Study: Supply chain security benefits far outweigh costs

Companies that invest in supply chain security measures can expect substantial benefits that far outweigh the costs of the security expenditures, according to a new study by Stanford University released August 1 by The Manufacturing Institute, the research and education arm of the National Association of Manufacturers (NAM).

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

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

 The companies that were able to quantify their benefits, on average:

·        Reduced their Customs inspections by 48 percent;

·        Increased the automated handling of their imports by 43 percent;

·        Saw a 29 percent reduction in transit times;

·        Improved their asset visibility in the supply chain by  50 percent;

·        Improved on-time shipping to customers by 30 percent;

·        Reduced time taken to identify problems by 21 percent;

·        Reduced theft in inventory management by 38 percent;

·        Reduced excess inventory by 14 percent; and

·        Reduced customer attrition by 26 percent.

“These are very significant findings because of the magnitude of the benefits realized, and because it’s the first time the industry has been able to quantify them,” said Theo Fletcher, vice president for import compliance and supply chain security, IBM. “The results clearly demonstrate that in addition to lower risk and higher security, investments in supply chain security can provide significant business value to organizations by helping them to improve internal operations, strengthen relationships with their customers and overall increase their profitability.  If it’s done correctly, supply chain security can be a competitive advantage,” he said.

“We identified five major areas of improvement for manufacturers and logistics service providers/ocean carriers stemming from supply chain security investments: inventory management and customer service; visibility; efficiency; resilience; and customer relations,” added the study’s co-author, Dr. Barchi Gillai of Stanford University. “Despite the diverse types of companies that participated in the study, almost all of them realized benefits in each of the five areas identified. Given their broad range of direct and collateral benefits, security investments should not be considered as a financial burden but rather as an opportunity for improving business performance and profitability,” she concluded.

“Innovators in Supply Chain Security: Better Security Drives Business Value” is available at www.nam.org/supplychainsecurity.