freight-all-kinds, various retail
  products,
• Difficult for consolidators?
• Requires automated data transfer to CBP
• Confidentiality
• Rule allows targeting of containers at CSI ports

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Claim Outline

• Claim New U.S. security initiatives improve U.S.
  homeland security and have ancillary benefits,
  such as improved productivity and reduced
  pilferage (win-win).
• Outline
• CSI, pushing back the borders
• Off-shoring and supply chain productivity
• Importance of foreign trade to the U.S. economy
• Example

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Supply Chain Productivity

• A key reason for off-shoring is cost
• Costs under consideration
• Product
• Logistics
• Transportation
• Inventory
• Storage
• If total cost is lower off-shore, then consider
  going off-shore

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Effect of Lead Time on Profit

• Lead Time the time it takes to move a good from
  origin to destination
• Geographical separation of manufacturing and
  market results in
• Longer lead times (bad)
• Higher lead time variability (bad)
• Lower unit production costs, if component
  manufacturing occurs in an inexpensive labor
  market (good)
• Decreases in lead time mean and variability and
  in unit production costs help justify the
  separation
• Costumer service level (CSL) the probability a
  customer will find the desired product on the
  shelf
• Safety stock (SS) the amount of extra inventory
  kept on hand to insure the CSL is achieved.

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Lead Time Increase Results in Safety Stock (and
hence cost) Increase
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Variability in Lead Time Reduces Profits
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Reducing Unit Production Cost Increases Profit
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Claim Outline

• Claim New U.S. security initiatives improve U.S.
  homeland security and have ancillary benefits,
  such as improved productivity and reduced
  pilferage (win-win).
• Outline
• CSI, pushing back the borders
• Off-shoring and supply chain productivity
• Importance of foreign trade to the U.S. economy
• Example

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U.S. GDP Trade HistoryGDP growth has averaged
3.2 /year trade in goods, services is now 22
of GDP
Source Bureau of Economic Analysis
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21st Century/Information EraGlobal economy is
being built on information, telecommunications,
and low-cost, long-haul transport by water, rail,
and air north-south NAFTA trade is expanding
rapidly
Atlantic Coast
Canadian Border
Pacific Coast
Gulf Coast
Source Transearch and FHWA Freight Analysis
Framework Project
Mexican Border
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China in the Global Economy

• China is the worlds largest factory in the
  early 21st century, it produces
• More than 50 of the worlds cameras
• 30 of the air conditioners and TVs
• 25 of washing machines
• Almost 20 of refrigerators
• More than 33 of DVD-ROM drives and personal
  desktop and notebook computers
• About 25 of its own mobile phones, color
  televisions, personal digital assistants, and car
  stereos

Note Information on this page is based on
December 2003 issue of Foreign Affairs.
Reference C. Kwan, Deloitte
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China in the Global Economy

• Chinas consumption rate grew annually at about
  8.8 to 10.1 from 2000-2003
• Color televisions sets in almost every urban home
• Refrigerators and washing machines in more than
  four out of five homes
• Videodisc players and air conditioners in 50 of
  homes
• Microwave ovens in almost 1/3 and computers in 1
  out 5
• Biggest market for cell phone with 200 million in
  use and average monthly sale of about 2 million

Note Information on this page is based on
December 2003 issue of Foreign Affairs.
Reference C. Kwan, Deloitte
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Expanding U.S. China Trade Relations
U.S.-China Trade (US billions)

• Sino-U.S. bilateral trade expanded 23.2 in
  2003.
• U.S. exports to China rose 28.5 in 2003.
• U.S. imports from China rose 22.3 in 2003
• China is the second largest trading partner of
  the U.S.

Source U.S. International Trade Commission.
Ref C. Kwan, Deloitte
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Claim Outline

• Claim New U.S. security initiatives improve U.S.
  homeland security and have ancillary benefits,
  such as improved productivity and reduced
  pilferage (win-win).
• Outline
• CSI, pushing back the borders
• Off-shoring and supply chain productivity
• Importance of foreign trade to the U.S. economy
• Example

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Possible Supply Chain Productivity Impacts

• Statement CSI has forced us into improving
  visibility havent seen any negative.
• However, there may be situations where
  inefficiencies may occur. We illustrate with an
  example.

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Possible Supply Chain Productivity Impacts

• Consider the following two-scenario example. For
  both scenarios
• Goods move from origin port (e.g., Singapore) to
  destination port (e.g., LA)
• Single product is shipped in units of container
  loads
• Vessels leave the origin for the destination
  periodically
• Total travel time is a fixed, known number of
  days
• Objective keep customer service level constant
  using safety stock

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Scenario 1 Inspect at origin port

• Port of origin is CSI compliant
• Each container may be inspected at origin port
  before it is loaded on a vessel bound for the
  destination port
• If a container is selected for screening, the
  inspection time is variable
• All containers arriving at destination port
  receive green lane treatment and are not
  inspected
• 20 likelihood of role over for inspected
  containers
• Time between sailings is 7 days

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Scenario 1

•  

               
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Scenario 1
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Scenario 2 Inspect at destination port

• Port of origin does not conduct security
  screenings
• Each container may be inspected at destination
  port upon arrival
• If a container is selected for screening, the
  inspection requires a stochastic service time
• All containers arriving at destination port
  receive green lane treatment and are not
  inspected

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Scenario 2

•  

                       
               
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Scenario 2
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Summary

• Example illustrated when pushing back the
  borders may adversely affect supply chain
  productivity
• More detail on the research can be found at
  www.isye.gatech.edu/setra/