Keep an open eye

In the aftermath of September 11, and with the murder of other innocents through the deliberate spread of anthrax spores, many wonder if the repercussions of these heinous crimes will change forever how goods are manufactured and distributed through supply chains.

Just as airline travel must change to better ensure passenger safety, experts say further steps will be taken to prevent harm to consumers through deliberate tampering with products, most immediately in the application of pharmaceutical industry standards and procedures in the food & beverage and other industries.

The answers to other questions are less clear.

If security concerns are going to cause ongoing bottlenecks in the movement of goods through supply chains—as they did in the immediate aftermath of September 11—what steps will manufacturers and distributors take to guarantee materials availability? Will manufacturers need to rethink low-inventory strategies?

Many manufacturers are today taking first steps toward wide-ranging, computerized collaboration with suppliers and distributors. Will recent events cause them to pull back from extending access to their business systems to suppliers or distributors, or will extensions be the means for dealing with fallout from these world-altering events? More simply, will manufacturers want to work with fewer suppliers, to ensure quality, or more suppliers to ensure availability?

At the APICS trade show, held October 28-31 in San Antonio, Texas, a number of experts in the field of business systems for enterprise and supply chain planning talked about the role these systems might play in the fight against terrorism.

Bob Reary is supply chain evangelist for enterprise and supply chain system vendor, Pleasanton, Calif.-based PeopleSoft. Reary says Federal Food and Drug Administration regulation Title 21, Code of Federal Regulations, Part 11 is key to security concerns in the pharmaceutical and, soon, in other industries.

Title 21 is a set of FDA regulations. Companies keep records of their compliance with these regulations, for which they are periodically audited by the government. The records track materials and production processes used in the making of pharmaceuticals and medical devices. One use of the records is that production irregularities can thereby be traced back to their source. Part 11 establishes the criteria by which electronic records and signatures are considered equivalent to paper records and handwritten signatures. Functionality in any manufacturing system aimed at the pharmaceutical industry will support meeting these regulatory requirements.

"Many people think it a foregone conclusion," says Reary, "that these same regulations will be applied soon in the food & beverages industry, and even in high-tech. Incorporation of electronic signature capabilities into all key transactions will be important going forward."

Information technology also can play a role in allowing movement of pharmaceutical product lots under quarantine, says Reary, and in streamlining handling of hazardous materials.

"The companies that can overlap the redundancies [like sample testing] and materials handling and movements [like transport of quarantined material] will contribute much to models that have been held in check in the past, because the fear of mistakes outweighed the need to respond quickly."

Reary says business applications will play an important role in helping manufacturers and distributors deal with the new environment. "The ability to share forecast, inventory, and capability information can help manufacturers deal with this situation. To ensure materials availability, companies may want to expand the number of suppliers they work with, but manage those relationships with fewer people. But they may also want to reduce the number of distribution points as a means of better controlling the movement of goods. Close system-to-system integration with 3PLs, 4PLs, and other contractors that are allowed to poll into a manufacturer's systems may be one way of dealing with this."

Based on information drawn from recent articles in The New York Times, it's clear that technology-based solutions will be relied on heavily in security efforts to prevent biological or chemical poisons from being slipped into packaged foods, produce, or unpasteurized juices. There are more than 900 million acres of open-air farmland in the U.S., according to The Times, and bringing all that food to market involves a vast, complicated network of storage and transportation depots, packing, and processing plants.

Food-borne illness in the U.S. already is responsible for an estimated 5,000 deaths and 76 million illnesses a year. The Food and Drug Administration (FDA) has 770 inspectors for 57,000 food processing plants, and only 150 of them oversee nearly 3.7 million shipments from abroad each year. The Agriculture Department has 7,600 inspectors for 6,500 meat and poultry plants.

Companies say they are restricting access to their food plants and are adding cameras and undercover patrols in areas where ingredients are mixed or packaged. Food processors, notes The Times, also are being more selective about their suppliers.

Martin Ambrose, a vice president, with Chicago-based SSA Global Technologies, an extended enterprise systems vendor, says he "fully expects FDA regulations to be completely applied to the food industries, driving interest in applications that ensure compliance—including for audits, electronic security, and electronic signature for all key transactions."

As for security concerns related to business systems themselves, Ambrose says the first step is for companies to use what they already have. "Most companies aren't using the security they have," says Ambrose. "Look at the IBM iSeries [formerly the AS/400]. There are at least four or five levels of security, including for user, object, library, and domain. Each of these has 30 to 40 profiles, yet very few companies make full use of these capabilities."

When it comes to securing supplier or other type portals, says Ambrose, the idea is that security will need to be externalized. "With a portal strategy, it is very important to realize what underlies it—a multiplicity of systems on databases. With that in mind, the general access security should be externalized from the back-office applications."

John Layden is vice president, supply chain management, with Newtown Square, Pa.-based SAP America. Layden believes that transportation delays will be more common in the future, and that manufacturers may choose to "dial-up" their inventory buffers as a result.

"But," says Layden, "there will always be a point in every system where, if pushed far enough, that system breaks. What collaborative technologies do is allow you to communicate the need to compensate for a disruption more quickly."

Increased national security in the wake of the September 11 terrorist attacks delayed material shipments at border crossings and airports. That led to shutdowns of varying duration at several automotive plants, including those of GM, Ford, and Chrysler. The shutdowns have caused some to question the viability of just-in-time (JIT) or lean manufacturing techniques that seek to hold buffer inventories to a minimum, e.g., by scheduling production based on actual demand rather than forecasts.

In one instance, in The Wall Street Journal, writer Jeffrey Ball said, JIT "seeks to minimize warehousing costs as well as quality problems that can result when lots of parts sit around for a long time. But it works only when the trains—and trucks, boats, and planes—carrying parts to factories run precisely on-time."

Factory Logic, an Austin, Texas-based vendor of software used to manage factories making use of lean manufacturing techniques, has recently published a newsletter that seeks to refute some of the points Ball made in his article.

The newsletter comments amplify those Layden made on the APICS show floor by stressing an essential point: disruptions of the magnitude seen following September 11 are extremely rare and "you can't buffer against an emergency."

What the recent supply chain disruptions demonstrate, says Factory Logic, is not a flaw in JIT manufacturing, but "in the production process of many factories, primarily involving information flow... inherent in their inability to gain visibility into their supply chain and gauge its impact on production."

Second, the newsletter makes the point that just-in-time is not equivalent to "zero inventory." Certain materials must have higher inventory levels based on the reliability of the supply chain for those materials. Just because a factory maintains some inventory doesn't mean it isn't lean.

Finally, the newsletter notes that factories can guard against delays by creating relationships with alternative suppliers.

Bill Villalon is president of the Americas region of Oakland, Calif.-based APL Logistics, a global supply chain management provider. Speaking to delegates at the annual Textiles and Apparel Trade and Transportation Conference held October 24 in New York City, Villalon cautioned that providing for rapid modal shifts or backup sourcing options will in many cases involve adding new complexities to the supply chain.

"But this has become a reasonable price to pay," says Villalon, "thanks to new Web-based visibility tools that can give importers and retailers a better picture of where their goods are at any moment, making management of the supply chain easier and more efficient. Specifically, these new information technology tools make it possible to reroute or rehandle goods in response to rapidly changing market conditions, or to mitigate a military contingency or natural disaster."

Other long-term solutions for ensuring security in the manufacture and distribution of goods will no doubt also involve business software applications. Security experts already are talking about the issuance of "EZ-passes" as being the best way to regulate the movement of people. These biometric identification passes, based on an interview and an information file, and supported by a photo and thumbprint, would be roughly analogous to those passes used at tolls. Those willing to submit information needed to acquire a pass would find movement into restricted areas much easier than those not willing to do so.

To facilitate the movement of goods, more use will be made of sealing at departure points. Software that ensures compliance with export and other type regulations will be more widely applied. Electronic manifests will be sent ahead of shipments. And containers packed so as to facilitate high-energy X-ray scanning will have priority at inspection points.

Enactment of these more controversial steps, however, will have to await a political process that allows weighing of security concerns against personal freedoms.