Edition 58
Reverse Logistics Talk
by Jennifer Bilodeau, Reverse Logistics Specialist, Independent

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Countless gaps throughout the supply chain place consumers, businesses, and suppliers at risk. Will the development of cooperative relationships identifying and mitigating risk help enhance protection and response throughout the supply chain?

Threats to the supply chain are limitless because it is a moving target presenting unique, changing challenges to identify and mitigate risk. Risks identified can involve theft, vandalism or tampering, counterfeiting, political unrest, drug related violence, corruption, terrorism, or natural disaster. The more hands involved throughout the supply chain, from the movement of goods from raw material to the end consumer create a complex web impacting many stakeholders in the event of a loss.

While communications in the strategic planning and implementation process can develop a clear, concise recovery plan to bring an organization back to full operational status, it is just as critical to include the human element into any risk management and response plan to maintain morale, trust, and maintain critical relationships throughout the supply chain. Overlooking the impact of a loss on employees create significant delays in the recovery process.

Financial Impacts
After the collapse of Wall Street in 2005, the financial implications have forced manufacturers to focus on protecting the supply chain. Lenders, insurers, and buyers are closely scrutinizing a manufacturers’ ability to deliver product on time ensuring the company has the financial ability to fulfill an order. It is recommended practice to reassess the credit worthiness of suppliers and distributors to protect the liquidity of the organization, their ability to supply materials needed or pay the manufacturer on time. Delays in payment, delivery of goods, or a company filing bankruptcy extend beyond the inability to fulfill customer orders.

Increasing demands are forcing businesses to manage a wide range of threats to the supply chain as part of their strategic planning initiatives. With manufacturers fully adopting a “just-in-time” approach to reduce operating costs, increase working capital, and create a more efficient production processes, they have eliminated excess inventory. Shipping and manufacturing delays could create significant loss. Depending on the type of product, a company could face damage to the corporate brand, create a public health risk, or inflate costs of products. Security initiatives muse be designed to protect customers, the public, and the corporate brand.

Under the United State Patriot’s Act, financial institutions are required to “Know Your Customer” in an effort to prevent money laundering and financial fraud that often funds terrorist activities. Although not required by law, risk management professionals throughout the supply chain are not only encouraged to know their customer, but to know all of the entities domestically and internationally who handle a product throughout the supply chain. Thomas (1995) reported that the fertilizer company that supplied chemicals to McVeigh and Nichols for the Oklahoma City bombing was forced to defend a class action liability suit. Plaintiffs alleged the manufacturer had knowledge that the fertilizer sold was highly explosive and would cause significant damage if the product wound up in the hands of a bomb maker. They also alleged the manufacturer was negligent in detecting and reporting an unusual purchase pattern (LENA R. GAINESTABB, et al., Plaintiffs, v. ICI EXPLOSIVES USA, INC., CIV-95-719-R, 1996). McVeigh and Nichols used an alias to purchase one ton of the industrial fertilizer, followed by a second order of a ton eighteen days later. Plaintiff’s alleged that the unusual purchase pattern should have been identified by the manufacturer and further investigated as part of their due diligence. Although the manufacturer’s motion to dismiss the case was granted, the costs for legal defense in additional to the impact from publicity surrounding the case significantly damaged the company’s’ profitability.

Integrated software that manages the entire life cycle of a product from raw materials, distribution, defects in goods, determining profitability, as well as establishing transparency to assist in the detection of unusual activity or gaps in security. Companies are focusing on full integration of all tracking technologies to improve their ability to detect and mitigate risk. “In perfect form, asset tracking and visibility technologies should be integrated into the Enterprise Resource Planning (ERP) systems that govern the enterprise so that supply chain professionals have control at each step rather than risk fragmented visibility due to isolated technologies in manufacturing, warehousing and inventory, and logistics and distribution” (Cuban, 2010).

Cyber Threats
Nearly every aspect of the supply chain is interconnected through information systems tracking and monitoring goods throughout the life cycle. Cyber Threats could cripple communications creating lost visibility, leaving goods vulnerable to theft or tampering. A critical failure in the computer system could shut down a production line; compromise a consumer’s personal identifiable information including credit card numbers; divulge shipping times and locations; or to compromise or steal intellectual property such as product plans. “Supply management organizations also need to understand and gain assurances from suppliers as to how they secure the data the organization is sharing with them.” (Cohen, 2012).

Written policies are critical, and it is not unusual to develop contracts or agreements that would limit the liability of an organization sharing information with a supplier or vendor. It is difficult to assess the potential damage from a cyber-threat or to identify critical areas to enhance security without a cooperative effort. Relying of professional relationships with business partners, industry experts, and government agencies an organization can identify areas of concern or industry trends. By developing relationships with government, and industry professionals whose focus is protecting against cyber-crimes, a company can take immediate action to reduce the cost of recovery. Professional organizations have the resources to conduct intensive proactive threat assessments using tools and methods designed for predictive analysis. Manufacturers and suppliers focused on their primary business objective of developing or shipping goods and materials can not be expected to bear the full expense of complex and ever changing threats in communications.

It is critical to protect consumers’ personal information as class action suits quickly surface due to the heightened awareness and public concern over identity theft. Zappos, an on-line subsidiary of Amazon, suffered a data breach where hackers obtained over 24 million user names, addresses, emails, passwords, and credit card information. The company is applauded for quick response sending out emails to customers notifying them of the breach, but admonished for denying access to the company’s website for locations outside the United States and closing down customer service phone lines. Zappos has a well-defined risk management plan, having worked with Information Technology security organizations. The company had critical credit card and payment data was housed on a separate server not affected by the breach. Passwords obtained were encrypted and only the four digits of the credit card number used with Zappos fell into unknown hands. “Consumers are more likely to unknowingly give away their sensitive personal information to ‘phishing and pharming’ thieves who specialize in constructing websites and emails that mirror the brand they are spoofing” (Roman, 2012). Despite the apparent minimal effects of the loss, a class action suit was filed by one individual on behalf of all 24 million customers incurring potentially negative publicity and defense costs. Communications with customers will be critical in the recovery effort to regain consumer confidence and weather the long term effects of the loss.

Encouraging Clear Communications
Integration of technology assists in quantifying risk, however, it is critical to maintain a presence and develop strong relationships across the supply chain to solidify the commitment to mitigating risk. Relationship management will function as a deterrent to extortion or bribery. “In some parts of the world, the payment of bribes is so common that everyday cash transactions are considered routine” (Anderson, 2011).

Development, training, and constant communication with individuals throughout the supply chain will help develop good working relationships, as well as providing opportunities for collaboration. With the nature of threats, especially in volatile regions, changing frequently the employees who interact with others throughout the supply chain will be the first line defense to identify and report potential risk or unusual behavior with a supplier, vendor, customer, or shipper. As a minimum, annual training is critical to help employees handling the supply chain be aware of their surroundings, identify risk, and learn appropriate response. A good communication plan is the cornerstone for protecting a constantly moving, changing supply chain.

Ongoing rivalries between part time service men and women and full time enlisted soldiers have presented problems assessing, managing, and identifying equipment for proactive maintenance, replacement, or repair in the National Guard supply chain. Guardsmen were often instructed incorrectly how to report inventory based on the fear that supporting divisions throughout the Department of Defense are looking for supply information to take their equipment away and give it to a full time unit. This promulgates the problem of obtaining accurate supply information making it very difficult to strategically plan and budget for equipment needs and upgrades. Initiatives have taken place around the country with the implementation of National Guard liaison officers who are the intermediaries working to bridge the gap of communications to overcome this undesirable division. This rivalry was the catalyst that left an opening for corruption from within the military. A full time individual responsible for ordering specialized military grade replacement parts consistently declined supply requests from the National Guard units based on discrepancies in the quantities listed in supply logs. The acquisition specialist, because of his personal bias, did not investigate or ask why the parts were needed to clarify the discrepancies. An investigation uncovered that complaints of part time soldiers looking for solutions to repair and reset equipment, opened an opportunity for individual(s) at a repair depot to commit a heinous act of financial fraud. The significant financial impact throughout the supply chain, filtered throughout the entire National Guard, affected enlisted soldiers, civilians, and private industry across all fifty states. Handouts were provided to National Guard units by the repair depot encouraging guardsmen to send equipment for reset and repair at that location including with an added enticement “no paperwork required and no cost to your unit”. The depot repaired the equipment with substandard, counterfeit, and refurbished parts while the individual(s) charged the National Guard Bureau direct for the cost of new components. It was alleged that the individual managing the money on behalf of the depot was pocketing the difference of nearly $100,000 per piece of equipment repaired. Once the counterfeit parts were detected, the investigating team spoke to the manufacturer learning they retired the component ending the lifecycle due to the lack of demand. The costs associated with bringing the product back on line, recalling personnel who had been laid off, as well as expediting the supply of raw materials, and costs associated with running a 24 hour 7 day a week production to quickly mitigate the threat illustrates the depth of additional financial losses for individuals, organizations, and the taxpayers. The Department of Justice re-assigned the investigation prepare their case for prosecution, however, mistrust already festered throughout the guard because had they been deployed with the substandard and faulty equipment, they could have suffered catastrophic loss of life. LTC Avery Leider, a National Guard Bureau liaison stated “My team identified the gaps in training for supply chain management throughout the National Guard, therefore we worked with subject matter experts to design a comprehensive training agenda for key personnel from existing on-line training modules.” LTC Leider as was pleased that the Department of the Army approved the implementation of a mentor-ship program between full time and part time personnel with on-site visits to assist part time personnel identify proper procedure and detect unusual activities” (2012). The primary focus in the aftermath of corruption in the supply chain is to bridge relationships and trust between full time and part time soldiers.

Benefits of developing clear communication methods with key stakeholders throughout the supply chain will assist in identifying new and emerging risks while solidifying the commitment to protect the supply chain. Ryder Trucking took the lead hosting annual cross border security conferences demonstrating a strong commitment to employees, customers, and vendors to control emerging threats. Ryder’s centralized risk management department coordinates annual conferences that bring together government representatives from Homeland Security, Customs and Border, and law enforcement with key stakeholders throughout the supply chain. The conferences serve to strengthen relationships, facilitate communications and feedback from local management to identify and evaluate emerging risks in their region. “While corporate security has a role of establishing policy and guidelines to minimize confusion across all location, local management is implementing the security strategies, measuring their success, and the first to identify potential gaps” (Anderson, 2011).

When identifying risks and developing procedures to mitigate those risks it is important to send a continuous message throughout the supply chain that sets the expectations for key stakeholders to actively participate in securing the supply chain. Some of the strategies successfully used have been establishing a clear timeline of security activities, holding meetings, developing web based tools to house documents, creating a knowledge library, and facilitate ongoing discussions have been successful developing a conscientious commitment to security on a day to day basis adding a layer of protection to the supply chain. Day to day strategies keeping the lines of communication open should not take the place of physical on-site inspections to ensure that the proper safeguards are being implemented and contractual obligations are being met. It is not unusual for foreign agents to have their own representatives on the docks to ensure control measures are in place to protect the shipment. Developing a clear communication plan that coincides with ongoing training initiatives will encourage and empower employees to keep a watchful eye and properly report suspicious activity.

Discouraging Illegal Activity
Undocumented workers for the most part do not present a threat of terrorism, but provide opportunity to those who would commit an act of terrorism. Illegal immigrants create a demand for the underground production of false documentation and identities that terrorists could take advantage of. Undocumented workers are typically living at a level of poverty that a terrorist could exploit. A cash payment could be offered to the undocumented worker to tamper with the supply chain without them understanding the impact of what they are doing. For example animals intended for human consumption could compromise public health if a vial of chemicals or bio-toxins entered the feed or water supply. “Illegal immigrants across U.S. borders makes it difficult to identify and stop dangerous people and contributes to an infrastructure designed to weaken the integrity of U.S. borders” (Customs and Border Patrol, 2009). By developing relationships with professional organizations and vendors and selecting those with similar values and levels of commitment to properly documenting workers will limit the overall risk of throughout the supply chain by eliminating the demand for false identification, and the potential for worker extortion or corruption.

Post-Loss Communications
In the event of a loss, most organizations are focused on continuing operations and often forget about human assets that may have suffered psychological effects. It is relatively simple to implement recovery strategies by following processes and procedures that have been identified in the risk management process, but it is more difficult to identify employee’s needs in advance. The needs of the employee will vary depending on the type of loss. Acts of terrorism or other man-made losses will have a different impact than a natural disaster.

Positive employee attitudes result in high performance, quality, and productivity with a low absenteeism rate. After September 11, 2001 employees reprioritized their lives focusing more on family. Some employees were afraid to return to live and work in Manhattan, relocating or finding positions in surrounding states. Reade (2009) discusses a survey conducted in the months following September 11 reporting employees felt disconnected after the disaster and was looking for a way to become reconnected. The survey also indicated they could not find the connection at work and sought it through family and friends. The effect on personnel hindered companies during the recovery process as a result of increases in leave taking, absenteeism, and job separation. Other employees were angry with supervisors and the organizations as a result of what was perceived as false communications prior to the terrorist attack. Employees commented that their employers had communicated their commitment to their employees, provided security communications, and created a culture that their well-being mattered. After the attacks, employees believed the organizations did not care about their well-being because they failed to communicate changes in security measures, offer assistance, or help them as they struggled to refocus on their work. Employees felt they were no longer trusted or valued during organizational changes which created additional stress, anxiety, and depression.

Consistency and follow through on previous communications is critical to the recovery process. Companies often go to lengths educating employees on company brand and commitment to them before they are hired. Organizations often have elaborate orientation programs to integrate employees into the workforce and quickly transition new staff into a productive routine. In the aftermath of an event, a break in communication or failure to demonstrate the commitment creates animosity towards the organization. Companies rely of the experience and expertise of staff and partners to perform the work required to resume operational capabilities. As part of the risk management and recovery plan in the supply chain, it is just as critical to demonstrate that the organization values the well-being of their employees. A company should consider flexibility on treating the employees, allowing them to reconnect with their jobs after an event. By communicating and implementing a basic framework allowing for employee assistance is a critical step in the organization’s recovery process. Some successful programs have included establishing donation systems, offering counseling, or working with partners to assist those who may have suffered catastrophic loss. The benefits from consistent communications and implementation of emotional well-being programs have developed employee and business partner loyalty which hastens the recovery and encourages commitment in the prevention of incidents.

In the aftermath of the shooting at Fort Hood, soldiers felt betrayed by one of their own and feeling of resentment and mistrust started to fester. It affected many that saw battle within a secure military installation as they watched armed soldiers running down the streets, snipers taking positions, and SWAT teams taking position across the installation, including armed guards at the daycare center. Civilian families and workers not directly involved suffered a psychological stress hearing a loudspeaker every ten minutes instructing people to go inside and lock the doors. Within hours, the lockdown was lifted followed by a day of mourning allowing the organization and community to come together and reconnect. Operations fully resumed the following business day. Ongoing consideration and support was provided to victims, their families, and the affected community at Fort Hood. Continued communications not only at Fort Hood, but across all branches of service, included active shooter designed to instruct civilian employees on what to do in the event of a crisis as well as empowering them with confidence working to eliminate fears. Additional training was provided to identify potential threats with clear instructions on what constitutes suspicious behavior, and how to report a person confidentially for further investigation. By providing the training, it eliminated misconceptions about terrorist activity and allowed staff to understand differences from radical behavior that should be of concern. Similar training was conducted for suicide watch and other threats to maintain cohesiveness and develop an expectation that civilians and soldiers alike should look out after each other.

The psychological services, assistance, and training provided to the families, soldiers, and employees directly and indirectly affected by the shooting communicated a consistent message of caring which minimized negative attitudes and helping others cope with natural feelings of betrayal. The consistent communications in response to the event mitigated new risks of discrimination and suspicious of others in the military preserving the unified culture.

The supply chain is a very complex web of tangible and intangible goods and services that are inter-dependent upon each other. It is impossible to independently close the countless gaps throughout the supply chain that place consumers, businesses, and suppliers at risk. It is impossible for one organization to be in a position to identify, mitigate, and respond to every possible threat scenario that affects the supply chain making it critical to develop cooperative relationships to secure operations.

The impacts of a loss can be devastating and long reaching with limitless possibility not only threatening economic stability, but of catastrophic loss of life. Relationship management will help proactively identify risks, develop strategies to eliminate the threat or reduce its impact, as well as managing the recovery process by identifying clear communication channels throughout the supply chain.

Consistent communications throughout the entire supply chain is critical. Communications begin with the establishment of the relationship to train and encourage stakeholders to identify and report risks. Throughout the lifetime of the relationship consistent communication is used to encourage collaboration in developing strategic plans to mitigate threats. During recovery and responding to an event, the consistent communications need to be demonstrated by actions while resuming business continuity and encouraging all stakeholders to unify and recommit to the prevention and mitigation of future risks.

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Jennifer Bilodeau, a Reverse Logistics specialist, formerly supported the Department of the Defense in day to day management of both inbound (return) and outbound distribution of goods throughout the command. She was recognized for exemplary performance throughout the base relocation effort working with internal/external stakeholders managing multiple projects assessing tangible goods for movement to new facilities, acquiring replacement items, as well as recapturing value from left behind products. In this role she oversaw reverse logistics operations including repair and warrantees, secondary markets, deconstruction and re-utilization of parts, as well as final disposition instructions.

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