Northeast Supply Chain Conference
The Dynamics of Supply Chain Security
Is this the Calm Before the Storm?
September 21, 2004
Michael Wolfe
North River Consulting Group
noriver@att.net
Sources & References for
Supply Chain Security, Productivity, & Technology*

Security and productivity
•
•
•
•
•
•

“Some Good News on Cargo Security” (2004)
“The Dynamics of Supply Chain Security” (for the G-8, 2004)
“Security must yield an economic benefit” (2003)
“Supply Chain Security Without Tears” (2003, with Hau Lee)
“Freight Transportation Security and Productivity” (2002)
“Defense Logistics…” trends and implications (2001)
Technology for security and productivity
•
•
•
•
•
•
•
•
Smart Container Product and Market Reports (forthcoming, w/ HSRC)
“APEC Secure Trade Project Preliminary Conceptual Plan,” (2004)
“Technology Views and Issues” (2004)
“Automating Security: Do E-Seals Make Sense?” (2003)
“Target Capabilities for the ‘Future Smart Container’” (2003)
“Technology to Enhance Freight Trans. Security & Productivity” (2002)
“Electronic Cargo Seals: Context, Technologies, & Marketplace” (2002)
“Trends in Freight Identification Technology” (1998)
*Articles and papers by Mike Wolfe
2
Outline
 Cargo theft today
 The ‘rules of the game’ are fragile
 Smart containers
 Forecasting the market
3
Cargo Theft
 US cargo theft:
$18 billion
 Global cargo theft:
$50 billion
 Those statistics are inadequate
• Law enforcement est.: ~60% is not reported
• DOT report: claims, admin make total $20-$60 b.
• Real cost of loss still not addressed
– Sales lost to stolen goods
– Disrupted customer service
– Impact on brand reputation
• Industry view: total cost = ~3-5x value of lost goods
4
A Better Estimate:
Total Cost of Cargo Theft
 FBI/NCSC estimate:
~$18 billion
 Corrected for underreporting:
~$30 billion
 3-5 X real cost adjustment: ~$90-$150 billion
The total cost of US cargo theft rounds to:
>$100,000,000,000
>1 % of the US GDP
5
Larger Significance of Theft and
Contraband Issues
 Terrorism is the main threat
• Potential direct losses from events
• Potential indirect losses from countermeasures
 Cargo theft and contraband
• Help educate terrorists
• Help fund terrorists
• Can divert security attention
 On the other hand….
• Reducing vulnerability to terrorism will cut into
theft and contraband
6
Outline
 Cargo theft today
 The ‘rules of the game’
are fragile
 Smart containers
 Forecasting the market
7
Threats, Countermeasures, and
Impacts
Threats and
Assessments
Security
Countermeasures
Terrorist Events
Impacts
Indirect, Secondary
Impacts
Costs, delays,
unpredictability
Direct, Primary
Impacts
Damage & disruption
Recovery
Measures
Emergency
response
Congestion & disruption
8
Potential for Self-Inflicted
Wounds
“How rational will ‘we’ remain after a
second or third major terrorist attack?”
9
Regulatory Dynamics
Threats and
Assessments
Security
Countermeasures
Terrorist Events
Inherently
Unstable
Impacts
“Next Event/
Overreaction?”
Indirect, Secondary
Impacts
Costs, delays,
unpredictability
Direct, Primary
Impacts
What are the
implications
Congestion
& disruption for
your business?
Damage & disruption
Recovery
Measures
10
Implications of Supply Chain
Security Dynamics
 Micro:
• You better ‘tune’ your supply chain to handle
shocks from changing security mandates
 Macro:
• Government should be acting to buffer the impact
 Techno:
• Smart container technologies lie ahead
Done right, new technology can enhance
national security at the same time we
enhance business performance
11
Outline
 Cargo theft today
 The ‘rules of the game’ are fragile
 Smart containers
 Forecasting the market
12
What is a Smart Container?
 Three main ingredients
• An ISO standard “sturdy box”
• Processing power
• Communications
There is no
standard
definition
 Goal is better visibility and control for:
• Conveyances and equipment
• Goods in transit
Smart containers require smarter networks
13
Potential Processing Power
 Security sensors -- some are:
• Intrusion detection
• Chemical and radiological
• Human presence
 Efficiency & quality sensors -- some are:
• Temperature
• Empty/partial/full load status
 Location determination
 Memory, both fixed and flexible
 Decision logic
14
Smart Container
Communications
 Long range/regional/global
• Satellite – global
• Satellite - regional
• Cellular – regional
 Short range/portal/choke point
• Radio Frequency Identification (RFID)
– Terminal gates
– Container cranes
– Dock doors
15
Some Attractions of
Smart Container Technologies
 Improve chain-of-custody seal validation
• Automation rather than human (non)inspection
 Reduce labor impacts
• Cost and workload
 Provide container tracking information
• Reduce time, cost, and service quality impact of misrouted containers
16
Supply Chains Can Make Money with
Better Visibility and Control
 Better operating efficiency
• Fleet, equipment, and labor utilization
• Less wasted effort
Mostly for
Carrier
 Better operational effectiveness
• More reliable customer service
• Inventory savings
• More flexible operations
 Shipment integrity
• Less theft of goods and services
Shipper
& Carrier
Shipper
& Carrier
17
Examples of Potential Benefits
 Smart and Secure Tradelanes, Phase I
• Economic assessment on one of 18 tradelanes
– ~$400 benefit to shipper per container load
 US TDA/APEC “BEST” projects
• Economic assessment of one tradelane
– 80% probability of >$200 benefit to shipper per container load
 Cautionary note
• These are small samples
 Hopeful note
• Carriers and terminal operators should benefit as well
18
Outline
 Cargo theft today
 The ‘rules of the game’
 Smart containers
 Forecasting the market
19
The Prospect for Smart
Containers
 With or without security pressures …
 With or without DHS research …
 Smart containers will be deployed for
commercial reasons, to make money
• The question is when, not whether
• Moore’s Law will bring them to the market
In 1985, satellite monitoring of trucks
seemed like a pipe dream.
In 1990, Schneider National deployed
Qualcomm’s OmniTRACS
20
Looking Ahead on Technology
 DHS Advanced Container Security Device
•
•
•
•
HSARPA aims for the “Future Smart Container”
“6 walls” intrusion detection
Integrated WMD and stowaway sensors
Highly reliable and inexpensive
 Potential commercial availability
• Starting 2008
21
Forecasting Smart Container Growth
SMART CONTAINER MARKET DYNAMICS:
FRAMEWORK FOR MAJOR DRIVERS
Regulatory Demands
Two Major
Drivers
Strong Evidence
of Smart
Container
Economic Value
Economic
Benefits
Little Evidence of
Smart Container
Economic Value
© North River Consulting Group
Low Regulatory
Pressure for
Smart Containers
High Regulatory
Pressure for
Smart Containers
SMART CONTAINER MARKET DYNAMICS
Regulatory Demands
Low Regulatory
Pressure for Smart
Containers
High Regulatory
Pressure for Smart
Containers
Strong Evidence of
Smart Container
Economic Value
III - Sweet
Typical New
Technology “Lazy S”
or “Hockey Stick”
Adoption Curve
IV - Steroidal
Accelerated
Enhancement and
Adoption
Little Evidence of
Smart Container
Economic Value
I - Slow
Slow, Specialized
and Limited Adoption
Economic
Benefits
© North River Consulting Group
II - Sour
Reluctant Adoption
Over High
Resistance and
Delaying Tactics
Regulatory Demand for Smart
Containers
SMART CONTAINER MARKET DYNAMICS
Regulatory Demands
Low Regulatory
Pressure for Smart
Containers
High Regulatory
Pressure for Smart
Containers
Strong Evidence of
Smart Container
Economic Value
III - Sweet
Typical New
Technology “Lazy S”
or “Hockey Stick”
Adoption Curve
IV - Steroidal
Accelerated
Enhancement and
Adoption
Little Evidence of
Smart Container
Economic Value
I - Slow
Slow, Specialized
and Limited Adoption
Economic
Benefits
II - Sour
Reluctant Adoption
Over High
Resistance and
Delaying Tactics
 North River Assessment:
• High regulatory pressure for
smart container adoption can
come only after a meaningful
container-oriented terror
event
 Scenario I, 2004-2012:
• No container terror event
 Scenario II, 2004-2012:
• Container terror event in 2005
© North River Consulting Group
24
Highlights of Scenario I, 2004-2012:
No Meaningful Container Terror Attack

Classic new technology
introduction, with an R&D boost
from war on terror (Cell I)

Competitive pressures shift market
decisively as successful early
adopters reap benefits (Cell III)
Smart containers will become
accepted best practice for supply
chain operations during forecast
period
Security benefits
SMART CONTAINER MARKET DYNAMICS
Regulatory Demands
Low Regulatory
Pressure for Smart
Containers
High Regulatory
Pressure for Smart
Containers

Strong Evidence of
Smart Container
Economic Value
III - Sweet
Typical New
Technology “Lazy S”
or “Hockey Stick”
Adoption Curve
Little Evidence of
Smart Container
Economic Value
I - Slow
Slow, Specialized
and Limited Adoption
IV - Steroidal
Accelerated
Enhancement and
Adoption
Economic
Benefits
© North River Consulting Group
II - Sour
Reluctant Adoption
Over High
Resistance and
Delaying Tactics

•
•
Significant reduction in cargo theft
and smuggling
Enhanced protection against
terrorist exploitation
25
Highlights of Scenario II, 2004-2012:
Serious Container Terror Attack in 2005

SMART CONTAINER MARKET DYNAMICS
Regulatory Demands
Low Regulatory
Pressure for Smart
Containers

High Regulatory
Pressure for Smart
Containers

Strong Evidence of
Smart Container
Economic Value
III - Sweet
Typical New
Technology “Lazy S”
or “Hockey Stick”
Adoption Curve
IV - Steroidal
Accelerated
Enhancement and
Adoption

Economic
Benefits
Little Evidence of
Smart Container
Economic Value
© North River Consulting Group
I - Slow
Slow, Specialized
and Limited Adoption
II - Sour
Reluctant Adoption
Over High
Resistance and
Delaying Tactics

At time of attack, smart container
benefits still unproven (Cell I)
Political overreaction to attack
produces premature mandates
for smart container technologies
(Cell II)
Forced use accelerates learning
curves for benefits (move towards
Cell IV)
Market for and use of smart
containers builds faster and
higher than Scenario I
Security benefits
•
•
Significant reduction in cargo
theft and smuggling
Enhanced protection against
terrorist exploitation
26
Keep Technology in Perspective
 Technology is not magic
• “Just because it’s electronic doesn’t mean it’s better”
• Good processes and discipline are critical
• Institutional challenges are toughest
 Technology is not irrelevant
• “Just because it’s electronic doesn’t mean it’s a mistake”
• Smart technology can
– Enhance good processes
– Simplify demands on the workforce
27
In Closing,
Prepare for a Storm…
 In terms of supply chain strategy, your
major concern in terms of cargo security
should be ‘what happens after the next
terror event?’
• The ‘rules of the game’ will shift
• The shifts may not be rational or pretty
28
Thank you for your attention
Mike Wolfe
noriver@att.net
781-834-4169
Extra Material Follows:
Sources and reference locations
29
Sources & References for
Supply Chain Security, Productivity, & Technology*

Security and productivity
•
“Some Good News on Cargo Security” (2004)
•
“The Dynamics of Supply Chain Security” (2004)
•
“Security Must Yield an Economic Benefit” (2003)
–
–
–
G-8 Summit edition of The Monitor, Univ. of GA, Center for International Trade and Security
Journal of Commerce, December 1, 2003
•
“Supply Chain Security Without Tears” (2003)**
•
“Freight Transportation Security and Productivity” (2002)
•
“Defense Logistics…” trends and implications (2001)
–
–
–

Journal of Commerce, July 26, 2004
www.manufacturing.net/scm/index.asp?layout=articleWebzine&articleid=CA278114
http://ops.fhwa.dot.gov/freight/publications/SecurExecSumm.doc
http://www.ops.fhwa.dot.gov/freight/theme_papers/theme_paper_index.htm
Technology for security and productivity
•
Smart Container Product and Market Reports (forthcoming, with HSRC)
–
•
Email Mike Wolfe
“APEC Secure Trade Project Preliminary Conceptual Plan,” (2004)
–
email from Mike Wolfe
•
“Technology Views and Issues” (2004)
•
“Automating Security: Do E-Seals Make Sense?” (2003)
•
“Target Capabilities for the ‘Future Smart Container’” (2003)
•
“Technology to Enhance Freight Trans. Security & Productivity” (2002)
–
–
–
–
•
www.eyefortransport.com/index.asp?news=33911&nli=freight&ch=
email from Mike Wolfe
http://ops.fhwa.dot.gov/freight/publications/Security Technology Appendix, 4-25-02.doc
“Electronic Cargo Seals: Context, Technologies, and Marketplace” (2002)
–
•
Cairo Transportation Security Forum Resource Guide, www.tda.gov
Reachable from the Intermodal Freight page at http://www.its.dot.gov/ifreight/ifreight.htm
“Trends in Freight Identification Technology” (1998)
–
Email from Mike Wolfe (noriver@att.net, 781-834-4169)
*Articles and papers by Mike Wolfe
**Co-authored with Hau Lee, Stanford