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Supply Chain Security & Productivity. Freight Security Issues Talking Freight Seminar Series 15 September 2004. Chelsea C. White III The Logistics Institute. Claim & Outline. - PowerPoint PPT Presentation
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Supply Chain Security & Productivity
Freight Security IssuesTalking Freight Seminar Series
15 September 2004
Chelsea C. White IIIThe Logistics Institute
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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
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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
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• 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?
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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
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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
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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
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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.
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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)
Safe
ty S
tock
(Uni
ts)
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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)
Expe
cted
Pro
fit ($
)
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Reducing Unit Production Cost Increases Profit
02000400060008000
100001200014000160001800020000
0 5 10 15 20 25 30 35
Unit Production Cost ($)
Expe
cted
Pro
fit ($
)
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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
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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
19
72
1974
19
76
1978
19
80
1982
19
84
1986
19
88
1990
19
92
1994
19
96
1998
20
00
2002
uGro
ss D
omes
tic P
rodu
ct (b
illio
ns 2
004
dolla
rs)
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
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-
100,000
200,000
300,000
400,000
500,000
600,000
Mill
ions
of R
eal (
2000
) Dol
lars
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
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• 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
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• 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 $2 million
China in the Global Economy
Note: Information on this page is based on December 2003 issue of Foreign Affairs. Reference: C. Kwan, Deloitte
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Expanding U.S. China Trade Relations
2000 2001 2002 2003 U.S. Exports to China 16 19 22 28 U.S. Imports from China 107 109 133 163 Total 123 128 155 191
U.S.-China Trade ($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.
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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
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•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
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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
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•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
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Scenario 1
Singapore Los Angeles
15 days
load unload
Inter-sailing Time: 7 days inspect
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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
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•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
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Scenario 2
Non CSI port Los Angeles
15 days
load unload
inspect
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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
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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/
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