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April 23, 2014

Pickpockets are thieves who deviously, and cleverly, make things like your wallet, phone or watch disappear without anyone noticing. Illegal as it is, one has to appreciate the deftness and skill by which they perpetrate these crimes undetected. But the items they lift are small and it stands to reason that they may not be noticed missing for hours. However, one would think that something as large as an entire shipping container full of valuable products wouldn’t be as easy nor would it go unnoticed for so long. Unfortunately, neither assumption is true because some companies make it easy for this kind of theft through several leaks in their supply chain.


Most Companies That Have A Supply Chain Problem Know It

Knowing you have a problem is one thing. Doing something about it is another. The combined effort results in logistics and supply chain risk management. And part of that process is determining if a problem is a persistent one that could add up to big losses or, is it a one-time issue that may have minimal impact. For example, if a company receives a shipment of widgets that costs pennies apiece and 100 out of 1 million are missing, there isn’t much cause for concern. Perhaps the paperwork is off or, someone counted wrong. However, if the widgets are valued at $10, 000 a piece and two of 100 are missing, that’s a problem for which finding a solution is required. Many times, double-checking the original order, the manufacturing output paperwork and the bill of lading clears up the issue without fear that a theft has taken place. However, there are often times that a much more in-depth investigation is merited.


Sandbagged!

We had a client who was expecting a delivery in the United States from China. Several containers were shipped across the ocean after being manufactured inland and then trucked to a China port. Can you imagine the U.S. receiving office’s surprise when, expecting a container full of the company’s products, they found instead a container full of sand bags? Clearly, this was a big problem as it represented a large financial loss to the company. We were called in to investigate the supply chain start to finish to see where the leak occurred. We began by assessing the threats at each “node” in the supply chain.


Supply Chain Nodes Have Many Threats

Nodes are the areas at which products are transferred from one point, or status, to another. In the case of the China shipment, the first node was the manufacturing facility where the products were made. Usually, there is a holding area in which complete products are held awaiting transportation away from the factory. Product can stay there for hours, days and even weeks. Depending on the security levels, these products could be susceptible to theft. However, in our China example, we determined that it was not at the factory where the product was swapped for sand.

Billions of products are trucked across every country every day. Trucking is rife with issues since it puts the control of products in the hands of just a few workers/drivers who may be open to incentives to participate in theft operations. Therefore, trucking is a node where threats and risks are high. More on that later as we follow the path of the sand bagged shipment!

Ports represent another node that has multiple ways in which a company’s operation and products can be compromised. Products arrive from the manufacturing plant, usually via truck, but are not always immediately put on board a ship. They may sit idle on a dock for a period of time while the product is checked, counted and prepared for shipping. Many products are put into a holding area or warehouse if the ship that will take them to their receiving port is not ready. This presents another risk of theft. If a well-planned and executed system for checking paperwork and inventory is not in place and adhered to, the risks of theft escalate.

Perhaps the safest node in the process is the ship itself. Once a ship leaves port there is, of course, the threat of piracy at sea. However, it’s been our experience that the risk of this happening is quite low. Shipping lanes create a flow of traffic that can be closely monitored by government entities patrolling the seas. Having a vessel large enough to steal containers from an ocean vessel makes thieves a relatively easily detected target. In most cases we investigate, finding the supply chain leak on the ship itself is unusual.


Clues in the Sand

So, how did we determine where our client got sandbagged? The answer was in the sand! Part of our team began investigating the different nodes, starting in China which has more threats for international companies than the U.S. Another part of our team, however, looked at the sand. Sifting through it, we found bits of paper with Chinese writing on it. A clue! We also determined that the type of sand was consistent with that found in the region of China from which the shipment left. In trying to determine how the sand got into the container without breaking a seal that had been placed on it by inspectors at the factory, we found evidence that the door hinges had been tampered with, indicating that the doors could have been removed. We then looked for inconsistencies in the shipping process.  Did anything stand out as unusual? The shipment left the factory on time and, the paperwork checked out. At the port, the weight of the shipment was the same as when it left the factory so, there was no reason to suspect foul play. Clearly, someone at the China port determined that opening the container for a physical inspection was not required. But that was not the problem. What no one noticed, until we check the timestamps, was that it took the driver four hours longer than normal to drive the route from the factory to the port. Eventually, we found that the driver had stopped at a pre-arranged site where a team of cohorts unloaded the products and loaded the truck with the sand, making sure to have the truck weigh the same as it did with the product on board! Mystery solved.


Supply Chain Management Can Prevent Issues

As a result of our investigation, our client put in place new supply chain management solutions for checking shipping details, like departure and arrival times, so that they could minimize risks. As I said, most companies know they have supply chain issues. It is how, and if, they deal with them that makes the difference. In the case of the example used here, our client didn’t know it had a problem for three weeks after the theft had taken place, making recovery of the stolen goods extremely difficult. Ongoing monitoring of your supply chain can save your company significant expenditures in time and resources in the future.


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