Distribution/ Network/ Configuration

A PHOTO ESSAY ON OPERATING CONTROL
BY ROSS RUDESCH HARLEY

Contemporary distribution stands or falls on the steps taken to securely move and store products, from the manufacturing phase to the customer phase of the supply chain. The global supply chain links together a complex network of organizations, people, technology, logistics, information and resources that are needed to safely move products from the supplier stage to the customer stage of the process.

The configuration of this mobile network optimizes distribution by tracking and moving things as efficiently as possible from place to place. The guarantee of their secure arrival underscores the financial viability of the transportation industry.

In the 1980s, the term Supply Chain Management (SCM) was developed to express the need to integrate the key business processes, from end user through to original suppliers. The basic idea behind SCM is that businesses cooperatively involve themselves in a supply chain by exchanging information regarding market fluctuations and production capabilities. Today’s supply chain security combines SCM with state of the art networked security requirements of the system, which are driven by perceived threats such as terrorism, piracy, and theft.

The supply chain network constitutes one of the world’s largest industries. This global sector mobilizes resources that range from trucks to airplanes, trains, ships, barges, pipelines, warehouses and logistics services. During 2008, the total value of the U.S. transportation industry was about $1.8 trillion. The supply chain, in its many facets and sectors, is estimated to employ about 4.5 million Americans. Recent improvements in credentialing, screening and validating of products, advance notification systems, locks and tamper-proof seals, perimeter checks and surveillance systems provide the security that is essential to today’s SCM.

Speed is a central component of SCM. Despite this, the sequencing and scheduling of inventory often appears immobile, locked away in containers, sitting on docks and lying inert.  Velocity is measured not so much by land-speed, as it is by response time (the time between when a customer places an order and receives delivery). This is a key determinant in differentiating the provision of services by competing firms.
Product variety (the number of different products available in the system) is guaranteed by standardized processing that calculates information inputs and outputs. Thus, information management provides the configurations that a customer desires from the distribution network. In a complex series of sourcing, manufacturing and delivery of products, SCM networks privilege the concept of “availability” above all else (the probability of having a product in stock when a customer order arrives).

According to the principles of SCM, if all relevant information is accessible to all companies, everyone in the supply chain has the possibility of optimizing the entire supply chain (rather than making it less efficient based on local self-interest). SCM suggests that this will lead to better planning of production and distribution, which cuts costs and provides a better overall product. However, none of these efficiencies can be attained if the security of the supply chain cannot be guaranteed.

The wide acceptance of SCM has given rise to a new kind of competition in the global market. Competitive edge is no longer based on one company versus another, but rather takes place on a supply chain versus supply chain basis. For this reason, standardized data models have been implemented by the World’s Customs Organization in an effort to improve operational capacity while maintaining security of the overall system.

Their Framework of Standards to Secure and Facilitate Global Trade, known as the “SAFE Framework” underscores the manner in which SCM approaches have influenced security management. The Container Security Initiative (initiated in 2002 by the U.S. Bureau of Customs and Border Protection under the auspices of Homeland Security) extends the zone of security outwards to reciprocal  participant countries. Such initiatives seek to reduce the reporting burden of industry through the elimination of duplicated data entry and by maximizing the re-use of information across regulatory agencies.

Several distinct problems for SCM security have arisen in the wake of the global financial crisis of 2008/9. As retail and business-to-business sales have fallen, worldwide purchasers and importers of goods have implemented inventory reduction to better position themselves for the recession. Because of this, orders to manufacturers have plummeted, and therefore the need to ship goods has plummeted as well. Much of the global distribution network currently lies idle, and security vunerabilities do not have the same priority as economic fundamentals.
The global credit crisis has made it extremely difficult (sometimes impossible) to get vital trade financing that has historically funded the flow of global shipments. In global capitalism, circulation (of all kinds) is crucial to the operation of the economy. However, firms that operate the container ships that traverse the world have seen a dramatic reduction in business. Intense competition and empty ships have created a fall in shipping prices. Ports are suffering a large decline in arrivals.

In early March 2009, the number of massive container ships sitting idle globally was estimated at an all-time high of 453 vessels. Container shipping prices had fallen by more than 90% at one point in early 2009.

Air cargo has seen substantially changes, with a global drop of 23% in January 2009. According to business reports, firms such as UPS, DHL and FedEx are experiencing a significant slowdown in the movement of products via their global networks.

The recent downturn in global distribution needs to be seen in a broader historical context. According to World Trade Organization statistics through 2005:

* World merchandise exports have risen from $157 billion in 1963 to $10.159 trillion (in 2005).
* The nations of the European Union lead the world in merchandise exports, accounting for $4.0 trillion in 2004 and representing 39% of all global merchandise exports. The US accounted for $904 billion, representing 8.7% of all global exports; China accounted for $762 billion, representing 7.3%; Japan accounted for $595 billion, representing 5.7% of all global exports.

“Distribution/Network/Configuration: A Photo Essay On Operating Control”, in Andrew R. Thomas (ed), Supply Chain Security, Praeger Security International, Connecticut, 2009, [forthcoming].