trends in supply chain risk management -...
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Copyright © 2012 BSI. All rights reserved.
Trends in Supply Chain Risk Management
Dan PurtellSenior VPBSI Supply Chain Solutions
The Health and Personal Care Logistics ConferenceApril 2nd, 2014
4/18/2014
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BSI – Over 110 Years of Innovation
• World’s first National Standards Body• Founding member of International
Standards Organization (ISO)• BSI authors over 2,000 standards
each year• 57 offices worldwide
• 70,000 customer locations
• 150,000 audit days performed each year
• More than 65,000 students trained in 2013
• Revenue: £254.6m (+4%)• Operating Profit: £32m (+11%)• Gross profit margin: 49.3% (+0%)• BSI is debt free and all profits are
reinvested in the company under our Royal Charter Status
BSI, a Royal Charter Company
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SCREEN Intelligence Portal:
• Supply Chain Risk Analysis• Global Risk Maps• Incident Reporting• Country Risk Reports
Supplier Compliance Manager:
• Automated Global Supplier Vetting Solution• Customizable Assessments
• Government Supply Chain Security Programs (C-TPAT, AEO, PIP)• Corporate Social Responsibility• Business Continuity Planning
• Customizable Corrective and Preventative Actions • Individualized Supplier Risk Ratings • Detailed Supplier Risk Reports • Global Supplier Mapping
BSI Supplier Verification Audits:
• Assessing and completing the BSI Verified Company Profile• Supply Chain Security• Government Compliance (C-TPAT, PIP, AEO)• Corporate Social Responsibility Quality
BSI Supply Chain Solutions Offerings
BSI SCS Advisory Services:
• C-TPAT Program Prep & Validation Assistance• Gap Analysis• Cargo Theft ROI Analysis• Security & Threat Awareness Training
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Presentation Objectives
1. Supply Chain Risk is Predictable• Where are you most likely to get burned and what type of incident
will it be
2. Supply Chain Risk Can be Mitigated• You can have a low risk supplier and supply chain in a high risk
region/country
3. You can demonstrate the value of supply chain security and compliance
4/18/2014
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Trends in Supply Chain Risk Management
The Compliance World is growing:
• GMP• GDP• C-TPAT• PIP• AEO• FDA Supply Chain Security• Traceability and serialization• Dodd-Frank• FCPA and Anti-Bribery• OFAC & Restricted Party Screening
Supply Chain Trends:
Positive Trends -• Pharma and FDA regulated firms view
compliance as self-regulate or be regulated• Associations are forming standards and
pooling supplier audits• Audit requirements are being consolidated:
• Example GMP & C-TPAT
Challenging Trends -• Decentralized logistics and security
operations• Cost Pressure:
• Transportation cost pressures shifts to low cost providers
• Security funding cuts
4/18/2014
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SCAN – Audit Sharing Concept• Similar association and
strategy to Rx-360• BSI selected to be third
party administrator, audit firm and solutions provider
• Formed in January 2014 Scottsdale AZ
• Annual Revenue of members more than $1.5 Trillion a year (8% of US GDP)
• Process endorsed by US Customs and C-TPAT office
• Security focused with possibility to extend to Social Responsibility and Business Continuity
18/04/2014
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Supply Chain Risk
4/18/2014
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IBM Supply Chain Risk Study
Do you feel risk in your supply chain is flat, increasing or decreasing?
• 494 Senior Supply Chain Managers participate
• 77% indicated their supply chain exposure is increasing
• 0 respondents indicated their exposure is decreasing!
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IBM Supply Chain Risk Study
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BSI Supply Chain Risk Study
41.4%
56.1%
48.8%
68.3%
53.7%
36.6%
46.3%
2.4%0.0%
50.0%
100.0%
SocialResponsibilities
Brand protectionincluding
counterfeiting,intellectual property
rights &unmanifested cargo
Governmentcompliance
including C-TPAT,AEO, PIP
Supplier riskassessment
Business continuity(including naturaldisasters, labor
strikes/portoutages)
Political Instability Financial risksincluding cargo
thefts, counterfeits,insurance increasesas well as transport
security costs
Other (specify)
What Are Your Top Supply Chain Concerns?
Survey of 310 C-TPAT Certified Companies
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BSI Strategy - a Risk Based Approach
A holistic intelligence based approach to supply chain risk management, leveraging standards, verification, and supply chain tools to provide transparency of supplier risk thereby instilling confidence, trust and objectivity.
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• Cargo Disruption• Cargo Theft • Hijacking Exposure • Unmanifested Cargo• UMC - Drugs • UMC - Arms and Weapons • UMC - WMD• UMC - Human Smuggling • Counterfeiting • Sea Piracy • Anti-Western Terrorism • Supply Chain Terrorism• Political Stability• Economic and Financial Stability • Supply Chain Corruption• Export Controls
• CSR - Human Rights • CSR - Environmental• CSR - Child Labor • CSR - Women's Rights • CSR - Working Conditions • BCM - Natural Disaster Exposure • BCM - Business Impact of Natural Disasters • BCM - Man-Made Disruption and Disasters
• Additional Categories…
Proprietary IntelligenceSupply Chain Specific Risk
Covering Over 200 Countries
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2013Annual C-TPAT Conference General Session
“We rely solely on BSI Supply Chain to quantify supply chain risk for my team globally…it’s also the data we use to assess your
supply chain risk”
Dan BaldwinDirector Cargo Conveyance SecurityC-TPAT Program Manager
CBP, DHS and C-TPAT Use of Intelligence
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AUTO/AEROSPACECounterfeitingITAR Violations
Electronic EspionageSmuggling
AGRICULTURE & PREPARED PRODUCTS
Agro-TerrorismChain of Custody
Supplier TraceabilityInvasive Species
Smuggling
ELECTRONICSCounterfeiting
Theft & DiversionElectronic EspionageHijacking Exposure
PHARMA, HEALTH & CHEMICALS
Product AuthenticationCounterfeiting
Chain of CustodyTheft & Diversion
Hijacking ExposureHealth & Safety
Quality
APPAREL, FOOTWEAR & TEXTILES
Corporate Social ResponsibilityBrand ExposureCounterfeiting
PETROLEUM, NATURAL GAS & MINERALSSupply Chain Terrorism
Sea Piracy Theft & DiversionEco-Systems Risks
CONSUMER PRODUCT &MASS MERCHANDISINGCorporate Social Responsibility
Brand ExposureCounterfeiting
Anti-western Terrorism &
Supply Chain Terrorism
Product Counterfeiting
& Product Integrity
Commodity Targeting by
Risk
Cargo Disruption
Chain of Custody Exposure
Risks
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Indonesia Audit Report Taiwan Audit Report
= Risk
Traditional Risk Assessment Model
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Threats to Air Cargo Security in Africa and the Middle East
4/18/2014
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Pollution
Hazardous Material & Waste Management
Should we be Surprised
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Reputational Risks
POLLUTION
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Predictive Modelinga Cargo Theft Review
4/18/2014
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Supply Chain Risk - Trends
• The Good:• Global adoption of C-TPAT Minimum Security
Criteria is reducing cargo theft loss levels and ‘crimes of opportunity’
• Force Multiplier with Cargo Security programs• Incorporation of Security into 3rd party
assessment schemes (Social & Quality)• Some country risk levels dropped in 2013
• The Bad• Due to competition, firms are forced to source
materials and manufacturing in high risk regions• Political Instability on the rise in several key
countries (Egypt)• Economic downturn in some countries & EMEA
have impacted cargo disruption rates• The Ugly
• Organized crime is shifting from white to blue collar crime in many countries
• Sophistication of supply chain attacks on the supply chain
• Countermeasures are being defeated
4/18/2014
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Pharma Cargo Theft and Supply Chain Risk Summary
• Biggest growth opportunities represent significant risk:• BRIC: Brazil, Russia, India China• South Africa and South Sahara • Turkey
• Top threats and challenges facing industry:• Globalization of Manufacturing• Counterfeiting• Illicit Trade / Product Diversion• Cargo Theft• Chain of Custody
• Pharma Supply Chain Conundrum ‘Self Regulate or be Regulated’
4/18/2014
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Disruption Vulnerability by Mode of Transportation
Control and level of security
Leve
l of
disr
upt
ion
High
Low
Elevated Low
Hig
h
Factories; DCs
Less-than-fulltruck load
Full truck load
Elev
ated
Rail
Air
Sea
85% of incidents occur once cargo
leaves the factory
Copyright © 2012 BSI. All rights reserved. 254/18/2014
BSI 2014 Global Loss Forecast
$23.5 Billion
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Cargo Theft – United States
4/18/2014
Concentration of Cargo Theft in the United States 2013
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Cargo theft in the United States• Heavily concentrated in five states
o 65 percent of all cargo theft incidents recorded by BSI in 2013 occurred in these five states
• Thieves continued to target parked, unattended cargo trucks at parking and drop lots, both secured and unsecured
o 41 percent of all thefts recorded by BSI occurred at one of these types of lots
o 25 percent of all theft in the United States took place at a truck or rest stop or gas station
o 17 percent of all theft occurred at a factory, distribution center, or logistics facility
• Thieves in the United States primarily stole shipments of food and beverages (22 percent), electronics (12 percent), and consumer goods (12 percent)
• Pharmaceuticals, metal, and alcohol and tobacco were targeted frequently
4/18/2014
19%
18%
10%
10%
8%
35%
Cargo Theft in theUnited States
2013
Texas California Florida Illinois Georgia Other
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Predictable Intelligence - Cargo Theft in Italy
4/18/2014
BSI Cargo Theft Threat Rating by RegionAreas of greatest concentration of cargo theft
2013 – 2,000+ FTL Loads Stolen 2011/12 – 5,400+ FTL Loads Stolen
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Southern “Problem Regions”
• Widespread presence of Mafia-type groups in the following regions make them vulnerable to a host of supply chain disruptions • Apulia (Sacra Corona Unita): cargo theft, smuggling • Calabria (‘Ndrangheta): drug trafficking• Campania (Camorra): cargo theft, counterfeiting• Sicily (Cosa Nostra): cargo theft• All of these groups also engage in extortion and
corruption of state officials, which may pose a threat to the supply chain in a number of ways
• “Clan” organizational structure of these groups makes these groups more dangerous to the supply chain• Groups function more like loosely-linked individual
gangs• Individual clans specialize in a certain type of activity in
their geographic areas of influence• Creates organizational resiliency
• Problems tend be concentrated around transportation hubs, mostly ports• Apulia – Bari• Campania – Naples• Calabria – Gioia Tauro• Sicily – Catania, Palermo
4/18/2014
Index of Mafia Presence
Additional Credit: Catholic University of the Sacred Heart, Milan and Transcrime
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Increasing Cargo Theft Numbers in Russia
• A significant portion of the incidents, around 25 percent, are hijackings
• Theft frequency and GDP correlation
• Anti-corruption efforts within police forces led to more than 100,000 police officers relieved – many now turned to full time cargo theft
• BSI noted a 2.5 percent increase in cargo theft incidents in Russia in 2013, and a 9 percent increase since 2011
• Russia suffers from a lack of security infrastructure and even basic road and rail infrastructure is sub-standard
• Hard-sided trailers are difficult to find
• Russia has even less secured parking than most areas of Western Europe
• GPS/GLONASS is not widely used
• Trips by road that should take less than 10 hours sometimes take multiple days• Increases the vulnerability of cargo since more stops are
required, potentially in unauthorized areas
4/18/2014
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FTL Cargo Thefts in Russia
4/18/2014
3,583
3,8093,905
3400
3500
3600
3700
3800
3900
4000
2011 2012 2013 (Annualized)BSI Estimates 30% of incidents are reported
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Modeling Risk in the Supply Chain
Predictive Intelligence
Cargo Theft
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My Early Supply Chain Challenge
• Intel Pentium II• With attached heat sink attached, the
size of a P-II was approximately three iPhones
• Retail per unit: $250 - $400• Truck Value up to $6M USD
• Intel Pentium 4• ½ the size of a standard business card• 1/10” thick• Retail per unit: $800 - $1,500• Truck Shipment Value: $150M
18/04/2014
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“Security is a necessary evil and just like taxes –I constantly pay into it and I get nothing in return”
Quote from Chief Operating OfficerFortune 100 CompanyHigh Tech Product Manufacturer
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Pharmaceutical Cargo Theft Trends• High value = high risk
• A product’s appeal as a target for theft can be related to
• Whether or not most medical insurance covers the pharmaceutical
• If the product can be used for secondary illegal use
• Pharmaceuticals and medical insurance
• Value, and black market value, rises if a pharmaceutical product is not covered under most medical insurance
• Value, and black market value, decreases if a pharmaceutical product is covered under most medical insurance
• Illegal uses of pharmaceuticals
• Product’s black market value increases if the drug can be used for illegal uses
o Ex: precursor for production of methamphetamine, recreational use
• Product’s black market value decreases the fewer illegal uses it has
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National Insurance Coverage vs. Targeting
Recreational and Unauthorized Uses vs. Targeting
Nat
iona
l ins
uran
ce c
over
age
Recr
eatio
nal a
nd U
naut
horiz
ed U
ses
Appeal as a target for theft
Appeal as a target for theft
Yes
No
Yes
No
Lower
Lower
Higher
Higher
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Predictive Modeling ExampleQuantifying Supply Chain ROI
• Pharmaceutical Manufacturer• Manufacture $1 Billion of goods for the European Market• Ship goods over the road using standard shipping methods, primarily trucking• Product is liquid, can be sold on black / grey market
36
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Factory
Routing Cargo Flow Risk
Copyright BSI 2014
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Predictive Modeling Forecasting Variables
Company Specific:
• Historical Losses
• Geographical Risks
• Brand Recognition
• Product Recognition
• Shipment Frequency
• Revenue Exposure
• Product Density
• Transportation Routing
• Manufacturing Locations
Data SCREEN Sources:
• BSI Loss Repository ($13 trillion in global commerce):
Client Losses
Insurance Losses / Claims
Law Enforcement Records / Reports
Transportation Mode
Modus Operandi
• Crime Rates
• Economic Indicators
• Corruption Index
• Countermeasure Effectiveness
Copyright © 2013 BSI. All rights reserved. 39
Unprotected Loss Forecast
Frequency Chart
Certainty is 68.00% from 1,436,567.44 to 1,749,743.08
.000
.001
.003
.004
.005
0
13.5
27
40.5
54
1,216,456.04 1,386,346.86 1,556,237.68 1,726,128.50 1,896,019.32
10,000 Trials 9,992 Displayed
Forecast: Annual Unprotected Loss Forecast
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Countermeasure DeterminationEscorts
Physical SecurityLogistics Inco-Terms
Geographical Avoidance
Dual Drivers
Standards Cert 28000
Telematics
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Determine Cost Benefit Analysis
Frequency Chart
Certainty is 65.00% from $4,263,037 to $5,038,671
.000
.004
.007
.011
.014
0
35.5
71
106.5
142
$3,852,691 $4,299,115 $4,745,538 $5,191,961 $5,638,385
10,000 Trials 9,993 Displayed
Forecast: Unprotected Loss Forecast: Mexico City
Fina
ncia
l Im
pact
Cost Avoidance
Q2 $1,750,000 - Q1 $46,000 - Countermeasure Cost $79,000
= Cost Benefit $1,625,000
Q1
Q3
Q2
Unprotected Loss Forecast $1,750,000Protected Loss Forecast ($46,000)Countermeasure Cost ($79,000)
Cost Benefit $1,625,000
Frequency Chart
Certainty is 65.00% from $466,097 to $727,930
.000
.003
.007
.010
.013
0
33.5
67
100.5
134
$393,112 $528,931 $664,750 $800,568 $936,387
10,000 Trials 9,962 Displayed
Forecast: Unprotected Loss Forecast: Mexico City
Copyright BSI 3/27/2013
Cost Benefit Ratio$20 to $1!
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Determining the Right Level of Spends
Frequency Chart
Certainty is 65.00% from $4,263,037 to $5,038,671
.000
.004
.007
.011
.014
0
35.5
71
106.5
142
$3,852,691 $4,299,115 $4,745,538 $5,191,961 $5,638,385
10,000 Trials 9,993 Displayed
Forecast: Unprotected Loss Forecast: Mexico City
Loss
es
Security Overspends
Common Causes of Security Overspending: 1. Cookie Cutter Approach with Security Thresholds 2. Securing Trade in Low Risk Regions 3. Excessive cost of Security Countermeasures
Q1
Q3
Q2
Frequency Chart
Certainty is 65.00% from $466,097 to $727,930
.000
.003
.007
.010
.013
0
33.5
67
100.5
134
$393,112 $528,931 $664,750 $800,568 $936,387
10,000 Trials 9,962 Displayed
Forecast: Unprotected Loss Forecast: Mexico City
Unprotected Loss Forecast: $1,000,000Protected Loss Forecast: $50,000Countermeasure Cost: $1,500,000Cost Benefit: -$550,000
Copyright © 2012 BSI. All rights reserved. 43
Sample Country ROI Analysis
• Unprotected Loss Forecast on the € 3.6 billion of goods sold in Italy is €7.6 million
• The Protected Loss Forecast is very high considering firm’s typical rate of Protected Losses (€2.5M):• Countermeasures much less effective in
Italy• Corruption • Organized Crime’s participation in
Supply Chain crimes• Insider information & targeting
• Despite substantial risk and high protected loss forecast, the rate of return is very attractive 12 to 1
Unprotected Loss Forecast € 7,637,718Protected Loss Forecast € 2,475,855Countermeasure Cost € 400,000ROI of firm’sCountermeasures € 4,761,863Rate of Return € 11.90 to € 1
Copyright © 2012 BSI. All rights reserved.
Dan PurtellSenior VPBSI Supply Chain [email protected]