DHL Supply Chain Security Analysis - Essay Example

? DHL Supply Chain Security Analysis of the of the Discussion Thai (2009) pointed out that importance of supply chain security has been increased manifold after the terrorist activity on 11th September, 2001 on World Trade Centre. From traditional viewpoint, supply chain security is matter of concern for international trade organization but in today’s business world, logistic companies like DHL, FedEx etc are investing significant amount of resources in order to reduce security threats in its supply chain delivery model and also perceiving it as important part of risk profile (Thai, 2009). Disruption in supply chain management can negatively impact the overall value chain performance of companies. In such context, Closs and McGarrell (2004, p. 8) elaborated the concept of supply chain security management as “application of policies, procedures, and technologies to protect supply chain assets (products, facilities, equipment, information, and personnel) from theft, damage, or terrorism, and to prevent the introduction of unauthorized contraband, people, or weapons of mass destruction into the supply chain.” Considering the mentioned definition, Thai (2009) stated that supply chain companies need to coordinate with government bodies in order to improve security measures to prevent issues like counterfeit, theft, terrorism, missing of merchandises etc. Sarathy (2006) also pointed out that security related threats can occur at any point of supply chain activities including freight carriers, people associated with the transportation facility, factories, goods, vehicles. Occurrence of any security threat can cause both financial and physical loss to companies hence companies logistic companies like DHL, FedEx and others provide significant importance to improvement of security in supply chain activities. Rice and Caniato (2003) argued that supply chain security management is a cost and human resource intensive process hence companies need to invest significant amount of resources in order to assure physical security, freight security and information security of overall supply chain process. Closs and McGarrell (2004) pointed out that many companies adopted voluntary security initiatives like Authorized Economic Operator (AEO) and Customs-trade Partnership Against Terrorism (C-TPAT) in order to increase security measures of international supply chain management and movement of cargo. Consideration of the research works of Gutie?rrez and Hintsa (2007) reveals six attributes of supply chain security analysis such as cargo management, information management, facility management, management of human resources, disaster recovery & crisis situation management and business network of the company. Up to this point, the essay has used theoretical arguments of various research scholars in order to prepare the background for conducting supply chain security analysis of DHL. As DHL is the focus organization in the paper, the research will cover pertinent issues regarding supply chain security in context to business operation of the company. In the next section, the essay will analyze five areas of supply chain security in context to business operation of DHL such as 1- supply chain policy, 2- Security Policy, 3- Technology Policy, 4- Government Regulations and 5- Sustainability. However, Yang (2011) suggested that supply chain security analysis should include issue like personnel control, inventory control, transportation root map analysis but covering these issues is beyond the scope of this paper. Supply Chain Policy-DHL According to report published by Asian Development Bank Institute (2013), DHL uses certain customer centric policies not only to improve supply chain efficiency but also achieve forward and backward value integration. In case of DHL, supply chain policy is not derived in overnight manner rather the company customizes supply chain policy in accordance with underlying business issues and needs of customers. DHL (2013a) reported that DHL generally integrates issues like planning of supply chain process, sourcing solution, manufacturing (non-core function), storing of material, delivering goods, returning back undelivered goods in order to develop supply chain policies. Planning- budgeting the cost of the whole delivery, determining day requirements and travel distances, determining frequency of freight carrier and human resource requirements, scheduling activities and Lead Logistics Provider (LLP) services integration. Sourcing- procurement of raw material, raw material transportation, warehousing the raw material, managing activities of international vendors to manage cross country movement of sources. Manufacturing- generally, DHL outsource manufacturing activities to third party vendors or technology service providers. Storing- apart from warehousing of goods, DHL also offers value added services like co-packing or assembling of materials. Deliver- DHL uses road, air, rail and even water transport to deliver goods and the company also uses tracking mechanism to monitor end to end movement of logistics. Return- reverse logistics mechanism is being used in order to return back the undelivered goods and the company uses environment compliances to decide reverse logistics policy (DHL, 2013a). According to the report published by Asian Development Bank Institute (2013), supply chain policy of DHL depends heavily on process management, project management and quality assurance. DePict project management methodology is being used by DHL to control budget of supply chain policies and other operational activities. Monitoring role of role of each supply chain partner is part of the quality assurance practices. According to the report of DHL (2013a), Total Quality Management (TQM) is being used by DHL to reduce error in shipment process and deliver orders in timely manner and following all the regulatory compliances in supply chain processes. DHL has also developed specialized software program and logistic model in order to reduce delivery lead time and increase reliability of supply chain process. For example, DHL designed specialized hanger in logistic vehicles to accommodate comprehensive range of fashion items in order cater demand of pan-European fashion network (DHL, 2013a). Another example is that DHL took help of specialized Enterprise Resource Planning (ERP) to ensure full garment visibility throughout the transportation process (DHL, 2013a). In such context, supply chain policy of DHL can be depicted in the following manner. Figure 1: DHL Supply Chain Policy (Source: Asian Development Bank Institute, 2013) According to above model, there are seven stages in DHL supply chain policy and transportation of goods is backed by vehicle support of rail, road transport and air traffic. Primary root is to transport the goods from local pick-up station to local station destination while getting inbound import clearance needs significant amount of legal compliances and contract negotiations. Variable cost and freight charges of the supply chain processes increases with the increase in distances between shipper and consignee (Asian Development Bank Institute, 2013). Security Policy-DHL According to report published by Deutsche Post DHL (2012), DHL follows Code of Conduct in order to ensure security compliance of supply chain. Research scholars like Barnes & Oloruntoba (2005) used supply chain security model of companies like DHL to present their research paper. For example, consideration of research papers of Lorenz (2007) and report published by Deutsche Post DHL (2012) reveals the fact that key focus of DHL’s supply chain security program is to protect deliverable goods from piracy, seizure, pilferage, annoyance and sabotage etc. On the other hand, DHL developed supply chain security program in order to avoid security risks regarding over spending on assignment, cargo misplacement, bottleneck ports transportation, people mismanagement etc. DHL has even implemented C-TPAT program in order to increase container shipping security. However, Marlow (2010) and Kim (2011) showed doubt over full implementation of C-TPAT program in real life business scenario but example of DHL is showing that implementation C-TPAT program might increase container shipping security by significant proportion. DHL is an international logistics company; therefore the company has the liability to follow a global business model which can control minimal variation in security compliances. For example, Deutsche Post DHL (2012) reported that DHL prepares security risk reports in quarterly basis and uniform reporting standards are being followed across different business centers of the company. Monte Carlo simulation is being used by DHL in order to improve IT applications which can easily detect minimal variation in security threat. Figure 2: Monte Carlo Simulation of Supply Chain Security of DHL (Source: Deutsche Post DHL, 2012) According to above model, yellow shaded areas denote better supply chain security management when all the verticals of DHL ensured compliance with security provisions while grey area denote poor supply chain security management. DHL measures supply chain security compliances in terms of financial terms in order to measure the improvement of security in predictive manner. In such context, following table can be used to depict comprehensiveness of supply chain security model of DHL. Cargo management- DHL offers customized container packaging in order to increase cargo security and proper legal protection has also been taken in order to reduce security threats like theft, pilferage and counterfeits. Accident prevention- Apart from insurance assistance, DHL offers accident prevention measures like security training to supply chain members. Facility management- DHL takes supports of logistic mechanism and IT to enhance security of facility management. Personnel; management techniq1ue has also been launched by the company as part of facility management. Information management- Customized system support software being installed in order to enhance database security. Complex algorithms are being used in order to increase information security (Deutsche Post DHL, 2012). Technology Policy- DHL In case of technology integration in supply chain security model, DHL relies heavily on Information Technology (IT) solutions like ERP and warehouse management, Radio frequency identification (RFID), Electronic Data Interchange (EDI), road-transport telematics etc (DHL, 2013b). DHL uses the ERP in synchronization with Warehouse Management system in order to maintain data regarding different storage activities, warehouse capacity, inventory level etc. Figure 3: ERP System Function in DHL (Source: DHL, 2013b) According to the above model, paper bases data are being fed into IT system through the help of Electronic Data Interchange (EDI) system while data regarding material list, sales bill, inventory information, procurement process, packaging schedule, transportation vehicles etc are being processed through ERP system. After distributing and synchronizing the data, ERP system helps supply chain professionals of DHL to prepare the schedule of operation (DHL, 2013b). It is not the fact that DHL only relies on ERP system to facilitate its supply chain management but also the company takes support of Radio frequency identification (RFID) to crunch information of entire inventories using radio waves. Automatic radio transmission of information regarding deliverable materials makes it easier for supply chain professionals of DHL to take necessary security measures to control the movement of the goods. To enhance the security of supply chain process, DHL has recently started taking help of road-transport telematics software which can optimize the transportation process (DHL, 2013b). DHL’s telematics software is helping the company to avoid traffic jams and save significant amount cost associated with fuel consumption. From security perspectives, The DHL Innovation Center has developed DHL’s telematics software with the intention of controlling security threat regarding uncertain environment condition, accidents and physical hazard in the route planning process. Due to integration of telematics technology, DHL has become able to prepare dynamic route plan which can be recalibrated with traffic or environment condition. For example, in Germany, taking help of telemetics technology gave the opportunity to DHL to decrease the lead time by 19% and also to save 14,000 gallon fuel waste in transportation process (DHL, 2013b). Therefore, it can be said that integrating technology in supply chain process has not only helped DHL to enhance security but also helped them to optimize the process. Government Regulations- DHL Covering all the aspects of government regulations is beyond the scope of this short essay and another thing is that operation of DHL is expanded across the globe hence it is not possible to cover all the pertinent government regulations regarding supply chain management in cross country manner. To solve this multi country problem, the study will concentrate on government regulation regarding supply chain practices in particular region. According to report published by DHL-USA (2013), government of USA and European countries define “Shipment” as the parcels and documents which should be carried under particular waybill. From DHL’s perspective, a waybill can be generated through automated labelling of goods. According to government regulation, shipments should transported on a limited liability contract which means shipper is liable to only partial loss may have occur during any stage of transport. In water transit, DHL needs to follow International Ship and Port Security Code (ISPS) in order gain additional security measures in supply chain activities. On the other hand, Banomyong (2005) and Willis & Ortiz (2004) pointed out that supply chain companies need to follow 24-hour rule of Container Security Initiative (CSI) in order to enhance security measures from container theft, loss, spoilage etc. C-TPAT program can be classifies as extension of CSI and protocol works as the compensator for loss occurred in shipping process for supply chain companies like DHL. For example, DHL has created separate division in order to follow government regulations regarding size of the container, capacity of vehicle to carry the shipment, whether goods are being insured or not, procedural security, personnel security etc (DHL-USA, 2013). According to government regulations, DHL is liable to provide following services to customers such as 1- paying taxes that are applicable under laws and regulations, 2- complete documentation or amend service codes in request of customers, 3- acting as forwarding agent throughout the customs and export control processes, 4- working as customs broker who is liable to perform clearance customs activities, 5- redirect the shipment to import broker of receiver (DHL-USA, 2013). Materials being transported by DHL can be classified as unacceptable if it violates any of the security and hazard norms prescribed by International Air Transport Association (IATA), European Road Transport Regulation on dangerous goods (ADR) and International Civil Aviation Organization (ICAO). Regulations prescribed by ADR are being followed by DHL while making packaging of goods. Therefore, it is evident from the above discussion that dimensions of security aspects of supply chain management of DHL are subjected to variation in government policies and shipment regulations. Sustainability-DHL Can fuel fed transportation driven supply chain model of a logistics company be classified as the example of environmental sustainability? For other logistics companies, the answer would be a sure “no” but for DHL, the answer can be redefined. According to report published by DHL (2013c), the company has launched ‘Go Green” agenda in order to reduce carbon emission in the supply chain. DHL is the first logistic service provider which has quantified carbon efficiency target and according to the target, the company would reduce carbon emission by 30% by 2020. Carbon Reporting- DHL has developed carbon reporting methodology which helps the company to accurately calculate CO2 emission in particular shipment cycle and on the basis of the result, the company alters the operational data regarding weight/volume, mode, distance covered by the vehicle, fleet in order to develop more carbon emission efficient sustainability mode (DHL, 2013c). DHL follows the World Economic Forum (WEF) and Greenhouse Gas Protocols to reduce carbon emission in the supply chain process. DHL also provides knowledge session to customers for understanding the importance reduction of carbon emission in the supply chain process and the process helps in facilitating environmentally sustainable behavior among external stakeholders of DHL. For example, DHL developed auditable carbon baseline for its supply chain activities and they are using the base line to set new carbon emission reduction targets. For example, deploying telematics technology in Germany has not only helped DHL to avoid traffic jam related transportation uncertainties but also helped the company to reduce fuel consumption in transportation process (DHL, 2013b). According to report published by DHL (2013c), the company started integrating Green Optimization or Carbon Neutral service with its supply chain policies in order to help customers to reduce overall carbon emission in shipping process. For example, in Germany, DHL started offering carbon neutral parcel shipping without any charge to customers while business customers can also avail the benefits of carbon neutral parcel shipping by paying small amount of charge (DHL, 2013d). In 2012, DHL transported moire than 2 billion environmentally sustainable items across the globe which caused 179,898 tones of CO2 offset (30% hike from previous year) (DHL, 2013d). At present, the logistics giant is taking help of Swiss-based auditor Societe Generale de Surveillance SA (SGS) to calculate probable carbon emission in the supply chain process. It is evident from the above discussions and examples that DHL has taken significant amount of protection measures to improve environmental sustainability of the supply chain management process which can be classified as breakthrough achievement for the company. Supply Chain Security & DHL Consideration of research works of Rao & Goldsby (2009) and Martens, Crum & Poist (2011) reveals the fact that supply chain policy of different companies might differs in accordance with business policies but nature of security threats are almost identical for these companies. In such context, it can be said that DHL is bound to face some common security threats like theft, pilferage, spoilage, counterfeits etc. In line with research findings of Rao & Goldsby (2009), it can be said that DHL has the scope to increase supply chain securities by taking measures like installing geo positioning tracking at every transit of supply chain process, using RFID in end to end manner, inventory controlling through Pareto analysis, following legal norms and compliances etc. Interesting fact is that, an analyst should be very careful before providing any security suggestions to which can improve supply chain efficiency of DHL. Because, the above discussion and examples are showing that DHL has already invested significant amount financial and non-financial resources to implement most of the plausible supply chain security measures in order to remain the market leader. Conclusion It is evident from the above discussion that market leaders like DHL perceive supply chain security as an important issue and there are ample reasons exist which can justify validity of such assumptions. DHL has integrated technological, financial, infrastructural, human and other strategic resources in order to enhance security measures in the supply chain process and comply with government regulations. To conclude the discussion, it can be said that it will be interesting to watch whether DHL can achieve its security and environmentally target in future context or not. To get this answer, external stakeholders of the company need to monitor supply chain policies of DHL in coming years. References Asian Development Bank Institute. (2013). How DHL Express Enables Global Trade- Policy Implications for Value Chains. Retrieved from http://www.adbi.org/files/2013.06.04.cpp.sess7.1.yee.dhl.global.trade.pdf. Banomyong, R. (2005). 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