If you store high-value products, the question is not if you'll have a security breach, but when and how much you'll lose. Is there any way to prevent the vanishing act?
John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.
Jennifer Garner and Kiefer Sutherland probably won't be showing up at your distribution center any time soon. But some of the ultra-cool espionage-like technology used by secret agents on the hit TV shows "Alias" and "24" might. Desperate to stem inventory "shrinkage," companies that store high-value items like jewelry, electronics and pharmaceuticals are securing their premises by installing high-tech antitheft devices.
Time was when high security meant a chain link fence. But no longer. Barrier fences are still in use, but the new versions are gussied up with microphonic cable sensors that sound an alarm at the merest hint of vibration. Inside the facility, you're likely to find the latest access verification technologies like fingerprint scanners or biometric technologies. Biometric systems can recognize people based on a physiological or behavioral characteristic—whether it's facial features, fingerprints, hand geometry or handwriting or even a subject's iris, retina, veins or voice.
True, it's expensive. But protecting your inventory is cheaper than the alternative. Supply chain theft has been pegged at anywhere from a $10 billion to an $80 billion industry, reports security consultant Barry Brandman. One company Brandman's familiar with was absorbing annual losses that reached well into the seven figures before it finally signed on with his service. That's a lot of laptops or tennis bracelets.
The perpetrators? They could be strangers. But they could just as easily be the people you see every day. Theft is committed by employees, vendors and contractors, confirms Brandman, who is president of Danbee Investigations, based in Midland Park, N.J. They don't even have to be disgruntled employees, vendors and contractors. Many people view inventory and cargo theft as a victimless crime, explains John Tabor, director of security at National Retail Systems, a trucking and logistics services company that hauls products for most major retailers. "The theory is that people like retailers and importers are more than capable of incurring the losses and that they have the insurance to cover it."
Then there are the professionals. "Product theft truly represents an entire underground economy," Brandman says. "There are organized crime rings that specialize in distribution and logistics. They will plant workers in the system and they can be there for months before [striking]."
That type of operation can be insidiously difficult to detect . "Much of the theft in distribution centers today looks just like standard operating procedure; if you have people working in collusion, product can just vanish into thin air,"says Brandman, who is currently investigating a $1.4 million theft from a DC in the Southeast. "Unless you carry a product with little or no intrinsic value, it's got to be a concern. If you carry things like apparel, fragrances or computers, then you'd better be sure you are protecting those goods. Because it's not a question of if, but of when and how much."
Access denied
First Data Resources, which ships six million credit cards a month, is taking no chances. The company has made its warehouse in Omaha, Neb., virtually impenetrable from the outside (the facility, in fact, was built to withstand winds of over 200 miles per hour). Before an employee can even enter the warehouse, he or she must submit to a handscan. After employees have gained entrance, their movements are tracked by one of the 127 cameras in use throughout the facility.
But it's not enough just to turn the DC into a fortress. At some point, most—if not all—inventory becomes cargo. Goods are particularly vulnerable to theft when they're in transit. To keep closer tabs on trailers, many truckers are installing high-tech tracking systems. National Retail Systems recently began installing global positioning system (GPS) tracking devices on its trailer units. The location of each trailer is monitored on the Internet, and authorities are notified immediately if the truck is powered up when it shouldn't be or if the truck's seal is breached at an unauthorized time. The technology typically runs $1,000 per trailer, a hefty investment.
Will truckers shell out that kind of money? "Transportation companies work on such small margins that getting them to commit to new technologies is tough,"concedes Tabor, "but the industry leaders are starting to move in that direction. The GPS system has been a pretty easy sell from a security standpoint, but then you get the added benefit of being able to utilize the trailer better if you know its where abouts. You might have a trailer tied up now for three or four days, instead of sitting for weeks somewhere."
Ready for their close-ups?
Of course, not everybody is convinced that dazzling technology will bring dazzling results. Some companies swear by the virtues of vigilance: maintaining a strong management presence in the distribution center and making sure employees know that the company will take a tough stand on theft.
"We have a very good presence on the floor with supervision," says Bruce Mant z, director of operations for Automated Distribution Systems, a third-party provider that handles high-value items like footwear and apparel. "We have a lot of controls in place, and we cycle count the entire building every week so if something is going on we'll find it quickly. They might be able to conceal some small items, but they are not going to get any big items."
Mantz likes to keep things simple: "We have one door in, and one door out," he says. "We limit the way in and out of the building and when we do have penetrations at truck doors, everything is on 24-hour circuits. If there is an alarm, it goes out over the radio and within 30 seconds we have somebody within that location." And while they're at work, employees are watched at all times by very visible closed-circuit TV cameras. "We don't hide it, " Mantz says of his company's decision to use surveillance. "It's a deterrent."
Editor's note: The Department of Homeland Security's Web site offers more than just fresh uses for duct tape. It also provides a checklist of ways to secure warehouses from intruders—whether terrorists or thieves. To view the list, go to www.customs.ustreas.gov/xp/cgov/import/commercial_enforcement/ctpat.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
Chinese supply chain service provider JD Logistics today announced plans to double its overseas warehouse space by the end of 2025 as part of the company’s broader global supply chain strategy to meet the growing demand for cross-border logistics solutions.
As part of that effort, the company will also expand its network of bonded and direct-mail warehouses. That would mark a significant expansion since JD Logistics—which is the logistics arm of JD.com and is also known as “JingDong Logistics”—currently operates nearly 100 bonded, direct mail, and overseas warehouses. Those facilities total about 10 million square feet in markets such as the U.S., Germany, the Netherlands, France, the U.K., Vietnam, the UAE, Australia, and Malaysia.
Specifically, JD Logistics said it is focused on expanding its presence in Europe and the U.S., establishing collaborative supply chain networks capable of delivering fulfillment services within 24 hours in several regions. In support of that, the company plans to increase its international cargo flights from China to destinations such as Malaysia, South Korea, Vietnam, the U.S., and Europe to enhance cross-border transportation services. It will also explore the development of self-operated transportation and delivery capabilities overseas.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
The clean energy transition continuing to sweep the globe will give companies in every sector the choice to either be disrupted or to capitalize on new opportunities, a sustainability expert from Deloitte said in a session today at a conference in Orlando held by the enterprise resource planning (ERP) firm IFS.
While corporate chief sustainability officers (CSOs) are likely already tracking those impacts, the truth is that they will actually affect every aspect of operations regardless of people’s role in a business, said John O’Brien, managing director of Deloitte’s sustainability and climate practice.
For example, regulatory requirements on carbon emissions are expanding in every region, which means that even if a specific company doesn’t have to change its own practices, it will almost definitely need to flex to accommodate its partners and suppliers as they track scope 3 emissions or supply chain practices.
Likewise, companies are starting to challenge the classic concept of “force majeure” events than can cancel service providers’ contractual duties due to unforeseeable weather events. As the new argument goes, extreme weather patterns increasingly occur in accordance with climate scientists’ forecasts, so those hurricanes and wildfires are in fact foreseeable after all.
But one strategy for coping with the cost of those changes is to mine the power of the data that most companies will soon need to collect as part of their evolution. Instead of simply tracking its trucks to trim their routes and emissions, a transportation company could use the same data to manage their maintenance and fuel consumption.
“The climate management transition is going to be a massive disruption, but with that comes massive opportunity,” O’Brien said from the keynote stage at the “IFS Unleashed” show. “Don’t waste compliance efforts just on compliance, use it to create new value. You’re collecting all that new data, so use it!”
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.