Enterra Insights

Is Sustainability Being Overhyped?

I recently saw a tongue-in-cheek graph that predicted that in about a hundred years, all sentences would be one word sentences and that word would be "sustainable." The irony, of course, is that that maintaining the rate at which the word "sustainable" is used is unsustainable. The graph was created by the folks at xkcd.com.

A year ago, Lesley Lammers wrote, "Advertising Age named sustainability one of the 'jargoniest jargon' words of 2010 that they 'wish you would stop saying,' right up there with monetize, choiceful, and the new normal, among others." ["Sustainability Named One of ‘Jargoniest Jargon’ Words of 2010 by Ad Age," Triple Pundit, 5 January 2011] The editorial staff at The Green Supply Chain point out that over the past few years "consumer packaged goods companies [have] launched a flurry of Green-oriented products, and spent heavily on advertising to promote them." Despite these efforts, however, the staff reports that consumer interest in green products has not kept pace. ["Consumer Interest in Green Products Still Tepid, Headed Down," GreenSCM, 27 April 2011] The article states, "In 2011, ... the promise of Green consumer products have dimmed, either due to the impact of the severe economic downturn, or an overestimation of just what sorts of Green choices consumers might make." As I have pointed out before, price trumps ideology all the time. The article continues:

"A new report from OgilvyEarth, a division of the advertising giant, found that that 82% of Americans have good Green intentions but only 16% are dedicated to fulfilling these intentions, putting 66% of consumer firmly in what Olilvy calls the 'Middle Green.' It says that 'most of the dialogue and marketing to date has focused on Super Greens on the one hand and Green Rejecters on the other. There has been limited success in motivating the masses or the Middle Green.' While consumer price isn't the only factor in this Green gap, it is an important one, according to Olgilvy."

Robert J. Bowman, managing editor of SupplyChainBrain, openly wonders business executives are really any more committed to sustainability than consumers. ["Does Global Business Really Care About Sustainability?" 3 January 2012] He writes:

"It's easy for a top executive who's concerned about corporate image to profess a solid commitment to sustainability. When it comes to gauging actual progress toward that goal, however, the reality is one of mixed messages. A study by Accenture, released in the spring of 2011, highlights the dilemma. The firm reached out to 247 C-suite executives in the U.S., U.K. and China. Ninety-three percent said they had sustainability initiatives in place. Seventy-two percent declared that the benefits from those efforts – in the form of enhanced corporate reputation and trust, lower cost and improved brands – had exceeded expectations. And 68 percent viewed sustainability as an integral part of their business. Seems like a pretty encouraging picture, but being a glass-half-empty kind of guy, I need to point out that a solid one-third of respondents to the Accenture survey saw sustainability as peripheral to their operations. Slightly more, 34 percent, considered it more of a cost than an investment, and 28 percent believed their companies were already spending too much in that area."

Even among companies that embrace sustainability efforts, only two-thirds believe that such efforts help boost profits. ["Sustainable Gain?" CFO Magazine, 1 May 2011] Those findings came from a survey published by MIT's Sloan Management Review. The study asserts that "Embracers": "(1) have created a business case for sustainability; (2) believe sustainability is necessary to be competitive; and (3) have made it a permanent part of the management agenda." I think that the most important characteristic that separates embracers from other companies is the fact that they have a business case for their sustainability efforts. One of the most interesting things the study revealed is that the Africa/Middle East region is home to more "embracers" than any other global region. The Sloan study indicated that fewer than 4 percent of companies could be called "true sustainability skeptics." Bowman continues:

"Cost continues to be the biggest barrier to achieving corporate sustainability, as specified by 41 percent of the respondents [in the Accenture study]. Other obstacles cited included an inability to measure the results of sustainability initiatives (31 percent), lack of government incentives (30 percent), and a belief that one company can't make much of a difference in the effort to combat global warming (29 percent)."

I believe few companies adopt sustainable practices solely based on the idea that they are going to have an impact on global warming. Even so, the number might have been higher if the question had referred to climate change rather than global warming. The latter term continues to generate heated debate. Bowman continues:

"Turn now to a more positive study, this one by BSR, a global network of more than 250 businesses dedicated to implementing corporate policies that promote sustainability, accountability and human rights. Conducted in tandem with the research consultancy GlobeScan, the survey polled 498 executives from more two-thirds of BSR's member companies. Eighty-four percent said they were optimistic that global businesses would embrace sustainability and corporate social responsibility as part of their core strategies within the next five years. Commented BSR president and chief executive officer Aron Cramer: 'Recession or not, it seems very clear that companies are maintaining if not extending their commitments to sustainability.' Positive signs include the rise of the chief sustainability officer and increasing attention being paid to the topic by corporate boards."

Although better PR may be responsible for increased C-level attention, more and more boards and stockholders are concerned about the potential impacts that climate change and resource shortages could have on the bottom line. To learn more, read my post entitled Supply Chain Risk Management and Climate Change. Bowman continues:

"Speaking at a press conference at BSR's annual conference in San Francisco, Cramer said companies are realizing that sustainability has intrinsic value. They are coming to see it as 'one way to future-proof their strategies.' ... BSR’s portrait wasn’t all roses. It identified a serious shortfall in efforts to integrate sustainability into core business functions. More than two-thirds of respondents said their corporate communications and public affairs departments were the most engaged functions in sustainability and CSR. (No surprise there – what else are corporate communications and public affairs for? Can you say 'greenwashing'?) But the numbers slide precipitously when it comes to areas such as marketing (42 percent), research and development (41 percent), human resources (37 percent) and finance (18 percent). In fact, the biggest surprise to the 2011 study's authors was 'the level of engagement of sustainability across the enterprise and how little connectivity there is,' said GlobeScan senior vice president Chris Coulter. 'The disconnection is really a challenge.'"

The aforementioned disconnection also highlights the fact that corporate silos are alive and well -- and continuing to prevent companies from achieving better corporate alignment. Bowman continues:

"Former Vice President Al Gore, now the world's most high-profile cheerleader in the fight to reverse global warming, was the BSR conference's keynote speaker. He said efforts by CEOs to integrate sustainability into their operations have become 'a global movement.' At the same time, he acknowledged a persistent tendency by companies to focus on the short term. Investors are the chief culprits, pressuring businesses to show ever-rising profits on a quarter-to-quarter basis. Such a mentality, Gore said, 'is a terribly debilitating force in the market.' Demands from the investment community supply a 'constant headwind' for executives struggling to look beyond the next reporting period. So we’re faced with plenty of good intentions, some progress and an institutional aversion to the kind of long-term thinking that is crucial to the success of any corporate sustainability effort."

I suspect that the former Vice President's assertion that CEOs are creating a global movement towards sustainability may be overstated. At the least the numbers reported in the studies above don't support such hyperbolic characterizations. As I noted earlier, what I think is growing is C-level awareness that global supply chains are going to continue to be disrupted by climate-related events. That doesn't make those executives environmentalists -- just realists. Bowman concludes:

"BSR seems to feel that [aversion to long-term thinking] is changing rather quickly. And Gore's message was positive on balance, even though he continues to deride the kind of 'magical thinking' that denies the reality of global warming. It would appear that true progress toward sustainable supply chains won't be made until all businesses come to see the issue not solely as one of corporate beneficence but of self-interest. Considering the positive impact of efforts such as economizing on fuel, cutting back on packaging, shortening supply lines and making better use of finite resources, that should be an easy case to make."

While I agree that "sustainable" and "sustainability" may be overhyped and overused words, good business practices that fall under the sustainability heading nevertheless remain good business practices -- hype or no hype. The Consumer Goods Forum (CGF) believes that sustainability is so important that it identifies it as one of its "five strategic priorities." The Forum's other strategic priorities are: Emerging Trends, Safety & Health, Operational Excellence, and Knowledge Sharing & People Development.

The editorial staff at SupplyChainBrain (SCB) reports that the CGF has published a Glossary of sustainability terms that "provides a common way for companies across the industry to communicate among each other and to consumers using commonly defined and understood terms such as 'Life Cycle Assessment', 'Sustainable Sourcing', 'Natural Refrigerants', and 'Recyclable'." ["Glossary for Sustainability Terminology Introduced for Consumer Goods Industry," 26 January 2012] Gavin Neath, senior vice president of sustainability for Unilever, told the SCB staff, "Until now, a common, well-defined lexicon of environmental sustainability terms has been lacking. The release of 'The Glossary' bridges that gap, and is an important step forward for our industry." The glossary can be accessed using this link.

I have insisted all along that the only sustainability efforts that will prove to have legs will be those driven by enlightened self-interest. If a business case can't be made, idealism will not be sufficient motivation to continue such activities. In the long run, that's okay. Without a business case, sustainability efforts are like going on a fad diet to lose a few pounds. Those pounds won't stay off unless you make a life-style change, not just a temporary effort to reduce food intake for a few weeks. Sustainability efforts can't be peripheral to the business they must be an integrated part of the business. Bottom line: They won't be integrated into the business unless a business case can be made for them.

U.S. National Strategy for Global Supply Chain Security Finally Announced -- Much Work Left to Do

Last fall, American Shipper magazine noted that several years had passed since Congress first "directed DHS to develop a global supply chain security strategy." ["Government's Plan to Secure the Global Supply Chain Is in Slow Gear," ,em>SupplyChainBrain,/em., 1 September 2011] They indicated that the delay was due in part to an expanded mandated directed by the Obama administration that extended "the effort's reach to encompass the entire government and how it should strive to enhance the security of cross-border freight transportation across all modes." On 25 January 2o12, the long-awaited National Strategy for Global Supply Chain Security was finally released. A White House press release stated:

"International trade is vital to the American economy and supports our way of life. Businesses today have global footprints and are supported by an ever evolving global supply chain system. As a number of recent events remind us, this system is dynamic and complex but also vulnerable to numerous threats. These threats, such as pandemics, natural disasters, or attacks involving weapons of mass destruction could undermine the continuity of the global supply chain system as a whole. Also, because of the interconnectedness of the system, even smaller, localized events could escalate rapidly and cause significant disruptions." ["National Strategy for Global Supply Chain Security Announced," by Christa Brzozowski, The White House Blog, 25 January 2012]

The release went on to assert that the National Strategy for Global Supply Chain Security was an important first step in strengthening and protecting this vital system. It continues:

"The Strategy, focused on the worldwide network of transportation, postal, and shipping assets and supporting infrastructures, articulates our national vision and approach, and encourages collaborative implementation with key State, local, tribal, territorial, private sector and international stakeholders. This Strategy provides an integrated United States Government perspective on a complex and global issue. It recognizes that we can and must promote security and efficiency in the supply chain system rather than seek to 'balance' them as mutually exclusive ends. It emphasizes our need to foster a resilient system that can absorb shocks and recover rapidly from disruptions. And it endorses an overall approach that involves integrating efforts to manage risk, leverage a layered defense, and identify and resolve threats as early as possible."

It's clear that improving supply chain security is going to require greater data sharing among stakeholders. Needless to say, organizations have concerns about sharing data (especially propriety data) with others. The release notes that "much of the global supply chain is owned and operated by entities outside of the United States Government." It should have stated "most" rather "much" of the global supply chain is owned and operated by stakeholders not associated with the Federal Government. The release concedes that "the success of this strategy will depend upon [the U.S. Government's] ability to work with other stakeholders." The release concludes:

"We are committed to working in coordination with industry partners, the international community, and others around the globe to translate this strategic vision into concrete action. At a time when budgets are constrained, we will seek to develop smarter solutions and new efficiencies by enhancing our information sharing procedures and capabilities, synchronizing standards and procedures, prioritizing and aligning activities according to risk management principles, and leveraging the expertise and resources of industry and foreign partners in pursuit of our shared interests."

My company, Enterra Solutions, believes that Attribute-Based Access Control (ABAC) offers one of the most promising ways to share information securely. Enterra has already helped make the Delaware River port region more secure through the implementation of closed circuit television emergency response sharing scheme based on ABAC. For more information, click on the following link. The same kind of approach can be used for sharing other kinds of sensitive information. Commenting on the new national security strategy, Bob Ferrari writes that he "applauds this initiative" and he encourages "fellow supply bloggers, [supply] chain social media influencers, and professional groups such as [the Council of Supply Chain Management Professionals (CSCMP)] to do the same." ["Let's Get Behind White House Initiative for Global Supply Chain Security," Supply Chain Matters, 27 January 2011] He continues:

"The initiative ... acknowledges that: 'The global supply chain system that supports trade is essential to the United States’ economy and security and is a critical global asset.' The effort is directed at articulating policies to strengthen inbound and outbound supply chains within the U.S. and its trading partners. The outlined document provides further details including the key objectives needing to be addressed in an implementation plan which readers can review."

The Executive Summary of the National Strategy for Global Supply Chain Security states:

"International trade has been and continues to be a powerful engine of United States and global economic growth. In recent years, communications technology advances and trade barrier and production cost reductions have contributed to global capital market expansion and new economic opportunity. The global supply chain system that supports this trade is essential to the United States’ economy and is a critical global asset.

"Through the National Strategy for Global Supply Chain Security (the Strategy), we articulate the United States Government's policy to strengthen the global supply chain in order to protect the welfare and interests of the American people and secure our Nation's economic prosperity. Our focus in this Strategy is the worldwide network of transportation, postal, and shipping pathways, assets, and infrastructures by which goods are moved from the point of manufacture until they reach an end consumer, as well as supporting communications infrastructure and systems. The Strategy includes two goals:

Goal 1: Promote the Efficient and Secure Movement of Goods – The first goal of the Strategy is to promote the timely, efficient flow of legitimate commerce while protecting and securing the supply chain from exploitation, and reducing its vulnerability to disruption. To achieve this goal we will enhance the integrity of goods as they move through the global supply chain. We will also understand and resolve threats early in the process, and strengthen the security of physical infrastructures, conveyances and information assets, while seeking to maximize trade through modernizing supply chain infrastructures and processes.

Goal 2: Foster a Resilient Supply Chain – The second goal of the Strategy is to foster a global supply chain system that is prepared for, and can withstand, evolving threats and hazards and can recover rapidly from disruptions. To achieve this we will prioritize efforts to mitigate systemic vulnerabilities and refine plans to reconstitute the flow of commerce after disruptions.

"Our approach is informed by the following guiding principles:

• Galvanize Action – Integrate and spur efforts across the United States Government, as well as with state, local, tribal and territorial governments, the private sector and the international community.

• Manage Supply Chain Risk - Identify, assess, and prioritize efforts to manage risk by utilizing layered defenses, and adapting our security posture according to the changing security and operational environment.

"In support of the Strategy, at the Federal level, we will update our threat and risk assessments; align programs and resources; and engage government, private sector, and international stakeholders. The purpose of this engagement is to seek specific recommendations to inform and guide our collaborative implementation of the Strategy."

Ferrari writes:

"The timetable for this initiative is rather aggressive and calls for the Departments of State and Homeland Security to provide recommendations in six months, with implementation of recommendations to begin immediately upon its release. We believe that one of the most important aspects of this initiative is a White House encouragement of input from key stakeholders, including governmental and private sector interests and agencies. The Department of Homeland Security has setup a custom web site that outlines how key stakeholders can submit recommendations."

Without good input from supply chain stakeholders, you can be assured that whatever is produced will be inadequate, over-burdensome, or off the mark. To highlight this point, I point to a recent experience of supply chain analyst Lora Cecere. She was asked to speak at a Transportation Research Board conference. The Board provides "research to local, state and federal organizations on transportation infrastructure for planning." ["Can we spend the Money instead on Spaghetti Junction?" Supply Chain Shaman, 26 January 2012] She indicates that the Board has spent over a year interviewing the private sector "to understand how to define supply chains." She was appalled with how little they had learned. She wrote, "As I spoke to the group designing the roadways, I realized that we had an opportunity to improve the effectiveness of the process to expedite plans for the roadways." I encourage you to read her entire post -- it's eye opening. Supply chain stakeholders need to be proactive in this matter if they want results with which they can live. Ferrari continues:

"What immediately concerns us is that this long overdue initiative has to address two very major issues, either of which would justify its own set of comprehensive initiatives. This includes the threat of a major disruption event such as severe natural disaster or terrorist related, as well as countering a growing proliferation of goods that are illegitimate and not what they are represented to be. The other aspect is that six months is not a lot of time to gather and assimilate stakeholder input, but we suppose that a longer timetable would only elongate this effort without near-term governmental actions in place. Our hope is that industry bodies such as the Supply Chain Risk Leadership Council and the Global Risk Network shepherded by NYU will elect to be active contributors to this effort since each has developed much key learning and recommendations on supply chain resiliency and threats."

That's my hope as well. Ferrari concludes:

"A final observation relates to the current toxic political climate that surrounds Washington DC. No doubt, some on the right may elect to seize on the headline of this initiative as an election year political stunt, or another effort directed at more government regulation and oversight. Supply Chain Matters emphatically declares that this initiative is much too critical to be tossed into the current toxic political discourse, and is rather one of the most important efforts needed to insure the economic viability of the U.S. economy. Reflect back on the incidents of Hurricanes Katrina and Rita that previously impacted the U.S. Gulf coast and the tragic tsunami and floods that impacted Asia in 2011. Consider the current vulnerabilities of the U.S. west coast or southwest, the U.S. power grid, and other potential threats."

Ferrari is correct that this issue is too critical to leave in the hands of politicians. By working closely with the bureaucrats at DHS and State, stakeholders should be able to generate more influence and help develop better policies and guidelines than any lobbying efforts could generate in Congress. By stretching the deadline for action beyond the six-months dictated by the current administration, the process could receive more thoughtful inputs and potentially avoid the toxic atmosphere that will hover over Washington, DC, this election year.

Artificial Intelligence: The Quest for Machines that Think Like Humans, Part 3

This is final segment of a three-part series on artificial intelligence. In Part 1, I discussed work being done at IBM, supported by funding from DARPA, related to the development of cognitive computers. In Part 2, I discussed work being done elsewhere. In this segment, I indicated that I would discuss work being conducted at Carnegie Mellon University on the Never-Ending Language Learning system, or NELL. Having had an association with Carnegie Mellon for a number of years, I know firsthand how talented the people associated with that institution can be. The reason that an article in The New York Times about NELL caught my eye is because NELL deals with language and semantics. My company, Enterra Solutions, maintains a partnership with another group that focuses on semantics and ontology, Cycorp, a "leading provider of semantic technologies that bring a new level of intelligence and common sense reasoning to a wide variety of software applications. The Cyc^® software combines an unparalleled common sense ontology and knowledge base with a powerful reasoning engine and natural language interfaces to enable the development of novel knowledge-intensive applications." More on that later.

In the Times' article, Steve Lohr writes, "Few challenges in computing loom larger than unraveling semantics, understanding the meaning of language. One reason is that the meaning of words and phrases hinges not only on their context, but also on background knowledge that humans learn over years, day after day." ["Aiming to Learn as We Do, a Machine Teaches Itself," 4 October 2010] Lohr is absolutely correct. That is why analyzing unstructured Big Data can be such a challenge and why my company uses Cyc software. Lohr continues:

"A team of researchers at Carnegie Mellon University — supported by grants from the Defense Advanced Research Projects Agency and Google, and tapping into a research supercomputing cluster provided by Yahoo — has been fine-tuning a computer system that is trying to master semantics by learning more like a human. Its beating hardware heart is a sleek, silver-gray computer — calculating 24 hours a day, seven days a week — that resides in a basement computer center at the university, in Pittsburgh. The computer was primed by the researchers with some basic knowledge in various categories and set loose on the Web with a mission to teach itself. 'For all the advances in computer science, we still don't have a computer that can learn as humans do, cumulatively, over the long term,' said the team’s leader, Tom M. Mitchell, a computer scientist and chairman of the machine learning department."

According the Lohr, NELL "has made an impressive showing so far." He explains:

"NELL scans hundreds of millions of Web pages for text patterns that it uses to learn facts, 390,000 to date, with an estimated accuracy of 87 percent. These facts are grouped into semantic categories — cities, companies, sports teams, actors, universities, plants and 274 others. The category facts are things like 'San Francisco is a city' and 'sunflower is a plant.' NELL also learns facts that are relations between members of two categories. For example, Peyton Manning is a football player (category). The Indianapolis Colts is a football team (category). By scanning text patterns, NELL can infer with a high probability that Peyton Manning plays for the Indianapolis Colts — even if it has never read that Mr. Manning plays for the Colts."

Inference is an important attribute for any learning system. Cyc also has an inference engine that can perform "general logical deduction (including modus ponens, modus tollens, and universal and existential quantification), with AI's well-known named inference mechanisms (inheritance, automatic classification, etc.) as special cases." One of the big advantages of Cyc is that it can scale in ways that other approaches can't. Lohr continues:

"The number of categories and relations [in NELL] has more than doubled since earlier this year, and will steadily expand. The learned facts are continuously added to NELL's growing database, which the researchers call a 'knowledge base.' A larger pool of facts, Dr. Mitchell says, will help refine NELL's learning algorithms so that it finds facts on the Web more accurately and more efficiently over time. NELL is one project in a widening field of research and investment aimed at enabling computers to better understand the meaning of language. Many of these efforts tap the Web as a rich trove of text to assemble structured ontologies — formal descriptions of concepts and relationships — to help computers mimic human understanding. The ideal has been discussed for years, and more than a decade ago Sir Tim Berners-Lee, who invented the underlying software for the World Wide Web, sketched his vision of a 'semantic Web.' Today, ever-faster computers, an explosion of Web data and improved software techniques are opening the door to rapid progress."

Lohr notes that no single approach dominates the field. Besides small players like CMU, semantic research is being conducted by "government labs, Google, Microsoft, [and] I.B.M. Lohr briefly mentions IBM's Watson computer that won at "Jeopardy!" He states that Watson "shows remarkable semantic understanding in fields like history, literature and sports." As I've noted before, Watson doesn't do so well when questions involve ambiguity or nuance. Lohr continues:

"Google Squared, a research project at the Internet search giant, demonstrates ample grasp of semantic categories as it finds and presents information from around the Web on search topics like 'U.S. presidents' and 'cheeses.' Still, artificial intelligence experts agree that the Carnegie Mellon approach is innovative. Many semantic learning systems, they note, are more passive learners, largely hand-crafted by human programmers, while NELL is highly automated. 'What's exciting and significant about it is the continuous learning, as if NELL is exercising curiosity on its own, with little human help,' said Oren Etzioni, a computer scientist at the University of Washington, who leads a project called TextRunner, which reads the Web to extract facts. Computers that understand language, experts say, promise a big payoff someday. The potential applications range from smarter search (supplying natural-language answers to search queries, not just links to Web pages) to virtual personal assistants that can reply to questions in specific disciplines or activities like health, education, travel and shopping."

Apple's Siri software is giving iPhone 4s owners a taste of what is possible. Alfred Spector, vice president of research for Google, told Lohr, "We’re on the verge now in this semantic world." Lohr continues:

"With NELL, the researchers built a base of knowledge, seeding each kind of category or relation with 10 to 15 examples that are true. In the category for emotions, for example: 'Anger is an emotion.' 'Bliss is an emotion.' And about a dozen more. Then NELL gets to work. Its tools include programs that extract and classify text phrases from the Web, programs that look for patterns and correlations, and programs that learn rules. For example, when the computer system reads the phrase 'Pikes Peak,' it studies the structure — two words, each beginning with a capital letter, and the last word is Peak. That structure alone might make it probable that Pikes Peak is a mountain. But NELL also reads in several ways. It will mine for text phrases that surround Pikes Peak and similar noun phrases repeatedly. ... NELL, Dr. Mitchell explains, is designed to be able to grapple with words in different contexts, by deploying a hierarchy of rules to resolve ambiguity. This kind of nuanced judgment tends to flummox computers."

By now you should understand that rules are important. Given a few simple rules, computers can do some amazing things (even if those activities are a far cry from full cognition). Mitchell told Lohr that the surprising thing is that a system like NELL "works much better if you force it to learn many things, hundreds at once." The ultimate purpose of NELL, he explained, is to provide "a foundation for improving machine intelligence." Mitchell admits that NELL still has trouble with nuanced information. He explains:

"Take two similar sentences, he said. 'The girl caught the butterfly with the spots.' And, 'The girl caught the butterfly with the net.' A human reader, he noted, inherently understands that girls hold nets, and girls are not usually spotted. So, in the first sentence, 'spots' is associated with 'butterfly,' and in the second, 'net' with 'girl.' 'That’s obvious to a person, but it's not obvious to a computer,' Dr. Mitchell said. 'So much of human language is background knowledge, knowledge accumulated over time. That's where NELL is headed, and the challenge is how to get that knowledge.'"

Lohr reports that a little human intervention is still required to keep NELL learning correctly. For example, NELL wanted to put "Internet cookies" into the "baked goods" category. One mistake like that can have cascading effects throughout the knowledge base. Once get relationships and semantics correct, Cycorp notes, there are many uses for refined knowledge bases; such as: medical research, counterterrorism analysis, financial analysis, intelligent information dissemination, knowledge source integration, and network intrusion protection.

Enterra is obviously using Cyc's knowledge base to help optimize supply chains. At the heart of Enterra’s approach is an artificial intelligence (AI) knowledge-base that includes an ontology and extended business rules capable of advanced inference. Ontology interrelates concepts and facts with many-to-many relationships that are generationally more advanced and appropriate for artificial intelligence applications than standard relational databases. Ontology:

• Shares common understanding of the structure of information.

• Enables reuse of domain knowledge.

• Makes domain assumptions explicit and allows for encoding subtle and rich, multi-faceted relationships.

• Separates domain knowledge from the operational knowledge.

• Analyzes information and can expose non-obvious relationships.

In an Ontology, relationships can be very rich and can be used to model the complexities of real-world relationships. The relationships can include subtleties such as usually, sometimes, frequent, and rarely, as well as more definitive relationships such as dependent upon, contains, part of, type of, and instance of. These types of multi-faceted, deep, and subtle relationships are difficult to encode within a database. By structuring data within an ontology, it creates the potential to understand the interrelationships and lets the computer infer non-obvious relationships, which can allow it to analyze and learn, and suggest optimization opportunities. Although this type of AI isn't the kind of cognitive computing that scientists eventually hope to achieve, it is obviously very useful for addressing everyday challenges, especially when those challenges involve Big Data.

Artificial Intelligence: The Quest for Machines that Think Like Humans, Part 2

In Part 1 of this 3-part series, I discussed work being done at IBM, supported by funding from DARPA, related to the development of cognitive computers. The focus of the post was an IBM press release that announced the development of cognitive computing prototype chips. These neurosynaptic computing chips integrate memory with processing to create an on-chip network of light-weight cores, (i.e., a single integrated system of hardware and software). IBM, however, isn't the only organization whose researchers are working on cognitive computing. Shortly before the IBM press release was distributed, the work of a group researchers at the University of Exeter that is trying to develop "'brain-like' computers" was published in the journal Advanced Materials. ["Brain-Like Computing a Step Closer to Reality," ScienceDaily, 23 June 2011] According to the article, "The study involved the first ever demonstration of simultaneous information processing and storage using phase-change materials." It continues:

"This new technique could revolutionize computing by making computers faster and more energy-efficient, as well as making them more closely resemble biological systems. Computers currently deal with processing and memory separately, resulting in a speed and power 'bottleneck' caused by the need to continually move data around. This is totally unlike anything in biology, for example in human brains, where no real distinction is made between memory and computation. To perform these two functions simultaneously the University of Exeter research team used phase-change materials, a kind of semi-conductor that exhibits remarkable properties."

Obviously, there are some complementary aspects to the work being done at IBM and the University of Exeter. The article notes that the "study demonstrates conclusively that phase-change materials can store and process information simultaneously. It also shows experimentally for the first time that they can perform general-purpose computing operations, such as addition, subtraction, multiplication and division." The IBM team seems to be a bit further along. Using its prototype chips, it "has successfully demonstrated simple applications like navigation, machine vision, pattern recognition, associative memory and classification." ["IBM Unveils Cognitive Computing Chips," IBM Press Release, 18 August 2011] Where the approaches seem most complementary is that the IBM system uses artificial neurons, synapses, and axons and, according to the article, the University of Exeter study "shows that phase-change materials can be used to make artificial neurons and synapses." The article asserts, "This means that an artificial system made entirely from phase-change devices could potentially learn and process information in a similar way to our own brains." As I pointed out in Part 1 of this series, a number of informed individuals recognize the "potential" for developing computers that think like humans but they believe the reality is that they are some ways off. The article continues:

"Lead author Professor David Wright of the University of Exeter said: 'Our findings have major implications for the development of entirely new forms of computing, including "brain-like" computers. We have uncovered a technique for potentially developing new forms of "brain-like" computer systems that could learn, adapt and change over time. This is something that researchers have been striving for over many years.' This study focused on the performance of a single phase-change cell. The next stage in Exeter's research will be to build systems of interconnected cells that can learn to perform simple tasks, such as identification of certain objects and patterns."

My guess is that skeptics wince a bit when they read about "brain-like" computers, since they argue that we are still trying to figure out how the human brain actually works. A month after the Exeter team published their study, a group of engineers at NUI Galway and the University of Ulster announced that it "is developing bio-inspired integrated circuit technology which mimics the neuron structure and operation of the brain." ["Researchers Mimic Nature to Create a 'Bio-Inspired Brain' for Robots," ScienceDaily, 25 July 2011] The article reports:

"One key goal of the research is the application of the electronic neural device, called a hardware spiking neural network, to ... control ... autonomous robots which can operate independently in remote, unsupervised environments, such as remote search and rescue applications, and in space exploration."

The IBM release also said that its team was trying to "recreate the phenomena between spiking neurons and synapses in biological systems." The ScienceDaily article continues:

"According to Dr. Fearghal Morgan, Director of the Bio-Inspired Electronics and Reconfigurable Computing (BIRC) research group, at NUI Galway: 'Electronic neurons, implemented using silicon integrated circuit technology, cannot exactly replicate the complexity of neurons found in the human brain, or the massive number of connections between neurons. 'However, inspired by the operation and structure of the brain, we have successfully developed a hardware spiking neural network and have used this device for robotics control. The electronic device interprets the state of the robot's environment through signals received from sensing devices such as cameras and ultrasonic sensors, which act as the eyes and ears of the robot. The neural network then modifies the behaviour of the robot accordingly, by sending signals to the robot's limbs to enable activity such as walking, grasping and obstacle avoidance.'"

Whereas Dr. Morgan states that "electronic neurons, implemented using silicon integrated circuit technology, cannot exactly replicate the complexity of neurons found in the human brain," the IBM team is trying to do exactly that -- creating "a chip system with ten billion neurons and hundred trillion synapses, while consuming merely one kilowatt of power and occupying less than two liters of volume." Dr. Morgan explains that his objectives are much more modest:

"Our research is focussed on mimicking evolution in nature. The latest hardware neural network currently in development will contain thousands of small electronic neuron-like devices which interoperate concurrently, in a similar way to neurons in the biological brain. The device can be trained to perform a particular function, and can be retrained many times for various applications. The training process resembles the training of the brain, by making, strengthening and weakening the links between neurons and defining the conditions which cause a neuron to fire, sending signals to all of the attached neurons. As in the brain, the collection of interconnected neurons makes decisions on incoming data to cause an action in the controlled system. Until now, the robotics arena has focused on electronic controllers which incorporate one or more microprocessors, which typically execute instructions in sequence and, while performing tasks quickly, are limited by the instruction processing speed. Power is also a consideration. While the human brain on average only requires 10 watts of power, a typical PC requires 300 watts. We believe that a small embedded hardware neural network device has the potential to perform effective robotics control, at low power, while also incorporating fault detection and self-repair behaviour. Our aim is to develop a robust, intelligent hardware neural network robotics controller which can autonomously maintain robot behaviour, even when its environment changes or a fault occurs within the robotics system."

The article concludes that new technologies are still needed in order to bring the dream of human-like thinking in machines closer to reality.

"Dr Jim Harkin, from the School of Computing and Intelligent Systems at the University of Ulster's Magee campus, said: 'The constant miniaturisation of silicon technology to increase performance introduces inherent reliability issues which must be overcome. Ultimately, the hardware neural network or robot "brain" will be able to detect and overcome electronic faults that occur within itself, and continue to function effectively without human intervention.'"

The work being done at IBM and elsewhere is certainly pushing computing's frontier outward. Noel McKeegan reports that work on artificial intelligence is being conducted at a number of organizations, including IBM. ["A year in technology," 3 January 2012] He writes:

"Androids, cyborgs, thinking machines - whatever they end up being called or form they take, non-human entities that are capable of human-like thought are on the way, and artificial intelligence will have a profound impact on our lives in coming decades. During the past year we have seen several discoveries that advance the goal of reverse engineering the human brain - researchers from the University of Southern California announced the creation of a functioning synapse circuit using carbon nanotubes that could someday be one component of a synthetic brain, while over at Caltech, scientists unveiled a DNA-based artificial neural network that could have huge implications for the development of true artificial intelligence. Working with more conventional computing hardware, researchers at MIT have developed a computer chip that mimics the 'plasticity' of the brain's neural function and IBM has been experimenting with a computer chip designed to emulate the human brain's abilities for perception, action and cognition. Finally - and this one gets our vote for the most sci-fi AI breakthrough of the year - scientists from Israel's Tel Aviv University have restored brain function to a rat by replacing its disabled cerebellum with a synthetic one."

One man who believes he has cracked the artificial intelligence code is Stephen L. Thaler, PhD. He calls his invention The Creativity Machine^® Paradigm. Instead of talking about neurons, synapses, and axons, Thaler talks about "imagitrons" and "perceptrons." If you have half an hour, you can watch the following video about his work.

Advances in artificial intelligence are critical for helping us make sense of the mountains of data that we are now accumulating. AI systems will be able to learn and adapt and cooperate. They will provide both scientists and businesses with new insights. In the final part of series, I'll discuss work being conducted at Carnegie Mellon University on the Never-Ending Language Learning system, or NELL.

Artificial Intelligence: The Quest for Machines that Think Like Humans, Part 1

Paul G. Allen, chairman of Vulcan and cofounder of Microsoft, and Mark Greaves, a computer scientist at Vulcan, believe that machines won't begin out-thinking humans in the foreseeable horizon. They acknowledge that their opinion differs from futurists like Vernor Vinge and Ray Kurzweil, who "have argued that the world is rapidly approaching a tipping point, where the accelerating pace of smarter and smarter machines will soon outrun all human capabilities." ["The Singularity Isn't Near," Technology Review, 12 October 2011] They are not at fundamental odds with Vinge and Kurzweil in that they believe that day will eventually come; they just believe that Vinge and Kurzweil are using "black box" thinking. They write that much of the magic that leads to the tipping point Kurzweil calls "the singularity" takes place in the "black box" and they don't believe you can predict when the "black box" is going to be invented. They write:

"While we suppose this kind of singularity might one day occur, we don't think it is near. In fact, we think it will be a very long time coming. ... By working through a set of models and historical data, Kurzweil famously calculates that the singularity will arrive around 2045. This prediction seems to us quite far-fetched. Of course, we are aware that the history of science and technology is littered with people who confidently assert that some event can't happen, only to be later proven wrong—often in spectacular fashion. We acknowledge that it is possible but highly unlikely that Kurzweil will eventually be vindicated. An adult brain is a finite thing, so its basic workings can ultimately be known through sustained human effort. But if the singularity is to arrive by 2045, it will take unforeseeable and fundamentally unpredictable breakthroughs, and not because the Law of Accelerating Returns made it the inevitable result of a specific exponential rate of progress."

Despite the fact that technologists and futurists have differing views on when computers will gain cognition, most seem to agree that the day will eventually arrive. In this 3-part series, I'll discuss ongoing research aimed at developing computers that can think like humans. In this post, I'll discuss some work being done by IBM.

Last August, "IBM researchers unveiled a new generation of experimental computer chips designed to emulate the brain's abilities for perception, action and cognition." ["IBM Unveils Cognitive Computing Chips," IBM Press Release, 18 August 2011] The release states:

"The technology could yield many orders of magnitude less power consumption and space than used in today’s computers. In a sharp departure from traditional concepts in designing and building computers, IBM's first neurosynaptic computing chips recreate the phenomena between spiking neurons and synapses in biological systems, such as the brain, through advanced algorithms and silicon circuitry. Its first two prototype chips have already been fabricated and are currently undergoing testing."

One of the characteristics that the IBM approach has in common with many (if not all) of the other approaches being pursued to achieve cognitive computing is the use of artificial neurons, synapses, and axons. These biological marvels are what allow the brain to make millions of connections between facts, figures, experiences, etc. The press release continues:

"Called cognitive computers, systems built with these chips won't be programmed the same way traditional computers are today. Rather, cognitive computers are expected to learn through experiences, find correlations, create hypotheses, and remember – and learn from – the outcomes, mimicking the brains structural and synaptic plasticity. To do this, IBM is combining principles from nanoscience, neuroscience and supercomputing as part of a multi-year cognitive computing initiative. The company and its university collaborators also announced they have been awarded approximately $21 million in new funding from the Defense Advanced Research Projects Agency (DARPA) for Phase 2 of the Systems of Neuromorphic Adaptive Plastic Scalable Electronics (SyNAPSE) project. The goal of SyNAPSE is to create a system that not only analyzes complex information from multiple sensory modalities at once, but also dynamically rewires itself as it interacts with its environment – all while rivaling the brain's compact size and low power usage. The IBM team has already successfully completed Phases 0 and 1."

DARPA is known for supporting projects with tremendous breakthrough potential. Since it has committed a significant amount of funding for this project, it obviously believes that IBM and its partners are on to something big. Dharmendra Modha, project leader for IBM Research, states, "This is a major initiative to move beyond the von Neumann paradigm that has been ruling computer architecture for more than half a century. Future applications of computing will increasingly demand functionality that is not efficiently delivered by the traditional architecture. These chips are another significant step in the evolution of computers from calculators to learning systems, signaling the beginning of a new generation of computers and their applications in business, science and government."

The "von Neumann model" (or "von Neumann paradigm") is a model used in traditional sequential computers sometimes referred to as instruction-stream-based computing. It derives both its approach and name from a computer architecture proposed in the mid-1940s by John von Neumann, a mathematician and early computer scientist. If machines are going to begin thinking like humans, they can't be trapped in this paradigm. The press release explains:

"IBM's overarching cognitive computing architecture is an on-chip network of light-weight cores, creating a single integrated system of hardware and software. This architecture represents a critical shift away from traditional von Neumann computing to a potentially more power-efficient architecture that has no set programming, integrates memory with processor, and mimics the brain's event-driven, distributed and parallel processing."

The heart of the IBM approach is the Neurosynaptic Chip. The press release explains:

"While they contain no biological elements, IBM's first cognitive computing prototype chips use digital silicon circuits inspired by neurobiology to make up what is referred to as a 'neurosynaptic core' with integrated memory (replicated synapses), computation (replicated neurons) and communication (replicated axons). IBM has two working prototype designs. Both cores were fabricated in 45 nm SOI-CMOS and contain 256 neurons. One core contains 262,144 programmable synapses and the other contains 65,536 learning synapses. The IBM team has successfully demonstrated simple applications like navigation, machine vision, pattern recognition, associative memory and classification. ... IBM’s long-term goal is to build a chip system with ten billion neurons and hundred trillion synapses, while consuming merely one kilowatt of power and occupying less than two liters of volume."

That is an ambitious goal. Obviously, a chip system of that size and compaction needs to keep power consumption low so that excessive heat, which could damage the system, is not generated. Although the answer may seem obvious, the IBM press release asks the rhetorical question, "Why Cognitive Computing?" It answers that question this way:

"Future chips will be able to ingest information from complex, real-world environments through multiple sensory modes and act through multiple motor modes in a coordinated, context-dependent manner. For example, a cognitive computing system monitoring the world's water supply could contain a network of sensors and actuators that constantly record and report metrics such as temperature, pressure, wave height, acoustics and ocean tide, and issue tsunami warnings based on its decision making. Similarly, a grocer stocking shelves could use an instrumented glove that monitors sights, smells, texture and temperature to flag bad or contaminated produce. Making sense of real-time input flowing at an ever-dizzying rate would be a Herculean task for today’s computers, but would be natural for a brain-inspired system."

The kind of data that IBM is talking about analyzing is exponentially larger than what we now call Big Data -- it's humongous data. The new CBS television show "Person of Interest" involves a machine that supposedly crunches this kind of data to predict events before they happen. Dr. Modha says, "Imagine traffic lights that can integrate sights, sounds and smells and flag unsafe intersections before disaster happens or imagine cognitive co-processors that turn servers, laptops, tablets, and phones into machines that can interact better with their environments." That is future into which we are heading. Alex Knapp writes that it is hard to tell how much truth there is behind the hype. ["Is IBM Building a Computer That Thinks Like a Human?" Forbes, 23 August 2011] He reports:

"I emailed Scott Aaronson, an Associate Professor at MIT who specializes in quantum computing and computational complexity theory to get his take on IBM’s research. He, like me, was frustrated at the lack of detail. '[T]hey go into detail about the number of neurons and synapses that they're able to simulate, as well as the speed and memory requirements of the simulation. But they say much less about the purpose or performance of this huge neural network: i.e., what sorts of learning or recognition tasks (if any) is the network designed to solve? And is its performance on those tasks demonstrably better than the performance of smaller neural networks?' He was quick to point out that this didn't mean that the project didn't have any application – merely that it's tough to figure out from the information provided what the cognitive chips are for. 'Whether your motivation comes more from engineering or from neuroscience, at the end of the day it of course matters less how many neurons you can simulate than what you can DO with those neurons!' I have to agree with Dr. Aaronson’s assessment on this score. It's not clear from IBM's materials as to what sorts of applications are expected from the Synapse project. I get that they want to build a system with 10⁶ "neurons" and then 10⁸ "neurons" — but to what end?"

Knapp, reflecting thinking along the lines of Allen and Greaves, was also skeptical about "the idea that the cognitive computing being developed by the Synapse project is 'emulating the human brain." He writes:

"That didn’t seem right to me – there's far more to how the brain works than the simple action potential of a neuron. So I sent a Twitter message to neuroscientist Bradley Voytek to see if he could confirm my suspicion. 'It totally doesn't work like a brain!' he tweeted back. We continued our conversation over email. 'Do you mind elaborating exactly how the hardware doesn't work like a brain?' I asked. 'Our current knowledge of how neurons give rise to processes such as learning and memory are severely lacking,' he replied. 'What Modha and colleagues have done is designed a computing architecture based on neurons communicating via action potentials. More and more the evidence suggests that the brain isn't just a collection of neurons wired together in the correct way, however. It's a dynamic system of neurons and glial cells communicating via action potentials, graded voltage gap junctions, long-range oscillatory activity, and so on.' I followed up with another quick question, 'Do you think that just simulating the action potentials is enough to simulate learning?' 'Given that most computational neuroscientists treat action potentials as binary signals, then yes, learning can be instantiated by a series of action potentials. The question is: is that implementation mimicking the way the brain instantiates learning? And my guess is that the answer is: no, it's not that simple.' So that’s where we are. I don’t mean to downplay the work of Dr. Modha and his team – I definitely think that this is a fascinating project, and I’m very interested to see their published research. More importantly, like Dr. Aaronson, I’m interested to see what kinds of applications this technology is used for. And as Dr. Voytek mentioned to me in our email conversation, even if the Synapse program doesn't really think like a brain, that doesn’t mean it can't teach us about the brain. 'This might prove to be a very important step in the history of computing, and watching how their architecture fails to capture the intricacies of the brain will inform us about how our models are deficient.'"

In the end, Knapp brings us back to the arguments presented at the beginning by Allen and Greaves. His bottom line: "This is definitely an exciting project. But we don’t have to worry about the rise of the machines anytime soon."

Supply Chain Risk Management and Climate Change

Munich Re, one of the world's largest reinsurers, is paying an increasing amount of attention to climate change. ["How Munich Re Assesses Risk," by Carol Matlack, Bloomberg BusinessWeek, 2 December 2010] Matlack reports:

"The company has the world's most comprehensive database on natural disasters, with information going back centuries. It shows that the frequency of serious floods worldwide has more than tripled since 1980, while hurricanes and other severe windstorms have doubled. 'Global warming is real, and it affects our business,' says Peter Hoppe, who heads the company's climate-change research. Munich Re has become a leading advocate for renewable-energy development, even joining a venture that plans to generate solar power in the Sahara and ship it under the Mediterranean to Europe."

Munich Re obviously has no ideological position when it comes to climate change -- it only has the bottom line to worry about. And the bottom line doesn't look too good when it comes to paying out claims for weather-related damages caused by climate change. I've read that most multi-national corporations admit that they have suffered some kind of supply chain disruption due to weather events in the recent past. The staff at SupplyChainBrain writes, "Amid growing evidence that climate change is impacting the global environment and the global economy, the Ceres investor coalition announced a new report aimed at improving corporate disclosure of climate-related risks and opportunities they face." ["Report Outlines What Companies Should Disclose on Climate-Change Risks and Opportunities," 2 March 2011] The article continues:

"The Ceres report, developed with input from its 90-plus member Investor Network on Climate Risk, outlines generally weak climate disclosure to date by businesses and steps for improving such disclosure, especially in annual 10-K financial filings. ... It comes just a week after the consulting firm Mercer issued a new study warning that climate change could increase investment portfolio risk by 10 percent over the next 20 years."

Corporations are already starting to feel the heat of increased investor activism and the lack of disclosure about potential risks associated with climate change opens companies up to even more criticism. The article continues:

"'Adjusting to a world profoundly shaped by climate change is a key challenge for all leading companies,' said Ceres president Mindy S. Lubber. 'Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is essential. This report sets the bar on what investors expect on climate disclosure so that they better understand which companies are well positioned for the future and which are not.'"

Like Munich Re, Ceres doesn't take an ideological view of climate change or its causes. It simply accepts the same reality that Munich Re sees and believes that corporations that don't adapt to emerging challenges are setting themselves up for supply chain disruptions and adverse investor reactions in the future. The article states that "the report, Disclosing Climate Risks & Opportunities in SEC Filings: A Guide for Corporate Executives, Attorneys & Directors, is available at www.ceres.org." A year before the Ceres report was released, the Securities and Exchange Commission had issued "formal interpretive guidance for companies on climate-related information they should be disclosing to investors in their 10-Ks or 20-Fs, as well as quarterly filings." The article continues:

"The guidance, issued [in February 2010], capped a multi-year effort by leading investors, state law enforcement officials and others to boost corporate attention to the quality of their climate-related disclosure. The report makes clear that while many more companies are disclosing climate-related information in voluntary reports – such as annual reports, sustainability reports and Carbon Disclosure Project responses – the quality of overall disclosure is still less than satisfactory. 'Assessments of corporate disclosure practices on climate change show significant improvements in recent years, particularly in voluntary disclosures,' the report concludes. 'However, overall disclosure continues to be highly inconsistent and often inadequate, particularly in mandatory filings, and frequently fails to meet the needs of investors.' Still, the report includes a half-dozen concrete examples of 'good quality disclosure' in financial filings by companies such as Chiquita Brands International, Siemens, Rio Tinto, AES and Xcel Energy. It also lists examples of 'poor' and 'weak' disclosure."

Clearly some industrial sectors, like agricultural and tourism, have greater exposure to climate-related risks than other sectors. But even sectors that aren't directly affected by climate change, like electronics, could find themselves impacted when severe weather events disrupt supply chains. The most recent such event was the flooding in Thailand that is likely to cause a significant shortage of harddrives over the coming months. The article continues:

"Following many of the topics outlined in the SEC guidance, the report identifies five key categories of climate disclosure expected from companies, including:

* Regulatory risks and opportunities: Quality disclosure should include specific details and quantification of impacts from proposed or enacted carbon-reducing regulations on a company's direct and indirect operations, such as impacts in costs or profits from operating power plants, fossil fuel extraction or selling emission credits.

* Physical impacts: Quality disclosure should include detailed information about significant physical effects of climate change, such as increased incidence of severe weather, rising sea levels, reduced arability of farmland and reduced water availability, that may materially affect a company's operations, competitiveness and bottom-line results.

* Indirect Consequences/Business Trends: Quality disclosure should include a thoughtful and candid discussion of management's understanding of how climate change may effect its business, whether from new opportunities or risks from decreasing demand for high carbon-intensive products or rising demand for cleaner, more energy-efficient products.

* Greenhouse Gas Emissions: Quality disclosure should set forth current direct and indirect GHG emissions from their operations, methodology used to produce such data, and estimated future direct and indirect emissions from their operations, purchased electricity and product/services.

* Strategic Analysis of Climate Risks and Emissions Management: Quality disclosure should include a strategic assessment that includes a statement of the company's current position on climate change, an explanation of significant actions being taken to minimize risks and seize opportunities, and corporate governance actions relating to climate change, such as establishment of any management or board of director committees to address the topic.

I suspect that, when someone hears about corporate risks associated with climate change, government regulations are not the first thing they think about. As the article notes, however, government regulations can have a significant impact on how a company operates as well as its bottom line profits. One good example of this involves how UPS is responding to the European Union's efforts "reduce carbon-dioxide emissions from the world's jetliners." ["UPS Charts Possible EU Flyaround," by Doug Cameron and Daniel Michaels, Wall Street Journal, 21 December 2011] According to the article, "The U.S. air-cargo giant may reroute flights to cut the cost of the European plan, which will require carriers to buy permits for emissions generated on flights to, from and within the European Union." The SupplyChainBrain article continues:

"The report also includes an 11-point checklist to help companies to improve the quality of their disclosure and position themselves to respond more effectively. 'This document will be an important catalyst in the major shift in attitudes towards climate change that is now taking place in the investment industry,' said Kevin Parker, global head of Deutsche Asset Management. 'Institutional investors everywhere are recognizing that climate change is a risk they must take full account of in their overall portfolios. As DB Climate Change Advisors demonstrated in its own recent report on this issue, Investing in Climate Change 2011, greater transparency and better information from companies is essential to enable them to assess the risk effectively. Ceres' report is critical in defining what investors need to know in setting the standard of information companies must aim at.'"

This last point is an important one. Although the report is focused on getting companies to provide better information so that investors can make more informed decisions, it can help companies examine risks associated with climate change that they might have ignored or overlooked until they were negatively impacted by them. The article concludes:

"'This report from Ceres is an important addition in illuminating not only what to report, but insight into the quality of corporate reporting of the risks and opportunities of climate change,' said Julie Gorte, senior vice president for sustainable investing at Pax World Management, a sustainable investing firm. 'Five years ago, it was unusual for any company to mention climate change in a financial filing, and few provided much more than a boilerplate acknowledgment that regulation of greenhouse gas emissions might at some point have a material impact on the company. Now, with expanded investor awareness of the financial impacts of climate change, investors are looking for more, and this report gives companies critical information on what "more" should look like.'"

Supply Chain Standard reports, "Over half of global supply chains were disrupted by bad weather [in 2011], according to a survey of over 500 multinational companies sponsored by DHL Supply Chain." ["51pc of supply chains disrupted by weather," 12 December 2011] These disruptions are not only aggravating they are costly. The article reports, "49 per cent of businesses reported a loss of productivity from such disruption, while the cost of business was raised for 38 per cent, and 32 per cent lost revenue." If your company hasn't started assessing the risks associated with climate change, perhaps that is a New Year resolution worth considering.

Supply Chains: Lean, Mean, or In Between

As last year was ending and the new one beginning, the folks at SupplyChainBrain featured a number of articles about lean business practices. Since several supply chain analysts continue to point out that there is a natural tension between proponents of lean supply chains and proponents of resilient supply chains, I thought a post on the subject of "lean practices" was in order. In a previous post, I wrote:

"Time and again the issue of balance between "lean" and "resilient" supply chains is raised by risk management experts. In his doctoral dissertation entitled Supply Chain Resilience: Development of a Conceptual Framework, an Assessment Tool and an Implementation Process, Timothy J. Pettit, included a graphic that, in a very general way, illustrates why balance is the key.

"Pettit's point is that resiliency does come with a price that can erode profits. A lack of resiliency, however, can also affect profits and even expose a company to total failure. Hence, finding what Pettit calls the 'Zone of Balanced Resilience' is essential. In his abstract, Pettit writes, 'The business environment is always changing and change creates risk. Managing the risk of the uncertain future is a challenge that requires resilience – the ability to survive, adapt and grow in the face of turbulent change. ... Findings suggest that supply chain resilience can be assessed in terms of two dimensions: vulnerabilities and capabilities.'"

Lean practices are aimed at maximizing profits while resilient practices are aimed at mitigating potential supply chain disruptions. With that background in mind, let's look at the first short article published by SupplyChainBrain ["Does Lean Make a Good Company Great?" 29 December 2011] The editorial staff writes:

"Simply stated, Lean alone won't make a company successful, but even a successful company could improve immensely if it adopted a number of Lean practices, says Kenneth McGuire, a management consultant with Management Excellence Action Coalition. For the last 30 years, MEAC has helped companies in manufacturing improve so they can boost productivity. Lean is one of the ways to do that because it is among the competitive norms against which companies will be measured. After all, there's an immediacy in delivery that's required by most customers now, a perfection in product quality that most consumers expect now, and there's a very high service level demanded now. These are goals that Lean practices enable if not necessarily guarantee."

I think we can all agree that increased productivity, high quality, and improved customer service are laudable goals. Lean practices can indeed foster those objectives when things are running normally. Analysts who believe that companies can go "too lean," are more worried about how lean practices adversely affect companies during crisis. McGuire, however, is talking about normal operating procedures. The article continues:

"So what's the first step? Start with the people. You must have a 'deep and honorable respect for your people,' says McGuire. If not, they will drive the whole process – just not where you want it to go. Leadership is important. McGuire says the process can be so difficult that many companies may get a year or two into their project and then fail because they don't have adequate leadership stature."

I'm glad that McGuire started his discussion with people. Too often people are discussed after processes and technology; but, it is people that ultimately make processes and technologies work. The SCB staff next asked McGuire, "What's the relevance of Lean programs in supply chain and logistics?"

"McGuire says Lean 'looks' at the value stream from the point of view of the customer. 'It says that during the period between the decision to buy and the delivery of any goods, every activity either adds value to that value proposition or it doesn't, and if not, it's waste by definition and should probably be eliminated. Customers for the most part will look at the high cost of their transportation or logistics bill and will say that no longer is labor the difference between competitive and noncompetitive companies, it's the approach to logistics. They favor those who can do it with few stops and delays, the best quality, and the best communications.'"

That's where the tension arises and the Zone of Balanced Resilience comes into play. When natural or manmade disasters create disruptions in supply chains, lean supply chains can become brittle and customer service can be impacted. Resilient supply chains are optimized for disruptions so that customer service is much less affected. Customers will favor lean supply chains until disruptions occur (as happened a lot this past year) and then they elsewhere for more reliable goods or services. The article concludes:

"McGuire says over the past 10 years or so, the manufacturing companies that seem to be the best have three times the quality that the average ones possess, they are two to three times faster, they have communications skills that are double those of average competitors, and their people are more engaged. 'So do they deserve the title of greatness?' McGuire asks. 'Perhaps not, but they certainly are better.'"

Better quality, faster service, and exceptional communications are not all necessarily traits associated with lean practices. All of them are traits associated with good supply chain visibility. That is why visibility is a much-discussed topic in supply chain circles. The next SupplyChainBrain article highlights a discussion the editorial staff had with Margo Ugarte of The Sustainability Consortium. ["Lean Concepts and Corporate Sustainability," 3 January 2012] The article begins:

"Lean management is focused on reducing waste and sustainability is focused on lowering the use of resources, so the two concepts have a natural alignment, says Margo Ugarte of The Sustainability Consortium. Both of these movements draw from former initiatives, he says. 'The quality movement in the 1980s established concepts from process quality to environmental impacts. Then with the lean movement, first in manufacturing and later in logistics, companies addressed the economic dimension of sustainability,' he says."

Lean practices do seem to be a natural partner for sustainability efforts since the only sustainability activities that will have lasting impacts are those for which a business case can be made. Ugarte, however, says that occasionally the objectives of lean and sustainability activities do come into conflict. The article continues:

"While both these initiatives deliver benefits, the benefits are not always straightforward, Ugarte says. For example, he notes that lean systems are, by design, meant to require less in the way of materials and resources. When applied to logistics, however, a lean program like just-in-time may require more intensive use of transportation. 'To have a better customer service experience at the retail level, companies may need to devote more resources to distribution and infrastructure,' he says. 'It is a trade-off.'"

With transportation costs and disruptions caused by natural disasters apparently on the rise, some companies are reconsidering the value of just-in-time practices. Supply chain realignments may result in fewer conflicts between proponents of lean and sustainability principles. The article concludes:

"Ugarte disputes the idea that doing what is good for the environment is necessarily more expensive. He notes that manufacturers of laundry detergent have introduced products that are more environmentally friendly without increasing the cost to consumers. 'It is possible to take costs out of the equation while producing products with better environmental characteristics,' he says."

I'm surprised that the cost of sustainability efforts remains a big issue. Most companies find that reducing waste, using less energy, and other such sustainable practices actually save them money as well as polish their public image. The final SCB article is drawn from an interview with Mike Loughrin of Transformance Advisors and focuses on implementing lean practices. ["Blueprint for Successful Lean Implementations," 3 January 2012]

"Successfully implementing lean principles within a corporation requires distinct contributions from top-level, middle-level and front-line employees, says Mike Loughrin of Transformance Advisors. The challenge at the executive level is to know when to step in and help and when to stay out and let small teams work through the lean process and resulting cultural change, Loughrin says. An executive sponsor should make sure the project is defined correctly in terms of scope and goals and ensure that adequate resources are devoted to training and tools. Support should be demonstrated by having an executive at the kick-off and at occasional kaizen events."

On that point, Loughrin and McGuire appear to be in total agreement. For those not familiar with the term "kaizen," it is a Japanese business philosophy that involves continuous improvement of working practices, personal efficiency, and so forth. Any time that someone tries to change a corporate culture or business practice, good leadership is required. Niccolò Machiavelli, writing in The Prince, stated that change is difficult. He wrote:

"The reason is that all those who profit from the old order will be opposed to the innovator, whereas all those who might benefit from the new order are, at best, tepid supporters of him. This lukewarmness arises partly from the skeptical temper of men, who do not really believe in new things unless they have been seen to work well."

To overcome this natural reluctance to change, "Loughrin says, executives should focus on the ... milestones laid out in lean principles."

"'These milestones are a good time for the executive team to sit down and review what has been accomplished and to ask a lot of questions,' he says. Middle management must deal with the skepticism of co-workers who may have gone through several similar strategies in the past, Loughrin says. Middle management has to get on board and then persuade others, 'moving from a command-and-control mentality to more of a coaching mentality,' says Loughrin. Middle managers also help prioritize areas of focus for the project. 'Lean projects are not simply turning everybody loose in an organization to do some sort of process improvement. It is typically a structured approach, where teams are pulled together to work on priority items. Identifying those areas for improvement is where middle management can help,' he says."

It is a little ironic that middle management is seen as playing such a vital role when so many middle managers lost their jobs during this latest economic downturn. This is not the first time that I've read about the importance of middle managers and their importance in change leadership. Loughrin then moves down the organizational hierarchy to talk about front-line employees.

"For the front-line employee, the biggest challenge is deciding to invest in the program, says Loughrin. 'Employees hear this big announcement and they wonder if it is real or just a cost and headcount reduction, especially if the company has a history of such programs.' If they are convinced it is real, then they need to ask where they can help within their area of control, he says. The other challenge for front-line employees is in following through. 'There typically are a lot of activities that can be done quickly and with great benefits. Front-line people tend to get excited about these but lose interest in the follow-through,' says Loughrin. This phase is critical to long-term success because it is where workers tie up loose ends, document new procedures and put an audit program in place so that the gains are not lost, he says."

If you follow McGuire's advice and put people first, implementing lean practices will be much easier. Too often employees perceive change as either a criticism of their past performance or a threat to their future employment. By emphasizing people ahead of process, employees are more likely to become proponents of rather than obstacles to change.

Showrooming and Product Customization

Radio and television personality Clark Howard writes, "A new trend called 'showrooming' can hurt brick-and-mortar retailers in an age when smartphones and other mobile devices allow anyone to comparison shop prices for anything anywhere at any time." ["‘Showrooming’ helps buyers, hurts retailers," Dayton Daily News, 9 January 2012] The trend gets it name from the fact that consumers are using brick-and-mortar stores as showrooms for products they eventually buy online. Howard explains:

"A recent Codex Group survey found that roughly four in 10 book buyers will go to a store and thumb through a book, decide they like it and then buy it cheaper on Amazon, according to what I read in The New York Times. But that trend has dangerous consequences for retailers of all kinds."

Howard notes that new technology is making it easier to comparison shop and turn traditional retail stores into showrooms. He explains:

"I have an app on my smartphone called ShopSavvy that allows me to scan a bar code at a store and instantly get a list of retailers both online and local offering the same item for a cheaper price. If you want to check it out, go to Market.Android.com and search keyword 'shopsavvy.'"

Obviously, retail stores are not happy with this trend, or with people who recommend it. Howard reports that on his "Clark Stinks" online message board, he recently heard from a female store owner who called him a freeloader and expressed a great deal of anger about showrooming. "And you know what," Howard writes. "She’s right." He explains:

"She has the cost of overhead and paying employees and can’t compete with a low-overhead retailer. It’s a very valid point. Will there be showrooms in the future, or will they go bust because everybody is showrooming? For example, Best Buy was expected to be king of the world when Circuit City collapsed. But it didn’t work out that way at all. In fact, Best Buy has had to morph its business to avoid dying a showroomer’s death."

Does anyone really think that the death of traditional brick-and-mortar stores is a good thing? Local businesses provide jobs and bring in tax revenue that is lost through online sales. Money spent online doesn't generally stay in the community. Little league teams and charities that rely on local business support also suffer when local businesses fold. When mega-malls were first developed, people lamented the fact that traditional downtown areas were turned into ghost towns. Today, many malls are suffering that same fate. Showrooming is an even greater threat to traditional stores than were the megamalls. Howard continues:

"If you own your business, people are showrooming. You need a compelling strategy for your business that when those customers come in, they will buy from you even if your price is higher than the low-overhead online seller."

That is easy advice to give, but such a strategy is not easy to develop. Pleas to support local businesses continue to fall on deaf ears. Howard doesn't offer any strategies that could be used. The first major retailer to strike a blow against showrooming is Target. ["Showdown Over 'Showrooming'," by Ann Zimmerman, Wall Street Journal, 23 January 2012] Zimmerman reports:

"Target Corp. is tired of being used. In one of the starkest signs yet that chain stores fear a new twist in shopping, Target is asking suppliers for help in thwarting 'showrooming'—that is, when shoppers come into a store to see a product in person, only to buy it from a rival online, frequently at a lower price. ... In an urgent letter to vendors, the Minneapolis-based chain suggested that suppliers create special products that would set it apart from competitors and shield it from the price comparisons that have become so easy for shoppers to perform on their computers and smartphones."

Targets plea to its suppliers adds a new twist to product customization and will inevitably add to supply chain complexity. In a previous post [Customization and the Supply Chain], I wrote:

"Trevor Miles asserts that supply chain portfolio complexity is increasing "due to mass customization and shortening product life cycles." ["Visibility, the antidote to supply chain opacity," The 21st Century Supply Chain, 2 May 2011]. Analysts at McKinsey and Company claim, "Executives expect that the most powerful effects on their companies will be increased innovation, greater consumer awareness and knowledge, and increased product and service customization." ["Five forces reshaping the global economy: McKinsey Global Survey results," McKinsey Quarterly, May 2010]. Researchers from Supply Chain Digest's research organization, Chief Supply Chain Officer (CSCO) Insights, insist that "'build to stock' will ultimately give way to 'build or customize to demand'" in most industry sectors ["Building Sense and Respond Supply Chain Networks," by Editorial Staff, Supply Chain Digest, 17 June 2010]."

While most those analysts had consumers in mind when they discussed product customization, Target offers one of the first strategies that could put a dent in the showrooming trend -- customizing products for specific retailers. To make this strategy work, retailers and suppliers will have to collaborate even more closely than they have in the past. That is probably a good thing. On the other hand, having to create customized products for various channels of commerce could strain some relations. Zimmerman continues:

"Where special products aren't possible, Target asked the suppliers to help it match rivals' prices. It also said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise. 'What we aren't willing to do is let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands,' according to the letter, which was signed by Target Chief Executive Gregg Steinhafel and Kathee Tesija, Target's executive vice president of merchandising."

Target surely realizes that it is asking a lot from suppliers. For their part, suppliers should take this opportunity to open a dialog about things they would like to see retailers change in a quid pro quo effort to combat showrooming. Frank and open discussions could usher in a new era of supplier/retailer collaboration. Zimmerman continues:

"Showrooming is an increasing problem for chains ranging from Best Buy Co. to Barnes & Noble Inc., at the same time that it's a boon for Amazon.com Inc. and other online retailers. This year store sales overall edged up 4.1% during the holiday shopping season, while online sales jumped 15%. And while online sales represent only 8% of total sales, that is up from just 2% in 2000. Other retailers also are likely to take steps similar to Target's plan, according to Deborah Weinswig, Citigroup retail analyst, who ... said [Target's letter] was likely to have gone to suppliers of consumer electronics, health and beauty products and food."

Zimmerman claims that "vendors are likely to have little choice but to play ball with Target because of its clout as the second-largest discount chain." On the other hand, Target only makes money if it has products to sell. In this situation, neither the vendor nor the retailer holds all the cards. Zimmerman reports that she had a difficult time determining exactly which of Target's vendors received the letter. "Major suppliers, including Kraft Inc., TV maker Vizio and Procter & Gamble Inc., either wouldn't confirm they received the letter or didn't return calls seeking comment," she writes. She continues:

"Target declined to comment other than to issue a statement saying that it 'has long prided itself on having truly collaborative vendor partnerships and we continually work with our vendors to remain competitive in the ever-evolving retail environment.' Some analysts said Target's new tactics are unlikely to reverse the showrooming trend, because they fail to address the root problems traditional retailers face. Online-only retailers have significantly lower labor costs and, at least, for the time being don't collect sales tax in most states."

Although there will be a roar from the madding crowd if governments try to collect taxes for online purchases, I suspect that day will eventually come. It seems like a small price to pay to help keep local businesses profitable and available. I don't really believe that people want to see empty malls and ghostly main streets, but that is vision of the future that is most likely to unfold if a successfully strategy to counter showrooming is not found. The more difficult nut to crack will be offsetting overhead costs that are borne by online merchants. Zimmerman continues:

"More important, the growing competition from Amazon is based on a different business model entirely: Amazon can sell products so cheaply because it uses its other profitable units—such as cloud data storage and fees it charges others to sell on its website — to subsidize the rest of its business. 'The traditional retailers are still doing business the old way while Amazon has reinvented the model,' says Sucharita Mulpuru, retail analyst at Forrester Research. 'Wal-Mart and Target are willing to sell a few things at a loss. Amazon's whole business is a loss leader.'"

The bottom line is that no single strategy is likely to emerge that, if followed, will save traditional retailers from the onslaught of online merchants. Offering customized products (i.e., slightly different merchandise than can be found online) is only part of the solution. Zimmerman continues:

"Consumer preferences are also moving to online. 'That is where we're heading,' said Adrianne Shapira, retail analyst at Goldman Sachs. 'You can try and dance around it, but it's a fact.' Retailers like Target and industry giant Wal-Mart Stores Inc. have a lot of catching up to do, as analysts estimate their websites account for only 1% to 2% of their annual sales. Target had a tough Christmas season, with sales at stores open at least a year rising just 1.7%, about half of what the company expected. ... This fall Target relaunched and upgraded its website, which had been operated by Amazon for the last decade. But the site crashed several times, most notably when shoppers rushed to buy a special line of items made by Italian fashion house Missoni."

Will Target be successful in getting suppliers to work it to develop a anti-showrooming strategy? Zimmerman believes there is a chance. She writes:

"Target has a long tradition of getting suppliers to provide exclusive products. It has teamed up for years with fashion designers to offer time-limited discount clothing collections, and it recently announced it will open a series of temporary boutiques featuring clothes, food and home furnishings from popular regional stores. These programs set Target apart from less fashionable rivals such as Wal-Mart, but 'they are completely immaterial' to the company's bottom line, said Colin McGranahan, retail analyst at Sanford C. Bernstein."

Traditional brick-and-mortar stores still appeal to people who want instant gratification from making a purchase. Unfortunately, people are getting used to waiting or paying a premium for overnight shipping. This storyline is just beginning and it will be a story worth following.

Building Sustainability into Your Supply Chain

Summer Rayne Oakes, co-founder and CEO of Source4Style, a New York-based online fabric marketplace, told Gabrielle M. Blue that "it's an increasing liability" for a company not to build sustainability into its supply chain. ["How to Build Sustainability Into Your Supply Chain," Inc., 23 March 2011] Based on the number of articles that discuss sustainable supply chains, I'm guessing that Oakes is not alone in her feelings. "There are a lot of companies out there, that understand that they won't be leaders within the field," Oakes told Blue, "but they don't want to be laggers either." Blue continues:

"Today's global marketplace is forcing many companies to reevaluate, reconstruct, and even collaborate their efforts just to keep up with demands of the industry. While many leading supply chains have already dedicated years of research and figures to develop data, initiatives and solutions to the movement that seems to be steering the industry, some are still trying to decide why they should."

As Blue states, some industry sectors have discovered benefits relating to sustainability while others are still searching for a business case to me made. Paul Anastas, assistant administrator for Environmental Protection Agency's Office of Research and Development, told Blue that he believed that eventually all industry sectors would "understand the imperativeness of sustainability." He explained:

"The opposite of sustainability is being unsustainable, vulnerable. Too often companies have fallen, or been greatly damaged, because of events that have taken place in other parts of their supply chain, not necessarily things in their traditional sphere of control. These events have run the range of environmental (products or materials tainted with toxic chemicals), economic (cost spikes of a feedstock), or social (poor or illegal labor practices by a supplier). Without designing sustainability into the supply chain of the company, the risk of significant adverse impact is high."

Anastas actually provides a good framework for companies to think about sustainability. Too often the topic is approached idealistically and the result is more about PR (so-called greenwashing) than it is about becoming more resilient. This broader view of sustainability opens up many more opportunities for companies to embed good practices in their supply chains. Blue claims that IBM, which "has one of the country's top supply chains, conducts a study every year to address just this matter." Karen Butner, the global supply chain management leader for the IBM Institute for Business Value, told Blue, "We're looking to uncover what's top of mind with executives around the world and how they're preparing their strategies as companies are forced with all of the continued challenges of globalization." Butner's comment about companies being "forced" to adopt sustainable practices reflects why sustainability is often spoken about in a pejorative way. That needn't be the case. Blue explains:

"For the majority of large top supply chains, the question is not whether there's a shortage of sustainability efforts and programs, but what are the more efficient ways to successfully execute those initiatives. Cutting out travel distance of goods or eliminating a middle-man might make the supply chain more cost-efficient for the business, and also reduces it footprint from shipping. However, other companies and smaller supply chains that don't have the financial means to make such an aggressive push towards sustainability can still make gradual steps to take to be more socially, economically, and environmentally responsible. Building a sustainable company is a task that must be taken on from all sides. The collective and collaborative efforts of the supply chain industry, with the support from the government, is crucial. Combining the innovative alternatives from chains taking a grassroots approach with the advanced research collected by leaders in the field can help you better understand what you can do to improve your company."

Blue reports that starting small is often the best way to begin. Although companies would like to get PR credit for efforts they are making, big sustainability efforts are generally beyond the means of most companies. Blue writes, "Decreasing your company's global footprint won't happen overnight—so don't fret if your company doesn't show great improvement the next day.

"'When you take on sustainability, it encompasses so many different issues,' Oakes says. So she suggests tackling the smaller issues first. 'Some of the low-hanging fruits for a lot companies has always been transportation and sourcing efficiency. If you're able to actually manage that, you're able to manage sustainability in a more aggressive way within the company itself.' The way to identify what your smaller issues might be is to take an inventory of everything that you produce. From product design to costs to recycling, in most cases there's always room for your company to be quicker, cleaner, and better."

Assessing where you are is always a good place to start. IBM's Butner told Blue that a company should "step back and look at [its] overall business strategy." I'm not sure that "business strategy" is the right (or only) thing that needs to be assessed. Everything (people, processes, and technology) needs to be included in a good assessment. Blue continues:

"Really holding a microscope to your company's infrastructure will force you to identify and address some nuance problems that perhaps you've been too busy to correct. It's common for companies to hire an outside consulting company to do this task for them, because it's easier for an outsider to take a critical eye to your business than you and pinpoint problem areas. ... Once you've determined which parts of your business need the most attention, Butner suggests prioritizing which one you'll tackle first."

Blue asserts that even this step can appear to be a daunting task for some businesses. Her advice is not to stress over this because "there are places to find help." The government is a good place to start. Anastas told Blue, "The EPA has state-of-the-art analytical tools that are useful in integrating sustainability into corporate operations. In addition, there is now a growing industry of technical and strategy-based companies devoted to helping businesses, large and small, adopt sustainability into their business operations." Often "people" are considered in sustainability assessments; but, as Blue notes, "All the ideas in the world won't mean a thing without someone there to implement them." She continues:

"This is the perfect opportunity for you to see which of your employees are ready to take on a more prominent position within the company. But be careful! Make sure that you're green team is comprised from varying departments of the company, so as not to leave any department short-staffed."

Another supply chain professional who believes that sustainability can be built into a corporate supply chain is Cynthia Wilkinson, director, supply chain sustainability, Staples Inc. She told the staff at SupplyChainBrain that "sustainable business is about driving better business value at the same time as you're driving improvements for the planet." ["Embedding Sustainability in a Supply Chain Organization," 20 December 2011] The article continues:

"That means energy efficiency and reduced packaging, among other things. But none of that will happen unless the culture of your business is aligned with the 'green' vision."

For Wilkinson, "the 'green' vision" isn't just about being environmentally friendly. She claims, "Sustainability initiatives save money." She claims, however, that saving money "alone won't [make] such programs a success."

"She says it's important to make things easy, for the customer and for the company. 'For example, we have ways on our web site for customers to easily identify sustainable products. Our customers want to understand what's important and relevant for them.' Additionally, companies collaborate both internally and externally, and it's important for all employees to recognize and be supportive of green goals. It's equally important for suppliers to know what's expected of them from an environmental standpoint."

Frankly, I'm not convinced that a majority of customers base their purchases on the "greenness" products. Price seems to be a much more important factor. Nevertheless, I agree with Wilkinson's point that the only sustainability programs that will have legs are those that are easy for stakeholders to use. The article continues:

"Things are always fluid, Wilkinson says, because new information seems to come out daily. 'We want to understand that and know how to make that work for us.' Staples has been quite successful in its goals, she says. 'I think we've done a great job, particularly within the supply chain, on energy. We've had significant reductions in our energy intensity per square foot. We've saved lots of money in that way. We also have done a lot with recycling. So in our own operations, we're looking to move to zero waste. 'We recycle pallets and stretch wrap, corrugate and other materials, and we're continuing to drive that even further. Also, we have done tremendous work on our fleet, and our fuel efficiency has improved over 30 percent.'"

Wilkinson's point about the criticality of information in supporting sustainable programs is important to note. Without good data, it is nearly impossible to make a business case for sustainability initiatives. When asked about hurdles that must be faced, Wilkinson told the SupplyChainBrain staff, "The first thing is economics, making it financially a win as well as a sustainability win. That's a large challenge." I agree with her on that point. If you can't make an economic case, you're probably wasting both time and money. The article continues:

"When you ask people if they think green is more expensive, a lot of people think so, but it doesn't need to be. 'We have not changed our hurdle rate for our financial decisions. We make these projects fit our hurdle rate. You can definitely drive the economic benefits with the sustainable benefits.' Wishing doesn't make it so. A solid strategy needs to be in place, especially once the low-hanging fruit has been accounted for, Wilkinson says. Staples wanted to save on energy, and it did. But that was an easily achievable goal. 'It gets harder when you dig in deeper, so that's when you want to probably establish a strategy for your company in terms of how to drive sustainability within the organization.' Be creative and look at things on a portfolio basis. Initiatives that work in one area should be applied across the board and throughout the company network."

In conclusion, Wilkinson again reiterates the importance of good data and proper analysis in order to make informed decisions.

"Analysis can reveal some surprising things, Wilkinson says. 'As we looked deeper, we recognized that we'd been spending a lot of effort on our own operations – on energy, fleet efficiency, etc. – and what we found is that the largest share of our greenhouse gas was coming from products that we sell. So we've shifted focus a little bit. We're still making energy improvements and recycling, but we're also looking to drive improvements in our packaging and in our products because that's where the impact is.' Moreover, you need to make customers understand the impact of the products they buy."

Educating customers may be important, but educating suppliers is probably more important. That is especially true for companies like Staples, where the largest share of greenhouse gas is generated during the manufacturing processes of the products they sell. The bottom line is that one-off initiatives probably won't last, and certainly won't transform, a supply chain. Real change comes from embedding initiatives within the supply chain and those initiatives will only have legs if a business case can be made for them.

S&OP: Gaining a Competitive Edge

Donald Sheldon, president of D.H. Sheldon and Associates, told the staff at SupplyChainBrain that "competing successfully is all about providing the highest possible customer service with the least amount of resources." ["Enhancing Competitiveness with S&OP," 20 December 2011] Every company wants to compete successfully in the marketplace. Not every company, however, has a good sales and operations planning (S&OP) system in place. Sheldon claims that is a mistake.

"Sales and operations planning helps achieve that goal by bringing the best minds in a company to consensus on these two issues, he says. The whole idea behind S&OP is to align to demand as closely as possible with supply, says Sheldon. 'A lot of companies feel that forecast accuracy is the whole point of S&OP, but it is not. The point is understanding the risks around the forecast going forward.' Sheldon notes that companies that are 'rocking and rolling' in the market with high demand and a lot of new product introductions are the ones that have the hardest time with forecast accuracy – and yet they are also the most successful. 'So the important thing is not absolute accuracy, but acknowledging the risks, or in the language of Six Sigma, to know the process variation.' In fact, Sheldon says that 'risk management' is the best two-word description of S&OP. 'If you think about critical risks, especially for manufacturers, things that come to mind are supplier failures, new product introductions and having to shut down a plant and move products to another area,' says Sheldon. The best way to deal with these and, at the same time, keep shipments moving to customers is to focus on a 12-month rolling process that also has to align with a strategic plan that goes out two to three years.'"

Did you notice how often Sheldon talked about corporate alignment in that short discussion of S&OP? The importance of corporate alignment is one reason that some analysts would prefer to see S&OP called Integrated Business Planning (IBP). To read more about the on-going debate over what to call S&OP, see my post entitled Is S&OP a Guiding Light or a New Religion? Last year, Duncan Klett, vice president, analytics research, at Kinaxis, penned some thoughts about an article he read in Supply Chain Digest that posed the "question as to where Sales and Operations Planning (S&OP) might be going and do we need to move on to a more comprehensive concept called Integrated Business Planning (IBP)?" ["From S&OP to IBP -- The Discussion Continues," The 21st Century Supply Chain, 30 June 2011] Referring to a Gartner graphic used in the SCD article, Klett wrote:

"What I find most interesting in the Next Generation S&OP is implied, but not stated explicitly. That is that Integrated scenario analysis, Supply 'what-if' and Base supply plan (in nine-step S&OP) are replaced with Supply 'what-If', Financial 'what-if', base supply plan and base financial plans. What I believe is implied is that:

• "Integrated scenario analysis, which was looking at just the supply plan, is extended to include a financial plan.


• "The next generation approach will be much more interactive and integrated so that the financial and operational impacts from alternative demand or supply plans can all be considered (easily) in the S&OP process."

Klett refines the Gartner graphic (shown below) to reflect his thinking about "the evolution of the development of an integrated consensus plan which addresses and balances the interests of demand, supply, and finance."

Klett's "Next-Generation S&OP" process is contained within the large blue-shaded box. It's important to note that you can't get good outcomes on the far side of the S&OP process if don't have good inputs on the near side. This is especially true in the era of big data. Klett concludes:

"In the 'new world', managers can see supply, demand and financial projections based on the current or potential supply and demand plans. By seeing the impact of change, they can develop a new 'consensus plan' which represents the best balance between competing objectives."

I would insert the word "alignment" in place of the word "consensus." Getting people to agree on a plan doesn't necessarily mean that a company's resources are aligned to implement it. Unless alignment is achieved, the plan won't succeed. John Westerveld, a demo architect for Kinaxis, seems to agree with me on this point. He writes, "Sales and operations planning is all about alignment. It's about getting the entire company pulling in the same direction." ["Increase the effectiveness of the executive S&OP meeting – Part 1," The 21st Century Supply Chain, 30 August 2011] He continues:

"To achieve [alignment], the executive team needs to:

• Clearly understand the current status of the company and have visibility into the issues and opportunities.
• Review alternative possible resolutions and be clear about the costs and benefits of each solution.
• Gain agreement on which plan is the best (typically the best plan is proposed by the pre-S&OP team).
• Approve and publish the plan.

"It is critical that the stakeholders are present for the executive S&OP meetings. At a minimum, the following are necessary for a successful executive S&OP meeting: CEO/general manager, Marketing, Sales, Operations, Finance. Depending on the company, you may also have need Engineering and HR. Many S&OP processes fail to get off the ground because the executives stop attending the meetings. This occurs for various reasons, but one of the key reasons is that the executive feels they aren't getting value out of the process."

Unless Westerveld believes that supply chain executives fall under one of the listed headings, I would assert that you need a supply expert in S&OP meetings as well. If, as more and more supply chain analysts insist, supply chains, not companies, compete, then a critical part of the puzzle is missing if a supply chain executive is not in the room. I agree with Westerveld that having all stakeholders present in such meetings is critical. This is especially true if analysts are correct in their assessment that a good S&OP process can provide a company a competitive edge. Westerveld goes on to offer some suggestions about how to make S&OP meetings more effective and valuable. In a second post on this topic , Westerveld writes, "The effectiveness of the executive S&OP meeting is limited by the capabilities of the tool used to present the plan. Many companies use Excel to drive the S&OP meeting, but is that the best tool?" ["Increase the effectiveness of the executive S&OP meeting – Part 2," 31 August 2011] Westerveld isn't the first analyst to lament the fact that many S&OP processes are still Excel based. That's not a rap against Excel, which is a fine product; it's simply an indication that analysts believe that S&OP needs more refined tools to enrich the program so that it can reach its full potential. Westerveld offers "a quick look at what is needed to effectively present the S&OP plan to the executive team."

"1) If there is one thing to remember it's that the executive team is very busy and [doesn't] have the patience or the time to try to understand mounds of data. [Team members] need the issues and resolutions laid out clearly and visually, with supporting data at hand if necessary. As we've all seen, a picture is worth a thousand words (or a thousand columns of numbers) so make sure that the presentation software supports multiple charting modes.

"2) When we change the demand plan, make supply changes, set constraint levels, we base these changes on a set of assumptions. These assumptions must be captured and presented to the executive S&OP team so that they understand the assumptions that these plans are based on. Hopefully, the executives will confirm the assumptions made, but it is possible that the executive team may disagree with an assumption (or simply have better information). It's much better to make this discovery before you execute the plan.

"3) Often, an executive will need to look at the next level of detail in order to better understand an issue or opportunity. If the information isn't at hand, the team may not be able to make a decision, or if [it does, it] may be making the decision based on incomplete data. Neither situation is good. Make sure that the tool you use to present the S&OP meeting includes the ability to drill down through multiple levels of detail, so that you have the answers when your executive team asks.

"4) In many cases, the pre-S&OP team will present a recommended S&OP plan, but may have alternative resolutions for discussions. This means that the executive team needs to be able to clearly see the differences between the various resolution alternatives against the key corporate metrics so that they can make an informed decision."

I would recommend that a pre-S&OP team always prepare a draft S&OP plan. Not only does this give the executive team a head start on the process, it focuses discussions in a meaningful way. Without a plan, there is always a chance that turf wars can break out. You don't want departments criticizing each other. By having a plan on the table, constructive criticism can be aimed at the plan instead of at each other. The better the information, the tools, and the plan, the more effective the process will be. The more effective the process the greater the competitive edge it can provide.