Security Countermeasures Dan Purtell SVP Supply Chain Solutions April 22 2013 Agenda Predictive Modeling Why Quantifying Return of Security Countermeasures A Supply Chain Loss Prevention Example ID: 745758
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Slide1
Quantifying the Return of Supply Chain
Security Countermeasures
Dan Purtell
SVP Supply Chain Solutions
April 22, 2013Slide2
Agenda
Predictive Modeling – Why?
Quantifying Return of Security Countermeasures:A Supply Chain Loss Prevention Example
Conclusions
Question and AnswerSlide3
SCREEN Intelligence:
Supply Chain Risk AnalysisGlobal Risk Maps
Spotlight NewsCountry Risk Reports
Supplier
Compliance
Manager:
C-TPAT, AEO, PIP supplier vetting solutionCorporate Social Responsibility assessmentsBusiness Continuity analysisBSI Supplier Verification Audits:Supply Chain SecurityGovernment Compliance (C-TPAT, PIP, AEO)Corporate Social Responsibility Quality Business ContinuitySupplier Customer Specific Audit Quality Initiatives
BSI Supply Chain Solutions
Advisory Services:
C-TPAT Program Prep & Validation Assistance
Gap Analysis
Security & Threat Awareness
Quantitative Risk Solutions / Predictive ModelingSlide4
Predictive Modeling - WhySlide5
Common Flaws with Risk Assessment Approach
Qualitative approach with quantitative end result:
Subjective type of analysis (high, medium, low) Qualitative
5 x 5 x 5 Model (Threat x Vulnerability x Impact = Risk) Quantitative
Blending Qualitative with Quantitative
without Actuary Data
Lack of management buy in with current risk analysis process Program fragmentation, little to no centralized loss reporting / repository infrastructureNo financial countermeasure backing, management desires return on investment for security spendsToday’s business managers operate in validated quantitative space….subjective analysis are ignored and freight goes unprotected or insured
“Comparing this need with the data collected, corporate methods and tools fall short of a desirable and robust system for risk assessment. The majority utilized qualitative measures that did not clearly connect to business impact.
“ Jim Rice, MIT Center for Transportation and Logistics
Supply Chain Response to Terrorism, Creating Resilient and Secure Supply ChainsSlide6
Quantifying Risk and Uncertainty and Risk-Based Spending
Some countries are attractive manufacturing or sourcing countries, yet the risk (verified through predictive modeling) actually shows a lose by market entry
Supply Chain Security & Countermeasure Spending frequently provides positive returns:Cargo Theft / Loss Prevention (applies to high value, high demand products and high risk countries)
Lower marine insurance rates
Compliance with C-TPAT and lower inspection rates
2013 BSI Cargo Theft Loss Forecast - $23 billion globally
Applies to multiple sectors, not just high valueRisk is not stagnant and yesterday’s countermeasures may or may not still provide a positive ROI95% of security budgets are spent within the factories of the company90% of theft of company product occurs within the supply chainSlide7
My Early Supply Chain Challenge
Intel Pentium II
With attached heat sink attached, the size of a P-II was approximately three iPhonesRetail per unit: $250 - $400
Truck Value up to $6M USD
Intel Pentium 4
½ the size of a standard business card
1/10” thickRetail per unit: $800 - $1,500Truck Shipment Value: $150M01/05/2013Slide8
“Security is a necessary evil and just like taxes – I constantly pay into it and I get nothing in return”
Quote from Chief Operating Officer
Fortune 100 Company
High Tech Product ManufacturerSlide9
Predictive Modeling Steps
A Loss Prevention ExampleSlide10
Step One for Predictive Modeling – Mapping Cargo Flow and Volumes
Origin Factory
Shipment Destination
Number of Annual Shipments
Average Value per Shipment
Annual Value
Barcelona Factory
Crewe, UK
3,200
$ 1,404,900.00
$ 4,495,680,000.00
Barcelona Factory
Trier, Germany
600
$ 945,000.00
$ 567,000,000.00
Barcelona Factory
Tiel
, Holland
45
$ 1,404,900.00
$ 63,220,500.00
Barcelona Factory
Linz, Austria
23
$ 900,000.00
$ 20,700,000.00
Barcelona Factory
Athens, Greece
120
$ 1,795,000.00
$ 215,400,000.00
Barcelona Factory
Londerzeel
, Belgium350 $ 1,404,900.00 $ 491,715,000.00 Barcelona FactoryIreland320 $ 1,404,900.00 $ 449,568,000.00 Barcelona FactorySwitzerland12 $ 945,000.00 $ 11,340,000.00 Barcelona FactoryBrno, Czech Republic12 $ 945,000.00 $ 11,340,000.00 Barcelona FactoryHaiger, Germany90 $ 945,000.00 $ 85,050,000.00 Barcelona FactoryBudapest, Hungary30 $ 945,000.00 $ 28,350,000.00 Barcelona FactoryBoras, Sweden20 $ 945,000.00 $ 18,900,000.00 Barcelona FactoryAntwerp, Belgium70 $ 945,000.00 $ 66,150,000.00 Barcelona FactoryUK Port - Belfast110 $ 945,000.00 $ 103,950,000.00 Barcelona FactoryUK Port - Felixstowe90 $ 1,404,900.00 $ 126,441,000.00 Barcelona FactoryUK Port - Liverpool320 $ 1,404,900.00 $ 449,568,000.00 Barcelona FactoryUK Port - Tilbury5 $ 1,404,900.00 $ 7,024,500.00 TOTALS 5,417 $ $ 7,211,397,000.00 Slide11Slide12
Factory
Step Two - Map Cargo Flow & Infuse with Geographical Risk AssessmentSlide13
Step Three – On the Ground Assessments or Desktop Analysis
Physical Security & Process Reviews:
Factories3PL’s & Warehouses
Transportation Providers
Is key in determining if loss ratio or incident frequency should be lowered or raised
Confirm Step – One:
VolumeValuesProduct(s)RoutingSlide14
Step Four – Create Loss Forecast Variables
Company Specific:
Historical Losses
Geographical Risks
Brand
Recognition
Product RecognitionShipment FrequencyRevenue ExposureProduct DensityTransportation Routing
Manufacturing Locations
Data Sources:
BSI Loss Repository ($
13 trillion in global commerce):
Client Losses
Insurance Losses / ClaimsLaw Enforcement Records / ReportsTransportation ModeModus Operandi
Crime RatesEconomic Indicators
Regional Economic ActivityCorruption Index
Countermeasure EffectivenessSlide15
Step Five – Unprotected Loss ForecastSlide16
Step Six – Countermeasure Determination
Escorts
Physical Security
Logistics Inco-Terms
Geographical Avoidance
Dual Drivers
Standards Cert 28000
TelematicsSlide17
Step Six Continued
Defeated Countermeasures
5,500 FTL Hijackings past 24 months
The 5 Band Super Heavy Duty Adjustable Cell Phone Jammer Range over 50 meters. Jamming GPS,GSM, DCS,PHS,3G $3
This GPS tracking jammer 10 meter coverage. Popular item with sales personnel and delivery drivers, who wish to take lunch or make a personal stop outside of their territory or route "off the radar". $119 Slide18
Step Seven - Cost Benefit Analysis
Financial Impact
Cost
Avoidance
Q2 $1,750,000 - Q1 $46,000 - Countermeasure Cost $79,000
= Cost Benefit $1,625,000
Losses
Q
1
Q
3
Q
2
Unprotected Loss Forecast $1,750,000
Protected Loss Forecast ($46,000)
Countermeasure Cost
($79,000)
Cost Benefit $1,625,000
Copyright BSI 3/27/2013Slide19
Step Seven - Cost Benefit Analysis
Financial Impact
Cost
Avoidance
Q2 $1,750,000 - Q1 $46,000 - Countermeasure Cost $79,000
= Cost Benefit $1,625,000
Losses
Q
1
Q
3
Q
2
Unprotected Loss Forecast $1,750,000
Protected Loss Forecast ($46,000)
Countermeasure Cost
($79,000)
Cost Benefit $1,625,000
Copyright BSI 3/27/2013
ROI Ratio: $22 to $1!Slide20
Determining the Right Level of Spends
Losses
Security Overspends
Common Causes of Security Overspending: 1. Cookie Cutter Approach with Security Thresholds 2. Securing Trade in Low Risk Regions 3. Excessive cost of Security Countermeasures
Losses
Q
1
Q
3
Q
2
Unprotected Loss Forecast: $ 1,000,000
Protected Loss Forecast: $ 50,000
Countermeasure Cost: $ 1,500,000
Cost Benefit:
-$ 550,000Slide21
Determining the Right Level of Spends
Losses
Security Overspends
Common Causes of Security Overspending: 1. Cookie Cutter Approach with Security Thresholds 2. Securing Trade in Low Risk Regions 3. Excessive cost of Security Countermeasures
Losses
Q
1
Q
3
Q
2
Unprotected Loss Forecast: $ 1,000,000
Protected Loss Forecast: $ 50,000
Countermeasure Cost: $ 1,500,000
Cost Benefit:
-$ 550,000
Solution:
Find a cheaper and effective countermeasure
Incur the expected lossesSlide22
01/05/2013
EMEA Transportation Analysis Worksheet
Origin
Destination
Number of Annual Shipments
Average Value per Shipment
Annual Value
Industry Average Loss Forecast
Company YYY Protected Loss Forecast
Barcelona Factory
Crewe, UK
3,200
$ 1,404,900
$ 4,495,680,000
$ 8,991,360
$ 674,352
Barcelona Factory
Trier, Germany
600
$ 945,000
$ 567,000,000
$ 1,134,000
$ 85,050
Barcelona Factory
Tiel, Holland
45
$ 1,404,900
$ 63,220,500
$ 126,441
$ 9,483
Barcelona Factory
Linz, Austria
23
$ 900,000
$ 20,700,000 $ 41,400 $ 3,105 Barcelona FactoryAthens, Greece120 $ 1,795,000 $ 215,400,000 $ 430,800 $ 32,310 Barcelona FactoryLonderzeel, Belgium350 $ 1,404,900 $ 491,715,000 $ 983,430 $ 73,757 Barcelona FactoryIreland320 $ 1,404,900 $ 449,568,000 $ 899,136 $ 67,435 Barcelona FactorySwitzerland12 $ 945,000 $ 11,340,000 $ 22,680 $ 1,701 Barcelona FactoryBrno, Czech Republic12 $ 945,000 $ 11,340,000 $ 22,680 $ 1,701 Barcelona FactoryHaiger, Germany90 $ 945,000 $ 85,050,000 $ 170,100 $ 12,758 Barcelona FactoryBudapest, Hungary30 $ 945,000 $ 28,350,000 $ 56,700 $ 4,253 Barcelona FactoryBoras, Sweden20 $ 945,000 $ 18,900,000 $ 37,800 $ 2,835 Barcelona FactoryAntwerp, Belgium70 $ 945,000 $ 66,150,000
$ 132,300
$ 16,538
Barcelona Factory
UK Port - Belfast
110
$ 945,000
$ 103,950,000
$ 207,900
$ 25,988
Barcelona Factory
UK Port - Felixstowe
90
$ 1,404,900
$ 126,441,000
$ 252,882
$ 34,139
Barcelona Factory
UK Port - Liverpool
320
$ 1,404,900
$ 449,568,000
$ 899,136
$ 121,383
Barcelona Factory
UK Port - Tilbury
5
$ 1,404,900
$ 7,024,500
$ 14,049
$ 1,897
TOTALS
5,417
$ 7,211,397,000.00
$ 14,422,794.00
$
1,168,683
Program Cost
Benefit / ROI
$13,254,110
Step Seven - Completed ROI Analysis with CountermeasureSlide23
ConclusionsSlide24
Conclusions
When seeking security countermeasure funding, speak in business terms:
Avoid qualitative remarks / conclusionsQuantify exposures – anticipate impact (It’s hard for a decision maker to not fund a program that results in avoidance of significant corporate losses)
Consider including ‘indirect cost impact’
Use terms such as ROI, Cost Benefit or Impact of unfunded programs
Many companies have great Supply Chain Security programs, but can’t quantify the benefit as they are currently operating in a “Protected State”
Strip security from the program and quantify what financial exposures exist without the firm’s current security programs Avoid Supply Chain Security Deadly Cycle: High Losses > Secure Cargo > Reduce Losses > Assume Threat has Diminished > Drop Security Program > High LossesThe law of large numbers will eventually bite you:Protect supply chains based on realistic loss or incident probabilityDon’t bend your numbers to get funding; supply chain security countermeasures 90% of the time justify some form of security spendingYou don’t need a million dollar exposure to implement a predictive modeling & risk-based security program01/05/2013Slide25
Questions & Answers
Thank you for Attending
Contact Details:
Dan Purtell
BSI Supply Chain Solutions
480-355-5262
Dan.purtell@bsigroup.comwww.supplychainsecurity.com01/05/2013