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You are the supply chain manager of Bright Spark Pty Ltd, a company that has successfully negotiated a major distribution contract for your technology products within the US. Your distributor; Flotsam and Jetsam Inc. is a member of the US CTPAT Program but this will be the first occasion that Bright Spark Pty Ltd has exported its technology products to the US market.
Bright Spark's products are assembled from a variety of raw materials and semi-finished components that are sourced from several different countries around the world. The final assembly process takes place in Malaysia and the finished product is exported from Tanjung Pelepas which is a CSI Port. However, a key component that goes into the final product is currently sourced from a country that has been listed by the US Government as a "security concern". That country has significantly lower labour costs than other potential suppliers and the government is prepared to provide additional tax incentives to retain your business.
The CEO of Bright Spark Pty Ltd has requested a brief on the implications of the new distribution contract for the company's current global sourcing model and your recommendations on the most cost-effective means of supplying the US market. Please prepare the brief as requested, taking into account US supply chain security initiatives and best practice supply chain management principles.
EXECUTIVE SUMMARY 4
BACKGROUND 4 - 7
BRIGHT'S SPARK PTY LTD SOURCING MODEL) 7
IMPLICATIONS FOR EACH STAKEHOLDER IN THE SUPPLY CHAIN OF THE US POLICIES 7-11
Recently, the threats caused by terrorism and cross borders crimes as well as heightened issues concerning trade security have been motivated tangible alterations on global trade supply chain (1). It also urged concerned parties worldwide to implement cost effective measures to secure the global trade supply chain and in the same time facilitating its operations.
This analysis focuses on how a global sourcing model operates in the trade supply chain as well as demonstration of the supply chain security measures implemented by the United States and other countries. The main focus is on the impact on the movement of goods in Bright Spark's supply chain through sourcing inputs from suspect country supplier.
Many countries around the world recognized the importance of direct involvement in the global new trade security trends which would be inevitably of great advantage and positively impacts on trade supply chain security. It is also attractive for countries ports that would enjoy greater insurance values and again the benefits of low risks. The initiation and participation in the security initiatives is driven mainly by economic factors.
The movement of trade within the supply chain happens under supervision of the regulatory system which includes the legislation, rules, regulations, instructions and the enforcement techniques which manage structure and operate the trade as well as the physical layers of the trade supply chain.
The international supply chain is a global approach which has been initiated to make the transfer of trade throughout the international borders secure and efficient. Since the international trade chain of supply consists of a network of warehouses operators, distributers, manufactures, suppliers, raw materials transformers, finished products and finally consumers' chains, it is essential to initiate security
measures to be focused to minimizing threats and border crossing groups and reducing the shrinkage.
The awareness of the terrorist attacks and these criminal actions has redefined the security of the international supply chain. The tragic impacts on of a threat on or via a critical international border could have a huge and tremendous damage of life and economy of nations.
These threats have called the attention of concerned law enforcing authorities to the serious dangers and risks of shipping trade, movement of passengers and movement of conveyances present. The main concern of the concerned agencies whether governmental or private is to upgrade the standards of global supply chain efficiency, and paying attention to security.
The positive reactions to these threats have been in the dissemination of new security regimes as well as international cooperation and information sharing. As a result of all of these sincere efforts is the trade management is more or less secure. The close interactions between the logistics, the transaction and the oversight layers of the trade supply chain has a great impact of the whole stability and economic development of countries.
That means, the layer of logistics should be responsible for cargo movement along roads networks, whereas the layer of transactions is merely responsible for ordering commodities and raw materials from suppliers networks and the layer of regulatory is responsible for specifying operations standards within its area of discretion. The detection of the supply chain from each of the layers brings insights to the main concerns of clients, which ultimately improves the performance of the supply chain.
Within the global supply chain the insurance aspect is of great importance to enhance the trade supply chain. Insurance companies have relied on in-house ability and viewing technical knowledge as one of the building blocks of their business to keep their role in the supply chain as well as keeping their competing role over other rivals.
The US and other countries have been implementing supply chain security measures to guarantee the maximum security to be provided to secure and facilitate the global trade supply chain (2).
(2) Alling, Philip, Edward M. Wolfe, and Scott D. Brown, Compliance Deadlines Loom: Supply-Chain Giants Drive Early Adoption of RFID, New York: Bear-Stearns Equity Research, 2004.
The meaningful security of the trade supply chain emphasizes the efforts conducted by the US Customs and Border Protection (USCBP) as a layered mechanism to guarantee the security of the trade supply from its place of stuffing passing through Customs clearance operations until it reaches to the place of consumption. The different layered mechanism includes: - Advanced information under the 24-Hour Rule and Trade Act of 2002.
Partnership between Customs and business community, mainly the C-TPAT. Using this approach, USCBP cooperates with the business community in order to implement security standards within the global trade supply chain. As meeting the World Customs Organization(WCO) Frame Work of Standards to Secure and Facilitate the Global Trade (SAFE) standards, the Customs-Trade Partnership Against Terrorism Progarmme (C-TPAT) has been dealing with different Customs Authorities worldwide to align with their AEO progarmmes , which inevitably enable the USCBP to globalize the standards of the C-TPAT in order to initiate international trade security criteria (3). The C-TPAT usually works as companies might have different perspectives on the supply chain, but they all must follow the same steps to apply for C-TPAT membership.
The first step is completing the Supply Chain Security Profile, an exhaustive audit of an applicant's entire supply chain. The audit helps CBP get a better idea of each piece of a company's supply chain process.
Cooperation and partnerships with other foreign governments, i.e. Container Security Initiative (CSI) and SFI.
The implementation of NII cutting-edge technology and the assessment of high risk goods.
The goal behind utilizing such layered mechanism is to have a combination between these systems in order to receive, process and act upon commercial information in a timely manner in order to make it easy to assess the suspect transactions. The assessment of a properly performed business effect identifies and prioritizes business operations as well as supporting sub-processes, people, technologies, facilities and the third party. The implementation of the business result provides an opportunity to align security initiatives with the most important elements that fundamentally stir business.
(3) Risk-Based, Layered Approach to Supply Chain Security, USCBP Fiscal Year 2010 Report to the congress.
A business result assessment could show dependencies that were unknown, which is why it should be a precursor to a comprehensive business continuity and disaster recovery plan (4).
(BRIGHT SPARK PTY LTD SOURCING MODEL)
Since the Bright Spark products are sourced from different countries, it is noted that the decision taken by the company concerning the sourcing of its business operations is either to preserve the in-house know-how or contract with a third party whether a distributor or service provider, i.e. build or buy. In between and within those two alternatives, there are choices available to both companies. In the case of Bright Spark Pty Ltd, Flotsam and Jetsam Inc act as a distributer in the US. Within this approach, the business operations and IT have transformed steadily moving up the value chain of services provided as well as assisting firms to cut costs and meeting their strategic objectives. This implies security policies to be implemented in coordination with agencies concerned in order to meet security procedures applied by US and other countries.
Some other forms are interested in preserving the ownership and control over the business and looking for alternatives to outsourcing, and offering cost savings and other benefits linked with offshore outsourcing. This approach gives the rise to motivate it in-source internationally utilizing ownership models like joint ventures and captive centers (5).
(IMPLICATIONS FOR EACH STAKEHOLDER IN THE SUPPLY CHAIN OF THE US POLICIES)
In this chapter, I will shed light on one of the important aspects of the international trading system which is the impact of trade supply chain security initiatives on supply chain management initiatives. I will start with a moving story: " On Jan. 15, 2005, 32 Chinese immigrants were arrested as they emerged from a container on board a ship at the Los Angeles Port. The immigrants had been apparently placed inside a container at Shekou, China, and were then shipped through the Container Security Initiative (CSI) Port of Honk Kong.
Stephen Lane, Manish Subramanian and Blaji Yellavalli, Build or Buy: Choosing the Right Global Model, April 2004
The container was shipped abroad a carrier owned and operated by Customs-Trade Partnership Against Terrorism (C-TPAT) certified member. Fourteen days later, the immigrants were unloaded from that container at the Port of Los Angles." (6).
The secure supply chain can protect technology products from terrorist attacks, theft, tampering, breakage and IPR goods.
A secure supply chain will protect them from delivery short-landings and litigation from copyright owners. Security of technology products can be related to both the sourcing method described in the question and perhaps tracking devices to monitor the whereabouts of the goods. A third-party audit program could also be a level of security compliance assurance.
The implication for all this of course is a decision on cost versus benefit (i.e. total contract expenses versus the benefit of supplying goods in the quality and quantity ordered). This is in addition to the costs and benefits of CT-PAT.
In turn, it is important then to argue that a secure supply chain can protect technology products from theft, tampering, breakage and IPR goods. A secure supply chain will protect them from delivery short-landings and litigation from copyright owners. Security of technology products can be related to both the sourcing method described in the question and perhaps tracking devices to monitor the whereabouts of the goods. Suggesting a third-party audit could also be suggested in order to guarantee the compliance of the security standards implemented by the law enforcing agencies concerned. The implication for all this of course is a decision on cost versus benefit (ie the benefit of supplying goods in the quality and quantity ordered). This is in addition to the costs and benefits of CT-PAT.
The most difficult aspect to answer are the business considerations. Maybe anyone who can put himself in the shoes of the company buying the product though would like answers to questions such as are there going to be copyright or counterfeit issues, hardware or software quality issues, integrity issues related to employees and/or sub-contractors and theft within the supply chain? In the same way the company wants to cut costs by using the country with low labour
(6) Eric Salter, "Human Smuggling Operation Probed,' Los Angeles Times, January 17, 2005.
costs and tax incentives, they will need to balance this with the risks that come with a fairly complex supply chain. Then the emphasis should be directed into reducing the transportation costs using the supply chain, which may allow the concerned parties to increase their manufacturing margins.
Currently, the utilization of technologies in order to detect fraud and illegal shipments are of high cost and they could have a bad effect of delays of the logistics approaches. As a consequence, all security efforts concentrate on technologies to identify high risk containers and to make them harder to be tampered as wells containers profiling to minimize the burden of trade volume on screening technologies. These technologies have certain weaknesses. They are easy to be tampered and profiling approaches could be gamed as smgluers, criminals and terrorists may know what conditions can trigger profiling systems. A Government Audit Office ( GAO) audits concerning the CSI and C-TPAT showed significant shortcomings:
USCBP inspects 34% of containers overseas.
17.5 percent of high-risk goods inspected overseas.
Nuclear detection equipment and Vehicle and Cargo Inspection System (VACIS) used overseas are untested and are unknown quality.
Benefits are granted to C-TPAT members without deep revision or validation of their own supply chain processes ( 7).
The measures of the supply chain security implemented by the US and other countries are reflected in securing and facilitating the global supply chain as the following:
Efficiency: the movement of trade through global borders are more secure and facilitated as well as more quickly and less cheaper;
Trade movement reliability: global trade supply chain is directed into retrieving and delivering goods to their directed destinations, with minimum risks and threats;
Transparency: the trade that is moved through the trade supply chain should legitimately presented to concerned authorities and must be legally transported;
Tolerance: the trade supply chain should respond to any risk and threat without bringing the system to grinding halt; and
Resilience: The trade supply chain is resilient as it is capable to cope up with normal operating situations promptly if one of its components fails.
It is noted that the efficiency of trade supply chain and its security standards are distinct but interconnected. "The continuous steps to develop and improve the chain efficiency may or may not affect the security of the trading regime as well as the efforts targeted to improving the security may effect and improve the system efficiency. A mature topic in the logistics" (Ford and Fulkerson) (8).
The smooth of trade flows on the networks is the security of the international trade supply chain initiatives developed through close coordination and cooperation between the public and private sectors have mainly concentrated on evading and detecting illegal trafficking of goods as well as avoiding the vulnerabilities of terrorists attacks.
The US perspective of having further reviews and examinations come as a result of threats that the trade supply chain might be exposed. The USCBP uses the targeting approaches that are built on risky conditions such as the following:
Familiarity interdictors which take into consideration the volume and frequency of trade flows, firms identifications and accreditation as authorized firm by the participation of in the C-TPAT;
Geographical routing concepts take into consideration the points of origin, points of receipt, ports of lading and conveyances routes on states of interest;
Violation history mainly based on the names and addresses of law enforcing agencies;
High-risk goods means goods that pose immediate or potential threat to the country; and
Intelligence based on the strategic risk evaluation and the analysis of smuggling trends and modus operandi. (9)
(8) Ford, L.R., and D. R. Fulkerson, Flowers in Networks, Princeton University Press, 1962
(9) Risk-Based, Layered Approach to Supply Chain Security, USCBP Fiscal Year 2010 Report to the congress.
(THE IMPACT ON THE MOVEMENT OF GOODS IN BRIGHT SPARK'S SUPPLY CHAIN THROUGH SOURCING INPUTS FROM A SUSPECT COUNTRY SUPPLIER)
In reviewing the mentioned sample. A few things must be adhered to in order to remove some of the concern from the researcher perspective as a security of the trade supply chain.
First, in conducting due diligence of the provider did they ensure the security of the product as it is transported to Malaysia for final assembly? Even in this, the particular item must be taken into account, for instance if it is a small widget where nothing can be hidden and it is clearly obvious that upon assembly the manufacturer is not inserting something dangerous into the final product, then it really does not merit worry and pose threats to the trade supply chain.
However, if the product is something where a "device" can be hidden (recent development of merchandise compromised on the flight of UPS/DHL from Yemen) then a more thorough review of the facility and its employees must be conducted to ensure that any chance is diminished. Additionally, if the item that is to be placed into the final product could have something inserted then an additional step will have to be taken to ensure that nothing is in there (whether it is use of an x-ray, or some other way of ensuring nothing suspicious is in there) to not injure the credibility of the importer.
It is also important to ensure that the particular producer of that product is not supporting any activities that the US public might find unacceptable (example would be the backlash Nike took for unknowingly employing child labor in China, a majority of the public would not buy Nike products for a while as a result) another example might be that this provider is financially supporting an organization that is involved in harming US citizens. Today the supply chain is more transparent, primarily because the media has made it easier to investigate and publicize much of what happens, just look at the example of Mattel Toys which suffered a serious blow to their brand and serious losses in recalling toys that were painted with leaded paint (provided by a third tier supplier), Mattel could withstand the financial loss but they were less happy about their brand receiving negative publicity, a small or medium size company would have gone out of business.
I would also suggest that a thorough due diligence is conducted on the company that Bright Spark Pty is relying to source that key component and make sure that there is nothing in the "key component" that could have a harmful impact on our brand name which will harm the fame of the firm worldwide.
The US concerned agencies use a multiple means to improve security and efficiency of the trade supply chain. Some of these are regulatory fixes like the CSI and the C-TPAT. These approaches need administrative requirements through the Customs inspection operation. Other systems impose regulatory constraints on the system such as the MTSA. Ports operators, shippers, Customs Authorities, carriers are eager to have cutting edge anti-tampering technologies such as the RFID, X-Ray and Gamma ray scanning machines as well as hand held detectors and remote sensors (10). Other security approaches implemented by USCBP are ISF which requests that importers have to supply the USCBP with 10 trade data elements 24 hours to loading the cargo shipment that is targeted to reach into a US vessel.
The usage of policies or technologies by the US concerned entities (C-TPAT, Operation Safe Commerce, CSI, Maritime Transportation Security Act of 2002, Anti-Tamper Seals, RFID, X-Ray and gamma ray inspections, Radio Pagers, Portal Sensors, and remote monitoring) will have a positive impact on the US security as cost-effective solutions. These policies and technologies have driving layers on transactions and logistics, logistics and oversight and oversight. They have expected efficiency on supply chain through reduction of costs, time of shipping and inevitably improve logistics and expedite Customs operations. All these approaches would have positive consequences in reducing the probability of attacks by deterring terrorist attacks and reducing the damage, losses and fraud.
Using the CSI, inspection of high risk containers before their entry to the US borders. As for the C-TPAT, the US government offers advantages to the business community which initiate specific security commitments.
(10) Feder Barnably J., "Wal-Mart Hits More Snags in its Push to use Rdio Tas to Track Goods," The New York Times, March 29, 2004, p. C4.
Last, but definitely not least, I highly recommend that:
Flotsam and Jetsam, Inc and Bright Spark, consult with the C- recommendation from C-TPAT. It also will help to show that both companies are very transparent and willing to work with C-TPAT to avoid any problems.
Flotsam and Jetsam, Inc and Bright Spark as private agencies, should improve the security standards and bolster the fault tolerance and resilience of the logistical trade supply chain.
Flotsam and Jetsam, Inc and Bright Spark safety and security standards and efforts should cope with vulnerabilities of the trade supply chain networks.
Flotsam and Jetsam, Inc and Bright Spark should conduct regular research and updating development planning for the purpose of supply chain performance improvements as well as the analysis of the international trade trends.
Flotsam and Jetsam, Inc and Bright Spark should deploy
Cutting edge technologies for low cost and high volume security installments.
Flotsam and Jetsam, Inc and Bright Spark should conduct regular evaluations over the security approaches implemented to meet the updated security processes of CSI and C-TPAT with the aim to fulfilling the international trade supply chain security.
The global supply chain is a physical approach on which commodities travel. This approach is shared by concerned entities who operate and manage the supply chain as the business community: freight forwarders, trucking firms, rail freight carriers, consolidators, ocean carriers, etc. Nowadays, many Customs administrations worldwide use risk-based systems for the purpose of international trade supply chain security. Concerned agencies screen the data by employing their own Customs automated systems. These data are analyzed by specialized people to offer actionable data to Customs officers concerned. The process of information screening and analysis let the Customs officers concentrate on risky goods while keeping the flow of legitimate trade. Not only Customs administrations utilize the advanced information the requirement of pillar two of WCO SAFE, they build partnerships with the trading communities in order to enhance their own security operations within the global trade supply chain.
In order to foster the international relations and efforts to combat illegal movement of goods, foreign Customs administrations, through mutual recognition arrangements, build partnerships to offer invaluable coordination into the potential dangerous and risk goods.
Customs administrations continue to refine and utilize a group of security systems in order to build their capabilities in detecting the dangerous goods arriving at the borders of countries. These systems are categorized into two basic and guiding standards, the standard that "defence in depth' or layered system is of great effectiveness and efficiency than a single one security point as well as the standard of the risk management is an effective and efficient tool to deploy the discretions and use the resources. The continued improvements of such standards will keep the security operations in place and guarantee that concerned agencies are utilizing the resources effectively and efficiently. Some security networks are able to operate despite the loss of may nodes (11).
Failure to meeting the best practices in securing the networks of the global trade supply chain may have tragic results on nations and economy.
(11) Amaral, L.A.N., A. Scala, M. Barthelemy, and H.E. Stanley, "Classes of Small-World Networks,' Processing of the National Academy of Science, Vol. 97, No. 21, 2000, pp. 11149-11153.