1. Quantifying the Return of Supply Chain Security Countermeasures
Dan Purtell
SVP Supply Chain Solutions
April 22, 2013

2. Agenda Predictive Modeling – Why?
Quantifying Return of Security Countermeasures:
A Supply Chain Loss Prevention Example
Conclusions
Question and Answer

3. BSI Supply Chain Solutions
16/09/2018
SCREEN Intelligence:
Supply Chain Risk Analysis
Global Risk Maps
Spotlight News
Country Risk Reports
Supplier Compliance Manager:
C-TPAT, AEO, PIP supplier vetting solution
Corporate Social Responsibility assessments
Business Continuity analysis
BSI Supplier Verification Audits:
Supply Chain Security
Government Compliance (C-TPAT, PIP, AEO)
Corporate Social Responsibility Quality
Business Continuity
Supplier Customer Specific Audit
Quality Initiatives
Advisory Services:
C-TPAT Program Prep & Validation Assistance
Gap Analysis
Security & Threat Awareness
Quantitative Risk Solutions / Predictive Modeling

4. Predictive Modeling - Why

5. Common Flaws with Risk Assessment Approach
Qualitative approach with quantitative end result:
Subjective type of analysis (high, medium, low) Qualitative
5 x 5 x 5 Model (Threat x Vulnerability x Impact = Risk) Quantitative
Blending Qualitative with Quantitative without Actuary Data
Lack of management buy in with current risk analysis process
Program fragmentation, little to no centralized loss reporting / repository infrastructure
No financial countermeasure backing, management desires return on investment for security spends
Today’s business managers operate in validated quantitative space….subjective analysis are ignored and freight goes unprotected or insured
“Comparing this need with the data collected, corporate methods and tools fall short of a desirable and robust system for risk assessment. The majority utilized qualitative measures that did not clearly connect to business impact. “ Jim Rice, MIT Center for Transportation and Logistics
Supply Chain Response to Terrorism, Creating Resilient and Secure Supply Chains

6. Quantifying Risk and Uncertainty and Risk-Based Spending
Some countries are attractive manufacturing or sourcing countries, yet the risk (verified through predictive modeling) actually shows a lose by market entry
Supply Chain Security & Countermeasure Spending frequently provides positive returns:
Cargo Theft / Loss Prevention (applies to high value, high demand products and high risk countries)
Lower marine insurance rates
Compliance with C-TPAT and lower inspection rates
2013 BSI Cargo Theft Loss Forecast - $23 billion globally
Applies to multiple sectors, not just high value
Risk is not stagnant and yesterday’s countermeasures may or may not still provide a positive ROI
95% of security budgets are spent within the factories of the company
90% of theft of company product occurs within the supply chain

7. My Early Supply Chain Challenge
Intel Pentium 4
½ the size of a standard business card
1/10” thick
Retail per unit: $800 - $1,500
Truck Shipment Value: $150M
Intel Pentium II
With attached heat sink attached, the size of a P-II was approximately three iPhones
Retail per unit: $250 - $400
Truck Value up to $6M USD
16/09/2018

8. “Security is a necessary evil and just like taxes – I constantly pay into it and I get nothing in return”
Quote from Chief Operating Officer
Fortune 100 Company
High Tech Product Manufacturer

9. Predictive Modeling Steps A Loss Prevention Example

10. Step One for Predictive Modeling – Mapping Cargo Flow and Volumes
Origin Factory
Shipment Destination
Number of Annual Shipments
Average Value per Shipment
Annual Value
Barcelona Factory
Crewe, UK
3,200
$ ,404,900.00
$ ,495,680,000.00
Trier, Germany
600
$ ,000.00
$ ,000,000.00
Tiel, Holland 45
$ ,220,500.00
Linz, Austria 23
$ ,000.00
$ ,700,000.00
Athens, Greece
120
$ ,795,000.00
$ ,400,000.00
Londerzeel, Belgium
350
$ ,715,000.00
Ireland
320
$ ,568,000.00
Switzerland 12
$ ,340,000.00
Brno, Czech Republic
Haiger, Germany 90
$ ,050,000.00
Budapest, Hungary 30
$ ,350,000.00
Boras, Sweden 20
$ ,900,000.00
Antwerp, Belgium 70
$ ,150,000.00
UK Port - Belfast
110
$ ,950,000.00
UK Port - Felixstowe
$ ,441,000.00
UK Port - Liverpool
UK Port - Tilbury 5
$ ,024,500.00
TOTALS
5,417 $
$ ,211,397,000.00

12. Step Two - Map Cargo Flow & Infuse with Geographical Risk Assessment
Factory

13. Step Three – On the Ground Assessments or Desktop Analysis
Physical Security & Process Reviews:
Factories
3PL’s & Warehouses
Transportation Providers
Is key in determining if loss ratio or incident frequency should be lowered or raised
Confirm Step – One:
Volume
Values
Product(s)
Routing

14. Step Four – Create Loss Forecast Variables
Company Specific:
Historical Losses
Geographical Risks
Brand Recognition
Product Recognition
Shipment Frequency
Revenue Exposure
Product Density
Transportation Routing
Manufacturing Locations
Data Sources:
BSI Loss Repository ($13 trillion in global commerce):
Client Losses
Insurance Losses / Claims
Law Enforcement Records / Reports
Transportation Mode
Modus Operandi
Crime Rates
Economic Indicators
Regional Economic Activity
Corruption Index
Countermeasure Effectiveness

15. Step Five – Unprotected Loss Forecast

16. Geographical Avoidance
Step Six – Countermeasure Determination
Escorts
Logistics Inco-Terms
Physical Security
Geographical Avoidance
Telematics
Dual Drivers
Standards Cert 28000

17. Step Six Continued Defeated Countermeasures
5,500 FTL Hijackings past 24 months
This GPS tracking jammer 10 meter coverage. Popular item with sales personnel and delivery drivers, who wish to take lunch or make a personal stop outside of their territory or route "off the radar". $119
The 5 Band Super Heavy Duty Adjustable Cell Phone Jammer Range over 50 meters. Jamming GPS,GSM, DCS,PHS,3G $3

18. Q2 $1,750,000 - Q1 $46,000 - Countermeasure Cost $79,000
Step Seven - Cost Benefit Analysis
Unprotected Loss Forecast $1,750,000
Protected Loss Forecast ($46,000)
Countermeasure Cost ($79,000)
Cost Benefit $1,625,000
Cost
Avoidance
Financial Impact
Losses Q2 Q3 Q1
Q2 $1,750,000 - Q1 $46,000 - Countermeasure Cost $79,000
= Cost Benefit $1,625,000
Copyright BSI 3/27/2013

19. Q2 $1,750,000 - Q1 $46,000 - Countermeasure Cost $79,000
Step Seven - Cost Benefit Analysis
Unprotected Loss Forecast $1,750,000
Protected Loss Forecast ($46,000)
Countermeasure Cost ($79,000)
Cost Benefit $1,625,000
Cost
Avoidance
ROI Ratio: $22 to $1!
Financial Impact
Losses Q2 Q3 Q1
Q2 $1,750,000 - Q1 $46,000 - Countermeasure Cost $79,000
= Cost Benefit $1,625,000
Copyright BSI 3/27/2013

20. Determining the Right Level of Spends
Unprotected Loss Forecast: $ 1,000,000
Protected Loss Forecast: $ ,000
Countermeasure Cost: $ 1,500,000
Cost Benefit: $ 550,000
Security Overspends
Losses Q3 Q2
Losses Q1
Common Causes of Security Overspending: 1. Cookie Cutter Approach with Security Thresholds Securing Trade in Low Risk Regions 3. Excessive cost of Security Countermeasures

21. Determining the Right Level of Spends
Unprotected Loss Forecast: $ 1,000,000
Protected Loss Forecast: $ ,000
Countermeasure Cost: $ 1,500,000
Cost Benefit: $ 550,000
Security Overspends
Solution:
Find a cheaper and effective countermeasure
Incur the expected losses
Losses Q3 Q2
Losses Q1
Common Causes of Security Overspending: 1. Cookie Cutter Approach with Security Thresholds Securing Trade in Low Risk Regions 3. Excessive cost of Security Countermeasures

22. EMEA Transportation Analysis Worksheet
Step Seven - Completed ROI Analysis with Countermeasure
EMEA Transportation Analysis Worksheet
Origin
Destination
Number of Annual Shipments
Average Value per Shipment
Annual Value
Industry Average Loss Forecast
Company YYY Protected Loss Forecast
Barcelona Factory
Crewe, UK
3,200
$ ,404,900
$ ,495,680,000
$ ,991,360
$ ,352
Trier, Germany
600
$ ,000
$ ,000,000
$ ,134,000
$ ,050
Tiel, Holland 45
$ ,220,500
$ ,441
$ ,483
Linz, Austria 23
$ ,000
$ ,700,000
$ ,400
$ ,105
Athens, Greece
120
$ ,795,000
$ ,400,000
$ ,800
$ ,310
Londerzeel, Belgium
350
$ ,715,000
$ ,430
$ ,757
Ireland
320
$ ,568,000
$ ,136
$ ,435
Switzerland 12
$ ,340,000
$ ,680
$ ,701
Brno, Czech Republic
Haiger, Germany 90
$ ,050,000
$ ,100
$ ,758
Budapest, Hungary 30
$ ,350,000
$ ,700
$ ,253
Boras, Sweden 20
$ ,900,000
$ ,800
$ ,835
Antwerp, Belgium 70
$ ,150,000
$ ,300
$ ,538
UK Port - Belfast
110
$ ,950,000
$ ,900
$ ,988
UK Port - Felixstowe
$ ,441,000
$ ,882
$ ,139
UK Port - Liverpool
$ ,383
UK Port - Tilbury 5
$ ,024,500
$ ,049
$ ,897
TOTALS
5,417
$ ,211,397,000.00
$ 14,422,794.00
$ ,168,683
Program Cost Benefit / ROI
$13,254,110
16/09/2018

23. Conclusions

24. Conclusions
When seeking security countermeasure funding, speak in business terms:
Avoid qualitative remarks / conclusions
Quantify exposures – anticipate impact (It’s hard for a decision maker to not fund a program that results in avoidance of significant corporate losses)
Consider including ‘indirect cost impact’
Use terms such as ROI, Cost Benefit or Impact of unfunded programs
Many companies have great Supply Chain Security programs, but can’t quantify the benefit as they are currently operating in a “Protected State”
Strip security from the program and quantify what financial exposures exist without the firm’s current security programs
Avoid Supply Chain Security Deadly Cycle: High Losses > Secure Cargo > Reduce Losses > Assume Threat has Diminished > Drop Security Program > High Losses
The law of large numbers will eventually bite you:
Protect supply chains based on realistic loss or incident probability
Don’t bend your numbers to get funding; supply chain security countermeasures 90% of the time justify some form of security spending
You don’t need a million dollar exposure to implement a predictive modeling & risk-based security program
16/09/2018

25. Questions & Answers
Thank you for Attending Contact Details: Dan Purtell BSI Supply Chain Solutions
16/09/2018