Security: A Big Value to Logistics Customers
Getting goods to their destinations safely and securely sums up the value proposition of logistics companies.
But doing so has become more and more a challenge as shipping volumes have risen over the past 20 years, especially as Thailand and Vietnam take on ever greater portions of the world’s manufacturing output. Compounding this are customer expectations of information access and speed of execution and actual shipment times.
According to Microsoft founder Bill Gates, “If the 1980s were about quality and the 1990s were about reengineering, then the 2000s will be about velocity: How quickly the nature of business will change…how quickly business itself will be transacted. It’s about how information access will alter the lifecycle of consumers and their expectations of business.”
What does this mean for Southeast Asia’s logistics industry? Plenty. Today our desire to tap into the global economy plus our need for greater information access and speed compounds our need for better controls. Put another way, poor controls in globalizing supply chains can leave doors wide open for thieves, internal and external, as well as other causes of lost goods including in-transit damage and fraud.
What are our future security challenges?
The transportation and logistics market is valued at about $250 billion with an estimated $18 billion in losses. Companies are hiring global and regional security directors and moving towards centralized procurement and standardization of security requirements. This is good. But they also need to centralize security decision making. They need to consider creating a more senior role within their organizations, such as a chief security officer who reports directly to the chief executive officer. This gives priority and adds visibility to security issues.
According to a 2006 PricewaterhouseCoopers study, when asked about the two most serious financial losses that affected their organizations, 20 percent of transportation and logistics companies worldwide indicated that crime was a key concern, compared to only nine percent of companies in other industries. The study also stated, “Transportation and logistics executives may well be underestimating the extent to which their companies are impacted by intangible factors. While most executives only think of the financial damages, in many cases the impact can be much more wide-reaching.”
In fact, no less an expert than Glenn Nilsson, Hewlett Packard’s global supply chain security manager and chairman of TAPA Americas, the Transported Asset Protection Association, would agree: “Theft cannot be measured solely by the value of goods, but also by the cost of lost market share, unhappy customers and making claims. It has been calculated that the overall loss is on average five times the value of goods stolen.” The bottom line is that security must be built into the supply chain from the beginning.
Economic crime has an impact on every aspect of business, relations with staff (motivation), clients (brand/reputation) and suppliers (business relations). Also, many companies perceive economic crime as a third-party threat, while in reality more than half of the perpetrators (56 percent) are their own employees.
Decision making for security investments
The bottom line for investment into a new or replacement security system for logistics professionals lies in clearly understanding the current security risk. This is as much about people and process change as it is about technology. To accomplish this one might want to bring in outside consultants.
In any event, a company needs to analyze the current situation, in terms of meaningful metrics and resource utilization. To develop the desired security system and solutions, it is necessary to identify how and where technology can assist in providing better results. The benefits fall into two classes – tangible and intangible. Tangible benefits are much easier to identify and measure because they decrease labor, create efficiency and reduce loss. These benefits represent a potential cost savings. However, intangible benefits are more difficult to quantify, but usually represent top-line revenue improvement reflected enhanced customer satisfaction, service quality, consistency, reliability, efficiency and flexibility.
When competition is investing in new or replacement security solutions, the company that does not keep up faces the possibility of capital decay. Companies that hold back and do nothing may lose their ability to recognize and then implement the key elements of new technology that provide competitive advantage.
Supplier value creation, listening to the customer
Many companies look at market trends and systematically allocate investment capital to products that promise the best short-term return. Suppliers can wrongfully listen to their customers who want more, better and cheaper products of the sort they currently have today, rather than understanding the trends and delivering to their customers the solutions they will need tomorrow.
That’s why it is essential for supplies to serve as active listeners in a collaborative role and help customers to solve today’s security challenges while looking at ways to solve tomorrow’s challenges through thought leadership and innovation. Investments in emerging technologies may promise lower short-term margins, but might lead to true innovations and provide customer’s with a competitive advantage and longer term market potential. These essential truths apply not only security providers and their customers but also logistics providers and their customers.
Value typically falls into either one or two of the following categories; enhanced quality, improved financial performance, enhanced management effectiveness, improved productivity or created competitive advantage. Vendors have to continue to find ways to add value in the marketplace. Either you add value or you become irrelevant.
Customers like doing business with companies who understand their business and have taken the time to think through their issues. They see value in a vendor who comes to the table capable of communicating in terms they understand. A true vendor/partner is one that has taken the time to invest in understanding and thinking through the issues of his customer and providing ideas and knowledge that add to the conversation.
Road map for the future
The convergence of IP-based, intelligent security devices holds all kinds of potential for protecting supply chains. They can enable solutions that let security professionals be more proactive in their fight against crime via data-driven, predictive security models.
These models can reduce risk probabilities or determine what levels of vulnerability are acceptable so goods are not left exposed. Those solutions can be combined with a layered approach that includes redundancy where if one deterrent fails another will kick in to catch, alert or lock-down. Eventually security solutions, with the help of tightly integrated software, can make predetermined decisions about alerts and responses without human intervention.
What’s changing is the intelligence in our devices and the ways we can integrate them or provide more analytical capabilities that can provide pattern recognition of freight movements. Broadband networks interconnecting smart IP security devices will help.
Technological progress needs equal progress in how companies tie these initiatives into their overall IT strategies. Chief information officers need to be included in the security conversation as these devices become smarter and leverage existing IT infrastructure and projects. Getting goods to their destinations safely and security is not just the job of the logistic companies’ security professionals but of everyone who works there. Today this secure supply chain viewpoint can be a competitive advantage; tomorrow it will be a basic requirement.
Alan Parker is Country Manager, Thailand & Vietnam, for ADT Security. He can be reached at firstname.lastname@example.org