The Essential Foundation: Integrated Systems
Efficient air cargo supply chains require five interconnected systems: engineering (system design), marketing (customer facing), cargo handling and processing, inbound / outbound logistics, and financial management. Compliance with the CCSP introduces another critical component to this mix: the need for cargo screening and a secure chain of custody. Shippers and the air cargo Industry are justifiably concerned that the introduction of this “extra step” to the supply chain management process has the potential to slow the system down, impeding the flow of commerce with damaging financial effects.
Opportunities for improved supply chain speed and efficiency tend to be at the boundaries of these systems. The greatest advantages will come from focusing on (1) integrating the five systems intra-organizationally, (2) integrating the supply chain processes with collaborating supply chain partners, and (3) implementing an integrated, systemic approach to supply chain security and employing best practices throughout the system. But integration alone will not achieve unimpeded supply chain flow; management must learn to deal explicitly with the impact of uncertainty on the supply chain decisions they make. While sharing data is essential, simply passing data will not be sufficient to substantially reduce the impact of uncertainty; predictable, verifiable, repeatable processes, close collaboration with supply chain trading partners and the effective use of advanced information technology and tools are the keys to achieving and sustaining a secure, high velocity air cargo supply chain.
Application of the “Five Principles of Secure Supply Chain Design and Operation” (3) can mitigate the impact of enhanced security procedures and increase the flow of commerce. Secure, high velocity supply chains share several key attributes. We have identified five guiding principles that provide the essential foundation for securing the air cargo supply chain while expediting the flow of commerce. Each principle is explained below, with illustrations of its applications.
Principle # 1: Know the Customer
Principle # 1- Concept
Without a clear understanding and definition of customer requirements, a secure, high-velocity air cargo supply chain cannot be established and sustained. To gain that understanding requires constant research and collaboration with supply chain partners, the construction of an information infrastructure to capture transaction data, and the storage and analysis of these data from a strategic, tactical and operational perspective.
Further, the needs of the customer must be understood within the context of the supply chain system within which it operates, the products it ships and the threats to which they are vulnerable that can vary considerably from location to location and time to time. All of these requirements must be thoroughly understood to establish the foundation for constructing responsive, efficient, secure supply chains.
Principle # 1 - Application to the Air Cargo Supply Chain
Supply chain security and logistics requirements vary greatly by type of shipper, commodity or product, operating location and destination. For example, the logistics and screening requirements for perishable flowers, certain fruits and live foodstuffs (i.e., Maine lobsters) which are packaged in boxes, crates and tanks respectively are very different than those for high-value semiconductor chips which are susceptible to electronic discharge and may be shipped in special, palletized containers. Other examples include jewelry, fine art and human remains, which are often shipped by air and must have special handling protocols because post screening re-inspection in the event of an alarm is problematic. All demand the speed of delivery provided by air freight, but storage and handling protocols, scanning and secure sealing techniques, and the chain of custody for each are very different.
These industry-specific requirements call for the development and use of unique procedures, security protocols, sealing and identification technologies and transportation strategies designed to speed processing and ensure the chain of custody from the shipper to the carrier. In turn, requirements will influence, and in some cases dictate, the supply chain management strategy. It is therefore imperative that shippers, air cargo logistics services providers and their industry associations work closely with the TSA to establish practical standards as quickly as possible if the impending deadline is to be met.
Principle # 2: Concept
Over the last decade shippers, freight forwarders, 3PL’s, IAC’s and air carriers have focused on creating lean organizations and business processes. Internal lead times have been shortened and made more predictable, set up times and work-in-process inventories reduced. But for maximum supply chain efficiency, all supply chain trading partners must design, align, and execute their jointly operated processes so that the entire chain has the desired attributes: response times must be short, predictable and repeatable. Thus lean, secure supply chains must be designed as a system that responds quickly and predictably to fluctuations in demand and available capacity.
To date, most lean initiatives have been pursued within the enterprise. To attain maximum efficiency - with increased security - across the chain of custody, lean philosophies must be extended beyond the boundaries of individual organizations to include all supply chain partners. No combination of software systems and information technology can compensate for a poorly designed physical operating environment and inefficient, sloppy execution.
Principle # 2: Application to the Air Cargo Supply Chain
A recent study of the application of Business Process Reengineering (BPR) on the air cargo handling process identified substantial benefits in overall throughput through lean operations (4). Overall, the combined processes of operations, transportation, delay, inspection and storage were reduced from 120 steps to 18 steps and overall cycle time by 74%, while facility capacities and staffing remained constant. Delays in the process were almost completely eliminated through process improvement; no additional automation was incorporated to achieve these results.
Computer simulation models are powerful tools that can be used to guide lean process development for optimal facility efficiency, throughput and performance. For example, the Air Cargo Screening Facility (CSF) Operations Model (5) provides decision support and “what-if” analysis to answer questions that are encountered in the design and operational phases of an Air Cargo Screening Facility. This model has been used to plan requirements for storage and screening capacity, staffing, outbound logistics and material usage (e.g., tamper-evident tape and seals) and also to estimate facility throughput and in-process inventory levels to help develop accurate estimates of facility set-up and operating costs. For example, changes in the receiving and sorting processes recommended using this model resulted in projected reductions of late shipments by over 90% with the same level of resources.
Another study conducted with a major air carrier at Toronto Pearson Airport used a similar computer simulation technique to analyze air cargo operations at a new state-of-the-art cargo facility, equipped with automated material handling and fully computerized inventory control systems, validating the approach (6). The purpose of the study was to develop new processes to ensure that products and services were properly aligned with customers’ needs. The tool was used successfully to quantitatively evaluate and compare different policies, business practices and procedures within a given set of operational and business constraints. The model can also be used in evaluating scenarios such as the effect of an increase in cargo volumes or changing service level policies.
Principle # 3: Concept
The air cargo industry has taken advantage of advances in information technology to make great strides in improving its information infrastructure. Although actual performance frequently falls short of the desired level of performance, it is now possible for all partners in the secure air cargo supply chain to share demand information, shipment status and location, screening and logistics requirements and up-to-the-minute air carrier schedules.
But true collaboration requires more than just data exchange between successive supply chain partners. Rather, it requires joint planning of inventory, packaging, consolidation, screening and logistics strategies, and executing the resulting plans quickly and reliably on a continuing basis. How various capacities (inventory, transportation, storage, screening, air lift, peak load) are used daily and over longer time horizons must be considered from a systems perspective, not just a local point of view.
The secure air cargo supply chain information infrastructure must be capable of responding effectively to frequent changes in demand and logistics requirements. Re-planning the use of capacities may need to be done daily and in some cases on an hour-to-hour, minute-to-minute basis for maximum responsiveness and efficiency.
Principle # 3: Application to the Air Cargo Supply Chain
One of the world’s leading international freight forwarders is currently implementing an innovative, integrated information system in its CCSF’s (7). The system is capable of capturing all of the information about an air cargo shipment, down to the piece level, from the moment it arrives at the facility until it exits the facility for delivery to the air carrier.
For inbound cargo shipments the system records the delivery truck driver’s ID and photo, and scans in the Bill of Lading. Once in process, the CCSF operator records the Master Air Way Bill (MAWB) number and weight, identifies the technology used to perform the screening and then records the House Air Way Bill (HAWB) number and weight. The system automatically generates and records bar coded, tamper-evident package tape and seals and allows recording of pallet and/or ULD and truck seal numbers, as necessary, to uniquely identify the screened items and establish a secure chain of custody. All transactions are time-stamped for later retrieval and analysis, should it prove desirable or necessary. The system also generates all the CCSP-related reports required by the TSA automatically, periodically or on demand. Optionally, the system can be interfaced to screening devices to capture images and data related to the screened cargo, and linked external databases to perform personnel checks and incorporate truck and air carrier schedule updates in real-time.
In addition to the obvious productivity benefits, the data captured by the system can be used for forensic track and trace should it prove necessary, and provides the foundation for collaborative planning and scheduling with supply chain partners and air carriers to better coordinate supply chain activities and expedite cargo flow. Used with simulation tools, the data can also be used to optimize material flow, capacity utilization and facility throughput. Systems like this one are essential to maintaining air cargo supply chain security while expediting the flow of commerce in a cost effective manner.
Principle # 4: Concept
Business processes must be established both intra- and inter-organizationally. These processes, coupled with the information infrastructure, support the efficient flow of material through the supply chain. While much attention has been placed on understanding business processes within shipper and air cargo handling organizations, it is essential to understand what processes must be built inter-organizationally – among trading partners and logistics services providers - to leverage, enhance and optimize their capabilities to expedite the flow of commerce.
Principle # 4: Application to the Air Cargo Supply Chain
The shortest distance between two points is a straight line, and the quickest, and cheapest, most secure route in the CCSP supply chain is directly from shipper to airside, without passing “Go” (i.e., through an intermediate node). The CCSP allows for this, and it is the right answer for many shippers. However, it is dependent upon collaborative, integrated business processes and between shipper and air carrier, or Freight Forwarder/ ICSF / IAC and air carrier, enabled by tightly coupled information systems as illustrated in Principle # 3.
Prerequisites are sharing and knowledge of up-to-date, real time flight status information; optimal load configurations of screened cargo; tamper-evident packaging and sealing to ensure a secure chain of custody; rapid delivery and capacity for unloading at the airport; knowledge of exactly what’s coming in, when, on the part of the carrier to help consolidate, weigh / balance and expedite handling of outbound loads; and readily verifiable cargo integrity. These conditions can only be realized by tightly integrated, collaborative business processes; the procedural discipline and information capture demanded by the “extra step” in the CCSP create an environment within which this is possible.
Benefits include more predictable lead and flow times, reductions in cargo handling, storage costs and wait times, better facility and aircraft utilization and increased velocity with less inventory in the air cargo supply chain.
Having said this, the current air cargo supply chain is extremely complex, and the requirements for 100% screening at the piece level create new challenges. For example, there is a need to segregate screened and unscreened cargo at the airport, and (at this writing) between incoming international and outbound domestic flights. These problems can be addressed through process reengineering, the application of lean, secure operating philosophies and simulation tools such as those described in Principle #2, and by Principle #5, the implementation of unified, advanced Decision Support Systems.
Principle #5: Concept
Researchers have designed supply chain Decision Support System (DSS) environments for the air cargo industry for decades. These environments are typically based on different philosophical models. Also, they differ in how they forecast demand and how they drive logistics, handling and storage decisions. Their goal is to generate plans and schedules that consider some of the elements of the supply chain. No matter which approach is taken, these systems and their embedded rules dictate many daily supply chain activities. Therefore, they have a substantial impact on operating behavior, and consequently on overall supply chain performance, operational effectiveness and security. How much they enhance air cargo supply chain performance depends upon both the accuracy of their input data and the modeling approaches employed. We believe that these decision support systems need to address uncertainty in an explicit manner – most do not.
Principle # 5: Application to the Air Cargo Supply Chain
A recent study applied advanced Decision Support Systems techniques for planning and scheduling to the problem of scheduling truck arrivals at the Hong Kong International Airport - HKIA (8). Assumptions included collaborative sharing of current flight schedules with air carriers, a focus on air cargo handling operations for outbound flights only, and adequate docking capacity at the airport. There are a number of outbound flights with confirmed air waybills; the terminal operator schedules arrivals of the delivery trucks so that some of the shipments can be transferred directly to the departing flights without requiring extra handling and storage at the terminal, an approach that is analogous to that permitted in the CCSP for screened cargo.
The model also considers that multiple shipments (for different air carriers) may be delivered to the airport on a single truck, and that cargos come in different sizes and weights, which adds complexity to the cost minimization computation, but accurately reflects the way things work in the “real world”.
The benefits of using the advanced scheduling algorithm relative to the random, “First Come, First Served” (FCFS) in the current system at HKIA were substantial, with an average cost savings of 39.2%. The savings are due to the ability of the advanced scheduling approach to coordinate the arrivals of trucks so that a larger percentage of shipments can be transferred directly to the line-up areas, saving their handling and storage costs.
In addition to cost savings, this advanced scheduling approach has the added advantage of avoiding congestion at the air cargo terminal and guarantees that all shipments will arrive on time, eliminating late shipments (an average of 3.9% of all shipments in the FCFS approach) and reducing truck wait times, which averaged 99 minutes from arrival to unloading, substantially. As previously noted, the less time cargo is in transit and waiting means fewer opportunities for tampering, theft and sabotage.
Planned follow-on research will incorporate stochastic programming techniques to explicitly represent uncertainty in the scheduling process.