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Quantifying the Return of Supply Chain Security Countermeasures

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Presentation on theme: "Quantifying the Return of Supply Chain Security Countermeasures"— Presentation transcript:

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

11

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


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