gt.ppt-1 1 supply chain security & productivity freight security issues talking freight seminar...

GT.ppt-1

1

Supply Chain Security & Productivity

Freight Security IssuesTalking Freight Seminar Series

15 September 2004

Chelsea C. White IIIThe Logistics Institute

GT.ppt-2

2

Claim & Outline• Claim: New U.S. security

initiatives improve U.S. homeland security and have ancillary benefits, such as improved productivity and reduced pilferage (“win-win”).

• Outline:• CSI, ‘pushing back the borders’• Off-shoring and supply chain

productivity• Importance of foreign trade to

the U.S. economy• Example

GT.ppt-3

3

Claim & Outline• Claim: New U.S. security

initiatives improve U.S. homeland security and have ancillary benefits, such as improved productivity and reduced pilferage (“win-win”).

• Outline:• CSI, ‘pushing back the borders’

• Off-shoring and supply chain productivity

• Importance of foreign trade to the U.S. economy

• Example

GT.ppt-4

4

• Goal• Pre-screen ocean containers at foreign ports• Stop contraband/weapon before departure• “Distribute” screening processes

• The good• Uses (potential) idle time at foreign ports to

conduct screening• Have forced shippers to improve asset visibility

• The not so good• Information timing requirements• Disruptive effects on port export or

transshipment operations and supply chains?

GT.ppt-5

5

CSI + 24 hour rule

• Carriers and/or NVOCCs must submit cargo declaration 24-hours prior to loading a vessel at a foreign port

• Much earlier than previous (hours prior to arrival)

• Freight description• “precise narrative” or 6-digit commodity code• No more: “freight-all-kinds”, “various retail

products”, …• Difficult for consolidators?

• Requires automated data transfer to CBP• Confidentiality • Rule allows targeting of containers at CSI ports

GT.ppt-6

6

Claim & Outline• Claim: New U.S. security

initiatives improve U.S. homeland security and have ancillary benefits, such as improved productivity and reduced pilferage (“win-win”).

• Outline:• CSI, ‘pushing back the borders’• Off-shoring and supply chain

productivity• Importance of foreign trade to

the U.S. economy• Example

GT.ppt-7

7

Supply Chain Productivity

• A key reason for off-shoring is cost• Costs under consideration:

• Product• Logistics

• Transportation• Inventory• Storage

• If total cost is lower off-shore, then consider going off-shore

GT.ppt-8

8

Effect of Lead Time on Profit

• Lead Time: the time it takes to move a good from origin to destination• Geographical separation of manufacturing and market results in:

• Longer lead times (bad)• Higher lead time variability (bad)• Lower unit production costs, if component manufacturing occurs in an

inexpensive labor market (good)

• Decreases in lead time mean and variability and in unit production costs help justify the separation

• Costumer service level (CSL): the probability a customer will find the desired product on the shelf

• Safety stock (SS): the amount of extra inventory kept on hand to insure the CSL is achieved.

GT.ppt-9

9

Lead Time Increase Results in Safety Stock (and hence cost) Increase

0

200

400

600

800

1000

0 0.5 1 1.5 2

Lead Time (Weeks)

Saf

ety

Sto

ck (

Un

its)

GT.ppt-10

10

Variability in Lead Time Reduces Profits

12800

13000

13200

13400

13600

13800

14000

14200

14400

0 0.5 1 1.5 2

Standard Deviation of Lead Time (Weeks)

Exp

ecte

d P

rofi

t ($

)

GT.ppt-11

11

Reducing Unit Production Cost Increases Profit

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

0 5 10 15 20 25 30 35

Unit Production Cost ($)

Ex

pe

cte

d P

rofi

t ($

)

GT.ppt-12

12

Claim & Outline• Claim: New U.S. security

initiatives improve U.S. homeland security and have ancillary benefits, such as improved productivity and reduced pilferage (“win-win”).

• Outline:• CSI, ‘pushing back the borders’• Off-shoring and supply chain

productivity• Importance of foreign trade to

the U.S. economy• Example

GT.ppt-13

13

U.S. GDP & Trade HistoryGDP growth has averaged 3.2 %/year; trade in goods, services is now 22% of GDP

$0

$2,000

$4,000

$6,000

$8,000

$10,000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

uGro

ss D

omes

tic P

rodu

ct (

billi

ons

2004

dol

lars

)

0

10

20

30

40

50

60

70

80

90

100

uTra

de a

s P

erce

ntag

e of

GD

P

Source: Bureau of Economic Analysis

GT.ppt-14

14

-

100,000

200,000

300,000

400,000

500,000

600,000

Mil

lio

ns

of

Re

al

(20

00

) D

oll

ars

21st Century/Information EraGlobal economy is being built on information, telecommunications, and low-cost, long-haul

transport by water, rail, and air; north-south NAFTA trade is expanding rapidly

Source: Transearch and FHWA Freight Analysis Framework Project

Atlantic CoastCanadian Border

Pacific CoastGulf Coast

Mexican Border

GT.ppt-15

15

• China is the “world’s largest factory” in the early 21st century, it produces:

• More than 50% of the world’s cameras

• 30% of the air conditioners and TVs

• 25% of washing machines

• Almost 20% of refrigerators

• More than 33% of DVD-ROM drives and personal desktop and notebook computers

• About 25% of its own mobile phones, color televisions, personal digital assistants, and car stereos

China in the Global Economy

Note: Information on this page is based on December 2003 issue of Foreign Affairs. Reference: C. Kwan, Deloitte

GT.ppt-16

16

• China’s consumption rate grew annually at about 8.8% to 10.1% from 2000-2003

• Color televisions sets in almost every urban home

• Refrigerators and washing machines in more than four out of five homes

• Videodisc players and air conditioners in 50% of homes

• Microwave ovens in almost 1/3 and computers in 1 out 5

• Biggest market for cell phone with 200 million in use and average monthly sale of about $2 million

China in the Global Economy

Note: Information on this page is based on December 2003 issue of Foreign Affairs. Reference: C. Kwan, Deloitte

GT.ppt-17

17

Expanding U.S. China Trade Relations

  2000 2001 2002 2003

U.S. Exports to China 16 19 22 28

U.S. Imports from China 107 109 133 163

Total 123 128 155 191

U.S.-China Trade ($US billions)

Source: U.S. International Trade Commission. Ref: C. Kwan, Deloitte

• Sino-U.S. bilateral trade expanded 23.2% in 2003.

• U.S. exports to China rose 28.5% in 2003.

• U.S. imports from China rose 22.3% in 2003

• China is the second largest trading partner of the U.S.

GT.ppt-18

18

Claim & Outline• Claim: New U.S. security

initiatives improve U.S. homeland security and have ancillary benefits, such as improved productivity and reduced pilferage (“win-win”).

• Outline:• CSI, ‘pushing back the borders’

• Off-shoring and supply chain productivity

• Importance of foreign trade to the U.S. economy

• Example

GT.ppt-19

19

•Statement: “CSI has forced us into improving visibility … haven’t seen any negative.”•However, there may be situations where inefficiencies may occur. We illustrate with an example.

Possible Supply Chain Productivity Impacts

GT.ppt-20

20

Consider the following two-scenario example. For both scenarios:•Goods move from origin port (e.g., Singapore) to destination port (e.g., LA)•Single product is shipped in units of container loads•Vessels leave the origin for the destination periodically•Total travel time is a fixed, known number of days•Objective: keep customer service level constant using safety stock

Possible Supply Chain Productivity Impacts

GT.ppt-21

21

•Port of origin is CSI compliant•Each container may be inspected at origin port before it is loaded on a vessel bound for the destination port•If a container is selected for screening, the inspection time is variable•All containers arriving at destination port receive ‘green lane’ treatment and are not inspected•20% likelihood of ‘role over’ for inspected containers•Time between sailings is 7 days

Scenario 1: Inspect at origin port

GT.ppt-22

22

Scenario 1

Singapore Los Angeles

15 days

load unload

Inter-sailing Time: 7 days inspect

GT.ppt-23

23

Scenario 1Inspection % E[D] Safety stock

(SS)Reorder point (r)

% increase (SS) % increase (r)

0% 177.0 12.7 189.7

1% 177.2 14.1 191.3

2% 177.3 15.4 192.7 0.0 0.0

3% 177.5 16.5 194.4 7.5 0.7

4% 177.7 17.6 195.3 14.5 1.3

5% 177.8 18.6 196.4 21.0 1.9

10% 178.7 22.9 201.6 49.2 4.6

15% 179.5 26.5 206.0 72.4 6.9

20% 180.3 29.6 209.9 92.4 8.9

25% 181.1 32.3 213.4 110.1 10.8

GT.ppt-24

24

•Port of origin does not conduct security screenings•Each container may be inspected at destination port upon arrival•If a container is selected for screening, the inspection requires a stochastic service time•All containers arriving at destination port receive ‘green lane’ treatment and are not inspected

Scenario 2: Inspect at destination port

GT.ppt-25

25

Scenario 2

Non CSI port Los Angeles

15 days

load unload

inspect

GT.ppt-26

26

Scenario 2Inspection % E[D] Safety stock

(SS)Reorder point (r)

% increase (SS) % increase (r)

0% 177.0 12.7 189.7

1% 177.0 12.8 191.3

2% 177.0 12.8 192.7 0.0 0.0

3% 177.1 12.8 194.4 0.2 0.0

4% 177.1 12.9 195.3 0.5 0.1

5% 177.1 12.9 196.4 0.7 0.1

10% 177.2 13.0 201.6 1.8 0.2

15% 177.4 13.2 206.0 2.9 0.4

20% 177.5 13.3 209.9 4.0 0.5

25% 177.6 13.4 213.4 5.0 0.6

GT.ppt-27

27

Summary• Example – illustrated when

‘pushing back the borders’ may adversely affect supply chain productivity

• More detail on the research can be found at www.isye.gatech.edu/setra/