Case Study: Smart & Secure TradelanesPhase One Review
A Case Study on Leveraging Security and Efficiency in Today's Global Supply Chains via Network Visibility
Courtesy: Savi Technoloy (Based on "Network Visibility: Leveraging Security and Efficiency in Today's Global Supply Chains" whitepaper)
"The U.S. government needs to focus not merely on security, but all the other economic benefits and efficiency gains enabled by implementing systems like SSTwhich can dramatically decrease costs in the global supply chain."
SST Phase One logistics service provider
Smart and Secure Tradelanes (SST) is an industry-funded supply chain security and efficiency initiative. It was founded on the premise that the considerable gaps in global supply chain security put prosperity, free trade, and economic development at risk. These gaps pose the real risk that a terrorist event could lead to a shutdown of ocean ports and a strangling of trade. While industry has become acutely aware of the threat posed by the potential use of a weapon of mass destruction, any source of mass disruption poses an equally grave threat to efficient trade.
SST is a unique and ambitious initiative. Among its distinctions are that it is:
Industry-directed and funded, which demonstrates that industry can work together to voluntarily fund, build, and manage a global supply chain security network.
The largest commercial real-time supply chain security project ever undertaken. During Phase One, sixty-five participants across three continents monitored 818 containers through eighteen tradelanes.
A global network based on best-of-breed active RFID and other technologies that can become a platform for integration and innovation.
Focused on real-world operational and economic resultstest cases were developed and data gathered using real containers containing real goods bound for destinations in the U.S., Europe, and Asia. Leading authorities on the execution of the supply chain and security analyzed this data.
SST Phase One participants approached the challenges of securing the global inter-modal freight transportation system with some fundamental assumptions:
Industry could not be burdened with excessive regulation or cost such that it breaks the back of global trade. Conversely, industry could not afford to delay action in searching for security solutions.
Real-time visibility into the status and location of shipments increases efficiency in the supply chain, which leads to substantial economic benefits for all participants.
Information on the execution of the supply chain must be transparentthe physical chain of custody must be tightly linked with a virtual chain of information, and that information must be available to authorized participants on a strict need-to-know basis.
It is not possible, in terms of time or financial investment, to completely eliminate risk.
Phase One Network Implementation
Implementation of the Smart and Secure Tradelanes initiative is taking place in progressive phases. SST Phase One was initiated in July 2002 and completed in June 2003. SST Phase Two is in its initial phases and is intended to conclude mid-2004.
Among the first objectives of SST Phase One was to design an information network that would:
Tightly couple the chain of custody to a chain of information in real time through automated data collection
Be compatible with legacy systems that were implemented for business or political reasons
Enable "plug-and-play" of existing and emerging process and technology solutions
To build the network, SST adapted active RFID and other technologies already in use by the U.S. Department of Defense (DoD). This solution, called the Total Asset Visibility (TAV) network, has been in active use since 1991 to monitor military shipments around the globe. In addition to the DoD, SST members reviewed best practices developed by freight consolidators, UPS and FedEx.
Leveraging existing technologies and best practices accelerated and simplified network implementations. Concept to implementation of eighteen tradelanes took only three and a half months.
The primary components of the SST Phase One network were:
Wireless networks. The SST wireless networks were based on active RF (Radio Frequency) and GSM (cellular / Global Systems for Mobile communication). The RF networks used the 433.92 MHz frequency, which was selected because of its known performance metrics (based on its use in the DoD TAV network), broad acceptance, and high performance in challenging supply chain environments, where speed, effective propagation around metal, and ruggedness are essential.
The SST network consisted of fixed and mobile RFID readers that covered sixty-four critical nodes across eighteen tradelanes. These critical nodes function as one or more of the following:
Point of origin/containerization
Port of loading
Transshipment port, if applicable
Port of discharge
Point of destination or deconsolidation
Like TAV (see "Case Study: Operation Enduring Freedom/Operation Iraqi Freedom"), the SST network is extensible and can be device-agnostic, enabling continuous innovation that allows industry to choose a mix of best-available technologies and processes.
Smart Containers. Eight hundred and eighteen intermodal containers were affixed with electronic seals that included intrusion/tamper detection sensors (to detect the status of high security bolt seals) and active RFID tags (for two-way system authentication, and communication of location and container status). Each sealing event generated a unique and random sealing event ID that was captured in both the electronic seal on the container and the TSS software (see Software, below), making it theoretically impossible to spoof the seal.
Electronic seals automatically reported their identification and security status to stationary or handheld RFID readers at each critical node, which led to a virtual chain of information that was tightly coupled with the physical chain of custody.
Software. The Web-based Transportation Security System (TSS) software was used to record container routing and scheduling plans prior to loading. The containers were then monitored in TSS at each of the four (or five) critical nodes using data received by the SST network and EDI feeds. All events were logged in an audit log. Unexpected deviations immediately triggered alerts to notify authorized parties.
Layered security controls were implemented in TSS, including personnel authorization and authentication at the critical point of stuffing, and "virtual border" risk analysis checks at ports of loading. The TSS federated database architecture enabled chain of information sharing on a strict need-to-know basis, and secure (encrypted) connectivity between supply chain participants, who typically would not be readily accessible to each other. TSS was designed for connectivity and collaboration between:
Manufacturing and distribution operations
Shippers and service providers
International terminal operators and domestic terminal operators
Shippers and terminal operators
All of these participants to domestic and international government entities
Potential interagency and government-to-government connectivity
Other network components. Additional components included: network connectivity using Internet and wireless standards such as 802.11B; computer hardware, such as Unix servers from Sun Microsystems and integrated wireless terminals; and industry-standard network and application software, such as J2EE-based application servers from BEA, and SQL relational databases from Oracle.
Phase One Operational Test Findings
SST Phase One operational tests were launched in November 2002. Within only three and a half months, SST implemented a network that can be a platform for innovation and integration across eighteen tradelanes. By the time operational tests were completed in June 2003, SST demonstrated improvements in both supply chain security and efficiency.
"As-Is" Process Findings
The following anecdotes were gathered during interviews conducted at the beginning of SST Phase One. They reflect typical operational problems and vulnerabilities associated with "as-is" supply chain processes:
One importer stated that it receives only sixty-five percent of the required supply chain data. Of the sixty-five percent, approximately thirty percent was inaccurate, untimely, or incomplete. This significantly impacted the effectiveness of the data for critical operational decision making.
When using legacy systems to track containers, one large multinational shipper factors in a transit time deviation of six and a half days for a specific tradelane. Only three days are factored in for material deviations, such as a late ship. The other three and a half days compensate for process and information latencies.
Another participant often receives arrival notices days after a container arrives at a specific inland rail terminal.
Security experts, government officials, and supply chain operators cited the human element as the greatest vulnerability.
SST Phase One operational testing exposed further problems with existing processes:
Instructions to check mechanical seals for tampering were correctly followed in only fifteen percent of test cases.
Five percent of tested containers deviated significantly from their assigned routing.
Container dwell time at points of origin ranged from 1.5 hours to over 12 hours.
Shipment manifest data is typically paper based and manually collected well after a container leaves the point of origin.
SST Network Findings
Implementing SST procedures and active RFID technologies had positive effects on supply chain security and efficiency. Analysis of the positive security and operational effects of implementing SST included:
Timeliness: Information generated by the SST network was more timely than existing processes. In one example, EDI data lagged automated SST data by two days.
Accuracy: Of the containers tracked end-to-end, 100% were found to have correct and accurate container, route, and manifest data associations within the TSS software.
Completeness: A substantial portion of manifest entry was enabled at the point of origin through the Web-based TSS application.
Completeness: The automatic creation of detailed audit logs ensured accountability and created a basis for forensics analysis.
Location tracking: The SST network was able to identify the location of containers in real time. In one example, a shipper was able to locate and reroute recalled products while in-transit.
Alerts: Within three seconds, the TSS network checked for security risks and verified handling instructions. The TSS software was able to deliver a go/no-go signal and alerted relevant participants when there were any discrepancies.
Process: The SST virtual border process eliminated the need for expensive, time-consuming, and unreliable manual checks of high security bolts.
Process: All new point of origin security and business processes (user authentication and access controls, sealing, shipment information, and so on) were completed with minimal incremental delay to existing business processes.
Process: Manifest information was aggregated across all supply chain and logistics partners far upstream.
Process Manifest information was stored centrally in the TSS software, where it was shared on a strict need-to-know basis with authorized parties.
Process: TSS was shown to be able to automatically transmit 309 manifest information to U.S. CBP's AMS for 100% compliance with 24-Hour AMR.
The initial deployment of SST functionality enabled continuous improvement. Improvements made during the tests were:
Usability: Training materials for the TSS software were improved early in Phase One, and the software is in the process of being localized for different regions. The menus on handheld readers were simplified with screen icons to make them language independent.
Reliability: False-positive tamper alerts were resolved by optimizing the intrusion/tamper detection sensors, and by prototyping new form factors for the electronic seals that prevent accidental damage.
Network availability: GSM (Global Systems for Mobile Communication) was not widely available in the U.S. This was solved by deploying wireless LANS. GSM availability was not an issue in Europe or Asia, where GSM wireless infrastructures are prevalent.
Durability: Industrial, ruggedized handheld devices replaced commercially available PDAs, which were vulnerable to damage in ports and yards. Electronic seals were prototyped with a new form factor to eliminate the risk of accidental damage.
Data integration: Synchronizing container tracking data from EDI and other sources and modes was addressed by the TSS software, which enabled event and data management and reconciliation through its business logic and realtime event management functions.
Since importers and exporters drive typical supply chain service provider relationships, the focus of the analysis was on the costs and benefits to this important constituency. Based on Phase One economic modeling, the general conclusion is that active RFID is a deployable and affordable technology that is suitable for a global supply chain security and efficiency network.
Dr. Hau Lee and his colleagues at the Stanford University Global Supply Chain Management Forum applied proven inventory models and analytic techniques to the data. Methodologies and analyses included: "what if" scenario and sensitivity analysis: best, likely, and worst cases; Stanford University theory of safety stock and inventory; Stanford University theory of inventory visibility; and inventory-customer service tradeoff analysis. When provided the option, analysts used conservative data inputs and variables.
SST Phase One Estimated Potential Benefits
A single end-to-end SST move of a typical container nets $378-462 of potential value to the shipper when subtracting the operating and variable costs. This amounts to 0.54-0.66% as a percentage of average total container value shipped in SST phase I. The per container potential benefit ranges to a typical shipper in SST Phase One are summarized as follows:
 Based on average container cargo value of $70,000.
Area of Potential Benefit
Potential Benefit as a Percentage of Avg Total Container Value
Potential Per Container Benefit
Reduction in Safety Stock
.25 - .30%
$173 - 211
Reduction in Pipeline Inventory
.13 - .16%
$91 - 111
Reduction of Service Charges
.08 - .10%
$56 - 68
.04 - .05%
$31 - 38
Reduction of Pilferage,
.04 - .05%
$28 - 34
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.54 - .66%
$378 - 462
This model assumes that the average cargo value of containers routed through the top ten importing tradelanes is $70,000. Operational benefits will be higher for shipments valued over $70,000; low-value commodities might not derive meaningful economic benefit.
The financial model developed for SST concludes that there are significant potential economic benefits derived by the SST security solution for a typical shipper. While the ability for shippers to capture these potential benefits will vary, the model substantiates the hypothesis that security and logistics efficiency are closely associated.
This model also demonstrates that shippers can comply with emerging security requirements while reducing logistics costs and/or increasing profits by optimizing the inventory-customer service tradeoff.
Figure 1. Improving Service and Inventory
The real-time security automation functionality of SST could give shippers the flexibility to decrease inventory safety stocks, increase customer service levels, or both. Shippers in turn could then optimize this tradeoff based on their relative position in the market.
Shippers that are market leaders may be more inclined to leverage SST value by decreasing safety stocks since the opportunity cost of losing an additional customer in such markets is relatively lower. Conversely, a firm in a more competitive environment may attempt to increase market share by providing better customer service and fewer stock-outs.
About SST Participants
SST Phase One deliberately sought to work with participants from a large number of vertical industries and countries. Sixty-five organizations participated in SST, including nineteen shippers from nine vertical markets.
Breadth of SST Initiative
Port operators included Hutchison Port Holdings, PSA, and P&O Ports, which together account for more than seventy percent of intermodal trade.
In addition, SST members participate in numerous U.S. government, international, and cross-border programs and pilots. These organizations and programs include:
U.S. Bureau of Customs and Border Protection (CBP): Container Security Initiative (CSI)
CBP: Customs-Trade Partnership Against Terrorism (C-TPAT)
CBP: 24-Hour Advance Manifest Rule (24-Hour AMR)
U.S. Transportation Security Administration (TSA): Operation Safe Commerce (OSC)
Joint Container Working Group (CWG) of the U.S. Department of Transportation and U.S. Customs and Border Protection
International Standards Organization (ISO): ISO/TC8
International Maritime Organization (IMO): International Ship and Port Facility Security Code (ISPS)
Asia-Pacific Economic Cooperation (APEC): Secure Trade in the APEC Region (STAR)
Container Handling Cooperative Program (CHCP)
APEC: Bangkok-Laem Chabang Efficient and Secure Trade (BEST)
World Customs Organization (WCO): various international pilot programs
European Union: Safe InterModal Transport Across the Globe (SIMTAG)