Call The Security
By Frewin Francis Vazhappilly
Supply-chain security measures are of prime importance for industrial growth. In this regard, India may be lagging behind business houses elsewhere in the world, but such concerns are now being addressed all over the country in earnest. Frewin Francis investigates.
When talking of supply chain security on a broad perspective, one thinks of security of merchandise and non-merchandise inventory, assets, people and data. Breaches of security occur due to factors that could be environmental (flood, earthquake or a volcano eruption), industrial (fire or an accident) or organizational (mismanagement, unethical work practices or crooked employees).
An industry expert in the retail industry, on condition of anonymity, says, “According to estimates, inventory losses in retail alone in India range from two-six percent. Most of them are due to lack of or improper supply chain security measures.” Contrast this with the transportation and distribution business in developed countries where losses over 0.1 percent due to supply chain security lapses are a cause for alarm. This does not imply that supply chains worldwide are untouched by threats. India has a unique security scenario that might appear confusing and hard to comprehend. Unprepared western businessmen hoping to do business in India would be baffled and unequipped to handle religious or regional clashes that disrupt daily life and leave a state of unrest for some period of time.
Other issues like trade and labor union problems or political unrest also add to companies’ woes. The UK based daily, The Telegraph, reported a derailment (that was later blamed on Maoist saboteurs) in West Bengal where the Mumbai-bound passenger express veered off the tracks onto the path of an oncoming freight train. While 146 persons died in that accident, it also impacted freight services elsewhere.
Gagan Seksaria, Associate Director (Transportation & Logistics), KPMG, says, “In a post-9/11 world, terrorism, probably, is the single largest security concern. The intensity of such threats depends on the routes used for transportation (for instance, attacks by Somali pirates in the Horn of Africa region or the Naxals on the Indian Railways in the eastern part of India), the mode of transportation employed, cargo, etc.”
Using Security Conveniently
While logistics players are aware that they need to secure their supply chain, there is also a certain insouciance associated with it. A survey conducted by Global Retail Theft Barometer (GRTB) 2010 across 42 coun tries shows that India’s retail industry alone incurs losses of $2.2 billion due to pilferage.
This is mainly because in retail the level of security predominantly depends on the nature and value of the commodity. Pradeep Chechani, Business Head and Vice President (supply chain) at Wadhawan Retail, says, “Consider the transportation of jewelry where one would see foolproof security and insurance of the products. Measures like tagging, counting, sealing, packaging and delivering in the presence of authorized persons, using a bullet-proof mode of transportation and detailed track and trace to ensure 100 percent accuracy in inventory management and delivery are common. In most cases, implants (personnel) are sent along with consignments.”
But this may not be the case with other goods and parts of the supply chain. It is well-known in the supply chain industry that most security breaches begin at warehouses. In cases where the transportation and distribution processes are out-sourced to 3PL players, security could be compromised due to want of project management capabilities, improper scrutiny of goods in transit or mishandling of goods during loading and unloading.
There is also a general aversion to the use of foolproof technology at warehouses. Marcus Schroeder, managing director at Hörrmann India, says, “The traditional Indian view of a warehouse is that of a shed with no functional requirements beyond a corrugated roof. Secondly, the warehouse owners are not the users. So there’s no compulsion to spend on technology. Lastly, there’s a reluctance to invest in what is seen as a temporary, tax-optimized means to an end, rather than something geared for performance and efficiency.” While developed countries are wary of using security personnel extensively and prefer technology, in India it is a preferred mode in keeping with cost cutting measures. Small and medium-sized organizations faced with the constant stress of decreasing margins, increasing competition, and high targets resort to lesser layers of security. But the MNCs in the transport and distribution business in India implement security at par with their global branches.
Fraud is another aspect that impacts supply chain. Fraud thrives in complex supply chains. With businesses turning paperless and data being real-time, the speed of businesses has accelerated. It has also resulted in increased risks of data being tampered with. Often employees enter fraudulent and bogus data to project performance figures close to figures that match efficient processes to cover up pilferage or slackness at work. This results in losses that are unaccounted for or untraceable.
Though fraud may not pose a direct threat to operations, it does affect reputation and brand image. Fake goods cannot match the quality of the original. Globally, counterfeiting of goods as a trend is more prevalent in China, India and Thailand than in other countries. Some common goods that are counterfeited are consumables, drugs, low-end electronic devices and goods than can be manufactured at low costs and sold at a premium. Counterfeit pharmaceutical products can be lethal.
In India, in spite of specialized IP (intellectual property) units, very few are fully operational. The lack of operational IP units increases as one goes from urban through suburban to the rural regions. Also the law and judiciary system procedures are lengthy with plenty of loopholes. This makes it easy for defaulters to avoid conviction decrees for long periods of time.
Importance Of Security
The transportation business, on the other hand, leaves no stone unturned to implement security measures. Sanjiv Kathuria, Director (Sales and Marketing), TNT India, says, “Security measures are adopted right from the time when employees are hired. Potential employees must furnish a police NOC (no objection certificate) from their respective regions of residence of possessing a clean record. Also, this sector has a practice of employing retired armed forces personnel in security departments.”
Shipments too are accepted only after physical verification. Kathuria adds, “In the case of electronic goods, only registered customers are allowed to make shipments. This conforms to the layers of security checks performed on the customer as well as the shipments. In cases of goods seeming suspicious even after inspection, we store them at secure locations till it has been verified as safe to transport.”
Some transport operators resort to staying inconspicuous when operating in threat prone situations and areas. They also hire personnel with local expertise and experience. And in dire cases of top priority transport of goods, police protection is also sought.
Retail companies prefer to rope in employees too, to ascertain compliance to security. Chechani says his company believes in proper training and incentivizing staff through non-monetary and monetary means to help the organization to adhere to security measures.
Security personnel should be closely involved and familiar with law enforcement and industry trade organizations. Limited access to inventory, access card activated doors, and surveillance cameras are some of the commonly adopted security measures. Acoustical alarms, fire and smoke detectors and intrusion alarms are also employed to report
any abnormal incidents. Other technology measures gaining ground are the use of RFID, GPS tracking and other locator systems. Some of the newer technologies adopted in developed markets today which are yet to pick up in India are elevator management systems, and CCTVs enabled for night vision and long range vision. A recent introduction by Bosch, the BIS (Building Integration System), combines a number of technical systems: fire and intrusion alarms, video monitoring, access control and evacuation systems. It also brings third-party equipment onto one modular platform. RMS (Risk Management Systems) is increasingly being used by MNCs to consolidate property values, claims and policies. It provides tracking and management reporting capabilities thus enabling firms to monitor and control overall cost of risk.
Security Measures Adopted
While security of goods is critical, the protection of information is equally or even more crucial. Security experts advise that information security in an organization must adhere to a set of policies, processes and systems that help manage risks.
Chechani of Wadhawan Retail prefers to allow access to information to only a few and maintain records of the personnel that have accessed any information at any given point of time. He believes that critical information like vendor contract details and promotion details should be confined only to a few. Judicious use of ERP systems available today can thus make it easier to detect fraud, if any.
For ensuring information security, the International Organization of Standardization (ISO) along with the International Electrotechnical Commission (IEC) has introduced the ISO/IEC 27000-series (also known as the Information Security Management System (ISMS) Family of Standards or ‘ISO27k’). Other standards available are those introduced by the Information Security Forum (ISF), the Standards of Good Practice and the Information Systems Audit and Control Association (ISACA), the IT Governance Institute (ITGI) called the Control Objectives for Information and related Technology (COBIT), and the BS 7799 by the British Standards Institution.
The ISO also has the ISO 28000:2007 that specifies the requirements for a security management system for the supply chain. Any company certified as an ISO 28000:2007 compliant organization follows accepted best practices which involves establishment, implementation, maintenance and constant improvisation of the security management system. Some other certifications available in the industry are the Transported Asset Protection Association Europe (TAPA-EMEA) and the WRAP (Worldwide Responsible Accredited Production).
An organization can be certified by external auditing and certifying bodies such as Cisco and TÜV SÜD amongst many others. Often, companies also internally audit their safety operations with reference to benchmarked industry standards. One safety measure that all supply chain companies adopt is the practice of insurance. It covers the gamut of logistical services except in the case of perishable goods past their expiry date. Steps are taken to insure every link of the supply chain as much as possible to minimize risks.
Kathuria says that while insurance premiums are usually paid at 0.5 percent of the declared invoice value, the maximum reimbursable amount is less than or equal to Rs 200,000 in India. So often, the reimbursement amount does not make up for the loss or damage of goods. In such cases, an extra premium is paid by the customer.
Insurance expert, Shankar Mohan, says that 80 percent of the claims are made for damages while consignments are in transit. Another 15 percent of claims are attributed to damaged goods due to improper handling. The remaining five percent comprises theft, fire and other accidents. Supply chain security measures still have a long way to go in India. Nevertheless, the sheer volume of trade, like those in India and China, has made doing business in these regions extremely lucrative. Replacing short-term goals with long-term ones as primary priorities would prove to be the foundation stone in tackling supply chain threats.
The author can be reached at frewin@logisticsweek.com.
