How vulnerable is your supply chain? (page 3)

-- Logistics Management, 4/1/2005

Page 3 of 4

SF: Layered security borrows from a pretty straightforward concept: Any single-point security measure always travels with a curve of diminishing returns and fails every time—like a lock. You become complacent and your adversary figures it out. If you want to lock a door, that will deter about 60 percent of the thieves. You move to a steel door, eventually the guy will go through the window.

Layered security takes advantage of the simple law of probability: If I have five 60-percent solutions set up as a network, then I get a 99 percent effective rate. The cost of five 60-percent solutions can be less than taking any one or two and trying to get them to 80 percent. So, you can begin to develop reasonably priced measures layered throughout something as complex as a supply chain and get a pretty effective deterrent.

LM: How do you define these layers, and how are they applied?

SF: I call the first layer the "birth certificate" process. Before you stuff an international container, we need somebody to vouch for its authorization, someone to say, "You can come after me if this isn't legitimate."

The second layer involves the movement to the "smart" container. It doesn't have to be real time, but you do need to be capturing information about where it's been. This can be done by passive collection of position information by "chirping," or interrogating, the container while it's moving.

The third layer involves a pilot project that's currently going on in the Port of Hong Kong. They're putting every container through a radiation portal that's capturing a gamma ray image, a radiation signature, and an optical character recognition of the container number that's put into a database. This portal is being built right into the port gate, and accurate data can be captured while the truck's moving up to 15 miles per hour.

The fourth layer is tracking the ship and compliance to its route; and the fifth layer involves spot-checking the shipment arrival using the portal equipment you used when you loaded. Each layer is a 60 percent solution. I can corrupt the birth certificate; I can mess up the sensors; imaging isn't perfect; there could be a conspiracy on the ship; I'm spot-checking, so I can miss. But the sum of those [measures] is a pretty powerful deterrent.

LM: This approach sounds effective, but it involves technologies that are still in pilot stages and human systems that require significant training and cost. Is this realistic?

SF: If we were "Kings for the Day" and we were going to design this system from scratch we could do this at a pretty reasonable cost. But today shippers and carriers are concerned about whether or not they'll have to bear a disproportionate amount of the cost compared to their competitors.

Another concern is that there doesn't seem to be any sort of policy environment right now that rewards the entrepreneurs in this process—the shippers who want to be the leaders in it. Today, it boils down to this: If a shipper or carrier invests in this cost and the government doesn't say "this works, let's go with it," then they're putting themselves at a competitive disadvantage for having tried to do the right thing.

LM: Then let's imagine that the policy is put forth and there's a mandate for the layered approach. What's this going to cost, and who's going to pick up the tab?

SF: My estimates put it at around $50 to $100 per container. And the price will ultimately be passed on to the consumer. In this ideal scenario, [the cost] would have to be borne by the shippers who have been given the incentive to use the equipment—Wal-Mart will pay the fee and then pass it on in the retail price. The policy environment needs to reward its application. This is the "green lane" concept that's been discussed since before 9/11. The problem today is that there's no "red lane." We need the capacity to inflict some pain for those who don't comply in order to provide a real benefit for those who do. Continued...

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