Investing in Supply Chain Security: Collateral Benefits - supports the ...

M A Y 2 0 0 5Investing in Supply Chain Security:Collateral BenefitsSpecial Report SeriesJames B. Rice, Jr.Director, Integrated Supply ChainManagement ProgramCenter for Transportation and LogisticsMassachusetts Institute of TechnologyPhilip W. SpaydResearch AffiliateCenter for Transportation and LogisticsMassachusetts Institute of Technology

SPECIAL REPORT SERIESInvesting in Supply Chain Security:Collateral BenefitsJames B. Rice, Jr.Director, Integrated Supply ChainManagement ProgramCenter for Transportation and LogisticsMassachusetts Institute of TechnologyPhilip W. SpaydResearch AffiliateCenter for Transportation and LogisticsMassachusetts Institute of TechnologyMay 2005

T A B L E O F C O N T E N T SForeword .............................................................................................3Executive Summary ..............................................................................4Introduction .........................................................................................6About the Report ...........................................................................6Global Supply Chain Vulnerability and Security ...........................6Making the Case for Supply Chain Security Investments ...............7Collateral Benefits: A Promising Approach to ROI ...............................8The Major Collateral Benefit: Facilitating Trade ..............................8Options to Create Additional Collateral Benefits ............................9Collateral Benefits from Asset Visibility and Tracking .....................9Collateral Benefits from Personnel Security ..................................10Collateral Benefits from Physical Security ....................................10Collateral Benefits from Standards Development .........................10Collateral Benefits from Supplier Selection and Investment .........12Collateral Benefits from Transportation andConveyance Security .............................................................12Collateral Benefits from Building Organizational InfrastructureAwareness and Capabilities ...................................................12Collateral Benefits from Collaboration Among SupplyChain Parties .........................................................................13Collateral Benefits from Proactive Technology Investments ..........14Collateral Benefits from TQM Investments ...................................14Collateral Benefits from Voluntary Security Compliance ..............15Achieving Collateral Benefits .............................................................18Connecting Security Investments and Collateral Benefits .............18Making the Connection: Collateral Benefits Linkage Maps ..........18Challenges and Choices for Creating Collateral Benefits ..............19Conclusion .........................................................................................21Observations and Issues to Consider ...........................................21The Challenge and Opportunity ..................................................21Looking Ahead ............................................................................22Appendix: Overview of Supply Chain Security Investment Options ....24Endnotes ............................................................................................26About the Authors ..............................................................................28Key Contact Information ....................................................................302

INVESTING IN SUPPLY CHAIN SECURITYF O R E W O R DMay 2005On behalf of the IBM Center for The Business of Government, we are pleased to present this report, “Investingin Supply Chain Security: Collateral Benefits,” by James B. Rice, Jr., and Philip W. Spayd. This report is believedto be the first to examine whether the benefits gained from investing in security exceed the costs. It also looksat the important question of whether greater collaboration between government and the private sector leads toimproved supply chain security, reduces overall cost, and improves efficiencies.This is the second comprehensive report that IBM has sponsored to investigate supply chain security. In 2004,the IBM Center for The Business of Government partnered with Michigan State University to publish “EnhancingSecurity Throughout the Supply Chain,” aimed at helping businesses better understand the threat to supply chainsfrom disruptions. This new report asserts that while the United States and other governments have taken stepsto secure international transportation systems, supply chains remain vulnerable to terrorist attack and exposedto the introduction of unauthorized people or weapons. It also responds to industry concern that governmentaction to impose tougher standards and processes erodes trade efficiency by adding cost and complexity.Rice and Spayd say they approached this report with the objective of encouraging business executives, researchers,and government officials to ask questions, conduct research, and make decisions about how to approachinvesting in supply chain security to best determine the collateral benefits. They say it is difficult to quantify howa specific security action prevented a problem from occurring in the supply chain or the cost that was avoided.If something is stolen or there is a noticeable reduction in theft, then it can be measured. But calculating thecost of a security breach or disruption that did not occur is virtually impossible.In this report, Rice and Spayd help business leaders and security managers quantify the business case for increasinginvestment in security. The report discusses investments in supply chain security that have shown promise tocreate collateral benefits, as well as emerging benefits that need to be considered. The authors believe that perhapsthe most significant collateral benefit is a firm’s ability to continue operations in the event of a disruption toits supply chain, maintaining supply chain continuity with its suppliers and customers wherever it does business.This report covers many of today’s supply chain security challenges and highlights issues governments and businessesface as they ponder supply chain security investment strategies. And it offers advice on how to use investmentsin new security programs to improve the efficiency, flexibility, and resilience of the supply chain.We trust this report will be a catalyst for leadership and fresh thinking, and more research and learning, by the publicand private sectors to sustain global supply chain security. We are making progress, but there is still much to do.Paul LawrencePartner-in-ChargeIBM Center for The Business of Governmentpaul.lawrence@us.ibm.comTheo FletcherVice President, Supply Chain Compliance,Security and DiversityIBM Integrated Supply Chaintheof@us.ibm.comwww.businessofgovernment.org 3

INVESTING IN SUPPLY CHAIN SECURITYE X E C U T I V E S U M M A R YThe unthinkable is that a weapon of mass destructionis smuggled through the trade and transportationsystem via an unsuspecting company’s supplychain into a country that is the target of internationalterrorism. The potential short- and long-termdamage in terms of life and economic activity isunfathomable and incalculable. We know that freemarkets are the targets of terrorists. Osama Bin Ladenhas said so himself. The United States and othergovernments have taken steps to secure the internationaltransportation systems and internationalsupply chains. However, because of the worldwidereach of international trade and the sheer numberof the components of trade transactions, the systemsremain vulnerable to an attack by terrorists on thesystems themselves or to being used to introduce aweapon of mass destruction (WMD) or other implementof catastrophic terrorism into the target nation.The danger of a terrorist attack involving the internationaltransportation system remains high. An attackcould take place anywhere in the world and wouldhave impact well beyond the location of the attack.Because of the reach and complexity of the internationalsupply chain, it is difficult for governmentsto mandate and achieve increased supply chainsecurity through traditional regulatory methods. Itis nearly impossible to design security regulationsthat can rationally improve security throughout thewide range of activities that constitute internationaltrade. Regulations governing security and movementsthrough international supply chains add costand complexity to the systems. The modern supplychain is already a complex and interrelated networkinvolving the movement of goods, services, funds,and information among a wide range of participants.A real danger is that government actions may bewell intended yet may actually diminish trade efficiencywithout achieving genuine improvements insupply chain security.Any government with a stake in international tradethat stands by without taking measures to improvethe security of international trade imposes enormousrisks on its citizens and its economy. Neither canbusinesses afford to do nothing to protect theiremployees, their company, their customers, and thepublic from the use of their supply chains to launcha terrorist attack.Government and business managers also need tobe aware of their personal responsibility in protectinginternational supply chains. An attack launchedthrough a supply chain could damage the credibilityand political interests of a government. In this situation,private sector officials, in a legal and socialenvironment of holding corporate officials personallyliable for the actions of their firms, could bedeemed responsible should their firm’s supply chainbe compromised. The reputation of the government,the firm, and the individual executives could be irredeemablydamaged. A key question, then, is: Canthe government and private sector collaborate in away that achieves substantial improvements in supplychain security and enables private sector firmsto reduce their overall cost and improve efficiency?This leads to a discussion of the collateral benefitsthat may flow to the firm from investments in security.That is, are there benefits to a firm in additionto the improvements in security that exceed the costsof investment in security? From the perspective ofthe public sector, can voluntary programs be createdthat are aimed at maximizing the collateral benefitsthat firms might achieve as a result of compliance withthe program requirements? Might the development4IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYof collateral benefits serve as a catalyst to improvethe safety of the public and to bring greater visibilityand efficiency in the operation of supply chains?There has been a great deal of speculation in this area,but there is very little data. Our work is intendedto build a framework for executives, researchers,and government officials to ask questions, conductresearch, and make decisions about how to approachinvestments in supply chain security. Firms that derivecollateral benefits from investments in security mayvery well have a competitive advantage over firmsthat invest in security but do not do so in a way thatcreates collateral benefits. Governments that createvoluntary public/private partnerships that enhancesecurity, maximizing the opportunity for firms toachieve collateral benefits, may achieve higher degreesof improvements in security with lower costs to thegovernments and the firms.Looking into the future, perhaps the most significantcollateral benefit of investments in security is thedevelopment of a firm’s ability to continue operations—supplychain continuity—so that it maymaintain its economic livelihood in the face ofa significant disruption. This entails the ability toachieve dynamic processes for managing the firm’ssupply chains and the ability to respond quickly andwith resilience to changes in the external environment,irrespective of the nature of the disruption.That will be the dominion of forward-looking companiesthat plan to operate successfully in a veryunstable environment.There needs to be a warning label that comeswith the pursuit of collateral benefits: Not all collateralbenefits accrue to a firm automatically frominvestments in security. As noted in this report, thecreation of collateral benefits relates to a varietyof factors, including the firm’s approach to riskmanagement and supply chain security and how itdetermines its investment options and builds linkagesfrom security to other benefits in the operationof the supply chain. The next steps from a businessperspective are to develop the metrics to gaugethe actual relationship between the investment insecurity and the return on the investment, and froma research perspective to capture the necessarydata to document the actual dynamics associatedwith identifying and capturing collateral benefits.Government officials may use this research todevelop approaches to trade and transportationsecurity that increase security, protect the public,and provide a platform for increased efficiencywithin international supply chains.www.businessofgovernment.org 5

INVESTING IN SUPPLY CHAIN SECURITYIntroductionAbout the ReportThis report expands on the emerging concept ofcollateral benefits derived from making supplychain security (SCS) investments. While this is nota new concept in theory, it is one that is new inpractice, and to date there are limited citations oforganizations deriving collateral benefits from SCSinvestments. The good news, however, is that thereis increasing evidence and logic that supports thelikelihood that meaningful benefits are created fromprudent SCS investments.A key goal in this focused report is to help managersthink clearly about the security issues they face withintheir supply chains. In addition, it should help themconsider how investments in increased security mightachieve other beneficial results for the company,and how governments, working through the regulatoryprocess and creating public/private partnerships,can enhance supply chain security.In covering collateral benefits from supply chainsecurity investments, the report focuses on supplychain security investments that have shown promiseto create collateral benefits. While a more comprehensiveassessment of supply chain security returnon investment (ROI) would be useful, this workcovers the aspect that represents newly emergingbenefits that should be considered when buildinga business case for making supply chain securityinvestments.The report utilizes data from an ongoing researchinitiative at MIT called “Supply Chain Responseto Terrorism,” which included several sets of semistructuredinterviews with senior supply chain andsecurity leaders from global shippers and carrierfirms operating global supply chains. Although theinterviews were conducted in the United States, thefirms provided a global perspective given the worldwidenature of their supply chains.Global Supply Chain Vulnerabilityand SecurityBusiness managers throughout the world haverecently become sensitized to the vulnerability oftheir supply chains to an ever-increasing range ofsecurity breaches and disruptions that affect globalsupply chains. Many point to the terrorist attackson September 11, 2001, but closer analysis revealsa recent series of security breaches and disruptionsthat threaten national security for many nations. TheOctober 2002 U.S. west coast longshoremen’s lockout,utility failures in the U.S. and Europe in 2003,the Madrid bombing, and the tsunami in 2004 allillustrate the inherent vulnerability that exists inglobal supply chains, and the global scope andscale of impact.Consider the value of international trade to theworld economy together with the global supplychains that are delivering the trade, and one canrecognize how our economies are especially vulnerableto disruptions, whether they are from a terroristattack, a natural disaster, an infrastructure failure, ora business collapse. These principles drive the basisfor a “new normalcy” in international trade wheresecurity plays an increasingly critical role, and entailsnot only physical security of the supply chain butthe ability of firms and nations to continue tradingin the face of the security vulnerabilities, previouslynoted as supply chain continuity. 16IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYMaking the Case for Supply ChainSecurity InvestmentsWith a clear need for increased security in globalsupply chains, firms are tasked to make appropriatesupply chain security investments 2 to protect theirassets and operations. Yet, a unique characteristicabout security investments is that they defy manytraditional methods of calculating ROI if firms onlyconsider cost avoidance.Security investments by their nature do not directlyincrease revenues but are intended to preventcosts—when effective, supply chain security measuresprevent disruptions, supply chain securitybreaches, product adulteration, and brand/franchisedestruction. In most cases, it is difficult at best toprove that a specific action prevented a problemfrom occurring, much less how frequently the problemwould occur or the costs that were prevented.Aside from theft reduction, where there is tangibleevidence of improvements when loss levels arereduced, one cannot measure the cost of a securitybreach or disruption that did not occur. Ironically,only when a security measure fails can one calculatethe cost of the loss for that particular incident.Theoretically, one could better understand and predictthe cost impact of security breaches by studyingsecurity breaches and the subsequent costsand losses on a broad, industry-wide scale. Suchdata could be used to create a probability distributionfunction that approximates a predictable set oflosses across industry. Sadly, this data is not widelyavailable for various reasons, mostly because firmsbelieve that they expose themselves to additionalcosts and risks by sharing this data. Sharing theirloss data and experiences opens up the firm to additionalrisks: Exposing the loss data may make securityweaknesses more evident to the general public,which may result in further losses; exposing actuallosses may lead to higher insurance premiums asinsurers would adjust premiums to more accuratelyreflect the higher loss levels; firms may fear reducedaccess to capital if exposing loss data causes negativepublic perception of their operations.As one industrial executive noted, the benefits ofsecurity investments are often in the form of avoidinglosses, saying “nobody gets credit for solvingproblems that did not happen,” 3 as suggested previously.The benefits are difficult to measure if theavoided costs are not incurred. This reflects a challengeto the business to identify and value realsavings from avoiding a security breach. Some progresshas been made quantifying the benefit frompreventing supply chain disruptions, but more workis needed to make the same progress quantifying thebenefits of preventing supply chain security breaches.With these fundamental constraints, business leadersand security managers have had limited successquantifying the business case to fund desirablesecurity investments, leaving supply chains knowinglyvulnerable.An emerging and more powerful way of viewingreturn on investment for supply chain securityinvestments entails considering more than just costavoidance benefits. Some firms are recognizing thepotential to extend beyond cost avoidance benefitsto actually capture cost reduction and efficiencyimprovements from those same investments. Thesemay be possible by considering the impact of theseinvestments on supply chain operations, and subsequentlydesigning those operations to leverage theinvestments for process improvement. Those firmspursuing this approach have begun to identifyand enjoy collateral benefits of their investments.ACSCBPC-TPATGPSOS&DRFIDROISCSTQMAcronyms & AbbreviationsAutomated Commercial SystemU.S. Customs and Border ProtectionU.S. Customs-Trade PartnershipAgainst TerrorismGlobal Positioning SystemsOverages, Shortages, and DamagesRadio Frequency Identificationreturn on investmentsupply chain securityTotal Quality Managementwww.businessofgovernment.org 7

INVESTING IN SUPPLY CHAIN SECURITYCollateral Benefits: A PromisingApproach to ROIOne promising approach for building a businesscase for supply chain security lies in the possibilitythat supply chain security investments may providevaluable benefits in other areas in the firm, and viceversa. These “collateral benefits” (also known asindirect or “dual benefits”) can possibly enhancea business case to increase the return on investmentfor firms interested in reducing their vulnerability.At this time, the data on actual collateral benefitsresulting from SCS investments is sparse. To date,little work has been done to understand the variousaspects and issues associated with creating collateralbenefits, although some 4 have recognizedthe existence and value of creating these collateralbenefits.Firms need to develop economic justifications fortheir investments in making the supply chain secureand resilient; understanding the dynamics and issuesrelated to creating collateral benefits may providea valuable investment incentive to justify thoseinvestments. Just as Phil Crosby believed that qualityinvestments provide collateral benefits that offset theinvestments in quality, so too we suggest the possibilitythat security investments may generate collateralbenefits that may exceed the cost of the securityinvestments. Will we find that “security is free”? 5The Major Collateral Benefit:Facilitating TradePerhaps the most important potential collateral benefitthat may develop from making security systemimprovements is in facilitating trade. While a primaryintention of the investments noted is to makethe supply chain secure, by virtue of making thesupply chain secure it becomes less prone to disruption.In some cases, it also helps the supply chainbecome more capable of withstanding and bouncingback from a disruption.While this may seem intuitive and a non-starter,only when one considers the potential loss from notbeing able to trade does one begin to appreciate theimpact. Using the U.S. west coast longshoremen’slockout of 2002 as an example, the economic impacton the U.S. economy has been estimated at between$10 billion and $20 billion—this for a 10-day lockoutof only some of the U.S. ports of entry, and onewhere the disruption was known about in advanceand well anticipated. One can easily estimate thatthe impact would have been factors higher (if notexponentially higher) if all the ports were closedwithout notice. How much could the economy withstandbefore collapsing? At the firm level, a numberof examples illustrate the magnitude of the risk ofdisruption to business operations and the ability toconduct trade.The terrorist attacks on September 11, 2001, haddramatic and lasting effects on automotive manufacturersdependent on not quite just-in-time deliveriesacross the U.S.-Canadian border, shuttingdown five Ford Motor Company plants in the U.S.,for example. 6A recent study 7 of 861 firms over a nine-year periodof time illustrates the significant impact of supplychain glitches on firm valuation: Each glitch hada lasting impact on the stock valuation of publiclytraded firms, calculated to be a permanent loss ofapproximately 9 percent of the stock valuation afterannouncement of the glitch. “This translates into8IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYan average destruction in shareholder value in 1998dollars of about US$130 million per glitch. For the861 glitches in the sample, this amounts to an overalldestruction in shareholder value of about US$112billion.” 8A now-famous lightning bolt at a radio frequencychip plant in New Mexico virtually started a chainof events that resulted in Ericsson’s eventual departurefrom the cellular phone production business. 9The case presents a unique side-by-side comparisonof how two firms (Ericsson and Nokia) were ableto respond to a situation and how the preparedness,systems, and organizational capabilities were thedifferentiating factors in their starkly different performance.While a number of factors contributed tothe demise of Ericsson’s cellular phone business,their lack of a sensing, aware, and responsive organization—andNokia’s highly sensing, communicative,and aware organization—determined theoutcome of the disruption, with the viability of thefirm clearly at stake.A growing number of examples could be usedto make the point—secure supply chains enablefirms to continue exchanging goods and services,creating a healthy economy. Without the abilityto source, produce, and distribute product to customerdemand, there would be no economy.Options to Create AdditionalCollateral BenefitsFirms have a variety of investment options availableto improve their supply chain security. The boxbelow provides an overview of a range of securityinvestments offering collateral benefits, and Table A.1in the Appendix provides a more complete version,also showing the direct and collateral benefits associatedwith these investments. The Appendix isdesigned to portray a range of security investmentoptions and the associated broad range of anticipatedcollateral benefits. It is notable that a firm may createsimilar collateral benefits by making different supplychain security investments. Therefore, the table providesguidelines for understanding the potential collateralbenefits available prior to making an investmentdecision, to maximize the potential collateral benefitsand the subsequent return on investment. Each entryin the table will be addressed in subsequent sections.Collateral Benefits from AssetVisibility and TrackingFirms can make a number of investments that providevarying levels of asset visibility and tracking.Asset visibility provides constant access to locationand product status, which may reduce the uncertaintyof shipment arrival. Together with producttracking, asset visibility also provides a time-definiteand controlled chain of custody for conveyancesacross the supply chain. They give firms higher levelsof security by providing a more consistent andpredictable flow of materials, making it easier toobserve exceptions to anticipated material flows thatmay indicate a security breach and allowing subsequentrapid follow-up and preventative actions.Within this category of security investment, firmshave many choices, each with a different potentialfor creating collateral benefits. Global PositioningSystems (GPS) are widely used now for tracking thelocation of truck and rail fleets. Radio FrequencyIdentification (RFID) and Smart Containers are inthe early stages of being developed for commerciallyviable applications for asset tracking.An Overview of Supply Chain Security Investment OptionsOffering Collateral Benefits• Asset Visibility and Tracking• Personnel Security• Physical Security• Standards Development• Supplier Selection and Investment• Transportation and Conveyance Security• Building Organizational InfrastructureAwareness and Capabilities• Collaboration Among Supply Chain Parties• Proactive Technology Investments• TQM Investments• Voluntary Security Compliancewww.businessofgovernment.org 9

INVESTING IN SUPPLY CHAIN SECURITYThe collateral benefits may be significant with thisset of investments, although they will not be automatic.By providing constant access to location andproduct status, planners may be able to reduce thespecified inventory levels because they have lessuncertainty in the material flows. Lower inventorylevels and less uncertainty may result in lower operatingexpenses coming from less product handlingand rehandling, which is common in distributionsystems with high levels of uncertainty. Achievingthese collateral benefits, however, will require thefirm to actually reduce the inventory levels, potentiallyreduce the planned transit times, and evenmodify transportation arrangements with third partiesto take advantage of the lower levels of uncertaintyand potentially even fewer shipments(emergency shipments especially).Collateral Benefits from PersonnelSecurityBy focusing on the “supply” of human resources, firmscan increase the level of security within the firm. Thefocus on people is one of the most fundamentallyimportant aspects of supply chain security. This mayentail a thorough initial background check to eliminate“bad actors” from the hiring pool, supplementedwith regular drug testing and background checks. Thesewill increase the likelihood of providing early warningabout employees operating under the influence,or early warning about those employees with intenton putting the firm and its assets at risk. The testingdoes come at a cost, but it has been long recognizedthat one of the most significant risk elements is “theenemy within” the walls of the corporation.In an odd twist, it is likely that employees will placea higher value on their employment with the recognitionthat the firm establishes and maintains a highquality level for employees, building pride in theirwork and greater dedication to the firm’s objectives.Just as employees may value the high standards, sotoo will the customers appreciate the high personneland operating standards. Increased customer loyalty,increased sales revenues, and higher market sharesare possible from the higher levels of employee commitmentcoming from the firm’s efforts to maintainhigh employee standards.Collateral Benefits from PhysicalSecurityPhysical security is commonly one of the first securityinitiatives that firms undertake to improve systemsecurity. Physically preventing access andcontrolling access keeps out unauthorized personnel,protecting site intellectual property, capitalequipment, personnel, inventory, work in progress,finished goods, and product integrity. Traditionalapproaches to security have focused on theft reduction,which entails protecting against the unauthorizedremoval of items from the process. Physicalsecurity investments often focus on local site securityand not system-wide security. The new securityparadigm, however, now requires inverse thinkingby developing systems that prevent the addition ofunauthorized items into the supply process.These investments may provide other benefits aswell, including increasing process efficiency throughtechnology adoption (e.g., automated processingand identification through technologies like radiofrequency identification), and reducing Overages,Shortages, and Damages (OS&D) from potentiallyfewer handoffs and more automated handling.These lower loss levels may generate their own collateralbenefits. With lower loss levels, insurancerates will likely drop because of the reduced likelihoodof loss, and firms can expect lower indirectcosts (short-term administration costs and long-termexpenses) that are not reimbursed by typical insurancepolicies. 10For firms regularly hosting customers on site,a more secure environment certainly provides fora much more favorable experience and builds confidencein the supplier selection, increasingly thelikelihood of continued business and return visitsby customers.Collateral Benefits from StandardsDevelopmentFirms often invest resources in building industryoperating coordination and security standards. Thesepay many direct benefits, making it easier to coordinatemulti-company security activities (initiatives,sting operations, incident investigations), making10IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYsecurity breaches easier to spot, making for higherlevels of security, and ultimately improving the securityof the entire system, not just the individual firm.Standards may help reduce non-security lossesthrough processes that entail systems-wide awarenessand incentives and practices oriented towardsecurity. The benefits surface in non-security lossreduction such as reduced counterfeit and “graymarket” shipments. As one global logistics securitymanager said, “We’re structured as a group within[the firm] to try and delve into more of those businessissues that are out there—counterfeit, graymarket, supply chain, warranty fraud, etc., wherethrough some of our efforts we’ve been able to showa return to the bottom line....”Beyond these direct benefits, developing standardsmay also generate potential collateral benefits. Byhaving standards for security, coordination, andoperation, firms may find improved efficiency invarious logistics operations, potentially resulting inreduced shipping times. Industry standards oftenlead to higher levels of process discipline that arenecessary for intercompany operations, leading tohigher performance levels from fewer process deviationsand increased process predictability.SecurityInvestment Direct Benefits Collateral BenefitsAsset Visibilityand Tracking• Provide positive locationstatus, preventing excursions• Provide time-definite andcontrolled chain of custody• Lower theft and losses• Faster recalls• Fewer delayed shipments• Better planning, enabling lower working capital forinventory• Less Overages, Shortages, and Damages (OS&D)• Protection of brand namePersonnelSecurityPhysical SecurityStandardsDevelopment• Thorough background checkeliminates “bad actors” fromhiring pool• Regular background checksprovide early warning foremployees operating underthe influence• Controlled access keeps outunauthorized personnel• Protection of intellectualproperty• Protection of capital equipmentand personnel• Protection of product integrity• Facilitate coordination ofmulti-company security activities(initiatives, sting operations,incident investigations)• Security breaches easier tospot with standard systems• Higher levels of security withcommon procedures• System-level and suppliersecurity improvement• Customer loyalty, increased sales revenues, highermarket share• Employee commitment and belief in company’sconcern for employee• Customer recognition of firm’s safe and secure environmentas an expertise, increasing customer loyalty• Fewer thefts and OS&D by virtue of having moresecure facility• Reduced equipment damage and operating costs(lower insurance rates)• Fewer safety incidents and catastrophes• Improve the efficiency of ship, train, truck, terminaloperations; cuts international shipping times• Platform for collaboration within an industry leadingto standards that raise level of performance• Process discipline enables compliance (quality, safety,process), higher performance• Common processes reduce confusion, raise predictability,improve staff backup• Reduce non-security losseswww.businessofgovernment.org 11

INVESTING IN SUPPLY CHAIN SECURITYCollateral Benefits from SupplierSelection and InvestmentInvesting in secure suppliers is a fundamentalsource of supply chain security. It is difficult tooverstate the importance of the security of thefirm’s suppliers, and suppliers throughout thesupply chain, including those upstream fromthe tier-one supplier. This comes as a result ofthe increasing interdependencies among supplychain parties, particularly as firms outsourcemore activities to third parties, inherentlybringing in greater risk of security breach.End-to-end supply chain security is thereforeof fundamental importance to overall supplychain security.Basic expectation sharing, supplier site visits, andsecurity audits increase the likelihood of higherlevels of security in the upstream supply chain.Additionally, firms may elect to more deeplyinvolve selected suppliers in tabletop and mockincident exercises, further increasing the upstreamsupply chain security. Some firms consider this amandatory set of actions required to validate thesupplier’s ability to maintain a secure supply.While a firm may wish to trust a supplier’s intent,the necessity is to check the supplier’s capabilities.Aside from ensuring the integrity and uninterruptedsupply of materials, such discipline also providesthe firm with a direct insight into the supplier’sability to maintain a supply in a potential securitybreach or disruption.Focusing on supplier security also indoctrinates thesupplier to sense security issues, providing an earlywarning system for the firm, on security issues aswell as other critical issues such as quality andavailability. Ultimately, these efforts result in lowerlevels of loss, less downtime, and likely higherquality. By collaborating, sharing resources, andworking toward common goals, firms may be ableto enjoy lower costs from reduced cargo inspections,faster throughput, joint planning, ongoingcoordination, and active problem resolution. Firmsthat develop and maintain a clear “secure supplier”competence maintain a marketing advantage forcustomers that demand security in their own supplychains.Collateral Benefits from Transportationand Conveyance SecurityInvesting in securing transportation conveyancesmay provide significant security benefits. Theoptions include adding additional drivers to avoidlong stops (“freight at rest is freight at risk”), addingphysical security features to the conveyance (e.g.,electronic seals), and adding visibility tools to maintainknown location and status (e.g., GPS and RFIDsystems). These will likely result in lower losses fromtheft, fewer incidents of product adulteration, lowerOS&D, avoidance of cargo misuse (e.g., as aweapon delivery system), and protection of the conveyanceitself.A distinct collateral benefit exists for the supplier incases where the supplier develops a secure operationand leverages this as a competitive advantage.In several instances, firms have used their securitypractices and orientation as a competitive advantagein capturing additional business in the marketplace.Collateral Benefits from BuildingOrganizational InfrastructureAwareness and CapabilitiesMaking investments in organizational infrastructureconstitutes a long-term approach toward buildingcapabilities in the organization through personneland organizational processes. Typical efforts mightinclude investing in employee education on vulnerabilityand on firm operations, building improvedcommunications systems, and adding security measuresinto performance assessment and incentives,among others.How do these investments impact security andprovide collateral benefits? As an example, regularcommunication about security issues that is woveninto daily work practices builds an awareness ofsecurity issues that translates into quicker recognitionof security breaches and issues when they arise.Similarly, this establishes a knowledge base in everyemployee that is broad, with each employee beingwell informed and aware of the broader system andits operation. This, in turn, develops employees thatare more aware of the firm’s broader business needsand issues, and hence those employees can con-12IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYSecurityInvestment Direct Benefits Collateral BenefitsSupplierSelection andInvestment• Ensure a secure supply ofmaterials• Early warning of upstreamsecurity issues• Reduce upstream andinbound losses• Lower inspection costs, faster throughput• Enhanced communication via collaboration• Increase efficiency through joint planning• Utilize internal security resources to assist suppliers,ultimately making for improved relationshipsTransportationand ConveyanceSecurityBuildingOrganizationalInfrastructureAwareness andCapabilitiesCollaborationAmong SupplyChain Parties• Reduce theft losses• Reduce adulteration of product• Reduce chance of cargovessel misuse (weapondelivery system)• Protect conveyance equipment,vessels• Build awareness of securityconcerns• Increase role of security indaily operations and everyassignment• Improved coordinationalong supply chain increasessecurity• Cost avoidance of non-product-related costs (indirectcosts)• Crime and vandalism rates fall• Fewer disruptions to the supply chain, more cost savingscompared with avoided losses• Less capital required for inventory• Reduced transportation cycle time• Increase problem prevention through recognition byemployees• Increase early intervention, reducing impact of adisruption• Improve the ability to respond with early awareness• Platform for broader alignment• Enable creation of a secure supply chain network forcommon problem solving, resource sharing• Improve communication among supply chain partners,potentially reducing coordination costssider them when making operating decisions. Thelikely results are decisions that are more closelyaligned with the business needs.Specifically, organizational infrastructure investmentsmay then increase problem prevention through problemrecognition by employees. In addition, such investmentsmay increase the chances that employees mayrecognize potential problems, which enables the firmto intervene and reduce the impact and consequencesof a disruption.One firm described how their infrastructure investmentshelped build an exceptionally resilient andresponsive supply chain. Each day employeesreceive a three- to four-minute security brief that isintegrated into a daily communications meeting atthe beginning of each shift. Since all critical issuesin the business are covered together, security is recognizedon a par with the other key elements of thebusiness operation. Employee performance measuresinclude losses as a key element, and incentivesand rewards are offered to employees forspecific actions taken to reduce losses. 11Collateral Benefits from CollaborationAmong Supply Chain PartiesSimilar to making investments in organizationalinfrastructure, investments in collaboration entaila long-term approach toward building capabilitiesin the supply network through inter-organizationalprocesses. Typical efforts might include investing inbuilding formal communication systems, facilitatingregular interactions between multiple levels withineach organization, 12 and conducting joint securityassessment and response planning. As noted previously,the collaboration among supply chain partiesmay include multiple partners together in tabletopand mock incident exercises. Such proactive workfurther increases the awareness and likelihood ofincreasing end-to-end supply chain security.Collaboration in the supply chain can also be securityspecific. In some cases, firms may elect to buildsecurity into their extended supply network by usingthird parties for security contracting. In other cases,firms may elect to develop long-term contracts or,perhaps more importantly, mutually agreed termswww.businessofgovernment.org 13

INVESTING IN SUPPLY CHAIN SECURITYand conditions among the supply chain parties sothat the organizations can operate more efficientlyand effectively. These investments may also fosterthe development of closer relationships and moreeasily align the parties around the shared objective.This may result in higher performance levels, aswell as higher levels of awareness as each organizationdevelops a deeper understanding of the other’soperating characteristics and needs.Collateral Benefits from ProactiveTechnology InvestmentsInvestments in technology are often praised for generatingnumerous benefits beyond the initial purposeof the investment. Investing in technology for securityis no different, where the investments create theability to customize the application to the benefit ofthe firm and potentially provide visibility throughoutthe supply network. Visibility investments enableincreased real-time awareness of business operationsand better process knowledge, which in turn enablesthe firm to focus resources and efforts on key improvementareas, therefore reducing waste and increasingresource utilization.Two examples illustrate these benefits. In the firstcase, one firm 13 elected to install a new securitytechnology before the government-mandated adoptionof the technology. Although this required an initialoutlay for the technology, the firm believes thiswill ultimately result in lower costs since they wereable to design the system around their own processesand systems. Specifically, the firm built otherprocessing systems into the technology that avoidedadding another step in their process, streamliningthe operations and therefore reducing their cycletime and operating costs. Had the company waited,it is unlikely that the government would have beenso open to designing other features into the system,so the firm would have been forced to adopt a systemthat did not “fit” with their operating system.The second example illustrates how one firm inthe medical supply industry used an early warninginformation systems to provide data about specificcustomer needs during a disruption. Their analysisindicated that the firm actually had 48 hours torespond to a disruption before it impacted the customer,allowing the firm to plan for less expensivetwo-day service rather than the more costly next-dayservice in responding to the disruption. 14In both cases, firms proactively invested in technologyand systems intended to improve security andat the same time enabling the firms to create additionalbenefits of great value.Collateral Benefits from TQMInvestmentsThe underpinnings of the “total quality management”(TQM) approach to security improvements havepotential collateral benefits in a number of significantareas. The hallmarks of TQM are dedicationof the entire organization and its suppliers (and insome cases its customers) to improved security,emphasis on prevention of security breaches, assurancethat the security system is operating “in control”within a defined set of parameters, and the embeddingof security in the firm’s business processes.Operating “in control” when using a TQM approachto embed and document security in the logisticsprocesses can lead to a reduction in safety stock,lead-time variance, and reduced OS&D shipments. 15Because the process is operating within defined limitsand with emphasis on internal discipline, shipmentsshould be more accurate and can be countedon with greater reliability to precisely meet shippingspecifications. Information provided to logisticsmanagers within the firm should also be counted onto provide accurate representations of the goods thatare in transit. These same capabilities provide usefulbenefits to non-security areas, such as reduced variationin operations, which results in lower operatingcosts, and higher levels of employee awareness. Andbetter decisions, likely higher resource utilization,and higher levels of service may be possible throughprocess improvements that aware and enlightenedemployees may initiate and implement.Other capabilities and potential for improvementcan be derived by using the enhanced informationgained from the TQM process. This rigorously collecteddata may offer greater visibility within thesupply chain, enabling improved materials trackingand early problem identification by discerning bottlenecksand congestion.14IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYCollateral Benefits from VoluntarySecurity ComplianceWhile the U.S. moved ahead first with initiatives toupgrade trade and transportation security, other countriesas well have passed new legislation or undertakennew initiatives. Most of the initiatives involveapproaches similar to those undertaken in the U.S.They are based primarily on voluntary efforts by companiesto improve supply chain security and includea benefit in terms of facilitated customs processingfor participating companies. Canada’s Partners inProtection, Sweden’s StairSec, and the EuropeanUnion’s Authorized Economic Operator program containthe central themes of voluntary actions to improvesupply chain security and a benefit of facilitated customsprocessing in exchange for the security improvements.The World Customs Organization is movingtoward an international framework for supply chainsecurity and customs processing. It adopted theResolution on Global Security and FacilitationMeasures Concerning the International Trade SupplyChain, which aims to create an international systemfor identifying businesses that offer a high degree ofsecurity in their supply chain operations and to providecustoms facilitation for those companies.SecurityInvestment Direct Benefits Collateral BenefitsProactiveTechnologyInvestments• Technology providesincreased ability to track,monitor, and observe materialflows, preventing excursions• Ability to customize the application to the benefit of the firm• Increase process efficiency through technology• Visibility investments give real-time awareness of supplychain delays, location, and statusTQMInvestmentsVoluntarySecurityCompliance• More consistent security procedureexecution• Application of Six Sigmamay lead to disciplined lossreduction efforts• Lower losses• Higher-performance employeesemphasize security• Process design standardizessecurity processes• Design supply chain withfewer handoffs, keepingproduct moving• European Union’s AuthorizedEconomic Operator programensures base level of supplychain security assessment• Customs specialists working inspecialized security programsmay observe risk of securitybreach before breach can occur• Customs-Trade PartnershipAgainst Terrorism (C-TPAT)membership provides membercompanies with informationabout industry “best practices”in supply chain security• Sweden’s StairSec programleads to higher inspectionrates of uncertified cargo,increasing likelihood of earlywarning and prevention• Discipline increases, enabling compliance (quality,safety, process)• Reduction in safety stock, lead-time variance, and lowerOS&D• Better process knowledge and management from additionaldata, greater visibility to discern bottlenecks andcongestion• Safety stock reduction as a result of advance lead-timeinformation• Investment in quality processes results in quality security• Consistent process operation leads to fewer disruptions,faster and more reliable operation• Process discipline leads to higher levels of performance,efficiency• Establish a “mandatory” fundamental standard acrossindustry for supply chain security via a “voluntary”program• A platform for collaboration and alignment within anindustry that leads to industry standards, raising overalllevel of performance in quality, service, and cost• C-TPAT supply chain specialist assists firm as CBPliaison for validation, security issues, procedural updates,communication, and training• Faster border throughput times from fewer inspectionsand “green lane” flow, which may raise service levels,enabling lower working capital• Process discipline enables compliance (quality, safety,process), higher levels of process performancewww.businessofgovernment.org 15

INVESTING IN SUPPLY CHAIN SECURITYWhile it is officially a voluntary security program,the U.S. Customs-Trade Partnership Against Terrorism(C-TPAT) program for all intents and purposes is nearlya “mandatory” program. 16 The disadvantages forthose firms that do not volunteer are significant—e.g., higher rates of inspection that may add extratime of up to 10 to 12 days in a congested U.S. seaportand uncertainty in customs processing. For thosefirms that elect to participate in C-TPAT, there is aclear program compliance requirement. Regardlessof the firm’s intent in participating in C-TPAT, onecollateral benefit of this implicit regulation is thatC-TPAT effectively serves as the foundation processfor implementing supply chain security for manyfirms, which is a significant benefit.Recent results from those firms participatingin C-TPAT report that there are indeed tangiblebenefits available. U.S. Customs and BorderProtection (CBP) reports that firms participatingin C-TPAT have received tangible benefits in termsof reduced customs examinations. They reportthat “in the Automated Commercial System (ACS),C-TPAT certified importers received reducedselection rate for compliance measurement examination(-3x in FY 2003) and exclusion from certaintrade-related local and national criteria,” andthat C-TPAT certified importers receive targetingbenefits (-7x in FY 2003) by receiving a “credit”via the CBP targeting system. 17Faster Flow Through CustomsParticipating in the various government/industryprograms that are becoming more prevalentthroughout the world provides access to a “greenlane” for imports, which would entail expeditedcustoms clearance, effectively speeding materialflows through the import supply chain process. 18Faster throughput times at border crossings alsocome from fewer inspections by virtue of being incompliance with government regulations. The fasterthroughput may raise service levels and lead toother benefits, not the least of which include fasterdelivery to customers, lower working capital forinventory, and lower operating costs from less handlingand fewer movements.For some firms, this is the most important collateralbenefit: “The overarching elements that define the[company] have to do with speed and flexibility. Thesecond [that not being C-TPAT certified] was viewedas an impediment to speed, it became a high priority.If this thing didn’t intersect with speed and flexibility,it would be a ‘who cares?’ But because it could conceivablyplay havoc with speed and flexibility, itbecame a high priority. The fact that it was a potentialimpediment was quickly obvious internally.” 19Another firm placed a conservative cost-savings figureon their C-TPAT compliance, saying that it willsave $12 million in cost by reducing the actual costof the inspection. 20 This figure did not include anyother likely benefits such as capital/inventory, coordination,or service-related cost reductions, meaningthat a more realistic assessment would put the actualfinancial impact for the firm at multiples of theirestimate.Potentially Faster Restart and Flow ThroughCustoms Post DisruptionA widely anticipated but not yet promised ordefined benefit of participating in government securityprograms is favorable treatment after future disruptions.Although customs officials have made nocommitments to provide this benefit, it seems logicalthat they will select “known shippers” and otherfirms participating in government programs amongthe first cargo to be permitted through customs aftera disruption.Platform for CollaborationThese programs provide a platform for collaborationand alignment within an industry that leads to industrystandards, raising overall level of performance inindustry on several levels, not just security. Specifically,these programs provide a network of firms that enableshigher levels of coordination for tackling commonindustry problems. At one firm, the “collateral benefitof [the] security program has been open communicationwith competitors such as Wal-Mart. It’s theindustry’s best interest to share information to helpprotect.” 21Supply Chain EfficiencyA number of voluntary programs entail several commonpractices that may help to improve supply chainefficiency as they improve security. Practices such asearly warning systems—for example, electronic prenotificationof delays or problems in customs clearance—enablethe affected parties to react quickerand with more reaction time. This ultimately makesfor a more thoughtful response that will tend to be16IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYmore effective and will utilize resources better. Asan example, one medical products producer notedthat its early warning systems give it 12 to 24 hoursto respond before problems impact customers,enabling them to use the precious time for optimalresponse planning and execution. As it turns out,this foreknowledge allowed the firm to reduce emergencytransportation costs and more effectively allocatereserve inventory. With some forethought, firmswill be able to anticipate efficiency and effectivenessimprovements in their supply chain operations.Broader Impact on the FirmParticipating in voluntary programs also integratessecurity into standard processes, engraining securityinto the process fabric of the firm. This becomes animportant element in creating a security culture thatincreases the level of awareness and sensitivity inthe firm to potential security breaches and systemdisruptions.Others have noted that C-TPAT partners have enjoyedadditional collateral benefits, including lower theftand losses, as well as reduced insurance rates afterfirms adopt improved security procedures. 22Many of the programs serve to instill process disciplinein the firm, which increases compliance andhigher performance in other domains such as quality,safety, and process performance. As an example,The Gillette Company learned that multiple methodswere being used in the firm to handle imports, makingfor inefficiencies and additional costs to handlethe multiple methods. 23“While preparing its C-TPAT application, for example,The Gillette Company discovered that each ofits subsidiaries had different ways of handling imports,said Global Customs Compliance Manager NormanLubeck. He’s now working on standardizing importprocedures company-wide, which will bring bothcost and efficiency benefits.” 24www.businessofgovernment.org 17

INVESTING IN SUPPLY CHAIN SECURITYAchieving Collateral BenefitsConnecting Security Investmentsand Collateral BenefitsRecognizing the potential to augment the return onsupply chain security investments, firms may wish toactively pursue creating collateral benefits. Yet thesebenefits are not guaranteed because the investmentsthemselves do not automatically create collateralbenefits. Instead, the security investments create theopportunity—either through a new capability, a newprocess, or a different business condition—whichcould then be used to create a collateral benefit. Tofully understand how to create the collateral benefitfrom the security investment, one must analyze anddetail the causal relationship between the securityinvestment and the actual benefit. This is a criticalelement when developing a realistic business casefor the security investment.While we have suggested and even enumerated abroad range of collateral benefits that could potentiallybe derived from a variety of security investments,most of these possibilities are based on preliminarydata 25 and early insights rather than formal datacollection and analysis. The good news is that suchspeculation can be made with some foundationbecause one can find guidance from similar pastinvestments. Many of the potential investments predictablycreate certain capabilities, some of whichhave known impacts on supply chains, enabling oneto develop a linkage map from the investment tobenefits. A linkage map may illustrate the relationshipbetween a security investment and the subsequentcapability that is created, which in turn enables subsequentaction and potential benefit. An examplemay help illustrate the possibility.Making the Connection: CollateralBenefits Linkage MapsFor example, investing in tracking systems to provideasset visibility may provide a valuable securityservice/role, but it is also believed to reduceuncertainty in the supply chain with real-timeconfirmed asset location and status/condition. Withsuch information, supply chain managers have lessuncertainty and could therefore reduce the amountof safety stock necessary. If the manager doesreduce the safety stock, this will reduce workingcapital and operating cost (lower levels of inventoryto finance, fewer movements to make). Withlower levels of inventory, the firm needs less spacefor that inventory, reducing the amount of stockingspace required (eliminating interim stock pointsor reducing contracted space commitments). If thefirm eliminates interim stock points, they will enjoylower operating costs (fewer stock points and lesshandling from fewer movements) and potentiallyfaster cycle times (fewer stops, less time handling/stocking/shipping).This example, illustrated in Figure 1, shows thepotential for creating collateral benefits by identifyingthe linkages between the investment andthe benefit. Capturing and achieving the benefits,however, requires that the firm take action (in theexample given, reducing inventory and eliminatingstock points). Additionally, in some cases thecollateral benefits can also be attributed to otherconditions as well, so there may be other requirementsthat need to be present in order to capturethe benefits.18IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYFigure 1: Example of a Collateral Benefits Linkage MapLocationand StatusExceptionsEvidentReal-TimeCorrectionTheft andInterruptionPreventedAssetVisibilityLocation,StatusKnownReal TimeLowerUncertaintyLessSafetyStockRequiredLowerWorkingCapitalOperatingCostsLowerWorkingCapitalOperatingCostsLessSpaceRequiredReduceStockPointsShorterCycleTimesAgain, this intends to show that these collateralbenefits are possible. The order of magnitude isdependent on the scope and the success of theimplementation, and clearly the firm would needto take action in order to enjoy the gains. As suggestedearlier, the ability of the firm to enjoy thecollateral benefits is also dependent on other conditionsas well. This includes whether the firm actuallytakes action to reduce inventory levels, to use theadditional information in its planning, and even toeliminate intermediaries. So we can assert that theinvestments can create possibilities, but enjoying theadvantage requires other conditions as well; it’s notautomatic, and therefore creating and leveraging thecollateral benefits will take management attentionand action.Challenges and Choices for CreatingCollateral BenefitsMinimalist or Holistic Systems Approach?An initial observation from interviews with securityleaders indicates that firms are taking one of threeapproaches to implement supply chain security:doing nothing, making minimal efforts targetedat satisfying voluntary program compliance obligations,or making holistic efforts targeted at improvingthe overall system.The “do nothing” group has chosen to make no investmentin supply chain security. These firms appear tobe fatalists and presume that a terrorist attack or disruptionwill affect all companies equally. Based onthat, they have chosen to take no action at all andwill not receive the benefits associated with securityinvestments.Slightly more involved are those firms that take a“minimalist” approach. Here, the firms undertakethe bare minimum required to satisfy participationrequirements for voluntary government programs.As an example, one high-tech company sellingconsumer products stated that their supply chainsecurity approach depends completely on complyingwith a government security program: “We’repursuing C-TPAT certification, and that’s our securityplan.” 26 In these cases, the firms will likely enjoylower security operating costs and may receivelimited collateral benefits from their security invest-www.businessofgovernment.org 19

INVESTING IN SUPPLY CHAIN SECURITYments, but may be vulnerable to security breachor other disruptions and may also suffer higherlosses and delays in their respective supply chains.In comparison to these two groups, firms adoptinga holistic approach undertake a comprehensiveeffort to impact the entire system (i.e., the end-to-endsupply chain) rather than just meeting voluntaryprogram compliance obligations. This group is mostlikely to realize collateral benefits from their securityinvestments. One firm pursuing a holistic systemsapproach invested significant sums above andbeyond that which was needed for C-TPAT complianceto improve the security of their supply chain,and the firm enjoyed several benefits. In additionto eliminating losses on new product introductions,the firm enjoyed the collateral benefits of new levelsof collaboration in their industry, and their C-TPATapplication required no additional efforts to gaincompliance. Ultimately, this firm, in adopting themore holistic approach, has created a more securesupply chain, with lower loss levels, and improvedtheir overall end-to-end supply chain efficiency andperformance, with these benefits far exceeding theinvestment costs.Making Investment ChoicesFirms have supply chain security investmentchoices, and the best option for one firm may notbe the best option for another firm. The specificbenefits, costs, risks, and requirements need to beassessed by the firm in order to make a determinationas to what is best for the firm itself.Prior to making investment decisions, it may be possibleand useful to consider several characteristicsof the various security investments that can possiblycreate collateral benefits:• Effort required to implement the security initiative• Collaboration required to achieve the collateralbenefits• Cost of implementing and additional effortsrequired to create the collateral benefits• Estimated time for collateral benefits, i.e.,whether the collateral benefit could be enjoyedin the near term or long termThese may provide a starting point for firms to considerthe possibilities.20IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYConclusionObservations and Issues to ConsiderWhile this report has introduced several new conceptsand proposed some new management andpolicy actions, a number of other directly relevantand tangential issues are worthy of some discussion.Some of these are offered here, as it may be usefulfor organizations to consider these preliminary observationswhen planning their investment decisions.Most notably, the preliminary analysis shows thatthe major collateral benefits accrue from reducingactual security breaches and enabling trade continuityor “trade security.” Some firms place the value ofthis as high as US$50–100 million/day cost, and inone actual case, one firm’s “trade security” enabledit to avoid the US$250 million loss that its lesssecure competitor suffered.It also appears that there is some “first mover advantage”possible to firms if they engage early enoughin the process. One firm described how it was ableto establish an important security standard by volunteeringto install security equipment as a betasite for the local government, therefore building thestandard around its own internal processes, whichsubsequently made for a faster throughput andlower operating cost for the firm.Some forward-thinking security efforts have engagedthe corporate accounting or finance operations, inone case installing a security chief who also wasa CPA. Their experience indicated that this officerenjoyed increased success of making security investmentsand creating collateral benefits by virtue ofknowing how to quantify benefits and credibly articulatethis into the management hierarchy.A significant collateral benefit may come when thefirm ties the role of security to corporate objectives(i.e., security plays an integral role in the deliveryof the product or service to the customer) ratherthan treating it merely as a separate activity. Onefirm in the fashion industry found it less expensiveto spend US$500,000 on security by hiring personnelto be on site (this added about US$.01 perUS$200 item); the on-site resource established arobust security program, making their upstream supplychain more secure and thoroughly preparingthem for the subsequent C-TPAT application. For thisfashion product provider, time to market was critical,and so a key motivation for making the securityinvestment was the speed advantage offered bybeing C-TPAT certified.Finally, the importance and impact of voluntaryprograms is likely to increase as customs clearanceprocesses require greater oversight and time. It iswidely recognized that there is a capacity constraintin moving materials through many ports throughoutthe world. And with processes requiring more oversight,one can predict that there will be increasingdelays for border crossings—delays that entail animplicit cost (cost of delay, cost of additional inspection)and will increase. Hence, the value of havingsecurity certification under a voluntary government/industry program will likely increase.The Challenge and OpportunityThis report presents an informed point of view oncollateral benefits available to those making securityinvestments. The work is based on insight, experience,secondary data, and anecdotal primary data,providing a qualitative assessment that portrayswww.businessofgovernment.org 21

INVESTING IN SUPPLY CHAIN SECURITYthe landscape relevant to developing and capturingcollateral benefits from supply chain securityinvestments. Far from being a foregone conclusion,though, capturing collateral benefits will requirethe important next step of validating these observationsand further documenting the actual dynamicsassociated with identifying and achieving collateralbenefits from supply chain security investments.Creating and achieving collateral benefits requiresa number of other capabilities and conditions inorder to capture the benefits. Often, the collateralbenefit enables a capability that must then be furtherdeveloped and applied. Even for those instanceswhere there is a direct causal relationship betweena security investment and a capability, firms stillneed to take the initiative to exploit the potential.Interestingly, the potential will vary somewhat byfirm, depending on firm characteristics and competitivesituation, among other factors.From the perspective of the firms that are consideringsupply chain security investments, the goodnews is that this preliminary analysis indicates thereare many potential collateral benefits that may bederived from the investments. The lack of documentedevidence to make the case should not beinterpreted as an indication that attaining the benefitsis impossible; this is more likely a result of therelatively recent recognition of security weaknessesand this emerging opportunity. One should not besurprised that there is a lack of systems to measurethe impact of the security investment, much less theimpact of collateral benefits. The management informationsystems need to be refined, and the organizationalfocus needs to be sensitized to observe andmeasure this data.Those firms choosing to take a deeper look at thepotential of creating the various collateral benefitswill need to honestly and realistically assess theeffort level and likelihood of success of their effortsto create collateral benefits. By virtue of undertakingthis effort, firms will enjoy the collateral benefit ofa more intimate understanding of their own operations,processes, capabilities, and weaknesses. Thisenables the firm to take even greater advantage ofthe possibility by tailoring the efforts to their firmspecificsituation.If this were easy, of course, all firms would beundertaking these activities, and copious amounts ofdata would be available to guide the uninitiated. Yet,the fact that achieving collateral benefits remains achallenge may have a positive twist to it—it clearlyindicates the potential to create some competitiveadvantage for firms successfully seizing the opportunityand capturing these potentially significant benefits.A key turning point will occur when the earlyadopters promote their successes, demonstrating thepotential economic value and competitive advantagefrom their investments in supply chain security.Looking AheadThe international trade and transportation systemremains vulnerable to an attack by terrorists whoseek to strike at the heart of the underpinnings ofmodern economies. It is widely understood bygovernment leaders and business executives thatprotection of the systems of trade and transportationare the exclusive province of neither the governmentnor the private sector. Neither has the meansto completely supervise the vast number of activitiesthat constitute international trade. Governments andfirms working together, each operating within theirrealm of effectiveness, can, however, greatly reducethe opportunities for attacks by terrorists against thesystem of international trade.The creation of collateral benefits from investmentsin security may very well be the fulcrum that balancesthe government’s interest in increased securitywith the private sector’s interest in increasedefficiency. Without collateral benefits, increases insecurity will be viewed only as increases in costs.The natural reaction of the vast majority of firmswhen faced with a requirement that increases theircosts will be to act entirely rationally. They willdevise a strategy to reduce the costs and drive themto the lowest possible level. Governments thatundertake a purely regulatory approach will findthat many of the transactions that need to be controlledare beyond their reach, and that they havecreated a regulatory environment of increased costsand very uncertain benefits. The collateral benefitsapproach, however, allows governments to extendtheir reach deeply into the systems of internationaltrade and allows firms to respond to the need forincreased security throughout the trade process22IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYin a way that enhances their competitive position.Collateral benefits work in consonance with freetrade by allowing governments to attain a highersecurity content of international trade without regulatingthe details of the components of the transaction.At this time, the collateral benefits approach containsa great deal of potential but remains difficultto quantify. There is little if any analysis of hard datadocumenting the actual collateral return on investmentsin security, as very few firms have taken asystematic and disciplined approach to understandingand creating collateral benefits. Firms need to beaware of the risks they take if investments are madein security with the hope that collateral benefits willflow from the investments but without the detailedplanning and attention to managing change that arenecessary to achieve the benefits. Just as was thecase with many firms that pursued TQM withoutfully understanding the requirements, there are significantplanning and change management obligationsthat are prerequisites to successfully creatingcollateral benefits.Government regulatory agencies as well need tothink outside their regulatory focus and understandhow their decisions impact the operational realm ofinternational trade. The “green lane” is a term usedby customs organizations to describe how the customsformalities of firms certified to be secure willbe processed. A green lane is meaningless, however,if it is an expression of customs processing that isnot integrated with the actual operations of the port.At a seaport, chassis need to be available and dedicatedlanes and special processing need to be availableto expedite egress from the port. Governmentagencies need to pay close attention to the detailedplanning and change management that are the foundationsof collateral benefits.Collateral benefits are an important componentof the “new normalcy” of international trade—thequest to have it both ways, increasing both securityand efficiency. A great deal of work remains tobe done to convert the opportunity into actuality,with potentially significant benefits and competitiveadvantages available to those supply chains that aresuccessful.www.businessofgovernment.org 23

INVESTING IN SUPPLY CHAIN SECURITYAppendix:Overview of Supply ChainSecurity Investment OptionsTable A.1: Overview of Supply Chain Security Investment Options—Direct and Collateral BenefitsSecurityInvestment Direct Benefits Collateral BenefitsAsset Visibilityand Tracking• Provide positive locationstatus, preventing excursions• Provide time-definite andcontrolled chain of custody• Lower theft and losses• Faster recalls• Fewer delayed shipments• Better planning, enabling lower working capital forinventory• Less Overages, Shortages, and Damages (OS&D)• Protection of brand namePersonnelSecurityPhysical SecurityStandardsDevelopmentSupplierSelection andInvestment• Thorough background checkeliminates “bad actors” fromhiring pool• Regular background checksprovide early warning foremployees operating underthe influence• Controlled access keeps outunauthorized personnel• Protection of intellectualproperty• Protection of capital equipmentand personnel• Protection of product integrity• Facilitate coordination ofmulti-company security activities(initiatives, sting operations,incident investigations)• Security breaches easier tospot with standard systems• Higher levels of security withcommon procedures• System-level and suppliersecurity improvement• Ensure a secure supply ofmaterials• Early warning of upstreamsecurity issues• Reduce upstream andinbound losses• Customer loyalty, increased sales revenues, highermarket share• Employee commitment and belief in company’sconcern for employee• Customer recognition of firm’s safe and secure environmentas an expertise, increasing customer loyalty• Fewer thefts and OS&D by virtue of having moresecure facility• Reduced equipment damage and operating costs(lower insurance rates)• Fewer safety incidents and catastrophes• Improve the efficiency of ship, train, truck, terminaloperations; cuts international shipping times• Platform for collaboration within an industry leadingto standards that raise level of performance• Process discipline enables compliance (quality, safety,process), higher performance• Common processes reduce confusion, raise predictability,improve staff backup• Reduce non-security losses• Lower inspection costs, faster throughput• Enhanced communication via collaboration• Increase efficiency through joint planning• Utilize internal security resources to assist suppliers,ultimately making for improved relationships24IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYSecurityInvestment Direct Benefits Collateral BenefitsTransportationand ConveyanceSecurity• Reduce theft losses• Reduce adulteration of product• Reduce chance of cargovessel misuse (weapondelivery system)• Protect conveyance equipment,vessels• Cost avoidance of non-product-related costs (indirectcosts)• Crime and vandalism rates fall• Fewer disruptions to the supply chain, more cost savingscompared with avoided losses• Less capital required for inventory• Reduced transportation cycle timeBuildingOrganizationalInfrastructureAwareness andCapabilitiesCollaborationAmong SupplyChain PartiesProactiveTechnologyInvestmentsTQMInvestmentsVoluntarySecurityCompliance• Build awareness of securityconcerns• Increase role of security indaily operations and everyassignment• Improved coordinationalong supply chain increasessecurity• Technology providesincreased ability to track,monitor, and observe materialflows, preventing excursions• More consistent security procedureexecution• Application of Six Sigmamay lead to disciplined lossreduction efforts• Lower losses• Higher-performance employeesemphasize security• Process design standardizessecurity processes• Design supply chain withfewer handoffs, keepingproduct moving• European Union’s AuthorizedEconomic Operator programensures base level of supplychain security assessment• Customs specialists working inspecialized security programsmay observe risk of securitybreach before breach can occur• Customs-Trade PartnershipAgainst Terrorism (C-TPAT)membership provides membercompanies with informationabout industry “best practices”in supply chain security• Sweden’s StairSec programleads to higher inspectionrates of uncertified cargo,increasing likelihood of earlywarning and prevention• Increase problem prevention through recognition byemployees• Increase early intervention, reducing impact of adisruption• Improve the ability to respond with early awareness• Platform for broader alignment• Enable creation of a secure supply chain network forcommon problem solving, resource sharing• Improve communication among supply chain partners,potentially reducing coordination costs• Ability to customize the application to the benefit of the firm• Increase process efficiency through technology• Visibility investments give real-time awareness of supplychain delays, location, and status• Discipline increases, enabling compliance (quality,safety, process)• Reduction in safety stock, lead-time variance, and lowerOS&D• Better process knowledge and management from additionaldata, greater visibility to discern bottlenecks andcongestion• Safety stock reduction as a result of advance lead-timeinformation• Investment in quality processes results in quality security• Consistent process operation leads to fewer disruptions,faster and more reliable operation• Process discipline leads to higher levels of performance,efficiency• Establish a “mandatory” fundamental standard acrossindustry for supply chain security via a “voluntary”program• A platform for collaboration and alignment within anindustry that leads to industry standards, raising overalllevel of performance in quality, service, and cost• C-TPAT supply chain specialist assists firm as CBPliaison for validation, security issues, procedural updates,communication, and training• Faster border throughput times from fewer inspectionsand “green lane” flow, which may raise service levels,enabling lower working capital• Process discipline enables compliance (quality, safety,process), higher levels of process performancewww.businessofgovernment.org 25

INVESTING IN SUPPLY CHAIN SECURITYEndnotes1. A number of terms have been used to describethis capability, including resilience, business continuity,contingency planning, and “trade security” (“trade security”refers to a broader set of capabilities described in thewhite paper “Trade Security: The New Equation for theNew Normalcy” by the authors). One can think of supplychain security in terms of maintaining the integrity of theproduct, processes, and information, in contrast to supplychain continuity or resilience, which we define as “theability to react to unexpected disruption and restore normalsupply chain operations.”2. Supply chain security investments range from capitalequipment, human resources, process improvements,and operating expenses for a range of activities includingphysical security improvements, monitoring, and incidentinvestigation.3. This problem has also been recently addressed byresearchers using system dynamics methods. See “NobodyEver Gets Credit for Fixing Defects that Didn’t Happened:Creating and Sustaining Process Improvement,” CaliforniaManagement Review, 43, 4:64–88 by N. Repenning andJ. Sterman, 2001.4. Early mention of collateral benefits includesinsights from several leaders, including Dr. Ruth David,CEO and president of ANSER Analytical Service, whocoined the term “dual benefits.” Additionally, “dual benefitsolutions” are profiled through the Homeland SecurityInstitute operated by ANSER (http://www.homelandsecurity.org/bulletin/current_bulletin.cfm).5. “Quality is free” by Phil Crosby. Professor HauLee and Michael Wolfe also recognized and notedsimilarities between security improvement and qualityimprovement in their article “Supply Chain Securitywithout Tears” published in Supply Chain ManagementReview, Jan–Feb 2003.6. J. Martha and S. Subbakrishna. (2002), “Targetinga just-in-case Supply Chain for the Inevitable NextDisaster,” Supply Chain Management Review, September/October, pp. 18–23.7. Vinod Singhal, “Supply Chain Glitches andShareholder Value Destruction,” Business Briefing: GlobalPurchasing and Supply Chain Strategies. In this study, theresearchers examined instances where firms experiencedproduction or shipping delays as announced in the TheWall Street Journal or the Dow Jones News Service.8. Ibid.9. Almar Latour, “Trial by Fire: A Blaze inAlbuquerque Sets Off Major Crisis For Cell-Phone Giants,”The Wall Street Journal, January 29, 2001, page A1.10. “The No-See-Um’s: The Financial Impact of CargoLosses on the Bottom Line.” Presentation at the 2004Council of Logistics Management Annual Conferenceon October 6, 2004, by Robert S. Holley, Chubb & Son.11. The data was derived from an interview conductedin 2005 by Abby Benson and James B. Rice, Jr.,both of MIT, as part of a study on supply chain security.12. Examples of multiple levels of firms collaboratinginclude sourcing personnel working with sales personnel,product development personnel working with designengineers, and warehousing managers working withdistribution and shipping managers.13. The data was derived from an interview conductedin 2005 by Abby Benson and James B. Rice, Jr.,both of MIT, as part of a study on supply chain security.14. The data was derived from an interview conductedin 2003 by Federico Caniato, Visiting StudentMIT, and James B. Rice, Jr., as part of a study on supplychain resilience.15. Hau L. Lee and Seungjin Whang, “Higher SupplyChain Security with Lower Cost: Lessons from TotalQuality Management,” Stanford University white paper,October 19, 2003, p. 21.26IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITY16. Reference Benson-Rice interviews. One 3PL providerdescribed C-TPAT as a “choiceless choice becausea company that doesn’t comply will go out of businesssince all major importers require it.”17. “Securing the Global Supply Chain: Customs-TradePartnership Against Terrorism (C-TPAT) Strategic Plan,”U.S. Customs and Border Protection, April 2005.18. The availability of “green lanes” will vary bycountry and their respective progress toward developingthe necessary technology and infrastructure to supportbuilding “green lane” processes.19. Ref. Benson-Rice interview.20. Ref. Benson-Rice interview.21. Ref. Benson-Rice interview.22. Deena S. Disraeli, “Public-Private Partnerships:Security and Emergency Response Collaboration ina New Threat Environment,” MIT Thesis, June 2004.23. Tobey Gooley, “C-TPAT: Separating Hype fromReality,” Logistics Management, August 1, 2004.24. Ibid.25. Data derived from a series of interviews conductedas part of the Supply Chain Response to Terrorismproject at MIT; see http://web.mit.edu/scresponse/ foradditional information.26. Ibid. Rice-Caniato interviewswww.businessofgovernment.org 27

INVESTING IN SUPPLY CHAIN SECURITYA B O U T T H E A U T H O R SJames B. Rice, Jr., is the Director of the Integrated Supply ChainManagement (ISCM) Program at the Center for Transportation and Logistics(CTL) at the Massachusetts Institute of Technology, having joined CTL in1995. The ISCM Program is a consortium that enables companies fromindustry to interact with faculty and researchers across MIT on educationand research in the supply chain domain.Mr. Rice’s research is on organization and supply chain design, recentlyfocusing on how supply chains respond to disruptions (for example, terrorism),including the role of culture and the creation of collateral benefits,and on the impact of auto-ID on supply chain design. He also serves asproject manager for the Supply Chain Response and the Smart Objectsprojects, and teaches a graduate course in supply chain management.His written work includes published articles, such as “The RFID Journey: From Strategy to Action” upcomingin Supply Chain Management Review; “Building a Secure and Resilient Supply Network” in Supply ChainManagement Review, Sept.–Oct. 2003; “Strategic Partnership: Collaboration, Alliances and theCoordination Spectrum” in Logistics Solutions, Issue 1 2002; “Supply Chain Versus Supply Chain: The Hypeand Reality” in Supply Chain Management Review, Sept.–Oct. 2001; and “Spanning the FunctionalBoundaries Through Horizontal Process Management (HPM)” in Supply Chain Management Review, Fall1997. He also contributed to the book Surviving Supply Chain Integration (National Academy Press, March2000) and to a number of working papers prepared for CTL sponsors.In addition to his role at MIT, Mr. Rice has served the community on several supply-chain-related boardsand committees, including the National Research Council’s Board on Manufacturing and Engineering Design(BMAED); the editorial board of Supply Chain Management Review and of Supply Chain Forum: AnInternational Journal; the International Advisory Board of KLICT, a multi-year international research initiativefunded by the government of The Netherlands; the United States Air Force Logistics Transformation AdvisoryCommittee (chairman); and the U.S. Navy Supply Chain Practices for Affordable Naval Systems (SPANS)Technical Advisory Board.Prior to joining MIT, Mr. Rice managed manufacturing and distribution operations at Procter & Gamble, andserved as a sales and market manager at General Electric Company.Mr. Rice earned his M.B.A. in operations and finance from the Harvard Business School, and a bachelor’sdegree in mechanical engineering from the University of Notre Dame.28IBM Center for The Business of Government

INVESTING IN SUPPLY CHAIN SECURITYPhilip W. Spayd is a Research Affiliate, Center for Transportation andLogistics, Massachusetts Institute of Technology, and a founding director ofGlobal Trade Systems, Inc. (GTS). GTS provides advice to companies onworking to make the overall operation of international supply chains moreefficient and better able to function with resiliency in the event of a disruptionanywhere along the supply/demand axis. GTS works at the intersectionof strategy and operations by helping companies ensure that their supplychain strategies support their business objectives. Prior to joining GTS inJanuary 2004, Mr. Spayd served for 25 years with the U.S. Customs Serviceand the Department of Homeland Security, working in the U.S. and representingU.S. Customs globally. He was a founding director of Operation SafeCommerce, the first public/private partnership to develop mechanisms toenhance the security of international supply chains.As the Boston director of field operations, Customs and Border Protection, Department of Homeland Security,Mr. Spayd directed the commercial and inspectional activities of approximately 1,000 Customs and BorderProtection employees throughout the six New England states. The Boston field office was recognized for creatingfour “best practices” warranting national recognition: antiterrorism passenger examinations, antiterrorismtraining, interagency maritime intelligence, and Operation Safe Commerce.Mr. Spayd was appointed Northeast regional commissioner in August 1988. Prior to that appointment, he wasdistrict director of Customs in Norfolk, Virginia, and before that, director of labor relations at Customs headquartersin Washington, D.C. He began his government career in 1973 and began work at Customs in 1978.During the period of March through July 1998, Mr. Spayd was stationed in Sofia, Bulgaria, serving as theU.S. advisor to the Bulgarian government on counter-proliferation. He worked directly for the minister of theInterior and formed inter-governmental working groups to share intelligence and to coordinate operationalplanning. He directed a joint Bulgaria/Romania operation at a strategic port on the Danube River to stem theflow of weapons of mass destruction components in the region.In 1992, Mr. Spayd received a Meritorious Executive Presidential Rank Award from President George H. W. Bushfor innovative management. In 1996, he received an award from the World Customs Organization for internationalservice in Eastern Europe. He is a Harvard Senior Executive Fellow. In April 2002, Mr. Spayd was awarded theCoalition of New England Companies for Trade (CONECT) Person of the Year Award. He received this award for hiscontributions to the facilitation of international trade in New England in the face of the new security environment.Mr. Spayd is a graduate of The Pennsylvania State University with a B.A. degree in political science and ofthe University of Massachusetts with an M.S. degree in labor and industrial relations.www.businessofgovernment.org 29

INVESTING IN SUPPLY CHAIN SECURITYK E Y C O N T A C T I N F O R M A T I O NTo contact the authors:James B. Rice, Jr.Director, Integrated Supply Chain ManagementCenter for Transportation and LogisticsMassachusetts Institute of Technology77 Massachusetts Avenue, Room E40-281Cambridge, MA 02139(617) 258-8584fax: (617) 253-4560e-mail: jrice@mit.eduPhilip W. SpaydGlobal Trade Systems, Inc.7 Borden RoadScituate, MA 02066(781) 545-4462e-mail: philip.spayd@globaltradesystems.com30IBM Center for The Business of Government

CENTER REPORTS AVAILABLECOLLABORATION:PARTNERSHIPS ANDNETWORKSLeveraging Networks to MeetNational Goals: FEMA and the SafeConstruction Networks (March 2002)William L. Waugh, Jr.21st-Century Government and theChallenge of Homeland Defense(June 2002)Elaine C. KamarckAssessing Partnerships: New Formsof Collaboration (March 2003)Robert Klitgaard and Gregory F.TrevertonLeveraging Networks: A Guide forPublic Managers Working acrossOrganizations (March 2003)Robert AgranoffExtraordinary Results on NationalGoals: Networks and Partnerships inthe Bureau of Primary Health Care’s100%/0 Campaign (March 2003)John ScanlonPublic-Private Strategic Partnerships:The U.S. Postal Service-FederalExpress Alliance (May 2003)Oded ShenkarThe Challenge of Coordinating“Big Science” (July 2003)W. Henry LambrightCommunities of Practice: A NewTool for Government Managers(November 2003)William M. Snyder and Xavier deSouza BriggsCollaboration and PerformanceManagement in Network Settings:Lessons from Three WatershedGovernance Efforts (April 2004)Mark T. ImperialThe Quest to Become “One”:An Approach to InternalCollaboration (February 2005)Russ LindenCooperation Between Social Securityand Tax Agencies in Europe(April 2005)Bernhard Zaglmayer, Paul Schoukens,and Danny PietersE-GOVERNMENTSupercharging the EmploymentAgency: An Investigation of the Useof Information and CommunicationTechnology to Improve the Serviceof State Employment Agencies(December 2000)Anthony M. TownsendAssessing a State’s Readiness forGlobal Electronic Commerce:Lessons from the Ohio Experience(January 2001)J. Pari Sabety and Steven I. GordonPrivacy Strategies for ElectronicGovernment (January 2001)Janine S. Hiller and France BélangerCommerce Comes to Governmenton the Desktop: E-CommerceApplications in the Public Sector(February 2001)Genie N. L. StowersThe Use of the Internet inGovernment Service Delivery(February 2001)Steven Cohen and William EimickeState Web Portals: Delivering andFinancing E-Service (January 2002)Diana Burley Gant, Jon P. Gant, andCraig L. JohnsonInternet Voting: Bringing Electionsto the Desktop (February 2002)Robert S. DoneLeveraging Technology in theService of Diplomacy: Innovationin the Department of State(March 2002)Barry FultonFederal Intranet Work Sites: AnInterim Assessment (June 2002)Julianne G. Mahler and Priscilla M.ReganThe State of Federal Websites: ThePursuit of Excellence (August 2002)Genie N. L. StowersState Government E-Procurement inthe Information Age: Issues, Practices,and Trends (September 2002)M. Jae MoonPreparing for Wireless and MobileTechnologies in Government(October 2002)Ai-Mei Chang and P. K. KannanPublic-Sector Information Security:A Call to Action for Public-SectorCIOs (October 2002, 2nd ed.)Don HeimanThe Auction Model: How the PublicSector Can Leverage the Power ofE-Commerce Through DynamicPricing (November 2002, 2nd ed.)David C. WyldThe Promise of E-Learning in Africa:The Potential for Public-PrivatePartnerships (January 2003)Norman LaRocque and MichaelLathamDigitally Integrating theGovernment Supply Chain:E-Procurement, E-Finance, andE-Logistics (February 2003)Jacques S. Gansler, WilliamLucyshyn, and Kimberly M. RossUsing Technology to IncreaseCitizen Participationin Government: The Use of Modelsand Simulation (April 2003)John O’LooneySeaport: Charting a New Course forProfessional Services Acquisition forAmerica’s Navy (June 2003)David C. WyldE-Reporting: StrengtheningDemocratic Accountability(February 2004)Mordecai LeeUnderstanding ElectronicSignatures: The Key toE-Government (March 2004)Stephen H. HoldenMeasuring the Performance ofE-Government(March 2004)Genie N. L. StowersRestoring Trust in Government: ThePotential of Digital CitizenParticipation (August 2004)Marc Holzer, James Melitski, Seung-Yong Rho, and Richard SchwesterFrom E-Government toM-Government? Emerging Practicesin the Use of Mobile Technology byState Governments (November 2004)M. Jae MoonTo download or order a copy of a report, visit the IBM Center for The Business of Government website at: www.businessofgovernment.org 31

CENTER REPORTS AVAILABLEGovernment Garage Sales: OnlineAuctions as Tools for AssetManagement (November 2004)David C. WyldInnovation in E-Procurement: TheItalian Experience (November 2004)Mita MarraComputerisation and E-Governmentin Social Security: A ComparativeInternational Study (May 2005)Michael Adler and Paul HenmanFINANCIALMANAGEMENTCredit Scoring and Loan Scoring:Tools for Improved Management ofFederal Credit Programs (July 1999)Thomas H. StantonUsing Activity-Based Costing toManage More Effectively(January 2000)Michael H. Granof, David E. Platt,and Igor VaysmanAudited Financial Statements:Getting and Sustaining “Clean”Opinions (July 2001)Douglas A. BrookAn Introduction to Financial RiskManagement in Government(August 2001)Richard J. Buttimer, Jr.Understanding Federal AssetManagement: An Agenda for Reform(July 2003)Thomas H. StantonEfficiency Counts: Developing theCapacity to Manage Costs at AirForce Materiel Command(August 2003)Michael Barzelay and FredThompsonFederal Credit Programs: ManagingRisk in the Information Age(April 2005)Thomas H. StantonHUMAN CAPITALMANAGEMENTProfiles in Excellence: Conversationswith the Best of America’s CareerExecutive Service (November 1999)Mark W. HuddlestonReflections on Mobility: CaseStudies of Six Federal Executives(May 2000)Michael D. SerlinManaging Telecommuting in theFederal Government: An InterimReport (June 2000)Gina Vega and Louis BrennanUsing Virtual Teams to ManageComplex Projects: A Case Study ofthe Radioactive Waste ManagementProject (August 2000)Samuel M. DeMarieA Learning-Based Approach toLeading Change (December 2000)Barry SugarmanLabor-Management Partnerships:A New Approach to CollaborativeManagement (July 2001)Barry Rubin and Richard RubinWinning the Best and Brightest:Increasing the Attraction of PublicService (July 2001)Carol ChetkovichA Weapon in the War for Talent:Using Special Authorities to RecruitCrucial Personnel (December 2001)Hal G. RaineyA Changing Workforce:Understanding Diversity Programsin the Federal Government(December 2001)Katherine C. Naff and J. EdwardKelloughLife after Civil Service Reform:The Texas, Georgia, and FloridaExperiences (October 2002)Jonathan WaltersThe Defense Leadership andManagement Program: TakingCareer Development Seriously(December 2002)Joseph A. Ferrara and Mark C. RomThe Influence of OrganizationalCommitment on Officer Retention:A 12-Year Study of U.S. ArmyOfficers (December 2002)Stephanie C. Payne, Ann H.Huffman, and Trueman R. Tremble, Jr.Human Capital Reform: 21stCentury Requirements for the UnitedStates Agency for InternationalDevelopment (March 2003)Anthony C. E. Quainton andAmanda M. FulmerModernizing Human ResourceManagement in the FederalGovernment: The IRS Model(April 2003)James R. Thompson and Hal G.RaineyMediation at Work: TransformingWorkplace Conflict at the UnitedStates Postal Service (October 2003)Lisa B. BinghamGrowing Leaders for Public Service(August 2004, 2nd ed.)Ray BluntPay for Performance: A Guide forFederal Managers (November 2004)Howard RisherThe Blended Workforce: MaximizingAgility Through Nonstandard WorkArrangements (April 2005)James R. Thompson and Sharon H.MastracciINNOVATIONManaging Workfare: The Case ofthe Work Experience Program inthe New York City Parks Department(June 1999)Steven CohenNew Tools for ImprovingGovernment Regulation: AnAssessment of Emissions Tradingand Other Market-Based RegulatoryTools (October 1999)Gary C. BrynerReligious Organizations, Anti-Poverty Relief, and CharitableChoice: A Feasibility Study of Faith-Based Welfare Reform in Mississippi(November 1999)John P. Bartkowski and Helen A. Regis32To download or order a copy of a report, visit the IBM Center for The Business of Government website at: www.businessofgovernment.org

Business Improvement Districts andInnovative Service Delivery(November 1999)Jerry MitchellAn Assessment of BrownfieldRedevelopment Policies: TheMichigan Experience(November 1999)Richard C. HulaSan Diego County’s InnovationProgram: Using Competition and aWhole Lot More to Improve PublicServices (January 2000)William B. EimickeInnovation in the Administrationof Public Airports (March 2000)Scott E. TarryEntrepreneurial Government:Bureaucrats as Businesspeople(May 2000)Anne LaurentRethinking U.S. EnvironmentalProtection Policy: ManagementChallenges for a New Administration(November 2000)Dennis A. RondinelliThe Challenge of Innovatingin Government (February 2001)Sandford BorinsUnderstanding Innovation:What Inspires It? What MakesIt Successful? (December 2001)Jonathan WaltersGovernment Management ofInformation Mega-Technology:Lessons from the Internal RevenueService’s Tax Systems Modernization(March 2002)Barry BozemanAdvancing High End Computing:Linking to National Goals(September 2003)Juan D. Rogers and Barry BozemanMANAGING FORPERFORMANCE ANDRESULTSCorporate Strategic Planning inGovernment: Lessons from theUnited States Air Force(November 2000)Colin CampbellUsing Evaluation to SupportPerformance Management:A Guide for Federal Executives(January 2001)Kathryn Newcomer and Mary AnnScheirerManaging for Outcomes: MilestoneContracting in Oklahoma(January 2001)Peter FrumkinThe Challenge of DevelopingCross-Agency Measures:A Case Study of the Office ofNational Drug Control Policy(August 2001)Patrick J. Murphy and John CarnevaleThe Potential of the GovernmentPerformance and Results Act as aTool to Manage Third-PartyGovernment (August 2001)David G. FredericksonUsing Performance Data forAccountability: The New York CityPolice Department’s CompStatModel of Police Management(August 2001)Paul E. O’ConnellMoving Toward More CapableGovernment: A Guide toOrganizational Design (June 2002)Thomas H. StantonThe Baltimore CitiStat Program:Performance and Accountability(May 2003)Lenneal J. HendersonStrategies for Using StateInformation: Measuring andImproving Program Performance(December 2003)Shelley H. MetzenbaumLinking Performance and Budgeting:Opportunities in the Federal BudgetProcess (January 2004, 2nd ed.)Philip G. JoyceHow Federal Programs Use OutcomeInformation: Opportunities forFederal Managers(February 2004, 2nd ed.)Harry P. Hatry, Elaine Morley, ShelliB. Rossman, and Joseph S. WholeyPerformance Leadership: 11 BetterPractices That Can Ratchet UpPerformance (May 2004)Robert D. BehnPerformance Management forCareer Executives: A “Start WhereYou Are, Use What You Have” Guide(October 2004, 2nd ed.)Chris WyeStaying the Course: The Use ofPerformance Measurement in StateGovernments (November 2004)Julia Melkers and KatherineWilloughbyMARKET-BASEDGOVERNMENTDetermining a Level Playing Fieldfor Public-Private Competition(November 1999)Lawrence L. MartinImplementing State Contracts forSocial Services: An Assessment ofthe Kansas Experience (May 2000)Jocelyn M. Johnston and Barbara S.RomzekA Vision of the Government asa World-Class Buyer: MajorProcurement Issues for the ComingDecade (January 2002)Jacques S. GanslerContracting for the 21st Century:A Partnership Model (January 2002)Wendell C. LawtherFranchise Funds in the FederalGovernment: Ending the Monopolyin Service Provision (February 2002)John J. CallahanMaking Performance-BasedContracting Perform: What theFederal Government Can Learn fromState and Local Governments(November 2002, 2nd ed.)Lawrence L. MartinMoving to Public-PrivatePartnerships: Learning fromExperience around the World(February 2003)Trefor P. WilliamsIT Outsourcing: A Primer for PublicManagers (February 2003)Yu-Che Chen and James PerryThe Procurement Partnership Model:Moving to a Team-Based Approach(February 2003)Kathryn G. DenhardtTo download or order a copy of a report, visit the IBM Center for The Business of Government website at: www.businessofgovernment.org 33

CENTER REPORTS AVAILABLEMoving Toward Market-BasedGovernment: The Changing Roleof Government as the Provider(March 2004, 2nd ed.)Jacques S. GanslerTransborder Service Systems:Pathways for Innovation or Threatsto Accountability? (March 2004)Alasdair RobertsCompetitive Sourcing: WhatHappens to Federal Employees?(October 2004)Jacques S. Gansler and WilliamLucyshynImplementing Alternative SourcingStrategies: Four Case Studies(October 2004)Edited by Jacques S. Gansler andWilliam LucyshynDesigning Competitive Biddingfor Medicare (November 2004)John Cawley and Andrew B.WhitfordTRANSFORMATION OFORGANIZATIONSThe Importance of Leadership:The Role of School Principals(September 1999)Paul Teske and Mark SchneiderLeadership for Change: Case Studiesin American Local Government(September 1999)Robert B. Denhardt and JanetVinzant DenhardtManaging DecentralizedDepartments: The Case of theU.S. Department of Health andHuman Services (October 1999)Beryl A. RadinTransforming Government: TheRenewal and Revitalization of theFederal Emergency ManagementAgency (April 2000)R. Steven Daniels and Carolyn L.Clark-DanielsTransforming Government: Creatingthe New Defense ProcurementSystem (April 2000)Kimberly A. HarokopusTrans-Atlantic Experiences in HealthReform: The United Kingdom’sNational Health Service and theUnited States Veterans HealthAdministration (May 2000)Marilyn A. DeLucaTransforming Government: TheRevitalization of the Veterans HealthAdministration (June 2000)Gary J. YoungThe Challenge of Managing AcrossBoundaries: The Case of the Officeof the Secretary in the U.S.Department of Health and HumanServices (November 2000)Beryl A. RadinCreating a Culture of Innovation:10 Lessons from America’s Best RunCity (January 2001)Janet Vinzant Denhardt and RobertB. DenhardtTransforming Government: DanGoldin and the Remaking of NASA(March 2001)W. Henry LambrightManaging Across Boundaries: ACase Study of Dr. Helene Gayle andthe AIDS Epidemic (January 2002)Norma M. RiccucciManaging “Big Science”: A CaseStudy of the Human Genome Project(March 2002)W. Henry LambrightThe Power of Frontline Workers inTransforming Government: TheUpstate New York VeteransHealthcare Network (April 2003)Timothy J. HoffMaking Public Sector Mergers Work:Lessons Learned (August 2003)Peter FrumkinEfficiency Counts: Developing theCapacity to Manage Costs at AirForce Materiel Command(August 2003)Michael Barzelay and FredThompsonManaging the New Multipurpose,Multidiscipline University ResearchCenters: Institutional Innovationin the Academic Community(November 2003)Barry Bozeman and P. CraigBoardman2004 PRESIDENTIALTRANSITION SERIESGovernment Reorganization:Strategies and Tools to Get It Done(August 2004)Hannah SistarePerformance Management forPolitical Executives: A “Start WhereYou Are, Use What You Have” Guide(October 2004)Chris WyeBecoming an Effective PoliticalExecutive: 7 Lessons fromExperienced Appointees(January 2005, 2nd ed.)Judith E. MichaelsGetting to Know You: Rules ofEngagement for Political Appointeesand Career Executives(January 2005)Joseph A. Ferrara and Lynn C. RossSPECIAL REPORTSEnhancing Security Throughout theSupply Chain (April 2004)David J. Closs and Edmund F.McGarrellAssessing the Impact of IT-DrivenEducation in K–12 Schools(May 2005)Ganesh D. BhattInvesting in Supply Chain Security:Collateral Benefits (May 2005)James B. Rice, Jr., and Philip W. SpaydCENTER FOR HEALTHCAREMANAGEMENT REPORTSThe Power of Frontline Workersin Transforming HealthcareOrganizations: The Upstate NewYork Veterans Healthcare Network(December 2003)Timothy J. HoffIT Outsourcing: A Primer forHealthcare Managers(December 2003)Yu-Che Chen and James Perry34To download or order a copy of a report, visit the IBM Center for The Business of Government website at: www.businessofgovernment.org

BOOKS*Collaboration: Using Networks andPartnerships(Rowman & Littlefield Publishers,Inc., 2004)John M. Kamensky and Thomas J.Burlin, editorsE-Government 2001(Rowman & Littlefield Publishers,Inc., 2001)Mark A. Abramson and Grady E.Means, editorsE-Government 2003(Rowman & Littlefield Publishers,Inc., 2002)Mark A. Abramson and Therese L.Morin, editorsHuman Capital 2002(Rowman & Littlefield Publishers,Inc., 2002)Mark A. Abramson and NicoleWillenz Gardner, editorsHuman Capital 2004(Rowman & Littlefield Publishers,Inc., 2004)Jonathan D. Breul and NicoleWillenz Gardner, editorsInnovation(Rowman & Littlefield Publishers,Inc., 2002)Mark A. Abramson and Ian Littman,editorsLeaders(Rowman & Littlefield Publishers,Inc., 2002)Mark A. Abramson and Kevin M.Bacon, editorsLearning the Ropes: Insights forPolitical Appointees(Rowman & Littlefield Publishers,Inc., 2005)Mark A. Abramson and Paul R.Lawrence, editorsManaging for Results 2002(Rowman & Littlefield Publishers,Inc., 2001)Mark A. Abramson and John M.Kamensky, editorsManaging for Results 2005(Rowman & Littlefield Publishers,Inc., 2004)John M. Kamensky and AlbertMorales, editorsMemos to the President:Management Advice from theNation’s Top Public Administrators(Rowman & Littlefield Publishers,Inc., 2001)Mark A. Abramson, editorNew Ways of Doing Business(Rowman & Littlefield Publishers,Inc., 2003)Mark A. Abramson and Ann M.Kieffaber, editorsThe Procurement Revolution(Rowman & Littlefield Publishers,Inc., 2003)Mark A. Abramson and Roland S.Harris III, editorsTransforming Government SupplyChain Management(Rowman & Littlefield Publishers,Inc., 2003)Jacques S. Gansler and Robert E.Luby, Jr., editorsTransforming Organizations(Rowman & Littlefield Publishers,Inc., 2001)Mark A. Abramson and Paul R.Lawrence, editors* Available at bookstores, online booksellers, and from the publisher (www.rowmanlittlefield.com or 800-462-6420). 35

About the IBM Center for The Business of GovernmentThrough research stipends and events, the IBM Center forThe Business of Government stimulates research and facilitatesdiscussion on new approaches to improving the effectiveness ofgovernment at the federal, state, local, and international levels.The Center is one of the ways that IBM seeks to advanceknowledge on how to improve public sector effectiveness.The IBM Center focuses on the future of the operation andmanagement of the public sector.About IBM Business Consulting ServicesWith consultants and professional staff in more than 160 countriesglobally, IBM Business Consulting Services is the world’s largestconsulting services organization. IBM Business Consulting Servicesprovides clients with business process and industry expertise, adeep understanding of technology solutions that address specificindustry issues, and the ability to design, build and run thosesolutions in a way that delivers bottom-line business value. Formore information visit www.ibm.com/bcs.For additional information, contact:Mark A. AbramsonExecutive DirectorIBM Center for The Business of Government1301 K Street, NWFourth Floor, West TowerWashington, DC 20005(202) 515-4504, fax: (202) 515-4375e-mail: businessofgovernment@us.ibm.comwebsite: www.businessofgovernment.org