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GT.ppt-1 1 Supply Chain Security & Productivity Freight Security Issues Talking Freight Seminar Series 15 September 2004 Chelsea C. White III The Logistics.

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Presentation on theme: "GT.ppt-1 1 Supply Chain Security & Productivity Freight Security Issues Talking Freight Seminar Series 15 September 2004 Chelsea C. White III The Logistics."— Presentation transcript:

1 GT.ppt-1 1 Supply Chain Security & Productivity Freight Security Issues Talking Freight Seminar Series 15 September 2004 Chelsea C. White III The Logistics Institute

2 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

3 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

4 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?

5 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

6 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

7 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

8 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.

9 GT.ppt-9 9 Lead Time Increase Results in Safety Stock (and hence cost) Increase

10 GT.ppt Variability in Lead Time Reduces Profits

11 GT.ppt Reducing Unit Production Cost Increases Profit

12 GT.ppt 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

13 GT.ppt U.S. GDP & Trade History GDP growth has averaged 3.2 %/year; trade in goods, services is now 22% of GDP Source: Bureau of Economic Analysis

14 GT.ppt st Century/Information Era Global 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 Coast Canadian Border Pacific Coast Gulf Coast Mexican Border

15 GT.ppt China is the worlds largest factory in the early 21 st century, it produces: More than 50% of the worlds 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

16 GT.ppt Chinas consumption rate grew annually at about 8.8% to 10.1% from 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

17 GT.ppt Expanding U.S. China Trade Relations U.S. Exports to China U.S. Imports from China Total 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 U.S. exports to China rose 28.5% in U.S. imports from China rose 22.3% in 2003 China is the second largest trading partner of the U.S.

18 GT.ppt 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

19 GT.ppt Statement: CSI has forced us into improving visibility … havent seen any negative. However, there may be situations where inefficiencies may occur. We illustrate with an example. Possible Supply Chain Productivity Impacts

20 GT.ppt 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

21 GT.ppt 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

22 GT.ppt Scenario 1 Singapore Los Angeles 15 days load unload Inter-sailing Time: 7 days inspect

23 GT.ppt Scenario 1 Inspection %E[D]Safety stock (SS) Reorder point (r) % increase (SS)% increase (r) 0% % % % % % % % % %

24 GT.ppt 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

25 GT.ppt Scenario 2 Non CSI portLos Angeles 15 days load unload inspect

26 GT.ppt Scenario 2 Inspection %E[D]Safety stock (SS) Reorder point (r) % increase (SS)% increase (r) 0% % % % % % % % % %

27 GT.ppt Summary Example – illustrated when pushing back the borders may adversely affect supply chain productivity More detail on the research can be found at


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