HP Secures Its Supply Chain with High-Tech

HP Secures Its Supply Chain with High-Tech

You won’t find any job listings or resume postings for it on the usual employment websites, but one of the fastest growing occupations is “cargo thief.” While actual figures are hard to come by, industry experts suggest a ballpark figure of $40 billion per year being lost due to cargo theft worldwide. And that, according to the Federal Bureau of Investigation (FBI), results in consumer costs being marked up as much as 20% to compensate for those losses.

Among the most popular items on the black market right now, the FBI says, in addition to pharmaceuticals and cigarettes, are high-tech/electronic products. In fact, FreightWatch, a provider of logistics security services, reports that during the summer of 2011, electronics accounted for 18% of all cargo thefts.

As one of the world’s dominant high-tech manufacturers, Hewlett-Packard Co. (www.hp.com) has been active in such global supply chain security initiatives as Customs-Trade Partnership Against Terrorism (C-TPAT), launched in reaction to the 9/11 terrorist attacks. However, while cargo thefts don’t capture the world’s attention the way that a terrorist attack would, “cargo theft is directly related and equally serious,” observes Barry Ptashkin, global transport executive in HP’s Global Government Industry Group. In an HP whitepaper on supply chain security, Ptashkin recommends that companies employ best-in-class technologies “to provide electronic screening, prevention, monitoring, reporting and alert visibility on cargo movement.”

MH&L recently caught up with two HP logistics experts who are involved on a daily basis with managing supply chain security efforts for the company: Fred Smith, director of GSG (Global Security Group) programs and supply chain for the Global Security Services Organizations, based in Houston, Texas; and Mitch Parsons, manager of logistics security, based in Loveland, Colo.

“Technology has come more into play within the supply chain, specifically within the transit area, so most everyone is using some sort of tracking technology,” Smith observes. “Originally, if it was in the trucking area, the technology would be on the tractor of a truck, then it went to the trailer of the truck, and now it’s gone into the product.” As cargo thieves have changed their techniques, he notes, the solution providers have advanced their technologies to help thwart the thieves.

Currently, HP uses various GPS satellite-type technologies to track product in transit. “We partnered with a couple of companies that introduced covert GPS units at the product level or pallet level in some of our truckloads,” Parson explains. “Ideally the goal is recovery if the entire load is lost. In the past we have tried RFID in some of our box packaging and other things, but today we’re using third-party technologies that are available through several providers, and then we partner with those providers to have them covertly introduce the GPS units to specific types of products that are at high risk of theft.”

The GPS devices aren’t cheap, retailing at $200 or more, so HP and any other company using covert security devices has to be selective about where and when to use the technology. It’s partly a matter of economics, and partly a matter of knowing which geographies, whether within the United States or worldwide, are most susceptible to cargo theft.

“We know the lanes that our products are moving in, so we also know the risks and the past history of loss in those lanes,” Parsons says. “So where we have had those incidents in the past, we introduce the covert GPS units at the pallet level. So within a full truckload of notebooks, for instance, depending on where it’s transiting, we may introduce one or two of those $200 GPS units within the pallets of those products on the way to the customer.”

Third-party security companies do the actual monitoring of the GPS units, which are battery-powered and send out “pings” on a regular basis that would allow law enforcement officials to track and recover the stolen goods. The vast majority of all cargo theft events during the past summer involved the entire trailer being stolen, so the return-on-investment for recovering a lost truckload of goods would be immediate.

“In terms of justifying costs of some of these programs, my argument is always: We know the costs of labor to insert GPS devices in certain trucks and lanes, and that cost is pretty low,” Parsons says. “So if our goal here is to be proactive in preventing loss of our high-value or consumer products that are targeted for theft, it’s pretty cheap to introduce a GPS device that has a 100% recovery rate vs. the value of the load that’s moving out. Any loss that we prevent or any recovery that we make pays for the program.”

HP’s use of the covert GPS technology is primarily concentrated on long-haul trucks and trailers, although they have used a similar type of device in rail. “While it’s not covert, we have used smart technology within the rail space,” Smith notes.

As far as protecting ocean containers, HP typically doesn’t use tracking technologies, opting instead for physical security methods, such as high-security seals, bar-lock seals and the like, Parsons explains. “As the freight enters the region that it is going to be delivered in, for example coming from China to the U.S., when it hits the U.S. destination gateway, that’s where we will introduce GPS for the last mile from delivery to the gateway to the final customer.”

End-to-End Security

HP spends roughly $60 billion annually, or nearly half of its total sales ($126 billion in 2010), in support of one of the world’s largest IT supply chains. That includes hundreds of key suppliers, 450 supply chain nodes, and a billion customers worldwide. The company takes an end-to-end view of its supply chain, from the manufacturing to the disposition, Smith explains. Everybody at HP is actively engaged in the supply chain in some capacity, he notes, and there is risk within every aspect of the supply chain.

“Typically those of us in the Global Security Group will meet with people from all regions about the need for controls within our supply chain,” Smith says. “In addition to that, we also work actively with other functions that are engaged, such as the logistics function that handles transit, and our business units as well. We work hand in hand with some of the voluntary government voluntary programs, such as C-TPAT, to ensure we’ve adopted some of their best practices.”

Through its membership in the Transported Asset Protection Association (TAPA), HP participates in benchmarking activities to compare its security efforts against peer companies. “Based on our revenues and losses, we seem to be doing very well,” Smith says. “Plus within our metrics, we try to use some rationale around what we would lose. There have been some studies on what you would lose if you didn’t have a supply chain security program in place. We refer to that as loss avoidance—what we could lose in our supply chain if we didn’t have some of the security measures that we have in place. So on a quarterly basis we’ll also track our loss avoidance number.”

HP also encourages its supplier base to adopt similar best practices as well as technology solutions. “I’ve seen the supply base advance within this risk area extensively,” Smith says. “Several years ago, there was a lot of resistance within the supply base to implementing security requirements, whereas now it’s pretty much a standard part of business for most suppliers.”

Those security programs tend to differ significantly based on the country and the risks within that country, he points out. In Brazil, for instance, where cargo theft is a big problem, HP’s suppliers have adopted a much higher degree of security measures, and much more rapidly, because of the risk factors that they’ve experienced.

In terms of the logistics providers HP works with, their security efforts generally depend on the size of the company. “It’s in their best interest to invest in security,” Parsons points out. “We’ll tell them our requirements for freight security, and then ask them: ‘What else can you do to enhance security? Where is your skin in the game?’ And have them come back to us with current technologies and new technologies, and we’ll discuss those, and then based on costs and other things we’ll evaluate the logistics providers.”

Parsons cites the example of a logistics company that was suffering a lot of losses in Mexico and Latin America. “The company ended up buying cheap throwaway cellphones with GPS technology that they could throw in on a pallet, and if that truck got stolen en route, they could use the technology in the phone to identify where that load was taken. That company did that on their own and did not pass the cost back to HP. Admittedly, it’s not the ideal situation because with throwaway cellphones, you have battery life issues and other things. My preference from a global logistics management standpoint with our providers is to have them use vetted, known companies that have international capabilities that have devices that are being approved in the industry, and work in that direction.”

No Shortage of Bad Guys

One thing about cargo thieves, though, is they always come up with new schemes. For instance, HP is concerned about the recent trend of false documentation personation for lost shipments, which began in North America, has spread to Europe, and has now become problematic in Latin America, according to Smith. “As risks change, or as you go into different markets that have different risks, it can be a learning process and you need to implement various improvements.”

Smith says that within the transportation area, HP’s security efforts are very mature, so the company is now trying to strengthen its programs throughout the entire supply chain. “HP’s global logistics and global security groups have focused in this area for over a decade. Where we see greater risk and opportunity may be in other aspects of our supply chain.”

“Overall we’ve made great progress, depending on the geography and the region,” Parsons adds. “When it comes to the bad guys, all they think about is the best way to get high-value products, whether it’s HP products or pharmaceuticals or alcohol and tobacco, you name it. So as long as we’re entrenched and sharing information within HP about the risk profiles, I would say over the past three years, even globally, our loss numbers in the supply chain are down. While it’s always a challenge, I don’t feel like we’re just marching in place. We’ve made some great progress. But I think we will always have our jobs in security.”

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