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The global trade has passed through various stages to reach its present status. These series of trade and industry, changes have undergone beginning from the mercantile trade has reached the present globalization of international trade.
Since it is not possible to be outside the present globalization of international trade, governments and the private sectors need to continuously improve their internal working system and use the available opportunities created in the globalization of international trade by reducing visible threats that strive hard to their cost reduction and maximization of the economic benefits.
This continuous improvement of international trade has brought a breakthrough and paradigm shift towards the supply chain and has called for the development of modern supply chains where a variety of companies work jointly in designing, production and delivering products and services to their end-users better, faster, and cheaper. However, this advancement has also increased the likelihood of internal and external global supply chain risk. According to Tohamy and Hagerty, supply chain risk defined as "The inherent uncertainty associated with managing the supply chain to profitably respond to demand. Supply chain risk spans activities in sourcing, supplier management, production and manufacturing, distribution and logistics, demand management and customer fulfillment. Supply chain risks also stem from macro factors like the economy, the environment, and geopolitical events" (CCES, Supply Chain Management: Module 3, page 30).
In order to achieve its supply chain efficiency and effectiveness and meet its customer needs and expectations and to alleviate the occurrence of supply chain risk, a company has to focus on management of supply chain, which involves planning process, integrating and managing the sourcing, manufacturing and delivering and control of materials across multi-functions and tiers of suppliers. This is not only helps to make a decision on contracting its products or services, but also to ensure security and safety of its supply chain process and managing the security stand of other company in its supply chain. Therefore, in securing its supply chain, a company has to design and implement an overall policy framework and risk based global sourcing strategy.
In this short policy analysis, I attempt to present an overview of global sourcing, an introduction to existing the United States' supply chain security initiatives and the ways in which they are constructed and their impacts on the international supply chain as the background of the subsequent of discussion.
Worldwide economic, political and social factors combined with accelerated advances in global supply chain transformation have altered the nature of business. The result has been the emergence of strategic global sourcing. Global sourcing is defined as "the process of identifying, developing, and utilizing the best source of supply for the enterprise, regardless of location" (http://www.pmac.ca/education/modules_gs.asp).
In order to extremely exploit simultaneously emerging technology inputs and potential markets for outputs, a company has to gather information to establish its global sourcing plans, distribution, and service networks. Among the information's that have been collected by the company:
manufacturing and delivery costs,
the costs of various resources (skilled manpower and material inputs),
exchange rate fluctuations,
availability of infrastructure (including transportation, communications, and energy),
industrial and cultural environments,
ease of working with foreign host governments (regulation and taxation issues),
risk and security profile of the vendor
Once a company has made the decision to import goods or services for distribution from foreign host company, the company should has to arrange viable global sourcing strategy with its vendor. "Global sourcing strategy refers to the management of (1) logistics identifying which production units will serve which particular markets and how components will be supplied for production, and (2) the interfaces among R&D, operations, and marketing on a global basis. Global sourcing strategy requires a close coordination among R&D, manufacturing/operations, and marketing activities across national boundaries" (Journal of International Management 2009, page 121).
The United States' Supply Chain Security Initiatives
The Swedish Board of Trade analysis on supply chain security initiatives depicts that the American economy is dependent on foreign trade to a relatively small degree: in 2006 imports of goods and services corresponded to approximately 17 per cent of GNP. However, USA trade is of decisive importance for the world economy and is large in absolute figures. The value of all exports in 2006 was approximately USD 1,445 billion, and of all imports approximately USD 2,200 billion (goods and services). Many countries are dependent on their exports to the USA and the flow of goods is considerable in volume. The US Customs and Border Protection (CBP) handled 20 million containers which arrived in the USA by ship, railway and road in 2005. This means that many American companies are also dependent on imports for their production activities (Swedish Board of Trade 2008, page 29).
"Since the terrorist attacks on 11 September 2001, the number of initiatives that have the aim of strengthening security in the international supply chain has increased rapidly. The initiatives consist of programmes for partnership between customs authorities and companies, rules for advance communication of data on international shipments, minimum security requirements, standardisation of security management and cooperation between companies. Most of the initiatives have been taken by governments or customs authorities but many international organisations are also active in this field." (Swedish Board of Trade 2008, page 2)
Following the consequence, the US government, in close consultation with the US trading community and other governmental agencies that participate in the process of international trade, has designed and implemented different supply chain security initiatives with the aim of protecting the United States against acts of terrorism by improving security and at the same time new laws and regulations have been enacted, standards have been established, new technologies have been developed, and security management has been improved to ensure the safety and security of global supply chains and international trade.
In this topic I will focus on key supply chain security initiatives lead by the U.S. Government, both mandatory and voluntary which are in place today and there are used as impression to appraise the assignment. I will underline the initiatives that have been undertaken by the US Government more specifically on Customs-Trade Partnership Against Terrorism (C-TPAT), Container Security Initiatives (CSI), 24 Hour Advanced Manifest Rule (AMR), Secure Freight Initiative (SFI) - 100% Cargo Screening and 10 plus 2-Advanced Security Filing, as these security programs will most directly impact U.S. import supply chains.
Customs-Trade Partnership against Terrorism (C-TPAT)
The Customs-Trade Partnership Against Terrorism (C-TPAT) was created soon after 11 September 2001 attacks, and it is a voluntary Supply Chain Security program with a "trust but verify" focus. Through this program, U.S. Customs and Border Protection (CBP) works with the membership of C-TPAT private business importers (the trade community) in adopting, implementing and improving tighter security measures throughout their international supply chains. The C-TPAT program provides CBP with an opportunity to risk- manage its activities by assessing the integrity its C-TPAT partners' supply chains, and in turn to provide those private importer partners with expedited processing and clearance.
Therefore, the program enforces membership of C-TPAT private business importers to conduct a comprehensive assessment of their international supply chains and adopt appropriate security measures based on risk. The private business importers are obliged to ensure that their business partners develop security processes and procedures consistent with the C-TPAT security criteria to enhance the integrity of the delivery at point of origin (manufacturer/supplier/vendor), and throughout their supply chain (to point of distribution).
Periodic reviews of business partners' processes and facilities should be conducted based on risk, and should maintain the security standards required by the importer. Through this process, the program takes immediate action to suspend or remove C-TPAT member private business importers for the following reasons: narcotics seizures or other security related incidents such as human smuggling; failed validations or lack of compliance with C-TPAT requirements regarding supply chain or other security measures; failure to provide required information or filing false or misleading information; or actions or inaction that shows a lack of commitment to the program.
In order to ensure the integrity of the C-TPAT security criteria, certified membership of C-TPAT private business importers must conduct periodic review of their business partners and foreign suppliers based upon the following requirements:-
Business partner requirements
Physical access controls
Container Security Initiative (CSI)
This program is a government-to-government initiative and does not involve the trade community. It is a bilateral arrangement where U.S. Customs and Border Protection multidisciplinary Officers and radiation detection equipments are stationed at counterpart foreign ports to perform advance targeting and shipment inspections of identified high risks cargoes destined to U.S. ports. As the CBP descriptions, the aim of this program is to "extend the zone of security outward so that American borders are the last line of defense, not the first." (http://en.wikipedia.org/wiki/Container_Security_Initiative)
By quoting CBP, Wikipedia, the free encyclopedia as posted about container security initiative on its web page, the international trade facts indicate that:
About 90% of the world's trade is transported in cargo Containers.
Almost half of incoming U.S. trade (by value) arrives by containers onboard ships.
Nearly seven million cargo containers arrive on ships and are offloaded at U.S. seaports each year.
The above raw facts indicate that containerized shipping is becoming a critical component of international trade. Due to this terrorist organization have increasingly turned their eyes to destroy such economic infrastructure to make an impact on nations, the vulnerability of international shipping has come under scrutiny.
Therefore, Under the CSI program, the CBP officers and the host Customs officers perform the following four core elements to minimize a risk for terrorism:
Using intelligence and automated information to identify and target any containers that pose a potential risk for terrorism.
Pre-screening those containers that pose a potential risk at the port of departure before they arrive at U.S. ports.
Using advanced radiation detection information technology to quickly pre-screen containers that cause a potential risk.
Developing and using smart and secure containers.
"Today, CSI has partnered with 32 countries and is operational in 58 ports in North America, Europe, Asia, Africa, the Middle East, Latin and Central America have implemented CSI at the end of 2008 resulting in approximately 86% of all maritime containerized cargo imported into the United States now being subject to prescreening prior to importation."(CCES, Supply Chain Management: Module 4, page 52)
The CSI program offers its affiliate countries the reciprocal opportunity to enhance their own incoming shipment security. CSI affiliate countries can send their Customs officers to major U.S. ports to target maritime, containerized cargo to be exported from the U.S. to their countries. Likewise, CBP shares information on a bilateral basis with its CSI partners. Singapore, Japan and Canada are among partnered countries that had signed a CSI bilateral agreement with the United States and the currently taking advantage of this reciprocity.
The 24-Hour Advance Manifest Rule (AMR)
It is a regulation that obliges the cargo carriers to provide advance consignment data electronically to U.S. Customs and Border Protection (CBP) at least 24 hours before the goods leave the port of shipment. Importers and exporters have very little involvement with this other than providing the data to the carriers in advance of the shipment.
According to the rule any cargo carriers are obliged to deliver information on advance about their cargo manifest. The following fourteen precise descriptions of the container's contents should be provided on the advance manifest (Swedish Board of Trade 2008, page 39):
Foreign port of departure
Carrier's Standard Carrier Alpha Code (SCAC)
Date of scheduled arrival
Numbers and quantities from the carrier's bills of lading
The first port of receipt of the goods
Precise description of the goods and/or the Harmonized Tariff Schedule (HTS) code
Shipper's complete name and address or identity number
The consignee's name and address or identification number
Vessel name, national flag, and vessel number
Foreign port where the cargo was laden on board
Hazardous material indicator, if cargo of this type is to be shipped
Seal number affixed to the container
This advance cargo manifest information help U.S. Customs and Border Protection officers to make an advance examination of a potential risk consignment before a container is loaded in the departure of the foreign port.
Secure Freight Initiative-100% Container Scanning
This supply chain security initiative program requires that all ocean containers are either physically inspected or scanned by non-intrusive methods before they reach U.S. shores. In other words, this would need to take place on foreign soil prior to loading of the containers on the U.S. bound vessels.
10 plus 2 - Advanced Security Filing
To further consolidate port security the U.S. Congress enacted the SAFE Port Act of 2006 which requires for an additional the electronic submission to CBP of 12 data elements no later than 24 hours prior to the departure from the foreign port of loading. It is a supplementary legislative package which aimed to strengthen the 24-hour rule, CSI and Câ€‘TPAT.
"According to this act, importers obliged to submit the following 10 data elements electronically to the U.S. Customs and Border Protection:
Manufacturer's name and address
Vendor's name and address
Container loading location
Consolidator's name and address
Buyer's name and address
Ship to name and address
Importer's number (if registered at CBP)
Country of origin of the goods
Commodity classification code
In addition to this, the CBP will require shipping companies to provide two more sets of data: the vessel's stow plan and container status messages. The importer and carrier are the parties that will primarily be obliged to provide the information and they will be able to do it through the computer systems which they normally use to communicate with CBP and, at a later stage, in the Automated Commercial Environment (ACE)." (Swedish Board of Trade 2008, page 40)
Impacts of US Supply Chain Security Initiatives
However, the USA response to war against terrorism has its own impacts on the safety and security of global supply chain and world trade. These include, but are not limited to the following:
Improve regulatory compliance management which is an important component of efficient and effective management of international supply chain;
It helps for technical know-how transfer and it motivate innovation and use of radiation detection technology;
Each initiative offers businesses an opportunity to play an active role in the war against terrorism.
Those Countries which trade with the US have been forced to customize and harmonize their security standards in line with the US which in turn force countries to invest some amount of money on information communication technology.
Create greater supply chain integrity.
My Response to the Assignment
Having underlined the above background as impression to appraise the assignment, I would like to respond the assignment from two points of view:
From global sourcing point of view which relate with Bright Spark Pty Ltd
Contractual arrangement of the Bright Spark Pty Ltd and Flotsam and Jetsam Inc. from U.S. supply chain security initiatives point of view.
From global sourcing point of view
Today's supply chains are delivering products and services to market better, faster, and cheaper than ever before. The supply chain is an essential business function in all industries. Generally, at the micro-level the supply chain involves companies which pass materials to the end users. There is more complexity at the macro-level as an industry-wide system emerges within which organizations supply one another with raw materials and other resources. The networks are spatial and are spread across national borders and regions. Management of the supply chain involves integrating and managing the sourcing, flow and control of materials across multi-functions and tiers of suppliers. Yet these advances have also increased the likelihood and impact of supplier and supply chain disruption risk. Supply chain risks include everything from natural hazards, terrorism, pandemics, and data security to demand variability.
Bright Spark Pty Ltd is a company that specialty in the production and supply of technology products. This company has a significant market share in the US market for its products.
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 product of the Bright Spark Pty Ltd company assembled in Malaysia and the finished product is exported from Singapore.
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 labor costs than other potential suppliers and the government is prepared to provide additional tax incentives to retain Bright Spark's business. This implies that the existence of significant supply chain disruption risk which is a "security concern". This risk may reduce Bright Spark Pty Ltd's revenue, cut into its market share, inflate its cost and threaten production and distribution. The Bright Spark Pty Ltd can't distribute its product in the U.S market. This supply chain risk also can damage Bright Spark Pty Ltd's credibility.
In order to extremely exploit simultaneously emerging low labour cost and additional tax incentives opportunity from the host country that deliver a key component of the final product and potential market for its product in U.S., Bright Spark Pty Ltd must consider not only manufacturing and delivery costs, the costs of various resources (skilled manpower and material inputs), but also risk and security profile of the vendor. Once Bright Spark Pty Ltd has made the decision to import a key component of the final product for assembly from a country listed by the US Government as a "security concern" host company, the Bright Spark Pty Ltd should has to arrange viable global sourcing strategy with its vendor.
In arranging its global sourcing strategy, the Bright Spark Pty Ltd concerns how it secures its international supply chain. From the Bright Spark Pty Ltd perspective the supply chain starts at the point where raw materials and semi-finished components manufactured in the country of origin are designated for export through to the point of delivery of the goods in another country market. This could involve production processes in a number of different countries and assembling in one country and considering this country as point of origin that is Malaysia.
In order to become more efficient and effective with regard to the opportunity obtained from low labour cost and tax incentives and U.S. potential market and to alleviate uncertainty in its supply chain, the Bright Spark Pty Ltd has to continuously develop and improve its supply chain management with the security requirement set with its counterparts. In order to stay and gain the advantage in the U.S. market, the issue of survival, the Bright Spark Pty Ltd has to make periodic review of the security level of its supplier's viability especially in the area of personnel, procedural, security training, physical and IT security. Doing such business has its own cost and requires leadership commitments. Therefore, by analyzing the threat and opportunity of its supplier risk viability the supply chain manager of Bright Spark Pty Ltd are expected to demonstrate a commitment toward strengthening their entire supply chains.
From U.S. supply chain security initiatives point of view
The US supply chain security initiatives were primarily designed to protect global supply chains from concealment of terrorist weapons, these initiatives have had a major impact on the way in which customs and others involved in the international supply chain go about their business.
The idea behind the US supply chain security initiatives are for US Customs and Border Protection (CBP) to work with those involved in international trade to improve the security of their supply chains. The aim is to provide CBP with a method of identifying and focusing their resources on potentially high-risk consignments.
Flotsam and Jetsam Inc. is an importer private company and is a member of the US C-TPAT Program. Flotsam and Jetsam Inc. as importer, the company has made a contractual arrangement with Bright Spark Pty Ltd to distribute Bright Spark's technology products in the US market. However, a key component of Bright Spark's technology products sourced from a country that has been listed by the US Government as a "security concern".
Flotsam and Jetsam Inc. is a member of the US C-TPAT means that every contractual arrangement has to be done as per C-TPAT program requirements. Therefore, Flotsam and Jetsam Inc. before sing agreement with Bright Spark Pty Ltd, the Flotsam and Jetsam Inc. must have documentation to U.S. Customs and Border Protection that shows Bright Spark Pty Ltd's potential status in C-TPAT. If Bright Spark Pty Ltd is not eligible for C-TPAT certification, it is necessary to have written documentation to show that they can comply with the security requirements specified in C-TPAT. This can be verified by contracts, certificates/letters from managing directors or similar, by a certificate showing that the company complies with the WCO's SAFE framework issued by a foreign customs authority.
Great importance is attached to the place where a product is packed or consigned from. Regarding this, the final product of the Bright Spark Pty Ltd company assembled in Malaysia and the finished product is exported from Singapore. Flotsam and Jetsam Inc. must ensure that its business partner Bright Spark Pty Ltd has satisfactory routines that prevent the cargo being changed or manipulated in any way when it is dispatched. Both processes and premises must be regularly checked in respect of risks and Bright Spark Pty Ltd must fulfill the requirements stipulated by the Flotsam and Jetsam Inc.
The Flotsam and Jetsam Inc commit to strengthen its entire supply chains and adopt appropriate security measures based on risk. The Flotsam and Jetsam Inc must ensure that Bright Spark Pty Ltd has developed security processes and procedures consistent with the C-TPAT security criteria to enhance the integrity of the shipment at point of origin which is Malaysia. The Flotsam and Jetsam Inc has to conduct periodic reviews Bright Spark Pty Ltd business processes and facilities should be conducted based on risk, and should maintain the security standards required by the importer.
Centre for Customs & Excise Studies (CCES) 2009, International Supply Chain Management, Module 3, University of Canberra: Australia.
Centre for Customs & Excise Studies (CCES) 2009, International Supply Chain Management, Module 4, University of Canberra: Australia.
Andreas Wieland 2009, Strategic Supply Chain Security, http://www.homelandsecurity.org/journal/Default.aspx?t=325&AspxAutoDetectCookieSupport=1
Albert W. Saphir 2010, How Trends in Security Will Affect the Global Supply Chain, http://www.ism.ws/files/Pubs/Proceedings/2010ProcFE-Saphir.pdf
Swedish Board of Trade 2008, Supply chain security initiatives: A Trade Facilitation Perspectives, Stockholm: Sweden. http://www.kommers.se/upload/Analysarkiv/In%20English/Trade%20facilitation/Report%20Supply%20Chain%20Security%20Initiatives.pdf
Journal of International Management 2009, Global sourcing and value creation: Opportunities and challenges, Elsevier Inc., http://dx.doi.org/10.1016/j.intman.2009.03.001
Wikipedia, the free encyclopedia, Container Security Initiative, http://en.wikipedia.org/wiki/Container_Security_Initiative