Uncertainty on Cross-Border Supply Chains by Gaston Cedillo
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The document analyzes uncertainty in crossing times at the US-Mexico border and its impacts on safety stocks in NAFTA supply chains. It finds that variability in border crossing times due to differences in processes and infrastructure between the two countries increases costs for businesses. Modeling six scenarios around participation in C-TPAT and FAST programs, the research estimates that safety stocks would need to increase by 72% on average to prevent disruptions from border crossing time uncertainty. The study calls for collaborative border inspections and a NAFTA information system to reduce variability and its effects on supply chains.
![Uncertainty on Crossing Times at U.S. – Mexican Border: Impacts on Safety Stocks of NAFTA Supply Chains. Miguel Gaston CEDILLO-CAMPOS Miguel MATA-PEREZ Charleston, West Virginia, USA 2011 International Transportation Economic Development Conference [email_address] http://gastoncedillo.com](https://image.slidesharecdn.com/cedilloi-ted2011mgcc-110530214142-phpapp01/85/Uncertainty-on-Cross-Border-Supply-Chains-by-Gaston-Cedillo-1-320.jpg)
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Uncertainty on Cross-Border Supply Chains by Gaston Cedillo
- 1. Uncertainty on Crossing Times at U.S. – Mexican Border: Impacts on Safety Stocks of NAFTA Supply Chains. Miguel Gaston CEDILLO-CAMPOS Miguel MATA-PEREZ Charleston, West Virginia, USA 2011 International Transportation Economic Development Conference [email_address] http://gastoncedillo.com
- 18. Analysis & findings Hitzfelder & Villa, 2011
- 21. Analysis & findings Monterrey Nuevo Laredo Laredo, Texas Detroit Mexican Export U.S. Export Value Added = 0 Value Added = 0 Drayage Hitzfelder & Villa, 2011 NON-FAST
- 22. Analysis & findings Monterrey Nuevo Laredo Laredo, Texas Detroit Mexican Export U.S. Export NAFTA plan Hitzfelder & Villa, 2011 Mexico USA Customs Broker Customs Broker
- 25. Green Light =22.5 min. =5.74 Mexican Side Mx Facility Paperwork Process =40 min. =10.2 Point of Transfer MX Customs =0.75 min. =0.19 0.02 Red Light Green Light 0.98 Primary Cargo Inspection Secondary Cargo Inspection =97.5 min. =24.87 =97.5 min. =24.87 0.90 0.10 Red Light U.S. – MEXICO BORDER U.S. – MEXICO BORDER Primary Cargo Inspection Secondary Cargo Inspection US Customs D.O.T. Point of Transfer American Side =166.5 min. =42.47 =1.5 min. =0.38 =1,830 min. =466.84 Security Inspection Safety Inspection No Yes =0.75 min. =0.19 =15.5 min. =2.93 =22.5 min. =5.74 1 2 3 4 5 6 7 8 9 10 11 NON FAST = 0.60 – 0.9 FAST = 0.10 – 0.4 ATS Acceptable Risk? U.S. Facility Starts Drayage Ends Drayage
- 39. Thank you! Miguel Gaston CEDILLO-CAMPOS Miguel MATA-PEREZ Charleston, West Virginia, USA 2011 International Transportation Economic Development Conference [email_address] http://gastoncedillo.com
- 40. Miguel Gastón Cedillo Campos Cuauhtémoc Sánchez Ramírez Editorial Trillas ISBN 968–24–8196–3 http://gastoncedillo.com
Editor's Notes
- Good afternoon! During the next 20 minutes, I will expose the first results of a research that tries to identify the key elements for improving NAFTA supply chains. This is important because different key players recognize the NAFTA’s opportunity to organize one of the largest regional manufacturing zones in the world. However, the uncertainty caused to NAFTA supply chains by delays as well as disruptions at the U.S.-Mexico Border represents a big issue that has to be solved.
- This presentation is organized around 5 points. First, a GENERAL CONTEXT of the topic will be exposed. Then, the BASIS AND GOALS will be presented. Third, from a system point of view, a HYBRID METHODOLOGY based on a large literature review as well as fieldwork to map de processes will be showed. Forth, our first DESCRIPTIVE ANALYSIS AND FINDINGS will be discussed. Finally, CONCLUSIONS AND FUTURE RESEARCH will be exposed.
- In fact, from 1994 until 2008, the value of trade between USA and Mexico crossing the border by truck increased 300%. In 2009, Mexico was the third largest U.S. trade partner. Not only did Mexico export to the U.S., but it also bought more from the U.S. than any other country, except Canada.
- Actually, for every dollar of trade between the two countries, Mexico imports 42% from the U.S.
- It seems that REVERSE GLOBALIZATION is becoming a tendency. In that context, Mexico is increasing its position as a manufacturing country and also as an emerging market.
- Despite security issues, Mexico has a lot of appeal because of its proximity and the need of companies to improve their working capital. Linked with slide 7
- As well as more predictable lead times reducing risk of long times disruption.
- If the main reason in the expansion of tuck crossing has been the intensification of trade, then, improving cross-border process is a key issue for NAFTA. As Bakir & Pakdaman, and the North American Competitiveness Council argue: “Mexican cross-border trucking appears to be in the future of NAFTA.”
- Different authors recognize that there is the opportunity to organize one of the largest regional manufacturing zones in the world. Consequently, it is important to increase cross-border throughput, which is: “ the speed and volume with which products move through transportation, manufacturing processes, and even customs at the border .”
- However, the lack of collaborative security processes on the border, as well as differences in transport infrastructures are elements creating uncertainty in crossing times.
- Since there are many different elements involved in this matter, our research was limited to the study of border crossing times at the most important land port of entry of the NAFTA: Laredo, TX. Actually, it is the most important one for both economies with 31.6% of the trade value and the largest number of truck border crossings.
- In fact, Laredo, TX. is the Top 1 Land Port of Entry by trade value.
- In that context, the goals of the GLOBAL research were: To identify the crossing time by processes involved. To propose a quantitative model to analyze scenarios. To analyze the effects of Lead-Time uncertainty on safety stocks because of delays as well as disruptions caused by cross-border processes. To provide insights for improving cross-border flows.
- However, concerning our first goal… There is no systematic and consistent way of measuring border-crossing time at land ports of entry. So, a descriptive analysis was done. Even if descriptive, this first analysis has to be done, because, Congestion and Delay are causing Higher Emissions and Security Fears. At the same time, from a NAFTA Competitiveness approach, Delay time for commercial motor vehicles is a key indicator of transportation and NAFTA supply chain performance.
- From a methodological approach, our study was organized in 3 parts: At a strategic level , we analyzed the question from a systems point of view in order to improve our understanding of the problem. At a tactical level , we used an abductive or hybrid process linking theory and field research. At an operational level , we developed a system of equations to represent scenarios. The main reason for implementing this multi-level approach was to understand the key issues involved in this complex problem.
- Thus, the first step was to identify the problem and KPI’s as function of lead time and cost analyzing the operational context from a systems point of view. The second step was to map the process based on field work and literature review from an abductive approach. The third step was to design descriptive scenarios from a quantitative approach. Finally , analysis and conclusions were done.
- The border crossing process is actually a very complex problem… Many different stakeholders from public and private sectors on both sides of the border are involved.
- Here is a basic schema.
- As you know, C-TPAT is a voluntary program to make cooperative relationships for improving supply chains and border security. As part of C-TPAT, FAST is a program that offers advantages such as crossing the border rapidly.
- Currently, in Mexico there are only 1,568 C-TPAT members. Because C-TPAT certification involves a long verification process, CBP does not have the capacity to quickly manage the entire importers request.
- Thus, most of the truck crossings are by NON-FAST companies. Consequently, a drayage process by authorized vehicles has to be made. Linked to slide 22
- In spite of the fact that the basis of NAFTA was to improve commercial flows.
- In 2008, truck crossings reached almost 5 millions which represented 21% of the total containers entry into the U.S. However, the amount of empty containers crossing the border was important because of drayage.
- As U.S. General Accounting Office emphasizes, this unnecessary congestion can be a security risk.
- From a descriptive approach means & standard deviation were calculated for every process… when a Mx facility sends a shipping, the first step is a paperwork process which is performed with a mean of 40 minutes with a standard deviation of 10.2 minutes. The second step is the transfer of cargo to a drayage vehicle with a mean of 22.5 minutes with a standard deviation of 5.74 minutes. The third step is when cargo passes Mx Customs with a mean of 0.75 minutes and a standard deviation of 0.19 minutes then, the driver has to push the button of a traffic light that light up a red or a green light. If the light is red, the truck goes to a primary inspection; if it is green, the truck is free to go. Only 2% of the trucks get a red light. Primary cargo inspection is performed with a mean of 97.5 minutes with a standard deviation of 24.87 minutes. After primary inspection, the driver has to push again the button of a traffic light, this time 10% of the trucks get a red light for a second time and go for a more exhaustive inspection. Then, the truck goes across the international bridge with a mean of 166.5 minutes because of congestion or other issues. On the American side, security inspection is launched with a primary cargo inspection, which is performed with a mean of 1.5 minutes. Based on the questioning process, canine (K9) truck inspection and a crosscheck based on the ATS (Automated Targeting System), officials make a decision if secondary cargo inspection is required. The probability to go to a secondary cargo inspection for a NON-FAST vehicle goes from 60% to 90% and for a FAST vehicle, goes from 10% to 40%. The ninth step is performed when cargo passes the U.S. Customs, which is performed with a mean of 0.75 minutes. Next, a safety inspection is performed by the State Authority Department of Public Safety in Texas with a mean of 15.5 minutes. The drayage process is finished at the point of transfer on the American side. Finally, a long-haul truck takes cargo to go the U.S. facility as final destination.
- Thus, 6 scenarios were developed, computing their probabilities.
- As you see, there are 11 processes to cross the border. However, only 8 are applied to FAST vehicles. A fieldwork was developed in order to map the processes and to identify time ranks (maximum and minimum) for each process. As a result, a Worst-Case was identified for NON-FAST vehicles as well as a Best-Case for FAST vehicles (where only 6 processes are used).
- Analyzing the scenarios, we found that a NON-FAST vehicle takes on average up to 6 hours to cross the border from Mexico to the U.S. But a FAST vehicle takes on average 3.5 hours, which improves of 72% the crossing time.
- According to a bi-national study, every hour that a truck spends in a bottleneck on the U.S.-Mexico Border costs US $ 122.50.
- As a result, 3 key issues were identified. There are important differences in transport infrastructures and operational procedures. There isn’t any system of measuring border crossing time at land ports of entry. The use of drayage reduces cross-border performance. So a question arises: In the future, in order to improve NAFTA supply chains, should the investments be in: More detailed inspections OR Developing more information and coordination from a NAFTA system perspective (based on C-TPAT program and intelligence initiatives).
- Using a Case-Study based on an automotive Tier 1 delivering components from Mexico to Detroit with an (table).
- Based on well established formulas, the statistical reorder point took into account the crossing time, being calculated as follows
- And standard deviation of crossing time was calculated as follows.
- As a result, safety stocks considered in order to prevent supply chain disruptions because of uncertainty on crossing times were calculated as follows.
- Taking into account the normal operational needs: When there is a 4-hour delay, safety stocks have to be increased in 1.7 million dollars of product.
- It is a fact that there is an important interest in relocating American plants from China to Mexico. Consequently, an important rise in cross border flows will need to improve the border throughput.
- From a NAFTA perspective: A collaborative inspection process and a NAFTA information system (based on intelligence & C-TPAT program) are needed. It could reduce variability and its disruptive influence on supply chains.
- As future research, We will simulate the key cross-border processes, from a system dynamics approach using data from a RFID project in process by TTI and TDT which is supported by FHA.
- Thank you!