September 13, 2011
FROM THE MM&D JULY/AUGUST 2011 PRINT EDITION: Threats from terrorism and piracy are increasing and as they affect supply chains, organizations must work to counteract them. That’s the message from a recent report, “Transportation & Logistics 2030: Volume 4: Securing the Supply Chain”, by PricewaterhouseCoopers.
The report is based on an analysis of the importance of supply chain security for the transportation and logistics industry, and the methodology used involved both desk research and the results of a Delphi survey among 80 subject-matter experts from 25 countries.
Piracy’s direct costs in 2010 are estimated as high as US$12 billion, the report says. Indirect costs can include losses in revenues for canal fees, as well as loss of use and work hours if ships and their crew are held hostage. Terrorism also remains a concern, the report notes, since several locations crucial to the smooth flow of supply chains are vulnerable to attack.
Transportation and logistics companies must consider security concerns when choosing their routes, the report says. It’s important those companies look at how dependent they are on logistics hubs and assess how to reduce potential threats. Organizations will also need to be prepared to respond quickly if risks change.
Since the supply chain relies heavily on information and communication technology, the report says, cyber attacks intended to cause physical damage will be an increasing threat. Companies will have to be prepared to make greater investments to secure technologies from cyber attacks will be necessary.
Does all this emphasis on improving security measures mean profits will decline? Not necessarily, the report stresses. Well-planned investments provide a payback not only in terms of loss prevention, but also by enhancing supply chain performance.
As well, it’s important to look at future scenarios and manage security proactively. Reacting to crisis situations is not enough—companies must find the right combination of preventive and reactive measures to achieve optimal level of supply chain security. Organizations need to consider the possible, not just the probable, along with keeping an eye on so-called wildcard events. That means looking at possible financial impact, the vulnerability of their business model and their ability to react to low-probability, high-impact events.
And while they won’t need to go it completely alone, transportation and logistics companies shouldn’t expect government to pick up the slack, the report says. Governments won’t take a leading role in executing supply chain security, although they will continue to regulate security measures. Companies must work together with government institutions to develop new security standards that are both effective and efficient. For example, the report notes, security audits along the supply chain will become a requirement to maintain effective levels of security.
Technology can help increase security, but people are also needed to provide human intelligence and good governance, the report says. Supply chain security is challenging, but there are opportunities too. Companies which develop flexible, agile systems that can respond quickly and appropriately to crises—and avoid threats when possible—will have a competitive advantage.