Thought Leadership

Supply Chain Security Affects You---By Gordon Fuller

Two converging events are impacting international supply chains, causing the most far-reaching changes in decades: the Container Security Initiative (CSI) and the Sunrise Date. These events will spark new regulations and technological change, which will lead to sophisticated changes in core business processes and their underlying systems.

The Container Security Initiative

In response to the terrorist attacks of September 11, 2001, the U.S. government ordered the U.S. Customs Service to create objectives and support regulations to ensure that international supply chains would not be used to smuggle weapons of mass destruction into the U. S. Customs has become part of the Department of Homeland Security, and those supply chain objectives and regulations have begun to appear in the CSI.

The CSI has four objectives, each of which affect a company’s international supply chain:
1. Establish security criteria
2. Pre-screen containers before they reach U.S. ports
3. Inspect high-risk containers
4. Use smart and secure containers

The first two objectives resulted in several programs administered by U.S. Customs. The 24-hour rule, under which a detailed description of cargo and its owners must be transmitted to U.S. Customs 24 hours before the vessel sails from the final foreign port to a U.S. port, is of particular relevance. U.S. Customs began enforcing this rule on February 2, 2003 with non-compliance resulting in fines and containers left on the dock.

The 24-hour rule addresses shortcomings in the current system. Even if companies are able to generate the manifest information, very few can do so at the level of detail and by the earlier deadline that U.S. Customs now demands.

The Sunrise Date

Global Trade Item Numbers (GTINs) are used for tracking goods in the supply chain. Barcodes are the most common type of GTIN. For North American companies, the most common barcode standard, the UPC-12 format found on most goods, will no longer be supported as of January 1, 2005 (The Sunrise Date). The new standards set by the Uniform Code Council (UCC) will require at least two additional digits and perhaps an entirely different technology such as Radio Frequency ID (RFID) tags to cope with the more detailed reporting and high-speed manifest reconciliation necessary to meet the CSI regulations.

Costs for companies that do not comply with CSI and Sunrise standards include:

• Empty shelves or silent factories as their goods sit idly at a foreign port.
  
• Lower margins from the inability to accept new suppliers or build an international customer base.
  
• Outdated procedures and obsolete equipment creating business and technological hurdles.
  
• System failures from incompatible data transmissions, resulting in down time, lost sales, and increased service charges.

Who Is Affected

Companies in the three market sectors listed below will feel the greatest impact from these initiatives, with pass-through effects in other sectors:

• Major retailers, importers, and U.S. manufacturing companies who receive goods or raw materials from overseas.
  
• Domestic suppliers who sell to retail and distribution chains and who must match the new tracking and GTIN requirements.
  
• Manufacturers of scanning and tracking equipment, supply-chain software vendors and service providers.

These companies need to review their entire set of processes and systems, from store inventory tracking through purchasing, manufacturing and delivery, to ensure regulatory compliance and effective management. Even if a company’s own processes ensure proper tracking and notification of the status of goods, that company must still exert greater control over its supply chain to manage the inevitable swings in inventory resulting from disruptions to sailing and trucking schedules caused by ill-prepared supply chain participants.

What To Do

Companies should immediately begin their vulnerability assessment, constructing an “as-is” map of their entire supply chain that incorporates internal departments, suppliers, manufacturers, and various supply-chain partners. Reviewing legal issues, including contracts with suppliers for regulatory compliance and service level agreements (SLAs), is also vital to determine system transaction expectations. Joining the Customs-Trade Partnership Against Terrorism (C-TPAT) program run by Customs will assist companies in supply chain security self-assessment.

When considering remediation, companies should investigate new technologies such as RFID tracking that may offset regulatory expenditures with efficiency gains. Companies have a choice of solutions to improve the EAI features of their systems including:

• Remediation of existing systems
  
• Installation of new integrated packaged or custom solutions
  
• Outsourcing of their supply chain management to a vendor able to deliver regulatory compliance with cost-effective gains in efficiency.

The rules have changed for members of the world’s biggest economy. Regulations will eventually demand the near-real-time status of virtually every asset in a company’s supply chain, internationally as well as domestic. The good news is that systems technology has reached a level of maturity where the software can support the needed tracking and management oversight, and that the costs of compliance can be largely offset through associated efficiency gains through inventory management. Successful integration of the CSI and the Sunrise Date into your enterprise can be the most valuable act of effective supply chain management in this generation.

Gordon Fuller is the Director of e-Business for Covansys Corporation (a CSC company), a global consulting and technology services company headquartered in Farmington Hills, Michigan. Mr. Fuller has more than 15 years of experience in technology, logistics, finance, marketing, and strategy planning.