ISM National Capitol Chapter Early Bird Seminar September 10, 2013

17-2  Supply chain risk management  Product complexity  Regulatory  Resource availability  Security

17-3  Supply chain risk management

17-4  Balanced scorecards had expanded supply chain performance measures to include return on assets and revenue  Sustainability of business operations is critical and led to more long-term focus in strategy development

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17-6  New product introductions and global expansion bring significant challenges to the supply chain  Sustainable supply chains must mitigate, respond and recover from likely risks ◦ Product complexity ◦ Regulatory challenges ◦ Resource availability ◦ Security threats

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17-8  Product complexity

17-9  Increased complexity results in higher supply chain cost ◦ More inventory, fewer economies of scale and more management attention  Increase complexity often results in increased revenue ◦ May improve profitability and asset utilization  Less complexity (aka more commonality) reduces supply chain costs ◦ E.g. Toyota has only two variants for auto door latches while competitors have over 10  Reduced product variations may lower sales ◦ Firm’s offerings are less attractive with fewer features or characteristics

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17-11  Regulatory

17-12  Promote activity ◦ Encourage certain work in a specific country or region by providing financial or tax incentives  Constrain activity ◦ Limit types of activities that can be done in a country or region to reduce impacts  Some examples ◦ Environmental ◦ Financial and taxation

17-13  Green initiatives include regulations and activities to directly reduce the supply chain’s impact on the environment  Examples ◦ Federal government mandate to reduce harmful vehicle emissions ◦ WalMart effort with suppliers to reduce packaging waste ◦ Dow Chemical redesign of supply chain to reduce environmental impact

17-14  Numerous US states encourage container returns by requiring deposits for consumer beverage containers  Wastes of Electric and Electronic Equipment (WEEE) legislation passed in European Union ◦ Requires recycling of electronic waste  How active should a firm be in promoting recycling initiatives through public policy?  Who should design the reverse logistics systems? ◦ Public policy and legislators? ◦ Private enterprise?

17-15  Governments are responsible for ◦ Facilitating the movement of people and goods across borders ◦ Safety of people, commerce and country  Traditional focus of government agencies has been control of trade  Contemporary focus is shifting to trade facilitation and securing supply chain operations with trusted partner countries

17-16  Resource availability

17-17  Changes in availability of resources dramatically changes supply chain design and operations  Key resources include ◦ Supply chain expertise ◦ Transport capability  Outsourcing is one method of managing this risk

17-18  Diesel fuel represents 30% of overall transportation cost ◦ Dramatic shifts in fuel costs require regular assessments of network structure and strategy  Fuel price volatility has two impacts on supply chain decisions ◦ Influences the viability and flow of global trade ◦ May change domestic logistics network

17-19 U.S. Diesel Fuel Prices Since 1994 (in USD per gallon)

17-20  Use of third-party logistics (3PL) firms or logistics integrators to provide services on a contractual basis ◦ 3PL providers offer integrated transportation and warehousing services ◦ Integrated service providers  Solicit and coordinate logistics services  Provide resource management expertise  Shift risk of a supply chain activity to an outsourcing partner with expertise  Pooling capacity across clients results in a lower risk of not being able to meet customer demands in a surge

17-21  Security

17-22  Developing a secure supply chain  Rationale for supply chain protection  Cross-border operations

17-23  Supply chain security is: ◦ the application of policies, procedures, and technology ◦ to protect assets, product, facilities, equipment, information and personnel ◦ from theft, damage, or terrorism ◦ and to prevent the introduction to the supply chain of unauthorized contraband, people, or weapons of mass destruction

17-24  Resiliency is the ability of the supply chain to withstand and recover form an incident  Resilient supply chains: ◦ Are proactive in anticipating and establishing steps to prevent and respond to security incidents ◦ Can quickly rebuild or reestablish alternative means of operations when they experience a security incident

17-25  Proactively enhance supply chain resiliency against terrorism  Consequences of supply chain security failures ◦ Terrorist attack causes widespread disruption to customer delivery capabilities ◦ Reduced brand equity if customers believe attack was due to neglect ◦ Loss of revenue leads to loss of investor confidence and sale of stock ◦ Disruption could increase regulatory scrutiny ◦ Terrorist attack could result in significant legal liability

17-26  Brand protection is the primary reason ◦ Fear product contamination will damage customer perceptions ◦ Firms now require greater security from their suppliers with initiatives such as quality certification programs, audits, the Customs- Trade Partnership Against Terrorism (C-TPAT)  Government pressure is another factor ◦ Bioterrorism Act of 2002  Firms engaged in food processing must be able to trace raw materials and finished goods one step up and one step down the supply chain ◦ “Country of origin labeling” (COOL) guidelines have been developed for some agricultural and food products

17-27  Certify known shippers through self-appraisals of security procedures coupled with customs audits and verifications  For a more detailed discussion regarding C- TPAT select the URL link: p/cgov/trade/car go_security/ctpat /what_ctpat/ p/cgov/trade/car go_security/ctpat /what_ctpat/

17-28  Pre-screening of containers coupled with fast tracking when cargo reaches the U.S.A.  A more detailed description can be found by selecting the URL link: gov/xp/cgov/tra de/cargo_securit y/csi/ gov/xp/cgov/tra de/cargo_securit y/csi/

17-29  Advanced Manifest Rule (AMR) ◦ Requires detailed cargo data before shipping to or from the U.S.A. Examples of how AMR has influenced border operations  CustomsToday/2004/Mar ch/Other/rules_cargosecu rity.xml CustomsToday/2004/Mar ch/Other/rules_cargosecu rity.xml  Advanced Cargo Information (ACI) ◦ Requires more detailed information prior to acceptance into U.S.  Free and Secure Trade (FAST) ◦ Allows low-risk goods transported by trusted carriers for trusted firms to pass rapidly through border crossings  For a more detailed discussion, select URL link: v/xp/cgov/trade/ca rgo_security/ctpat/f ast/ v/xp/cgov/trade/ca rgo_security/ctpat/f ast/

17-30  Questions? Thank you! Dr. Frank R. Scheer Contracting Officer USPS Fuel Management 475 L’Enfant Plaza, SW – 1P800 Washington, DC (202)