Keeping Pace With The Global Retail Supply Chain – Part 1

By Jac Brittain

The role of loss prevention across the retail supply chain security program continues to expand.

The retail supply chain network is a critical component of the retail machine. While many may view the heart of retail as the interactions and events that happen within the store, this support system has always fuelled the way. Through a complex web of processes and activity, a well-managed supply chain is essential to a successful retail operation.

Merchandise does not magically appear on the shelves of stores and into the hands of customers. When it is considered that every single piece of retail merchandise must in some way pass through the retail supply chain network, it is easy to see the need to implement appropriate controls and protect a retailer’s interests as product moves throughout the network and ultimately makes its way to customers.

For seasoned loss prevention professionals, the importance of sound retail supply chain policies and practices is nothing new. However, expanding the understanding of this essential aspect of the retail enterprise is something that they can all benefit from, and puts them on common ground as the industry moves forward.

The role of loss prevention across the retail supply chain has grown considerably in recent years. The advancements in technology, the evolution of e-commerce and omni-channel retailing, and the mounting sophistication of retail crime will continue to revolutionise the role of loss prevention officers throughout the supply chain network.

As this role grows more complex, the approach to the entire process must evolve as well. As a critical element of overall programs, this function is much more sophisticated than making sure that receiving doors are locked, cargo is secured and logs are signed. That image and mentality must change to reflect the true nature of the management process within the retail supply chain.

Managing a Process

Supply chain management encompasses the planning and management of the many activities involved in sourcing, procurement, conversion and logistics management for the business. It involves planning and processing orders; handling, transporting and storing the products purchased, processed and/or distributed; and managing the inventory of goods in an efficient and coordinated manner. The primary objective is to fulfil business demands through the most efficient use of resources. By maintaining control over inventories and distribution, the retail supply chain seeks to match and manage supply with demand to reduce costs, improve sales and enhance company profitability.

Efficient and effective retail supply chain networks are necessary to successfully compete in the global retail market. It rests on the loss prevention professional to take the necessary steps to gain a better understanding of the overall supply chain process and how the process impacts the business so that he can effectively support shrink reduction and profit-enhancement efforts.
In terms of understanding, even the term ‘retail supply chain’ can be viewed as a misnomer. This is not merely a seamless link of interconnected, proportional pieces that moves from a point of origin and leads to a single ending destination. It is a sophisticated, interdependent network of positions, processes, facilities, functions, responsibilities, tasks, transport and technology that all culminates with delivering products and services to customers.

From a loss prevention management perspective, attention must focus on disruptive risk. As described by one industry leader, “Assuming the enterprise has taken the necessary precautions to ensure product quality, integrity and safety, the primary risk to any organisation posed by the supply network is disruption. Any disruption in production or delivery will result in potential lost sales, decreased revenue, margin erosion and profit loss.” These risks can exist at each origin location, at each intermediate location through which the product travels, and along each transportation link between points.

Companies must design operational plans that will serve to identify potential threats; evaluate how, when and where they may occur; develop effective approaches to mitigate losses; and build programs that improve efficiency and business recovery. Theft is a primary consideration, but specific risks will vary depending on a variety of factors specific to a unique supply chain network. The potential risks must be identified and analysed at each point along the network, building the plan that serves as the cornerstone of retail supply chain resiliency.
But where do retailers start? What are the greatest risks? How do they determine where to focus their attention and resources? These are just some of the questions facing industry leaders as the risks are assessed and plans constructed.

 

Where does the Supply Network Begin?

The first step of this process is to secure the products that will be offered for sale. Retailers want to offer quality products, obtain the appropriate quantities of product balanced with customer demand, get those products in the hands of customers as quickly as possible, and manage the entire operation through the most economical means. Where the product is coming from can significantly impact each of these key management variables.

The point of origin for the products could involve a vast array of sources from across the world, and through different channels depending on any number of factors that might influence supply, demand, purchasing and product movement. Does the product have to pass through customs? If the products are manufactured internationally, are the products flown in, or does the product pass through the ports system? Are climate or weather issues a consideration? Are there political, labour, regulatory or other business considerations?

A host of issues must be managed to simply secure the products, each of which can impact the success and profitability of the entire business, and each of which can pose potential points of risk. Even before the product is owned, such risks can impact supply, product costs and other factors that can directly influence the business.

Yet while the point of origin is important in setting a foundation, it is the point where ownership is established that is a critical determination. This not only establishes the right of proprietorship, but also the assumption of responsibility for the products. With the current complexity of the world trade market, the actual point where ownership of products is assumed can be determined in many different ways, and at different points depending on specific contract negotiations and other factors.

Ownership determination will vary from company to company and, in some instances, may even vary depending on the particular product. But at the point where retailers assume ownership, are they getting what they paid for? Is it the correct quantity? Is it the correct product? Is it the correct price?

International Security Concerns

Another primary point of risk is found when goods cross international borders. Customs is responsible for controlling the flow of goods into and out of a country. Generally speaking, imported goods may not legally enter the US until Customs and Border Protection has authorised delivery of the goods.

Officers may inspect cargo before it is loaded onto vessels at a foreign port destined for the US, while in transit, and at the first port of entry where the goods arrive. Inspectors may board ships, planes, rail cars and trucks in order to thoroughly inspect shipments. The goal is to achieve a sufficient level of security without jeopardising the efficient flow of legitimate commercial trade at the border.

The process is critical for many reasons. However, potential challenges can result from the inspections process. Inspections can cause substantial delays, product damage, spoilage of perishable items and compromised shipment integrity that may lead to other loss prevention concerns. Transportation costs can increase when containers sit at the ports waiting to be cleared. Regardless of the circumstances, there are costs, risks and protocols that must be managed. If the process is not managed properly, the risks increase, leading to shrink concerns, lost sales, lower profits and customer service issues.

C-TPAT

Unfortunately, some risks extend beyond product loss, theft, damage, or like issues, and carry the potential to create much more impactful considerations. The Customs-Trade Partnership Against Terrorism (C-TPAT) is a voluntary government–business initiative designed to build cooperative relationships that strengthen and improve both international supply chain and US border security.

The C-TPAT initiative asks businesses to ensure the integrity of their security practices and communicate similar guidelines to their business partners throughout the international supply chain. These principles have been adopted by the World Customs Organization and the international trade community, and similar programs are being developed and implemented worldwide. All ultimately have the same primary goal – to stop abuses of commercial trading lanes by terrorists and others who seek to corrupt the process.

The premise of C-TPAT is fairly simple – if a company has well-conceived and appropriate internal controls in place, it can enhance the likelihood that its products will arrive on time, intact and without dangerous or unwanted goods substituted for the products that they expected to receive. This requires stringent internal controls regarding facilities, personnel, retail supply chain procedures, computer systems and other critical functions, not only at US facilities, but all over the world. Importers are expected to partner with foreign suppliers and worldwide business partners to secure their supply chain and ensure that internal controls are adopted and implemented.

Risks In Transit

The temptation for thieves to attack goods in transit dates back to the days of piracy and highwaymen. The reason is simple: goods in transit are the most vulnerable to predation. Retail merchandise moves fairly anonymously across the nation’s roads, rails and highways, through jurisdictions with varying resources and differing abilities and/or willingness to prosecute if and when individuals are apprehended. As a result, cargo-theft incidents are rarely given high priority when compared to other types of crimes.

Deterring these losses, therefore, mandates attention to security and loss prevention practices, strong operational controls, cooperation among participants in the retail supply chain, and a variety of investments in safeguarding cargo security. But it also requires enhanced awareness. For retailers moving goods attractive to thieves, paying attention to in-transit product and loss prevention management should be a fundamental part of doing business. This is not as simple as a box falling off the back of a truck, and should not be perceived that way. Such incidents can be highly sophisticated operations that can be dangerous, as well as financially devastating.

As the retail supply chain grows more complex, so does the criminal element that leeches off a retailer’s legitimate business. One of the biggest challenges involves organised retail crime (ORC) and the potential disruption that can result. ORC incidents can occur at any point along the retail supply chain, whether at the point of manufacture, on loading docks, railway stations, distribution centres, or potentially anywhere along the transportation route. Thefts can range from smaller, subtle quantities that are part of larger shipments, to aggressive, armed hijackings involving entire truckloads of merchandise.

ORC groups will take advantage of practically any opportunity to steal product that is vulnerable to theft and will potentially produce large profits. Thefts are often pre-planned, highly coordinated and well executed. Many operations are managed to the point that they know exactly what they are targeting and have the ability to move, reload and redistribute stolen goods within hours. The stolen goods may be moved quickly to a warehouse, off-loaded, repackaged, re-manifested and placed on another vehicle – often before the theft is discovered by the company or reported to the appropriate authorities.

Part two of this article will continue in the next issue of Security Solutions Magazine.

Jacque (Jac) Brittain, LPC is editorial director, digital for LP Magazine. He has worked in the loss prevention industry for over 30 years and was instrumental in the development of the industry’s only internationally sanctioned LP credentials – the LPQualified (LPQ) and LPCertified (LPC) courses in collaboration with the Loss Prevention Foundation. Jacque can be contacted via email jacb@Ipportal.com

This article first appeared on losspreventionmedia.com, the website of the US-based Loss Prevention Magazine.


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