Benefits of Tighter Supply Chain Security Outweigh Costs

Companies that invest in supply chain security measures can expect benefits that outweigh the costs of the security expenditures, according to a new report by Stanford University that was recently released by The Manufacturing Institute, the research and education arm of the National Association of Manufacturers (NAM, Washington, D.C.)

“This new study quantifies for the first time the significant business value of global supply-chain security investments,” said Jerry Jasinowski, president of The Manufacturing Institute. “The findings will be of great value to companies that traditionally have found it challenging to justify security-related investments because they focused only on the direct benefits and not on the magnitude of the collateral benefits.”

Eleven major manufacturers and three logistics providers that import into the United States and are considered “innovators” in supply chain security in their industry participated in the study. These innovative companies all received the expected security benefits from their investments, including reduced vulnerability to global acts of terrorism, natural disasters and energy shortages. They also documented significant “collateral” benefits.

Participating companies that were able to quantify their collateral benefits reported that they:

  • Reduced customs inspections by 48%;
  • Increased the automated handling of imports by 43%;
  • Saw a 29 percent reduction in transit times;
  • Improved asset visibility in the supply chain by 50%;
  • Improved on-time shipping to customers by 30%;
  • Reduced time taken to identify problems by 21%;
  • Reduced theft in inventory management by 38%;
  • Reduced excess inventory by 14 %; and
  • Reduced customer attrition by 26%.

“The results clearly demonstrate that in addition to lower risk and higher security, investments in supply chain security can provide significant business value to organizations by helping them to improve internal operations, strengthen relationships with their customers and overall increase their profitability,” said Theo Fletcher, vice president for import compliance and supply chain security, IBM.

“We identified five major areas of improvement for manufacturers and logistics service providers/ocean carriers stemming from supply chain security investments: inventory management and customer service; visibility; efficiency; resilience; and customer relations,” said the study’s co-author, Dr. Barchi Gillai of Stanford University.

“Despite the diverse types of companies that participated in the study, almost all of them realized benefits in each of the five areas identified. Given their broad range of direct and collateral benefits, security investments should not be considered as a financial burden but rather as an opportunity for improving business performance and profitability,” she concluded.

The 38-page study, “Innovators in Supply Chain Security: Better Security Drives Business Value,” (July 2006) is available from NAM.

Source: The Manufacturing Institute/National Association of Manufacturers.

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