Supply Chain Challenges

Two converging events in supply change management are creating sweeping changes in the retail, distribution and manufacturing industries: the Container Security Initiative (CSI) and The Sunrise Date.

After the terrorist attacks of September 11, 2001, CSI regulations were implemented to prevent threats against goods imported into the United States. As of December 2002, stringent cargo reporting requires that all container manifests for cargo at foreign ports bound for U.S. locations be electronically transmitted to the U.S. Customs Service 24 hours before vessel departure. The CSI will later establish standards for the security and integrity of containers and cargo throughout the transportation supply chain.

Secure and effective supply chains use Global Trade Item Numbers (GTINs), such as barcodes, as critical tracking and audit tools. However, on January 1, 2005 (also called the Sunrise Date) the Uniform Code Council (UCC) will no longer adhere to the standard North American UPC-12 barcode format. Instead, the UCC is recommending longer GTINs to handle increased demand for unique code identifiers. Databases and processes that rely on the older 12-digit standard will also need to be altered. This change, in conjunction with the ongoing CSI efforts, will have far-reaching effects on supply chain practices.

Supply chain planning now demands a broad knowledge of government security regulations, overseas procurement, flexible cargo routing, and effective integration of computer systems to report timely and complete product status at every management and regulatory level.
Companies must address their short-term needs first to ensure that cargo keeps moving in the new CSI environment. However, they must also be aware of the Sunrise issues and long-term CSI objectives to ensure that their solution is effective past January 1, 2005.

Ignoring the Issue Is Not an Option

Adherence to the new regulations and standards is increasingly seen as a competitive advantage resulting in improved freight rates, more favorable transportation logistics, faster time-to-market, and more efficient inventory and audit capabilities. Failure to comply with CSI data reporting requirements may invite severe penalties. Added costs start with having cargo left on the dock, wreaking havoc with just-in-time supply chains, and escalate to financial penalties and reclassification of cargo as high-risk.

Similarly, as of the Sunrise Date, a 12-digit barcode will severely limit a company’s ability to trade efficiently with overseas partners. Companies unable to meet the new standards will pay for the re-labeling of goods, system incompatibility and delays in the supply chain. Non-compliant companies will also face significant hidden costs, including:

• Price advantages for competitors who have made the conversion, resulting in lost sales
• Obsolescence of scanning and tracking software and procedures, resulting in increased replacement costs
• Less efficient warehousing and distribution processes, resulting in increased storage
• Added transportation costs
• Inability to accept new (and possibly cheaper) foreign suppliers, resulting in reduced margins
• Time-to-market delays, resulting in lost sales
• System failures from incompatible data transmissions
  
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