Enterra Insights

Let's Talk Water, Part 2

In the first segment of this 3-part series, I discussed some of the reasons that there is likely to be a shortage of fresh water in the decades ahead and some of the challenges that could emerge should that occur. The Economist summed up the challenges this way:

"The difficulties start with the sheer number of people using the stuff. When, 60 years ago, the world's population was about 2.5 billion, worries about water supply affected relatively few people. Both drought and hunger existed, as they have throughout history, but most people could be fed without irrigated farming. Then the green revolution, in an inspired combination of new crop breeds, fertilisers and water, made possible a huge rise in the population. The number of people on Earth rose to 6 billion in 2000, nearly 7 billion today, and is heading for 9 billion in 2050. The area under irrigation has doubled and the amount of water drawn for farming has tripled. The proportion of people living in countries chronically short of water, which stood at 8% (500m) at the turn of the 21st century, is set to rise to 45% (4 billion) by 2050. And already 1 billion people go to bed hungry each night, partly for lack of water to grow food." ["For want of a drink," 20 May 2010]

In this post, I'll discuss a number of innovations that have been developed to help meet the challenge of providing potable water for humans and/or useable water for agriculture and manufacturing. Ben Coxworth provides a good introduction to the subject in an article about The Fraunhofer research organization. ["Every last drop: technologies that save water on show," Gizmag, 13 September 2010] He writes, "14 of Fraunhofer's research divisions have joined together to form the Fraunhofer Alliance SysWasser, with the aim of developing sustainable water system technologies." The technologies include: harvesting water from the air; computer-guided water management; leak repair; improved sewage sanitation; more cost-effective polluted water disposal; and increased energy production from sewage processing. He begins:

Obtaining drinking water from humidity in the air

"There's already talk of harvesting electricity from the air, so why not water, too? Fraunhofer has developed a system in which a humidity-absorbing brine (salt water) solution runs down the surface of a tower-shaped structure. That brine is then pumped via a natural vacuum effect into a tank where it is heated by solar collectors, causing the absorbed humidity to evaporate out and condense in an area where it can be collected. The system is energy self-sufficient, so it could be set up in regions where there is no electrical infrastructure."

Coxworth doesn't indicate how much water such a system can produce, but it doesn't sound practical for large agricultural use. In another article, Coxworth reports on a different system designed to harvest fog. ["Namib Beetle inspires new 'fog harvesting' research," Gizmag, 26 April 2011] He explains:

"For years, people living in high-altitude or coastal arid countries have been collecting drinking water by harvesting fog. More specifically, they've mounted pieces of fine netting over top of containers, left the setup overnight, then collected the fog droplets that got caught in the net and rolled down its fibers into the container. While it might sound like a rather insubstantial way of acquiring water, under the right conditions it can yield a surprisingly large amount of liquid. Now, a chemical engineering graduate student from the Massachusetts Institute of Technology (MIT) is looking to improve on the technique. Shreerang Chhatre was inspired by the Namib Beetle, an insect that collects water droplets on bumps on its back, then drinks them when they roll down to its mouth. His 'fog harvesters,' like those created by other scientists, use a mesh panel in place of a net. Even solid materials such as plastic sheeting will work, although they can create wind currents that carry some of the moisture away."

Like the Fraunhofer system, the fog harvester is more useful for producing potable water for human consumption than for producing the large quantities of water needed for agriculture. Coxworth indicates that the MIT fog harvester has been able to collect up to "one liter (about a quart) of water per meter of mesh, per day." Although that may sound significant, the UN suggests that each person needs 20-50 liters of safe freshwater a day to ensure their basic needs for drinking, cooking and cleaning. Coxworth indicates that "Chhatre is trying to boost that output by refining the materials that the mesh is made from, attempting to strike a balance between hydrophilic materials that attract water droplets, and hydrophobic materials that then send them on their way down into the collection container." The biggest challenge, however, is not a technical one but an economic one -- "most of the potential users likely couldn't afford such a device." I suspect that the Fraunhofer system faces a similar challenge. The next two Fraunhofer systems discussed by Coxworth are intended for more developed areas and involve the use of computers and physical inspections to look for one of the main causes of wasted water -- leaks.

Managing drinking water systems by computer

"Using HydroDyn, its water management program, Fraunhofer says that municipalities could identify and locate leaks in their water systems. The system creates a computer model of an existing water system, and compares the output figures of that idealized system with the real figures. HydroDyn is reportedly already in use in Mongolia, Libya, Saudi Arabia and several German cities."

Finding leaks

"A system like HydroDyn might tell you the approximate location of a leak, but intelligent probes that physically inspect lines from the inside will actually show it to you. Another option for pinpointing leaks is to use long-range ultrasound waves."

If you don't believe that finding and plugging leaks is important, you should know that the United Nations estimates that between 66-132 billion gallons of drinking water leaks from the supply systems in many mega cities each year. That is water that will be desperately needed in the years ahead. The final subject discussed by Coxworth is waste water. The United Nations points out that "Urban waste has value in terms of energy, agriculture and industry. Its collection and reuse can have economic and social benefit, protect the environment (especially downstream users) and improve health." ["Water for cities: responding to the urban water challenge," United Nations, 2011] Coxworth writes:

Cleaning sewage water with diamonds

"Fraunhofer has demonstrated that when diamond-coated electrodes are placed in the water, hydroxyl radicals will form on them and proceed to oxidize all water-borne substances containing carbon. According to the research group, this means that everything from solvents to bacteria to pesticides will be neutralized, leaving behind only harmless salts and carbon dioxide."

More cost-effective disposal

"When industries generate highly-polluted water, they have to pay to get it properly disposed of as hazardous waste. Needless to say, many such industries decide it would be cheaper just to sneak it into the closest river or ocean. In an effort to keep disposal fees down, Fraunhofer has devised a 'low-cost' modular vacuum evaporation process, which concentrates more pollutants in less water – companies are still getting rid of the same amount of nasty stuff, but aren't paying for the disposal of all the water that previously would have accompanied it."

Increased yields of biogas from sewage sludge

"Fraunhofer has developed a system for decreasing the volume and mass of sludge, wherein it's treated with ultrasound and then mechanically disintegrated. The process results in more biogas production, and less solid waste. A number of sewage treatment plants are already using this technology."

For more on the subject of treating sewage and waste water, read my posts entitled Sewage and Cleantech and Tomorrow's Toilets. The United Nations notes that in the developing world, over a billion people cannot get clean drinking water. It estimates that dirty and contaminated water causes 80 percent of diseases in underdeveloped areas and kills nearly 10 million people annually. For those individuals, being able to purify available water would literally be a life saver. In another article, Coxworth reports that seeds from the Moringa oleifera tree might be the answer to their prayers. ["Tree seeds could provide low-cost water purification for developing nations," Gizmag, 7 March 2010] He writes:

"What many people don't realize ... is that there are already naturally-occurring water filtration supplies available in many of these areas. They come in the form of seeds from the Moringa oleifera tree, and used properly, they can produce a 90.00 to 99.99% bacterial reduction in previously untreated water. The drought-resistant Moringa has been described as the 'world’s most useful tree', as it produces cooking and lighting oil, soil fertilizer, and highly-nutritious food in the form of its pods, leaves, seeds and flowers. It is grown in Africa, India, South East Asia and Central and South America - all places that lack sufficient potable water. It has been known for some time that its seeds can also be used to purify water, although that knowledge has never been widely disseminated, even amongst the locals. ...The purification process involves grinding Moringa seeds into a paste, mixing that paste with untreated water, waiting for the paste particles to bind with the impurities and settle to the bottom, and then decanting or siphoning the pure water off the top. The entire process is actually quite involved, so the resultant drinkable water would still be a pretty precious commodity."

Although Coxworth calls the potential reduction of disease that could result from widespread use of this process "an amazing prospect," the fact of the matter is that unless a less involved process is found for purifying water, things aren't likely to change. It's just human nature. The Economist reports that Professor "Yi Cui of Stanford University thinks he has come up with one." ["Silver threads of life," 21 October 2010] The article continues:

"Traditional filters work by forcing water through pores to weed out bacteria. That needs power, as well as frequent changes of the filter element as the pores fill up with bugs. Dr Cui's filter, though, does not screen the bacteria out. It kills them. The filter element he and his team have designed is a mesh of tiny carbon cylinders, known as nanotubes, and silver wires laid on top of a thin strip of cotton cloth. Silver is well known to kill bacteria, so Dr Cui conjectured that forcing bugs to pass close to the metal without actually trapping them might lead to their destruction. He also suspected that running an electric current through the silver might help the process, because electrical fields have the ability to break down the membranes that surround bacterial cells. Though silver is a good conductor, carbon is cheaper, and the nanotubes provide the extra electrical conductivity needed."

It turns out that Cui was correct, "when the filter was operated at -20 volts it killed 89% of the bacteria and that at +20 volts it killed 77%. At zero volts, most of the bacteria survived. In a follow-up experiment, in which contaminated water was run through three of the new filters in sequence, 98% of the bacteria were killed." The article surmises that the inclusion of silver would seem to make the filter cost prohibitive; however, since "the amount involved is minuscule, as is the quantity of electricity needed to keep the filter charged (a small solar panel would be sufficient to supply it)," the filters may be the life saver for which the developed world has been looking. As an added bonus, "the filter itself would be expected to last indefinitely."

Academics -- be they professors, like Cui, or graduate students, like Chhatre -- are involved in a number projects they hope will make access to clean water easier and cheaper. Here are a few examples:

Bicycle-powered Water Pump

"University of Sheffield student Jon Leary was required to 'make something useful out of rubbish' as part of his dissertation." He ended up making "a mobile bicycle-powered water pump" from "cast-off bicycles and discarded pumps." He taught Guatemalan farmers how to build them so that they "can irrigate their land much more easily and effectively than ever before." ["Student invention lets Guatemalans pump water on the go," Ben Coxworth, Gizmag, 1 June 2010]

Safe Water Tester

"The worldwide shortage of clean drinking water is a serious problem, although in many cases there's a relatively simple solution – just leave the tainted water outside in clear plastic bottles, and let the sun's heat and ultraviolet rays purify it. This approach is known as SODIS (SOlar DISinfection of water in plastic bottles), and it removes 99.9 percent of bacteria and viruses – results similar to those obtained by chlorine. Unfortunately, however, there's been no reliable way of knowing when the water has reached a safe level of purity. Now, four engineering students from the University of Washington have created a simple, inexpensive device that does just that. ... The students, Chin Jung Cheng, Charlie Matlack, Penny Huang and Jacqueline Linnes, developed a simple device using parts from a keychain that blinks when exposed to light. When attached to a water bottle, it monitors how much light is passing through the water. An indicator light blinks on and off as long as particulates are still obstructing the light flow, and stops blinking once the water is safe to drink. It is also able to tell when a bottle of water is present in front of it, so it's not trying to measure data when nothing's there. It is estimated that parts for each device would cost about US$3.40, although bulk buying should push that figure even lower." ["Students design electronic device that indicates safe drinking water," by Ben Coxworth, Gizmag, 24 December 2010]

The final project I'll discuss is a more sophisticated version of the "clear water bottle" solution discussed above. It's called the Solarball and was designed by Industrial Design student Jonathan Liow.

"After hearing about the need for cheap and effective water purification in Africa, he proceeded to create the Solarball for his graduate project at Australia's Monash University. The ball is reportedly capable of producing 3 liters (about 3 quarts) of drinkable water per day, using nothing but polluted water and sunlight. Users start by pouring dirty water into the Solarball. That water proceeds to get heated by the Sun's rays, which shine in from 360 degrees through the ball's transparent upper section. Condensation forms on the inside of the ball, and is guided down to a spout via an internal gutter that runs around its diameter. What comes out is pure, clean water, as the contaminants are left behind in the unevaporated water." ["Student-designed Solarball creates drinkable water," by Ben Coxworth, Gizmag, 30 March 2011]

While many of the solutions discussed above help provide potable water for human consumption, they can't enough clean water to meet the needs of agriculture and industry. The world, however, must be fed and useful products must be manufactured. Where is that water going to come from? Obviously the most abundant source of water on the planet is the world's oceans. To be useful, however, that water must have the salt removed from it. Advancements in how that can be done will be the topic of the final segment of this 3-part series.

Let's Talk Water, Part 1

With all of the recent flooding in the United States, shortages of water may seem like a strange subject with which to be concerned. As we all know, however, like other resources, fresh water is not evenly distributed across the globe. At the same it may be flooding in mid-America, parts of Africa may be in a severe drought. Overall, however, water shortages are going to become more prevalent in the decades ahead. Those shortages will not only affect how we live our personal lives but they will also affect every industrial sector as well. Why do I think that there could be shortages? Despite the endless debates about the cause of climate change, we know that glacial ice, which many parts of the world depend on as a source of fresh water, is not being replenished. An equally important source of fresh water, water found under the ground, is also being depleted faster than it can be replenished. When water is scarce, crisis is always nearby. To avert these crises, good policies, competent science, and innovative technology are going to have work together.

Scientists are now able to use satellites to help "identify trouble spots around the globe where people are making unsustainable demands on groundwater." ["Groundwater Depletion Is Detected From Space," by Felicity Barringer, The New York Times, 30 May 2011] Barringer notes that "even as the data signals looming shortages," policymakers are failing to act. Denial is always easier than making decisions. But this is one problem that is not going to go away. Water disputes have flared between a number of regions in the U.S., China, and India, and their resolution has not proven easy. Such disputes become infinitely more difficult when they are international. As Barringer reports, "In arid regions around the world where groundwater basins are often shared by unfriendly neighbors — India and Pakistan, Tunisia and Libya or Israel, Jordan, Lebanon, Syria and the Palestinian territories — [they] are prone to suspecting one another of excessive use of this shared resource." The Economist describes the situation this way:

"Aquifers are falling, glaciers vanishing, reservoirs drying up and rivers no longer flowing to the sea. Climate change threatens to make the problems worse. Everyone must use less water if famine, pestilence and mass migration are not to sweep the globe. As it is, wars are about to break out between countries squabbling over dams and rivers. If the apocalypse is still a little way off, it is only because the four horsemen and their steeds have stopped to search for something to drink. The language is often overblown, and the remedies sometimes ill conceived, but the basic message is not wrong. Water is indeed scarce in many places, and will grow scarcer. Bringing supply and demand into equilibrium will be painful, and political disputes may increase in number and intensify in their capacity to cause trouble. To carry on with present practices would indeed be to invite disaster." ["For want of a drink," 20 May 2010]

I first started discussing this subject nearly four years ago in a post entitled: The Coming Water Wars? I concluded, "Like other global problems, dealing with water control, collection and distribution is going to take global leadership, global vision, and global solutions." Unfortunately, that sounds more like a recipe for inaction than action. In another article from its special report on water, The Economist asks, "Can the world solve its water problems?" It answers: "There is no reason in logic, physics or hydrogeology why it should not be able to do so." The real question is: "Will the world solve its water problems?" On that score, the magazine is not so certain. "Most of the obstacles are political," it claims, "although some are cultural, and none is helped by water's astonishing ability to repel or defy economic analysis." ["A glass half empty," 20 May 2010]

At the moment, I would also say that one of the problems is economics. With many countries around the world trying to control their deficits, the money for solving water problems is not likely to be forthcoming -- and the price tag is staggering. "Analysts at Booz Allen Hamilton tried in 2007 to estimate how much investment would be needed in water infrastructure to modernise obsolescent systems and meet expanding demand between 2005 and 2030. Their figure for the United States and Canada was $6.5 trillion. For the world as a whole, they reckoned $22.6 trillion." The Economist identifies just a few of projects that need to be undertaken:

"Flood protection demands embankments, or dams, or protected flood plains, or houses that rise and fall with the waters. Short rainy seasons demand water storage, ideally in places where evaporation is low. Human health demands clean water, and perhaps mosquito nets, and soap. Flourishing ecosystems require pollution control."

The short of it is that humans require water to live and the economy requires water to thrive. If the cost of doing something is high, the cost of doing nothing is even higher. Without clean water people get sick, and, with the cost of healthcare rising, prevention in the form of clean water is clearly preferable to having to pay for the cure. Clean water is required for drinking, cooking, and hygiene. Water is also generally required for sanitation systems that can adequately deal with human waste. As more and more humans populate the earth, the demand for water will only grow making it a precious if not scarce commodity. When a scarcity occurs, there is normally money to be made. That is why savvy investors are looking for companies that build, support, or operate systems that deal with water-related issues. ["Thirst for 'blue gold' set to grow," by Chris Newlands, Financial Times, 7 June 2010] Matt Dickerson, chief marketing officer at Summit Global Management, told Newlands, "Hydro commerce will undoubtedly remain one of the world's most vital industries."

Because water is required for agriculture and manufacturing, public/private enterprises are likely to spring up to meet some of the infrastructure challenges mentioned earlier. Besides the obvious profit motive, why should companies care about clean water? On the individual level, companies and agricultural groups have an interest in maintaining a healthy workforce. Healthy populations require clean water. On the company level, they need to ensure that they have access to water to meet their production requirements. This is a particularly critical issue for countries with strong agricultural sectors. The Economist reports:

"In Britain, ... farming takes only 3% of all water withdrawals. In the United States, by contrast, 41% goes for agriculture, almost all of it for irrigation. In China farming takes nearly 70%, and in India nearer 90%. For the world as a whole, agriculture accounts for almost 70%." ["For want of a drink," 20 May 2010]

In another article, The Economist uses even stronger arguments:

"Of all the activities that need water, far and away the thirstiest is farming. Cut the use of irrigation water by 10%, it is said, and you would save more than is lost in evaporation by all other consumers. Yet farming is crucial. Not only does it provide the food that all mankind requires, but it is also a great engine of economic growth for the three-quarters of the world's poor who live in the countryside. Without water they may return to pastoralism—as some people already have in parts of the Sahel in Africa—or migrate, or starve. With water, they may fight their way out of poverty." ["Making farmers matter," 20 May 2010]

There are solutions that can help reduce water use without crippling agriculture. Several years ago, Andrew Martin reported that technology could help the desert bloom profitably. ["Mideast Facing Choice Between Crops and Water," New York Times, 21 July 2008]. He wrote:

"For example, Doron Ovits, ... runs a 150-acre tomato and pepper empire in the Negev Desert of Israel. His plants, grown in greenhouses with elaborate trellises and then exported to Europe, are irrigated with treated sewer water that he says is so pure he has to add minerals back. The water is pumped through drip irrigation lines covered tightly with black plastic to prevent evaporation. A pumping station outside each greenhouse is equipped with a computer that tracks how much water and fertilizer is used; Mr. Ovits keeps tabs from his desktop computer. 'With drip irrigation, you save money. It's more precise,' he said. 'You can't run it like a peasant, a farmer. You have to run it like a businessman.' Israel is as obsessed with water as Mr. Ovits is. It was there, in the 1950s, that an engineer invented modern drip irrigation, which saves water and fertilizer by feeding it, drop by drop, to a plant's roots. Since then, Israel has become the world's leader in maximizing agricultural output per drop of water, and many believe that it serves as a viable model for other countries in the Middle East and North Africa."

Turning famine plagued countries into breadbasket countries would be a modern miracle. The experiences in Israel prove that it is possible -- if expensive. The combination of drip irrigation and increased availability of water coming from desalination (discussed in Part 3 of this series) and treated waste water plants provides some hope. Some these sources of water can also help the industrial sector. As The Economist states, "Industry, too, needs water." ["For want of a drink," 20 May 2010] The article explains:

"[Industry] takes about 22% of the world's withdrawals. Domestic activities take the other 8%. Together, the demands of these two categories quadrupled in the second half of the 20th century, growing twice as fast as those of farming, and forecasters see nothing but further increases in demand on all fronts."

Handled incorrectly, industrial water use can become a nightmare for companies. Coca-Cola's experience in India is just one example. The company was accused of depleting groundwater supplies across India. Although it denied the allegations, those denials couldn't counter the bad publicity. ["Coca-Cola Charged with Groundwater Depletion and Pollution in India," About.com] The last thing you want to hear from members of the public is, "Drinking Coke is like drinking farmer's blood in India." It's also the last thing that investors in a company want to hear. To help investors be more informed on the subject of corporate water use, the Carbon Disclosure Project (CDP) recently launched a program on water use. ["Corporate use comes under the spotlight," by Sarah Murray, Financial Times, 4 June 2010]. Murray writes:

"CDP ... acts as an intermediary between investors and companies. ... For investors that sign up to the water initiative, the motivation will be similar to that of wanting greater disclosure on carbon emissions – the need to understand how resource constraints will affect the companies in which they invest. ... Companies are asked about management and governance of water. Does the business have a water strategy, for example, or management plan with targets for consumption? Companies can also report on risks and opportunities relating to water use. This might include any physical or regulatory constraints that would negatively affect operations. Constraints may be experienced not only in terms of quantity – quality of water is also critical, as pollution could prevent companies from using the local supply. Conversely, there might be opportunities for companies to save money by reducing consumption in their production processes or recycling. Indirect water use is covered, too, as some companies make products that may not be water-intensive in manufacture but become so in use – shampoos and detergents fall into this category."

Marcus Norton, head of the water initiative at CDP, told Murray, "Water is a new subject to many companies." Murray continues:

"The CDP is following a more targeted strategy in this initiative, only approaching businesses for whom water is a material risk to their operations and profitability. Companies being contacted therefore include those in sectors such as food and beverages, chemicals and pharmaceuticals, mining, paper and semiconductor manufacturing, while those in the financial sector are not being asked to participate."

Murray notes that "measuring the impact of water use differs significantly from assessing carbon emissions." The important word in that statement is "impact." In places like Scotland, which is blessed with plenty of rainfall and deep freshwater lochs, using a gallon of water has nowhere near the impact as does consuming a gallon of water arid regions of the world. As a result, Norton told Murray that context is important when making impact statements. If Indian groundwater levels were not being depleted, Coca-Cola would never have been confronted about its water use. The other important issue related to water is quality. Murray explains:

"Assessments need to account for the quality of water when it is extracted, and the condition in which it is returned to the system. Accordingly, helping to accelerate standardisation of water reporting is part of CDP's mission, as is raising awareness of the need for standardisation."

The bottom line is that water is important for most human activities. Without an adequate supply it, people can die and economies can collapse. In the next segment in this series, I'll discuss a number of innovations that have been developed to help meet the challenge of providing potable water for humans and/or useable water for agriculture and manufacturing. In the final segment, I'll discuss recent advances in desalination.

Supply Chain Opacity: Looking through a Glass Darkly

David Manners, a blogger who focuses on the semiconductor industry, asks, "Why is the Supply Chain so Opaque?" [Mannerisms, 28 April 2011] He made that query following the devastating earthquake/tsunami disaster that struck Japan in March. Manners was puzzled why manufacturers, like Apple and Acer -- companies that are involved in "an industry which manufactures to tolerances measured in billionths of a metre, in which the researchers win Nobel Prizes and the salesmen have PhDs" -- aren't able to "forecast, plan, locate, track and measure [their] output." Even months down the line, PC manufacturers were still unable to make accurate predictions for the rest of the year ["Acer warns of stress test for supply chain," by Robin Kwong, Financial Times, 1 June 2011] Kwong continues:

"Acer, the world’s third biggest PC maker by shipments, warned that July would be the true stress test moment for the global technology supply chain in terms of disruption from the Japan earthquake and tsunami. Jim Wong, corporate president of the Taiwanese company, said on Wednesday the impact from the disaster in March had appeared limited so far because manufacturers and suppliers had been able to make use of idle stock. He also noted that the months from March to May were also traditionally a slow season for the PC industry, meaning that the supply chain had not yet come under a great deal of stress. But come July, the industry would really be 'counting on the real output from factories'. He added that the problem could be compounded by the fact that many companies’ risk management strategies would have been compromised by downsizing in the aftermath of the financial crisis. A component that used to be produced in several different locations may now just be made in one factory, for example."

Wong told Kwong that "a big part of the problem for PC brands such as Acer, which sit at the end of a long, complicated supply chain that involves hundreds of suppliers and manufacturers, was a lack of transparency about what was happening elsewhere in the supply chain." Wong's comments beg the question: "If manufacturers involved in the IT sector can't find a way to obtain end-to-end supply chain visibility, is there hope for any other industry?" I believe there is hope; but, that hope is obviously tempered by the enormous challenges that have yet to be solved. Kwong indicates that the PC industry has been lucky. "The general sentiment among analysts and other executives," he writes, "is that the impact from the disaster is turning out to be much milder than initially feared." That assessment demonstrates a level of resiliency that seems to have surprised many analysts. Kwong continues:

"[Mr. Wong laments,] 'We talk to our manufacturer one step upstream, and up to now they feel okay. They have also asked their supplier one step upstream and it is still okay. But ... nobody knows whether three or five layers up there will be an issue or not.' This meant that there was very little that Acer could do to prepare for potential problems emerging later. One reason for this opacity is the issues of confidentiality that surround highly specialised and sometimes privately held suppliers. Another factor particular to Japan was the conservative nature of the Japanese, Mr Wong said. 'They always try their best to resolve the issues, so they will tell you that "we are working on that, and up to now there are no problems", but there might be a problem in the end,' he said."

Anyone in the data business is familiar with the phrase, "Garbage in, garbage out." If stakeholders in a supply chain provide bad information (either out of mistrust or a desire to save face), visibility throughout the entire supply chain is compromised. Supply chain analyst Trevor Miles asserts that "the cause of the supply chain opacity ... is the degree of outsourcing, coupled with ever increasing product portfolio complexity, which is due to mass customization and shortening product life cycles." ["Visibility, the antidote to supply chain opacity," The 21st Century Supply Chain, 2 May 2011]. He continues:

"Statistical forecasting is a 'large number' tool that requires long histories and frequent sales to achieve a high level of accuracy. Digital cameras have life spans of six months and less. Smart phones have a life span of 18 months and less ― and this is decreasing even as the number of models and model variants explodes. The shorter life spans means there is little history to go on and the explosion of model variants is greater than the increase in sales volume. It is no wonder that consumer electronics companies can seldom get forecast error, as measured by MAPE at a month lag, below 50 percent. Forecasting at the product family level only makes matters worse because this hides trends that are critical to determining component and capacity requirements, even though forecasting at the product family level may lull you into a false sense of security by reducing forecast error."

Although Miles makes the situation sound hopeless, you can tell from the title of his post -- Visibility, the antidote to supply chain opacity -- that he believes existing challenges can be overcome. He notes that some pundits insist that supply chain complexity must be decreased "by reducing the product portfolio"; but, Miles correctly asserts that "product portfolio complexity is required to compete in a consumer market with ever changing requirements." So what does he recommend? He writes:

"I am the first to agree that a sound product portfolio analysis is something everyone should do, but outsourcing isn't going away, neither is mass customization. So I say embrace complexity by providing visibility. But in today's highly outsourced environment visibility must span several tiers of the supply chain from customer through OEM to contract manufacturer and on to the component suppliers. If you have distributors, then at least get a 'sell through' measure of demand, not just a 'sell in.' But access to data across the supply chain is not visibility."

Before reading Miles' final thoughts, let's pause to emphasize his last statement -- "access to data across the supply chain is not visibility." I couldn't agree more. Libraries are filled with books to which the general public has access; but unless a person actually picks up a book, reads it, analyzes its content, and changes his or life as a result, access means nothing. Information is only useful if something is done with it. Miles concludes:

"Without a manner in which to respond rapidly and profitably to actual demand, access to data adds nothing. But I agree, access to information across multiple tiers of the supply chain is a start. Being able to detect changes from the plan, understand the consequences of the changes on customer commits, capacity requirements, or component requirements, and evaluate alternative courses of action in both financial and operational terms quickly and effective[ly] is the clue to gaining visibility. Only this will reduce the opacity in today's supply chains."

Capgemini Consulting reports that a recent survey indicates that business executives are determined to make their supply chains more visible ["Supply Chain Execs Determined to Improve Visibility as Outlook Remains Volatile," SupplyChainBrain, 20 May 2011]. The company's press release states:

"Although the general economic outlook at the start of 2011 seems positive, a significant number of the respondents to this year's Capgemini Consulting survey indicate they are uncertain about market demand in 2011 and that they are therefore determined to improve visibility in the supply chain. The study reveals that the top two business drivers for supply chain executives in 2011 are operating a reliable supply chain in a volatile environment, while simultaneously dealing with rising material costs."

According to the release, "40 percent of respondents answered that demand volatility was their number 1 business driver." It should be encouraging to supply chain professionals that supply chain reliability now gets more mention than cost cutting. There will always be a tug-of-war between lean processes and resiliency; but, the edge should go to resiliency. The press release continues:

"Meeting this twin challenge will mean improving control of both the internal and external supply chain. Consequently, when the respondents were asked to name their top supply chain projects in 2011, improving supply chain visibility ranks as top for 45 percent of them. Visibility was defined as knowing where products and inventories are, being able to monitor order progress and being able to anticipate unplanned events in the supply chain, like delayed transport or non-conformance quantities in the production process of subcontractors. Business process redesign (44 percent), business innovation (41 percent) and improving long term (demand) forecasting and planning (41 percent) follow closely on the list."

The release indicates that "300 leading companies participated from various sectors in Europe (59 percent), the U.S. and Canada (25 percent), Asia-Pacific (10 percent) and Latin America (6 percent)." The survey was enhanced using "face-to-face interviews with 30 senior supply chain executives, which provided additional insights." Download a full copy of the report at: http://www.capgemini.com/insights-and-resources/by-publication/the-2011-global-supply-chain-agenda/.

There are numerous companies claiming to offer supply chain visibility solutions. As the above discussion reveals, the most they can really promise is partial visibility because access to data requires the cooperation of stakeholders all along the supply chain. Any visibility is a good thing. As the Dutch philosopher Desiderius Erasmus wrote hundreds of years ago, "In the land of the blind, the one-eyed man is king." In the Christian Bible, the apostle Paul indicates that seeing the future is often like looking through a glass darkly. When it comes to the supply chain, the more data a company has access to the less dark the glass becomes. Most supply chain analysts that I have read agree that improved visibility is one of the hallmarks that will distinguish superior supply chains in the coming decades.

Assessing Supply Chain Risk Events

Before jumping into today's topic, I hope you will pardon a little horn-blowing. I was recently contacted by Tracy Myers of PMPCertificationTraining.org and told that this blog had made the group's list of the 50 Best Risk Management Blogs. I confess I was a bit surprised since risk management is only one of many topics about which I write. Nevertheless, I am flattered to be on a list that includes so many distinguished and accomplished bloggers and sites. Now, on to today's topic.

Steve Hall reminds us, "In the fast-paced world of global supply chains, you can't always know what's going on right now." ["How do you know the true impact of a risk event on your supply chain?" ProcurementBlog, 18 March 2011] Even if you could gather all the data you required in real-time, it would still take time to process and present that information in an actionable format. The bottom line is that supply chain risk managers will always encounter a time delay when dealing with risk events. Hall was specifically addressing his comments to Chief Procurement Officers (i.e., professionals who must react to supply disruptions or commodity price volatility). Since a perfect "sense, think, and act" system doesn't exist, Hall asks, "So what do you do?" He continues:

"A CPO of a major mining organisation recently told me he has a series of checklists in place so if one of his team, responsible for monitoring a situation notices any of these 'red-light situations' happening they immediately go into a pre-planned risk-aversion drill. Great, but obviously you can't plan for everything."

I agree with Hall that you can't plan for everything; but, you can plan for some things. Conducting "what if" exercises helps decision-makers develop the skills they need to confront risk events, even if they are not events for which mitigation plans exist. To learn more about the importance of "what if" exercises, read my post entitled Modeling "What If" Scenarios. The next thing that Hall recommends is "getting a better understanding of the situation itself." Although decisions often need be made quickly, rushing to judgment can often be as bad as procrastination.

During "what if" exercises as well as real-world risk events, understanding what kind of information you need to make an informed decision can be the best place to start. I recommend contacting appropriate personnel and having them write down questions that need to be answered to help in order to make the best possible decisions. Once those questions are sorted out, you'll have a much better idea about the kind of information you will need to make informed decisions and a pretty good idea where you need to start.

Obtaining the right information may not always be easy. Hall notes, for example, that decision-makers couldn't fly data gatherers into Japan following the earthquake/tsunami in order to collect first-hand information. Knowing what kind of information you need, however, will make searching for it much more focused and effective. The worst thing you can do is nothing. Hall believes that too many companies aren't proactive enough. Their attitude, he writes, seems to be "we don't know what is going on but we're worried." Hall continues:

"For some the most valuable tools might be those to communicate directly with suppliers. You want to know what is happening and when, for example, that factory is going to reopen, you call them. But that may not always be feasible and you may not get the answers you need. Thus the question – and it something of an open-ended one – what are you basing your short-term decisions on when it comes to complex, unclear events? Not trends, I'm referring to risk-rich situations, like the earthquake in Japan, where everyone agrees that supply chains will be affected but no-one can quite put their finger on how much. Perhaps the answer is that there's not much you can do; no-one has a crystal ball. But whenever I've spoken to CPOs, even in theoretical terms, about risk management, they've almost always emphasised the importance of spotting the risks early and having the plans in place to minimise the effects."

Hall concludes his post with this question, "How do you actually go about doing that?" Daniel Stengl, whose blog also made the Top 50 list noted at the beginning of this post, indicates that there is no single answer to Hall's question because no two risk events are ever the same. "Uncertainty," he writes, "can be categorized [as] continuous risk, more slowly changing patterns, and disruptions, which describe abrupt changes in a system." ["Mitigation or Contingency Strategies against Disruptions," Supply Chain Risk Management, 16 February 2011] Each of those categories of risk requires a different timeline, a different level of analysis, and, most importantly according to Stengl, a different strategy. Stengl's post focuses on a study by Brian Tomlin ["On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks," Management Science, Vol. 52, No. 5, May 2006]. Stengl continues:

"Mitigation strategies are distinguished from contingency strategies by the time when an action is performed. Often most of the cost occur at the same time. Mitigation Strategies, are planned and executed before the risk occurs (e.g., increasing inventory levels). Contingency Strategies, are planned beforehand but executed after the risk occurs (e.g., power generator after a power failure)."

Stengl continues his narrative with a discussion about "Optimal Strategies" that were "tested in Tomlin’s model." The follow graphic summarizes the strategies.

Figure 2: Available Strategies in the Model (Tomlin, 2006)

Stengl concludes his post with a summary of Tomlin's conclusions and a few of his own. He writes:

"From the data at hand Tomlin draws the following conclusions:

• "Switching to a more reliable source is favored over inventory mitigation for less frequent but longer disruptions
• "Inventory mitigation may not be an attractive strategy when disruptions are rare but longer, since significant quantities of inventory need to be carried for extended periods
• "For a given percentage uptime, mitigation rather than contingent rerouting tends to be optimal if disruptions are rare
• "If volumes of the more reliable supplier are flexible, contingent rerouting (from the unreliable to the reliable supplier) can be a possible strategy
• "Contingent strategies can help reduce the firm's cost when used as a component of the optimal disruption management strategy
• "For risk averse firms, mixed mitigation strategies (combining partial sourcing from more reliable sources and inventory mitigation) can be optimal ...

"Tomlin meant his model not to be used for direct application in an business context, but to find out more about what factors influence optimal strategies for mitigating disruption risks. He finds that the most influential parameters are the supplier uptime and the expected disruption length, and those therefore have a great deal in defining the optimal supply chain strategy for a company. Using these findings businesses can analyze and reevaluate their current strategies."

In a contingency, finding out the expected disruption length may be the most important information you need and it may also be difficult to obtain. Suppliers will be tempted to minimize their estimates and downplay the seriousness of the situation. Like good soccer officials, smart risk managers must figure out how much stoppage time to add on to the supplier-provided estimate. As I noted in a post entitled Gartner Publishes Its Supply Chain Top 25, "companies that can master volatility, uncertainty, complexity, and ambiguity (VUCA) have a better chance of surviving and thriving than those that can't."

Keith Harrison, Procter & Gamble's global product supply officer, indicates that his company spends "an awful lot of time handling ... operations in 'Vuca'." ["Business diary: Keith Harrison," as told to Barney Jopson, Financial Times, 7 March 2011] Concerning events surrounding the so-called Arab Spring, he told the Financial Times, "We consider it now a fact of life that events such as the ones we have seen in the Middle East and north Africa may impact our facilities, customers and consumers and we need to be ready to react." As Harrison underscores, events that were once considered "black swans" are no longer considered remote or inconsequential. In times past many companies generally had to worry about risk events at a few locations in stable countries. With globalization, the number of plants, locations, and potential risk events have grown exponentially. It turns out that black swans aren't all that rare.

Since, as Steve Hall correctly reminds us, you can't plan for every risk event, the next best thing to do is make a vulnerability assessment of your company. Risk events may be different, but your vulnerability to those events remains fairly constant. Jeff Karrenbauer, president of INSIGHT, a supply chain management consultancy, notes that "ad hoc strategies, such as drawing down inventory stockpiles, are poor substitutes for proper supply chain continuity planning." ["Would Vulnerability Analyses Have Helped Supply Chains in Japan Avoid or Minimize Disruption?" SupplyChainBrain, 25 March 2011] Karrenbauer further stated, "Companies need to have a strategic supply chain plan in place that mitigates the impact of disruptions. Possible components of the plan include inventory positioning, alternative sourcing, transportation options and so on." The article continues:

"Strategic supply chain plans incorporating inventory analysis balance the cost of extra stock against the risk of lost sales, lost customers and a negative impact on bottom line profitability. Too much inventory results in higher costs, negative impact on cash flow, and too much working capital tied up and unavailable for other initiatives. Too little inventory results in missed sales, lost customers, and poor service. Strategic planning ensures companies have alternative sources of parts and supplies along with balanced inventory levels."

I think Daniel Stengl would agree that the strategies noted above are important but you need to understand the difference between a mitigation strategy and a contingency strategy -- both are important. If risk management is one of your main tasks, I recommend you regularly visit a number of the posts recognized in PMPCertificationTraining.org’s list of the 50 Best Risk Management Blogs.

Emerging Market Consumers, Part 2

In yesterday's post, I discussed the growing amount of wealth that is being generated in emerging market countries. I also pointed out that most of that wealth is going to be generated in urban environments. The final part of yesterday's discussion talked about the super-wealthy in emerging market countries. Today I want to concentrate on the growing global middle class. In a previous post, I noted that few pundits can agree on what constitutes "the middle class." Christa Case Bryant agrees that "even experts can't agree on what the middle class really is." ["Defining 'middle class'," The Christian Science Monitor, 17 May 2011]. She continues:

"Is it income, or the way it's spent? Education, or social status? Can salary denote more intangible characteristics of the middle class, like being cultured and idealistic? The answers are complex and imprecise at best."

In the post mentioned above, I wrote, "I suspect that most people who consider themselves middle class make enough money to obtain the necessities of life and have enough left over for some discretionary spending." I still think that having money for discretionary spending is what marks the middle class no matter where they are located. Bryant goes on to discuss the differences in perspective for those living in India, China, and Brazil. She concludes, "What's important is how the purchases, perspectives, and pressures of this loosely defined global class are shaping the future."

In yesterday's post, I noted that economic progress generally precedes political transformation. China is a good example of this phenomenon. Peter Ford notes, "Consumer choice, not political choice, is the only freedom China's middle class now enjoy." ["In China, middle-class affluence, not political influence," The Christian Science Monitor, 20 May 2011] Ford continues:

"A range of different sorts of white-collar people – entrepreneurs, employees of large state-owned enterprises and multinational companies, party and government officials, lawyers, doctors, and teachers – make up the middle class. By those criteria, these 300 million Chinese (25 percent of the population) are middle-class. The international consulting firm McKinsey & Company forecasts that by 2025 those numbers will have more than doubled to constitute 40 percent of the population."

In another story about the global middle class, Christa Case Bryant writes, "By 2030, the global middle class is widely projected to at least double in size to as many as 5 billion – a surge unseen since the Industrial Revolution. This boom, however, is more global, more rapid, and is likely to have a far different – and perhaps far greater – impact in terms of global power, economics, and environment, say economists and sociologists." ["Surging BRIC middle classes are eclipsing global poverty," The Christian Science Monitor, 17 May 2011] There has been a lot of attention given to the economic superstars such as China, India, and Brazil -- and for good reason. As noted above, China's middle class numbers some 300 million people. That's a lot of consumers; and consumers are good for business. Concerning India, Bryant writes, "Touting tigers, the Taj Mahal, and the towering Himalayas, India opened the 21st century with its 'Incredible India' campaign to attract tourists from around the world. But the unexpected happened. A surprising new face showed up on the Indian tourism scene to fill hotel rooms and tour bus seats: Indians themselves." She continues:

"The curious and free-spending domestic traveler, ... says Amitabh Kant, an Indian development official who wrote the book 'Branding India: An Incredible Story,' is an 'economic savior' for India. And, to boot, Mr. Kant says, middle-class Indians are a powerful market abroad, now outspending Americans in London, for example, by 10 percent. The 'Incredible India' surprise is part of a surge of prosperity that is rapidly expanding the world's middle classes."

Bryant notes that "India's middle class is projected by the NCAER to grow by 67 percent in the next five years, to 267 million people, or nearly a quarter of its population." Rudy Martin, editor of Emerging Market Winners, writes that the same economic boom can be found in Brazil and other Latin American countries ["Those Soaring Emerging Markets …," Uncommon Wisdom, 16 October 2010] He reports:

"More than 30 million people moved out of the slums in Latin America since 2000, according to a recent U.N.-Habitat report. Argentina and Colombia experienced the biggest reductions, with 40% of their poor climbing out of poverty in the last 10 years, joining a swelling lower-middle class. As these people continue to move out of poverty they will have a huge impact on the already growing economies. With that comes increased demand for everything from cars to homes to wireless phones. Here are some highlights of increased consumer demand …

"— Brazilian auto production rose from to 3.1 million units in 2009, up 41% in five years (while U.S. car production dropped 53% in the same time span).

"— The country had 8.4 million paid TV homes at the end of June. The accumulated growth in the first six months of the year is 12%.

"— Retail sales in Brazil were up 11.4% in the first seven months of 2010 compared to the same period last year.

"— More than 85% of Brazil’s population lives in urban areas, creating massive demand for new housing.

"— And more!

"And while Brazil may be the largest economy in Latin America, other emerging Latin American economies are showing even faster growth. The IMF projects 2011 GDP gains of 6% or more for Argentina, Peru and Chile. Speaking of Chile …

"— Chile has reduced its poverty rate from 45% of the population in the late 1980s, to around 14% in 2009.

"— Chile now has one of the most developed mortgage markets in Latin America, representing 20% of GDP, up from 12% in 2002.  

"— Chile’s retail sales are expanding at better than 13% annually.

"Indeed, if Latin America can keep up the growth of the past few years — as I fully expect it will — income per person will double by 2025, to an average of $22,000. Already, the emerging middle class of Latin America is aspiring to what is called 'The six Cs': A casa, carro, cellular, computadora, cable y cinema (a home of one's own, a car, a cell phone, a computer, cable or satellite television and trips to the cinema.)"

Bryant reports that by 2022, the Organization for Economic Cooperation and Development predicts that, for the first time in history, the world will "move from being mostly poor to mostly middle-class. She continues:

"But today's middle-class boom is unlike the Industrial Revolution, in which rising prosperity became a catalyst for increased individual and political freedom. Those in the emerging global middle classes – from an Indian acquiring a flush toilet at home to a Brazilian who can now afford private school to a Chinese lawyer with a new car in the driveway – are likely to redefine their traditional roles, and in doing so, redefine the world itself."

If Bryant is really arguing that the new global middle class won't seek "increased individual and political freedom," I think she's wrong; but she bases her argument on the fact that many new middle class participants come from communal traditions rather than individualistic traditions. She explains:

"From Aristotle to Alexis de Tocqueville, Western thinkers have championed the middle class as essential for prosperous, enlightened societies. They held it up as the engine for economic growth, the guardian of social values, and an impelling and protecting force for democracy. The new members of the middle class have been praised for their work ethic, like the shopkeepers, tradesmen, and professionals who spurred the Industrial Revolution. But they also differ in fundamental ways. They come from communal societies that rein in the individualism prized in 1800s America. Their exposure to the pitfalls of the West's extravagant consumerism often makes them more frugal and environmentally conscious. And they are hesitant – for now, at least – to risk prosperity for political freedom."

I agree with her that new members of the global middle class "are hesitant to risk prosperity for political freedom"; but, that is a far cry from arguing that prosperity this time around won't be "a catalyst for increased individual and political freedom." I think it will be. And while I agree with her that the new global middle class may be more frugal, I'm not convinced that they are a great deal more environmentally conscious. Profits still look like the driver behind many activities that are environmentally questionable -- like rare earth extraction in China. Bryant goes on to ask, "What's driving this bulge [in the growth of the global middle class]?" She writes:

"State policies such as Brazil's increased minimum wage and India's reduced tax rates have boosted incomes. Foreign investment is giving more people salaried jobs, and those in turn are driving demand for everything from mechanics to more fashionable clothes, says economist Homi Kharas of the Brookings Institution in Washington. And more are getting better education. That presents opportunities both for local entrepreneurs and multinationals – and could change the products available to the West."

Over the past several years, I have mentioned that the basics for economic development include: good governance (especially the curtailment of corruption); improved infrastructure (especially a reliable source of electricity); increased foreign direct investment; and, a workforce that is educated and healthy. Look at the top of the heap of emerging market countries and you will find progress in each of these areas. When new consumers enter the market, they create a stream of discretionary spending. Retailers are anxious to get in front of that stream of money. As a result they have created products that appeal to consumers at the lower end of the middle class. Surprisingly, many of those products have found their way onto shelves in developed markets as well. Bryant explains:

"Last year, Levi's specifically targeted Asians with its launch of dENiZEN, a new line for the 'global citizen' complete with pink T-shirts that say 'Chase Your Dream.' In a reversal of the usual currents of global markets, dENiZEN will come to the US this summer, where Target will carry a line adapted for Americans. There are other pioneers on this East-West route, particularly in consumer electronics, auto parts, and construction equipment, says Elizabeth Stephenson of the global consulting firm McKinsey & Company. In 2007, Finland's Nokia introduced seven low-cost cellphones in India; at least three of them are now marketed in the US. Last year, General Electric developed a low-cost electrocardiograph machine for rural India, and within weeks 500 units were en route to Germany."

To learn more about these subjects, read my posts entitled Innovation in (and from) BRIC Countries and Emerging Markets Beckon; but, Get it Right or Go Home. Bryant continues:

"'As companies have begun to sell into emerging markets, they've had to innovate – both multinationals and local companies. They've learned to do things at a much better value-to-price ratio,' says Ms. Stephenson, coauthor of a 2010 McKinsey report on emerging-market growth. 'Now, what you're starting to see is a lot of that innovation flow back. These new low-cost innovations are beginning to disrupt Western markets. The emerging market story is really a global story.' Within a decade, Americans could start to see some of the inexpensive cars now being launched in China, such as GM's new Baojun 630, which began selling last month starting at $10,800. But due to higher US standards for emissions and safety, along with consumer desire for sound systems and other amenities, even such cars will cost much more in America."

The companies that will win the race to gain new consumers will be those that are most agile at adapting to local conditions and tastes. Bryant notes that globalization inevitably creates "tension between traditional values and upward mobility." She believes, however, that communal societies, like India's, will handle this tension better and keep citizens more "socially connected." Many in the West are concerned watching their power and influence heading east. Since the generation of wealth is not a zero-sum game, they should be more concerned about how to take advantage of new business opportunities created by a growing middle class. Peter Wonacott states that people shouldn't just be looking to Asia (or even Latin America) for opportunities. He writes, "Sustained economic growth in Africa has produced for the first time a broad middle class, one that cuts across the continent and is on par with the size of the middle classes in the billion-person emerging markets of China and India." ["A New Class of Consumers Grows in Africa," The Wall Street Journal, 2 May 2011] This is good news. A growing global middle class is something to be celebrated rather than feared. However, the continued growth of the global middle class is not inevitable. Heated economies and superinflation can wipe out years gains nearly overnight. Politicians in emerging market countries need to be wise stewards of the economy if they want their constituents to continue their climb out of poverty.

Emerging Market Consumers, Part 1

In several past posts, I've made the assertion that economic progress generally precedes political transformation. The logic for that is fairly straight forward. When a population moves out of poverty and into the middle class (i.e., its members find themselves with discretionary spending money), their attention naturally turns to politics. Why? The reasons are many. To name a few: they don't want their hard-earned cash taxed too heavily; they want freedom of movement and expression; and they expect the government to provide them with services that improve their quality of life. Because economic progress has such a dramatic impact on politics, both political and economic analysts are carefully watching the emergence of the new global upper and middle classes. Fareed Zakaria told Nora Dunne, "The growth in emerging markets is not just at the economic level. It's also happening in terms of psychology. Chinese, Indians, and Koreans are feeling a much greater sense of political confidence and assertiveness. You see this on the world stage everywhere." ["How the American dream went global: interview with Fareed Zakaria," The Christian Science Monitor, 23 May 2011]

Zakaria's claim that economic progress is leading to political transformation "everywhere" may sound like hyperbole, but it is not far from the mark. There are only a few dark corners of the world where globalization has yet to shine its light. Most new members joining the global upper and middle classes will come from urban settings. Analysts from McKinsey & Company claim, "Over the next 15 years, 600 cities will account for more than 60 percent of global GDP growth." They provide a great interactive map that allows you to explore questions like: "Which of them will contribute the largest number of children or elderly to the world’s population? Which will see the fastest expansion of new entrants to the consuming middle classes? How will regional patterns of growth differ?" Below is static image of one of the map views.

The above map makes it clear that demographic growth is not evenly spread across the surface of the globe; neither is economic progress. McKinsey analysts report, "More than 20 of the world's top 50 cities ranked by GDP will be located in Asia by the year 2025, up from 8 in 2007. During that same time period, our research suggests, more than half of Europe's top 50 cities will drop off the list, as will 3 in North America. In this new landscape of urban economic power, Shanghai and Beijing will outrank Los Angeles and London, while Mumbai and Doha will surpass Munich and Denver. The implications—for companies' growth priorities, countries' economic relationships, and the world's sustainability strategy—are profound." ["Urban economic clout moves east," by Richard Dobbs, Jaana Remes, and Sven Smit, McKinsey Quarterly, March 2011]

Most of the "profound implications" for business referred to by Dobbs and his colleagues are related to the growing global middle class (which will be the subject of the second post in this two-part series on emerging market consumers). As in times past, however, most of the new wealth that is being created is controlled by a handful ultra-wealthy individuals and families. Those individuals are more and more likely to come from emerging market nations. ["Brics becoming billionaire factory," by Alan Rappeport, Financial Times, 9 March 2011] Rappeport reports:

"The number of billionaires in leading emerging economies has surpassed the number of those in Europe for the first time and is quickly closing in on the US, according to new figures from Forbes. The US still has the world's most billionaires, with 413 individuals with a total net worth of $1,500bn. At the beginning of this year, the Brics countries – Brazil, Russia, India and China – had 301 billionaires, 108 more than in the previous year, and one more than Europe. 'The global billionaires this year reflect what's going on in the global economy,' said Steve Forbes, chief executive of Forbes magazine, pointing to the growth in emerging economies."

It is not just BRIC countries that are producing billionaires. The article points out that the world's wealthiest man, Carlos Slim Helu, comes from Mexico. Rappeport writes, "As the world economy recovered, the number of billionaires rose to a record 1,210 in 2011, boasting a total net worth of $4,500bn as of February 14." He continues:

"In Asia, the number of billionaires has nearly tripled in the past two years to 332, with 115 in mainland China alone. The richest man in China is Robin Li, founder of the search engine Baidu, with $9.4bn. ... India's 55 billionaires have an average net worth of $4.5bn. ... Japan, once the economic engine of Asia, is now lagging behind with just 26 billionaires. Europe's fortunes are also starting to slow, with its number of billionaires overtaken by Asia for the first time in more than a decade. Booming commodity prices have helped Russian billionaires."

More often than not people decry the fact that so few people control so much wealth. Ruchir Sharma argues, however, that countries need more not fewer billionaires if they are going enjoy future economic success. ["For healthier development India needs far more new billionaires," The Economic Times, 9 May 2011] Before you dismiss Sharma as an elitist, he admits that in some countries the presence of billionaires demonstrates an underlying corruption that undermines rather than promotes economic progression. His prime example is Russia. He writes:

"There is something anomalous about the fact that Russia's billionaires number as many as China's, even though its economy and market capitalisation are less than a third in size compared to the world's largest emerging market. Not just that but Russian billionaires have almost twice as much wealth as their Chinese counterparts, they mainly originate from one city - Moscow - and little churn has taken place at the top with eight of the richest 10 common between the latest list and that of 2006. ... [That] suggests that in Russia, the distribution of wealth is extreme and power is well entrenched at the top. Such high levels of concentration aren't surprising considering that nearly 80% of Russia's billionaires are in the commodity space where government patronage is often needed to make wealth in those industries. Russia's billionaire list also shows that outside of the oil and materials sector, little other economic activity of any size is underway as only modest wealth is being generated in more innovative businesses such as tech and media."

Although he admits that there are problems in China, he asserts that China is a better example of why billionaires are important for a growing economy. He continues:

"At the other end of the spectrum is China's list [of billionaires], which lays bare the country's unstated rule that it is not good for an economy to have billionaires who are too rich and for too long. Not a single billionaire in China has a net worth of more than $10 billion; compare that to 16 in Russia and 8 in India. Only one business tycoon, who made China's list of top 10 billionaires five years ago, was on the roster in 2011, and all the other nine few faces created their wealth outside the commodity sector. ... To be sure, there is plenty of talk regarding crony capitalism in China too and some reports even suggest that a majority of the Chinese worth more than $10 million are children of high-level Communist Party officials. While such rumours are hard to confirm, it is apparent that Chinese leaders certainly do not want to go the Mexican way where just a handful of families control the economy."

In other words, Sharma believes it is better for a country to have 100 billionaires than a single individual worth $100 billion. James Mackintosh notes that emerging market billionaires have generated wealth for investors as well as themselves. "Emerging-market shares have more than doubled in value in the past six years, while shares in developed markets are up only 16 per cent." ["The new frontiers of wealth," Financial Times, 26 May 2011]. He continues:

"The link between billionaires and foreign investors may seem simple enough. Emerging markets tend to be inefficient, with success often involving the right government connections and friendly regulators. The mere act of creating a billion-dollar fortune proves someone has the ability to navigate these tricky waters. Invest alongside them – an increasing number of these billionaires run listed companies – and investors will be towed along in their wealth-creating wake."

Rudy Martin, editor of Emerging Market Winners, agrees with Mackintosh that "billionaires are not getting rich in a vacuum." ["Those Soaring Emerging Markets …," Uncommon Wisdom, 16 October 2010] Since this is a post about emerging market consumers, I really don't have to point out that consumers need money or access to credit. That's why I'm starting the money trail at the top -- with the billionaires. They are the emerging markets first consumers. This actually concerns some governments. Sharma points out that "Chinese policymakers are wary of the power of big business and Beijing's recent ban on outdoor advertising of luxury goods shows that the economic leadership is increasingly concerned about a potential backlash against conspicuous consumption." Despite the advertising ban, Rahul Jacob reports, "The luxury goods market in China is booming," ["Tastes of the newly wealthy," Financial Times, 16 March 2011] He continues:

"McKinsey ... released a report forecasting that spending on luxury goods by Chinese consumers would grow by 18 per cent annually to about $27bn by 2015 – when the market will surpass that of Japan, the current biggest market. Aaron Fischer, an analyst at CLSA, a Hong Kong-based brokerage, is even more bullish. He estimates that annual growth in luxury sales in greater China – like McKinsey's numbers, this includes Taiwan, Hong Kong, mainland China and sales to Chinese tourists shopping overseas – will be 25 per cent, accounting for 44 per cent of global sales by 2020. Luxury goods companies from Gucci and Salvatore Ferragamo to carmakers BMW and Mercedes-Benz, can attest that the abandon with which wealthy Chinese shop is prompting them constantly to revise their sales targets for the region."

Jacob reports that luxury goods companies are having to adjust to the Chinese luxury goods market because Chinese millionaires "are 15 years younger than their overseas peers and they spend more per transaction." He continues:

"Unlike in the west, men ... account for a larger proportion of luxury goods sales than women. They also tend to buy luxury goods as gifts for wives, girlfriends, mistresses and business contacts in higher numbers than in the west. 'Relationship-building', for example, a euphemism for bribes, is enough of a factor for luxury stores to have more stores in Beijing than the number of wealthy in the city would justify. This tendency towards conspicuous consumption also extends well beyond the ranks of the wealthy."

Although emerging market super-wealthy individuals help generate wealth and jobs, it is the growing global middle class that will have the most far-reaching and profound impact on the world's economy. The global middle class will be the subject of my next post.

The Age of Mobile Payments is Upon Us

Mobile phone customers in developing countries have for years used that technology as a way to make financial transactions. I first started writing on that subject back in 2007 (see my post entitled Relief, Development, and the Digital Divide). From the number of recent articles that have been written on the subject of mobile payments and mobile point of sale (POS) devices, I can only conclude that the age of mobile payments is upon us. For example, Robin Sidel and Amir Efrati recently reported, "Three of the nation's largest banks are racing into the growing battle over how consumers move money and make payments, launching a service ... that lets people use their checking accounts to send each other money with an email address or cellphone number." ["Big Banks Join Battle for Online Payments," The Wall Street Journal, 25 May 2011] Sidel and Efrati continue:

"Banks are looking to hold onto their influence over consumers, who are increasingly shunning checks and cash, turning instead to new nonbank technologies to spend their money. The new service from Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co. takes aim at the popular PayPal offering. At stake are billions of dollars in credit-card, overdraft and checking fees each year. 'Customers want to move payments from paper to electronic methods, so if we can meet our customers' financial needs, they will be better customers with us,' said Mike Kennedy, who develops payment strategies at San Francisco-based Wells Fargo and is chairman of the new venture."

Sidel and Efrati assert that big banks, and organizations like Google, "are trying to encroach on the dominance of eBay Inc.'s PayPal unit, the market leader for electronic-based payments. Revenues of the unit have tripled since 2005 and now account for one-third of Ebay's operating profit." They insist this is good news for consumers since it means "that Americans will soon have an unprecedented number of payment options that could further reduce the use of traditional methods." Sidel and Efrati note that the new bank venture comes with some inherent risks for participating financial institutions. They explain:

"The banks' new service, which other financial institutions will be able to join later, carries some financial risk for them. Although it is being aimed at person-to-person payments, owners of small or medium-size businesses could potentially ask customers to pay for goods and services by sending money directly from their online accounts. That could let merchants skirt the fees they now pay banks for processing debit and credit cards."

Google's efforts to get into the mobile payment business focus on a technology called "near field communication [NFC], which is embedded in newer smartphones powered by Google's Android software and that can help turn the devices into a kind of electronic wallet." ["Google to Unveil Mobile Payments Platform," by Robin Sidel and Amir Efrati, The Wall Street Journal, 25 May 2011] The new Google offerings are called "Google Wallet and Google Offers." ["Google Unveils Smartphone 'Wallet'," by Roger Cheng, The Wall Street Journal, 26 March 2011] Cheng reports:

"Google said its Wallet service is free to use and it will make money from the Offers side, which acts like Groupon Inc., taking a cut from consumers who redeem coupons. The company also plans to use location and transaction data to provide targeted offers to customers who opt in. Google will also act as the merchant of record for the promotions it will offer through the phone, taking a cut from those transactions, according to Stephanie Tilenius, Google's vice president of commerce."

Sidel and Efrati report that "the program will launch first in New York, San Francisco, and potentially other locations, followed by a broader rollout, said a person familiar with the matter. Participating retailers include Macy's Inc., American Eagle Outfitters Inc. and the Subway fast-food chain, said a person familiar with the matter. Retailers that participate in the program will have upgraded terminals at the point of sale that can read the mobile devices and provide special offers." The drawback of NFC for brick-and-mortar merchants is that they must "upgrade or buy and install new equipment from companies like ViVOtech Inc. that costs $100 to $350." Nevertheless, NFC technology may take hold because it has other uses beyond making financial transactions. Sidel and Efrati explain:

"Many credit card readers allow people to pay or redeem digital coupons by tapping their credit or debit card, but newer ones built by those companies also let people pay through NFC, including by tapping or waving their smartphones. The Google payments platform will allow software developers to create mobile applications, or apps, which take advantage of the technology. For Google, the system could help boost its digital advertising business. The planned payment system would allow Google to offer retailers more data about their customers and help the retailers target ads and discount offers to mobile-device users near their stores, these people said. Google, which hopes to sell ads and discount offers to the local merchants, isn't expected to get a cut of the transaction fees. In addition to receiving targeted ads or discount offers, users could manage credit-card accounts and track spending, loyalty points and other things through applications on their smartphones. Many mobile app developers have said they could use NFC technology in the future. For example, Pageonce Inc., which has a mobile app that lets consumers control their finances and bills after they have connected their bank and credit card accounts to the app, has said it sees NFC as a useful technology for its users. Users who are at a gas station could see that one of their credit cards will give them 5% cash back on their gas purchase. The consumers could choose to pay with that card and swipe their phone next to an NFC-enabled credit card reader, if the gas station has one. Google has already teamed up with smartphone maker Samsung Electronics Co. to embed NFC technology into phones that use Google's Android software, while other hardware makers have said they would follow."

According to Sidel and Efrati, Google is partnering with Sprint Nextel Corporation to offer NFC technology as early as next year, which would put the Google/Sprint team ahead of AT&T, Verizon Wireless, and T-Mobile USA in letting "users make payments and redeem offers via their smartphones." PayPal's parent company, eBay, isn't taking all of this activity passively. It sued Google on the same day that Google announced the details of its new services ["Ebay Sues Google Over Mobile-Payments System," by Ian Sherr and Andrew Morse, The Wall Street Journal, 26 May 2011].

Another entrant in the field is Square Inc. "Square is trying to make wallets obsolete, too, by upending the way that consumers pay for purchases." ["Payment Method Bypasses the Wallet," by Claire Cain Miller, The New York Times, 23 May 2011] Miller reports:

"Jack Dorsey, Square's co-founder and chief executive, announced a way for shoppers to pay by simply giving their name to the merchant. Mr. Dorsey, who also co-founded Twitter, said customers would use a new feature on Square's iPhone or Android apps, called Card Case, to make payments. Merchants would use one called Register to ring up and track purchases. Using cellphones to ease offline purchases is a crowded corner of tech investment. Most companies are tackling one aspect of purchasing, like mobile payments or coupons. But Mr. Dorsey is thinking big. He wants Square to be involved in every step of the transaction process by replacing cash registers, loyalty cards and paper receipts. 'We think it should be one system,' he said."

Miller notes that Square is likely in for a fight since the companies that make cash registers and POS terminals are not going to fade quietly into the annals of history. The company will also be in competition with other start-ups, "like Foursquare, and competing with Google, Apple, PayPal and major credit card companies and banks to provide mobile payments." Square's biggest challenge, however, may be getting customers to trust them. Miller explains:

"A shopper opens the app, which looks like a brown leather wallet, clicks to open a tab at a store and then gives the merchant his or her name. The shopper's credit card number is already stored with Square. Merchants see a photo of the Square user so they can confirm it is the same person. ... Some shoppers said they were uneasy trusting Square with their credit card information when all it takes to pay is a name, not a plastic card. According to Square, the photos and the fact that people can only pay if they and their phones are nearby adds a level of protection. For purchases more than $50, shoppers also have to enter a personal identification number as they do at an automated teller machine."

Miller reports that Square does not use NFC technology and that "the company most in Square’s sights is Verifone, whose point-of-sale terminals and software are in 70 percent of businesses in the United States." Miller continues:

"In an interview before Square's announcement, Doug Bergeron, Verifone's chief executive, said that Square would not catch on for payments because people will prefer N.F.C. technology and have security concerns about using Square."

One thing that Square has going for it is the fact that it "already has relationships with hundreds of thousands of businesses such as restaurants, flower shops and hairdressers who accept credit card payments by swiping cards through a small Square reader that attaches to a smartphone or iPad tablet. For the service, Square takes a 2.75% cut of the payment but hopes to eliminate the need for businesses to buy credit-card-reading machines made by companies such as Verifone." ["Dorsey's Square Tries to Kill Cash Register; Local Deals Coming," by Amir Efrati, The Wall Street Journal, 23 May 2011] The one thing that all of these mobile systems have in common is that they will generate mountains of data that can be used to refine marketing and supply chains. Home Depot's new mobile check-out system is a good case in point.

Home Depot has deployed some 30,000 First Phone handheld, multi-function mobile devices to its 1,970 stores. The company hoped that by introducing the device it could reduce check-out lines. Apparently it is working. Adam Blair reports, "The handhelds have become a well-integrated part of the store environment. The ... devices are averaging 100,000 mobile POS [point of sale] transactions per week, significantly speeding up checkouts and boosting customer satisfaction." ["Home Depot Hits 100,000 Mobile POS Transactions Per Week," Retail Info Systems News," 23 May 2011] If those transaction rates hold up, Home Depot could gather data from more than 5 million mobile POS transactions annually. Of course gathering data is a meaningless activity unless it can be analyzed and turned into actionable knowledge. Mobile POS devices will make good business analytic programs even more important.

More Discussion about Sales and Operations Planning

As I noted in a recent post [Is S&OP a Guiding Light or a New Religion?], there is an ongoing debate about the role of sales and operations planning (S&OP) in the larger business environment. Some analysts seem to think that it primarily serves a supply chain function while others believe it serves a much larger purpose. Those who fall into the latter category often favor the term "integrated business planning" over S&OP. Supply chain analyst Trevor Miles indicates that he has "been following the debate about the use of the terms IBP (Integrated Business Planning) and S&OP (Sales and Operations Planning) over the past few months with a lot of interest." ["IBP or S&OP: What's in a Name?" The 21st Century Supply Chain, 11 May 2011] He indicates that he has a difference of opinion on this subject from another noted supply chain analyst, Lora Cecere, who believes "that the term S&OP is letter perfect." ["S&OP: Letter Perfect," Supply Chain Shaman, 7 June 2010] Miles indicates that he enters the name debate "with much trepidation"; especially in light of what Lora wrote in a subsequent post ["What Happens in Vegas should not Stay in Vegas!", Supply Chain Shaman, 5 May 2011] In this latter post, Cecere argues:

"Let's get beyond the nuance of the debate. This debate is not about the TERM. I REALLY don't care what term is used or what process is called. I agree with Shakespeare, 'A rose by any other name would smell the same.' ... But, I don't agree with the conventional views on Integrated Business Planning (IBP) in three areas: focus, emphasis, and readiness."

Miles writes, "Lora argues that IBP is simply sophisticated S&OP. I'm not sure I agree. I think this characterization misses some subtleties between the two terms." He explains:

"Let's start with Lora's argument:

The number one change management issue with S&OP is and continues to be the role of the budget. If the company wants to maximize opportunity, the budget should be an input into the process, but not constrain the process.

"Yes, I agree, but this is looking at the issue from the wrong perspective. What is broken is the budgeting process, which should be a continuous process driven by the operations forecast."

Miles provides some great quotes about the budgeting process; but, I think the most powerful arguments come from Bjarte Bogsnes, vice president of performance-management development at Statoil, the large Norwegian oil-and-gas producer. Bogsnes said, "'We still do what the budget unsuccessfully tried to do for us: target-setting, forecasting, and resource allocation. ... We used to try to force these three purposes into one set of budget numbers, which created serious problems. For example, how can you expect an unbiased sales forecast from a sales manager if that number also will become a target? And how can you expect unbiased cost or investment forecasts from the organization if those forecasts also serve as an application for resources, and everybody sandbags?" You simply can't do great planning with unreliable or unrealistic numbers. Miles continues:

"Who am I to disagree when even the McKinsey Quarterly in an article titled 'Just-in-time budgeting for a volatile economy' published in the Spring 2009 edition in which the authors, when commenting on the budgeting process, state that:

Managers often spend significant amounts of time on it, only to be dismayed by how little value comes from four to six months’ effort. Under volatile conditions, when economic forecasts change from week to week, developing one reliable budget to coordinate business units and track performance for an entire fiscal year is very difficult. Following the traditional budget process may even be unproductive.

"In fact they argue that the budgeting process needs to include the following:

1. Scenario planning with trigger events
2. Zero-based budgeting
3. Rolling forecasts
4. Quarterly budgeting

"Perhaps even more importantly budgeting as part of FP&A covers a lot more than demand/supply balancing, which is the cornerstone of S&OP. Lora may argue with me that a mature S&OP should include much of what I discuss above, which is true, but the breadth of S&OP does not usually cover workforce management, R&D spend, capital expenditure, indirect procurement, and a whole host of other areas of interest to the budgeting process."

Miles argues that "bringing all of these different cost elements together based upon the revenue forecast is integrated business planning, whether we call it IBP or not, and has a much wider scope than does S&OP." Tim Payne, Research Director at Gartner, agrees with Miles that IBP has a broader focus than S&OP. He writes, "IBP is seen to connect S&OP through to Corporate Performance Management (CPM) and to facilitate the development and evaluation of feasible, and financially modelled, strategic initiatives that can illuminate alternative operational models that better support the achievement of strategic goals. Today, there are no fully baked IBP solutions in the market, although some of the more advanced S&OP solutions are evolving in that direction as well as a couple of emerging niche vendors." ["Supply chain management hype cycle," Financial Times, 25 January 2011]. Miles concludes, "For all the reasons others have given, the budgeting process should be driven by the revenue forecast generated as part of the S&OP process, not the other way around."

Miles' final point is that "supply chain management (SCM) is very manufacturing focused and, as a consequence, so is S&OP. Of course we can talk about SCM in Retail, but the heart and soul of SCM is manufacturing. ... I'm not convinced that S&OP is sufficient to run [other companies, such as financial institutions, consulting groups, or bio-pharmaceutical companies], optimally." I'm not sure that Miles and Cecere have found common ground in their debate, but my suspicion is that they have a very similar overall view of what businesses need to succeed in today's environment. Putting that debate aside, let's look at what other analysts are saying about establishing successful S&OP systems. Karin L. Bursa, Vice President of Marketing at Logility, insists that a successful S&OP system with take into account "people, process, and technology" ["A Foundation for Successful S&OP," Supply Chain Digest, 10 February 2011]. She writes:

"This trio of people, process and technology, is the foundation for success. This foundation will provide needed structure along with the flexibility to evaluate and respond to a variety of business challenges and opportunities."

Bursa focuses on having the right people involved in the S&OP processes. She writes:

"Critical to the success of any initiative is the people behind it. You need to ensure you have the right people for the job. Just as important, you must empower them. Provide each person with the authority to make decisions and drive confidence across the enterprise. From this confidence, your sales and operations planning process runs more smoothly, stays focused on the goals and helps ensure buy-in from all parties."

Miles indicates that "people" need to be considered in another way as well. He writes:

"Workforce management [is critical to the process] because so much of a company's cost base is salaries for it employees. Deciding how many people should be in Marketing in a certain region should be based upon the forecast for that region. The manner in which the Marketing budget is spent should depend on the make-up of the projected revenue for that region. The same is true for Sales and Admin, Procurement and Warehousing, etc."

It's clear that Bursa believes that S&OP lies outside of the budgeting process (so I guess she falls into Miles' camp). She reports, "Many companies are still working on how and when to engage finance in the S&OP process." She continues:

"The good news is they are engaging finance and have evolved beyond the volumetric or production-oriented view of S&OP. This is an important step and enables a company to align operational decisions with corporate financial budgets to free up working capital, evaluate investments, and drive your long-term success."

Corporate alignment is what integrated business planning is all about. Bursa next turns her attention to the S&OP process itself. She writes:

"The process has to be well defined and aligned with the goals of the organization. Best practices have shown us a great foundation is a 5 step process including:

1. "Innovation and Strategy Review reminds us this is a forward-looking business process focused on identifying and understanding the impact of various business decisions such as new product introductions, market/channel development, etc. on sales, production, inventory, and finance.
2. "Demand Review identifies the unconstrained mix and volume of products the company could sell in specific time periods along with the desired level of customer service the company will strive to achieve.
3. "Supply Review is based on the consensus demand plan and allows the supply team to determine how they can satisfy the demand plan. Here, two elements are crucial in determining how to profitably satisfy the demand plan – inventory optimization and production/procurement optimization.
4. "Financial Review is an increasingly important step in the S&OP processes. While the demand and supply teams have kept the company's overall objectives in mind, in many businesses some bias creeps into the process. The financial review step helps remove that bias and enables all constituents to agree on the profitably balancing of demand and supply as well as the ability to evaluate alternative plans that will be presented during the executive S&OP review.
5. "Executive Business Review provides the executive management team with the information they need to make critical decisions over the S&OP horizon. Building off the information from the first four steps, this review produces an action list to move the company forward and sets in place contingency plans. Besides reviewing best case and alternative demand and supply scenarios, it is important to also assess internal and external risks to the supply chain."

Although calling these steps "reviews" implies that they are somehow outside the S&OP process, I believe that Bursa sees them as more than mere sensitivity checks. I suspect she sees these reviews as intimate phases of the process during which inputs, suggestions, and adjustments are made to refine the outputs and make them more useful. Bursa's final comments are about technology. She writes:

"I like to view technology as the glue that brings together the people and process. The right software solution can significantly improve the quality and integrity of data to create a comprehensive plan that can be evaluated based on multiple units of measure (financial, volumetric, etc.), provide visibility into the future and drive the ability to evaluate multiple scenarios. The right tools also allow you to close the loop on the process, to ensure the agreed upon plan can be easily incorporated back into the supply chain, be repeatable and yet flexible enough to evolve as the business grows. Sales and Operations Planning is critically important as executives try to strike the optimum balance between what generates the most profit and what will satisfy the company's strategic and operational goals. Regardless of the rhetoric, remember your success is dependent upon the foundation you build with the right people, process and technology."

Only those involved in the S&OP process can appreciate its complexity. Technology can play an important role in helping reduce the complexity so that plans can drive decisions in the right direction. Lori Smith, from Kinaxis, asserts that there are four "keys to highly effective S&OP" ["The Four Keys to S&OP Effectiveness," The 21st Century Supply Chain, 28 April 2011] They are:

1. East-West integration, bringing together demand and supply planning
2. North-South integration, bringing together Finance and Operations
3. Tying together volume and mix plans
4. S&OP on demand, not only on schedule

That list doesn't make it clear whether Smith sides with her colleague Trevor Miles in believing that S&OP is a lesser included process in IBP or with Lora Cecere that S&OP and IBP are one in the same thing. From the discussion that follows, however, I tend to believe that Smith sides with Miles. To learn more about these "keys," click on the link to Smith's article and you can download the eBook from which they are taken. Below are some brief discussions of these "keys" taken from the study.

East-West integration, bringing together demand and supply planning

"Too many companies develop and manage separate demand plans and supply plans in isolation, only coming together with an aggregate or volume plan during the S&OP meeting. In a recent survey, almost 1 in 3 of the executives polled said the biggest problem with their S&OP was that not all the information they need is available in one system. Ideally, all plans can be developed in the same system, and encompass all the operational details that fall under the high-level summaries. Many call this 'east-west integration' to suggest how it brings two points of the compass together. Executives know this integration of demand and supply is vital to gain:

• "Cross-enterprise view -- Having more data from contract manufacturers and parts suppliers integrated in one central place gives you a comprehensive view of your extended supply chain.
• "Cross-functional view -- When you can see across and deep within the traditional silos of demand and supply planning, you gain better insight into what’s really going on and what’s feasible going forward.
• "Better, faster plans -- Demand and supply integration supports more accurate plans, faster planning cycles, clearer insights, and better collaboration.
• "Better decision support -- When demand and supply planning are brought together, testing the feasibility of high-level plans and reconciling planning to execution are faster and easier for everyone."

North-South integration, bringing together Finance and Operations

"Another key to S&OP success is bringing Finance into the process in a meaningful way. We can call this 'north-south' alignment. This doesn't always happen. A recent survey asked senior managers what role Finance plays in S&OP. The result: Finance helps draw up S&OP plans in only 1 of 3 companies surveyed. In the other 2 out of 3, Finance simply rubberstamps or files away plans developed without their input.

"Why CFOs should care about S&OP -- S&OP gives CFOs an opportunity to evaluate, monitor, and influence the financial impact of the plan. Finance should play an active role in setting targets and ensuring operational plans are aligned with corporate objectives. According to studies by Ventana Research, bringing Finance into S&OP is the second most important factor in building revenue, profit, customer satisfaction and forecast accuracy. Why is this? Because linking financial metrics (such as revenue, margin, and cash flow) to operational metrics (such as orders delivered on-time and in-full, inventory turns, and capacity utilization) gives you a way to check if your operational decisions are consistent with your financial objective. This also helps you see if your financial objectives are achievable. With so much at stake, why not involve Finance in your S&OP? Who else is better qualified to comment on the financial impact of the plan? What's more, it's rather risky not to involve Finance. Any company that doesn't is clearly taking a big gamble."

Tying together volume and mix plans

"One of the stumbling blocks of traditional S&OP is that volume-only plans often end up being infeasible when disaggregated to the mix level. The challenge is to translate the aggregate, volume-level plans to a SKU or mix-level operational plan and then test the feasibility of the plans before committing to them. Companies must focus on developing a plan that is not only optimal, but also feasible. Otherwise, the S&OP plan will lose credibility within the organization. The second challenge is to keep the plan feasible and in check. It sounds good to talk about aligning daily operations with S&OP objectives. But to achieve true S&OP maturity, executives and managers throughout the enterprise must learn to regularly 'dive into the details.' Companies must find a way to reconcile demand and supply, Operations and Finance on an ongoing basis, not just as part of a periodic planning and review cycle. The way to bridge the gap between planning and execution is to continuously check if you’re on track to meet future objectives. You must be able to immediately see any deviations that need to be addressed before they become 'actuals.' When the company can plan and execute in real time, it can bridge this gap between volume and mix plans, and between planning and execution."

S&OP on demand, not only on schedule

"While the monthly S&OP meeting is important, mature firms develop a way to revise plans and take action any time the plan is at risk. Companies with a modern S&OP process enable a continuous flow of course corrections to help generate more effective results. Here are a few goals for S&OP on demand, not only on schedule.

"Goal #1: Unshackle yourself from the calendar You don't want to review your plan (and your performance) only once a month. You need more flexibility to respond to any events that have an impact on your S&OP objectives.

"Goal #2: Gather and analyze data faster -- In some firms, it takes three or four weeks—or more—to do one cycle of S&OP data collection and analysis?! This makes mid-cycle course corrections impossible. Address whatever is slowing down your cycle time; it’s most likely some combination of people, process, and technology.

"Goal #3: Encourage collaboration across your enterprise -- You need to exchange detailed S&OP data with every other function, location, division, and legacy system in your enterprise. And you need to support both planned and ad-hoc discussion and consensus-building with multiple stakeholders in your company whenever it’s required.

"Goal #4: Support data integration across your supply chain -- You also need to exchange detailed S&OP data with all your trading partners across your extended supply chain. The most mature enterprises support ongoing decision making and consensus-building with outside partners, including suppliers and contract manufacturers.

"Finding a way to support ad-hoc S&OP may not be easy. This likely involves making changes to your process, information, and technology. But this capability is a vital key to the S&OP promise."

As you can see, there are lots of good ideas and information contained in the eBook and I'm sure that Kinaxis would be pleased to have it downloaded a few more times. Obviously, the debate about S&OP and IBP isn't over. But it may be a false debate; both Miles and Cecere are proponents of integration and alignment. I suspect their advice to companies would be: "Just do it."

Kimberly-Clark and Reducing Supply Chain Complexity

Dan Gilmore, Editor-in-Chief of Supply Chain Digest, writes that he once heard a PepsiCo supply chain executive declare, "Complexity is like a cancer that destroys supply chain efficiency." ["Supply Chain Complexity Crisis," 12 June 2008] In a world that is continually growing more complex, one would think that supply chain efficiency is getting worse by the day. Thanks to technology, increasing complexity can be dealt with in a number of ways. A recent post by Steve Banker discussed how the Kimberly-Clark Corporation reduced the complexity of its transportation management system (TMS) and made the whole process more efficient and effective ["Kimberly-Clark: Using Lean to Improve TMS Performance," Logistics Viewpoints, 23 May 2011]. Before getting to that story, however, I'd like to return to Gilmore's discussion about complexity.

Back in 2008, Gilmore wrote, "Re-optimizing the supply chain – there’s a lot of that going on right now." ["Kimberly Clark Rethinks Its Supply Chain," Supply Chain Digest, 4 September 2008] He indicated that there were three themes that ran through much of transformational changes that were taking place. They were:

"First, there is a startling recognition that the world has changed rather quickly – and that the supply chain has to catch up quickly. For many companies, especially large consumer goods manufacturers, that change doesn't always come easy -- long standing histories, traditions and paradigms -- significant physical assets in terms of plants and DCs that serve as financial and psychological barriers to change. But the pressures of late have become so great that the need to change has become urgent –- and paradigms will have to be broken. In the face of that urgency, for example, Hershey last year announced that it would outsource chocolate production as an element of a massive supply chain network reorganization.

"Second, companies are also urgently looking to increase agility. Large, asset-heavy networks have a hard time moving fast. That leads to supply chain network moves that increase the level of outsourcing and network designs that are less complex, and hence, less cumbersome.

"Finally, no one is sure what the path will be for fuel and commodity prices – but many companies are doing what they can to take network costs out to offer some level of protection in case those costs continue to head North."

Nearly three years later these "themes" remain fresh and important. This year fuel and commodity prices have been headline grabbers. The Kimberly-Clark transformation story goes back even further than 2008 to 2004. Gilmore learned about Kimberly-Clark's efforts during an interview with Mark Jamison, the company's Vice President of North America Customer Supply Chain. He indicated that in 2004 the company decided to refresh its supply chain strategy (a process "it calls its 'supply chain of the future' transformation"). As part of that process, Kimberly-Clark personnel spent time with the company's customers and retail partners in order to understand their supply chain objectives and goals so that Kimberly-Clark could match its supply chain capabilities against those goals. Jamison told Gilmore, "Our retail partners told us three things –- help us improve customer service and reduce out-of-stocks, help us take inventory out, and help us reduce cycle time -- three of the key priorities they shared with us." ["Kimberly Clark’s Mark Jamison on 'The Supply Chain Network of the Future'," Supply Chain Digest, 9 September 2008] Gilmore continues:

"While KCC felt it has always had a superior supply chain, it would be 'hard to make much additional progress' against those goals with its existing network, Jamison said. 'First and foremost we wanted to become more flexible with our supply chain design, and secondly we wanted to realize significant cost savings,' he added. The existing KCC network included some 70 mostly smaller DCs in the US that were associated with nearby manufacturing plants. A network with 70 DCs is almost by definition complex, and meant, in general, KCC could only send customers a limited percent of its full product line, based on manufacturing plant, in any individual shipment. Additionally, KCC, like many other companies, also decided it needed to make itself more 'demand-driven.'"

Jamison and his colleagues decided that they needed to what many supply chain analysts recommend -- redesign the supply chain from the outside in. In Jamison's words, "We wanted to redesign our supply chain from the shelf back, while our supply chain had really been designed from our manufacturing assets forward. We wanted to integrate key business processes and systems so that we were highly integrated both with our partners and suppliers and could create end-to-end visibility within the supply chain." Gilmore continues the story:

"With those objectives in mind, Jamison said the company did some 'intense network modeling' –- a process that took about nine months. Part of that that time was spent using an informal group of advisors –- experts in the industry from several disciplines (academia, logistics service providers, etc.). ... That's a smart idea I have not seen many companies do. In parallel to the network design, KCC also began work to improve its visibility to actual consumer demand. That included being an early leader in looking at the potential for RFID, and acquiring some new technology to help better understand and monitor what was happening at the store shelf."

Obviously, you cannot be demand driven if you can't sense demand in the first place. Jamison insisted that Kimberly-Clark wants "to use POS to completely drive our replenishment production planning process." Gilmore continues:

"A really fascinating aspect of this to me is the change in KCC's thinking on 'dynamic sourcing.' For KCC, that meant the ability to assign production to the facility that seemed to offer the best total supply chain cost and service trade-off at the time -- an approach the company had used for years, and which it believed gave it some competitive advantage. In a time when being more 'dynamic' seems almost like a no-brainer, Jamison said their analysis showed that there was a bigger price to pay for that 'flexibility' than anyone realized. ... 'What we have found is the dynamic sourcing model creates so much variability, and variability is the virus of the supply chain,' Jamison said. 'What we didn't really understand is that actually our fixed sourcing model can drive significant savings because we have taken a lot of that variability and complexity out.'"

A number of supply chain analysts continue to insist that flexibility is critical for future supply chains. Kimberly-Clark's experience adds a note of caution that companies should be careful about where they look for flexibility and what the costs may be. For more discussion on the topic of flexibility, read my post entitled Supply Chain Flexibility and Transparency. Gilmore noted that Kimberly-Clark was closing most of its 70 distribution centers and replacing them with "nine large 'mixing center' facilities." These mixing centers improve efficiency, lower inventory stocks, and increase customer satisfaction because "they can now order the full product line and receive it on a single shipment." Gilmore also reports that the mixing centers lowered "total transit times to customers, and reduced transportation expense. ... KCC saved 2.7 million transportation miles in 2007 over 2006, and 2.4 million gallons of fuel." That brings us back to Steve Banker's article mentioned at the beginning of this post.

As part of its "supply chain of the future" transformation, Kimberly-Clark implemented a new transportation management system. Banker reports:

"Kimberly-Clark purchased its TMS three and a half years ago from i2 (acquired by JDA last year). The company does centralized planning for North America out of Knoxville, Tennessee, where it plans 2,500 outbound loads from 40 origin points. The loads flow from plants to distribution centers (DCs), plants to customers, and from DCs to customers. All 2,500 loads are touched multiple times."

Every "touch" adds complexity to the system -- and, whether you consider complexity a virus or a cancer, that's not good. According to Banker, the company believed that its high-salaried transportation analysts could be more efficient and effective. It felt "those analysts were spending too much time clicking through the [TMS] application rather than doing value-added work." That makes it sound like the analysts were "surfing" or goofing off. That was not the case, they were looking for ways to improve transportation allocation. Believing it could do better, "Kimberly-Clark applied the Lean continuous improvement process to its [TMS]." Banker continues:

"Planners perform two global planning optimizations runs per day, one at 4-5 am and the other at 8 pm. Prior to the Lean project, planners would come in at 8 am, log in to the TMS and see that they had about 100 loads to review and plan for the next optimization run. About 70 of the loads were typically fine. Those would be accepted, which involved a whole series of clicks. The other 30 loads would require changes based on business rules in the planners' heads, which were not fully modeled in the application. After those changes were made, the planners would set the loads to plan, which involved a click for each load. And for loads going to Kimberly-Clark destinations they would make calls to set up appointments and click through a series of tenders for those destinations. On a perfect day, a planner would be done by 9 am. But there were few perfect days. A planner might have 15 emails describing problems from the previous day, phone calls from customer service representatives, and meetings to attend. On many days, loads would not get tendered for three or four hours. The non-value added work meant that planners had limited time to perform more strategic forms of analysis. Further, Kimberly-Clark has a history of making acquisitions. If more acquisitions were made, the company wanted to increase the number of loads it could manage without increasing the number of planners."

One implication was clear from Banker's description, those "business rules in the planners' heads" needed to be automated. Automating those rules could help reduce a lot of clicks. The team concluded that the clicks associated with shipments that were okay (the majority of shipments) were acceptable. It was the exceptions that needed the attention. Banker continues:

"To automate the application, they needed to get inside the minds of their users and understand how planners decided what the exceptions were, and which loads were fine. That logic then needed to be implemented in the form of a table with a hierarchy of rules. As an example, a planner might decide that all loads shipping tomorrow or the next day that have just one pick-up location and one drop off are fine and don't need to be reviewed. Another rule might be that all loads with 53 foot equipment and a cube that falls outside a certain range absolutely needs to be looked at. There are also carrier rules (e.g., if the destination is Santa Fe, exclude Carrier X from the tender list) and lane rules (e.g., for a particular lane, exclude all loads with 53 foot trailers because it might offer an opportunity for an intermodal move). The JDA TMS solution came with an Agile Business Platform which Kimberly-Clark used to customize the TMS. The rules described above now enable the TMS to flow loads into two batches: one batch that requires review, one batch that can be processed automatically."

At Enterra Solutions, we believe this management by exception has a lot of merit. By getting alerted to potential problems early, decision-makers generally have more options for solving them. Stress levels are also lowered because the time to respond is increased. In the Kimberly-Clark/JDA system, "If a load is kicked out because it violates a rule, the application shows the user which rule was violated." That also helps analysts make quicker and better decisions. Banker reports that "the project took 10 months in total (4 months of IT work) and was completed in March of 2011. Initially, the company thought 70 percent of the loads would flow through untouched, but the actual number is closer to 80 percent." That's good news. Banker concludes:

"Kimberly Clark has freed up about 35 hours per day across its planning team. But the project has had other benefits as well. Planned loads drop to the DCs loading schedule earlier, enabling added efficiencies at the warehouse; carriers get tenders earlier, allowing Kimberly-Clark to lock down prime capacity before it disappears; and planners like it because they get to go home on time at the end of the day."

This is a great case study because it shows how technology can be used to reduce complexity not add to it. No change is easy; but, when you can demonstrate how complexity can be reduced through the implementation of better technology, the case for change is much stronger.

Shapeshifters: The Coming Age of Smart Materials

You might be asking yourself what a post about shapeshifting materials has to do with the business topics about which I normally write. If you watch the videos I've included in this post, you'll understand that so-called "smart materials" could potentially impact any number of business sectors, including manufacturing, transportation, and the supply chain. Shapeshifters (be they machines or creatures) have been a staple of science fiction for decades (if not centuries -- think about Dracula and werewolves). We're probably not going to be seeing any X-Men-like human shapeshifters anytime soon, but materials are being discovered and created that are eerily similar to computer-generated imagery (CGI) found in movies like The Terminator. The following video provides a good introduction to the subject.

If you didn't have time to watch the video, it talked about non-Newtonian fluids. The classic non-Newtonian fluid is created by mixing water and corn starch. Wild and crazy, fun-loving scientists have for years gotten chuckles by filling tubs with the stuff and running across it. Hit the mixture with a fast blow, like running feet, and it stiffens into a semi-solid state -- stop running and you sink into the mixture in its liquid form. The video also discusses magneto rheological (MR) fluid which changes from a liquid to a semi-solid state when exposed to a magnetic-field. Interesting stuff. In other research, a German materials scientist, Dr. Jörg Weißmüller, and a Chinese research scientist, Hai-Jun Jin, "have created a metallic material that can change back and forth between being strong but brittle and soft but malleable, via electrical signals." ["Metallic material can switch back and forth between hard and soft states," by Ben Coxworth, Gizmag, 7 June 2011] Coxworth reports:

"The metals used in the material are typically precious ones, such as gold or platinum. They are placed in an acidic solution, which causes minute pores to form within them - in other words, they start corroding. Those pores are then impregnated with a conductive liquid, such as saline solution or diluted acid. By varying an electrical current that is applied to the liquid, electrons are added to or withdrawn from the surface atoms of the metal. This can increase the strength of the material as a whole by up to 200 percent, or it can cause it to become softer, but also better able to absorb energy without shattering."

Sounds like a very expensive experiment. Like me you might be wondering what practical applications this breakthrough might have. Coxworth explains:

"Not only could the strength of an entire component made with the material be controlled with the flip of a switch, but it is also conceivable that the material could create its own electrical signals within specific regions, in response to mechanical stress. In this way, it could mostly remain strong and hard, yet selectively allow parts of itself to become malleable in order to avoid cracking. Existing cracks could perhaps also be healed. 'For the first time we have succeeded in producing a material which, while in service, can switch back and forth between a state of strong and brittle behavior and one of soft and malleable,' said Weißmüller. ... 'We are still at the fundamental research stage but our discovery may bring significant progress in the development of so-called smart materials.'"

Efforts to create smart materials include materials that can be programmed to change shape. These materials could be used for activities ranging "from tools that morph themselves structurally to suit the job at hand to sentry bots that can change shape to squeeze through narrow passageways." ["DARPA's "Programmable Matter" Project Creating Shape-Shifting Materials," by Dan Smith, POPSCI, 8 June 2009] Smith reports:

'"Programmable matter' is such a far-out concept that it's difficult to imagine it even existing outside the movies. But, thanks to some creative work done by scientists funded by DARPA (who else?), it might actually become a reality, creating materials that can be programmed to alter themselves at the molecular level into various shapes and then disassemble to form entirely new ones. Imagine universal tools that can morph to perform the specific job needed. Imagine vehicles and clothes that that can automatically change shape--perhaps even at the molecular level--according to terrain or climate."

Smart material that is programmable at the molecular level may be a ways off -- I just don't know; but Smith also talks about at team at Harvard that "has created 'self-folding origami,' structures with integrated actuators and data storage that will fold themselves into different shapes." Watch the following video to see how the material works.

Smith reports that others are also working on shapeshifting materials. He writes:

"A team from MIT has even built tiny servo motors that can control the assembly of objects underwater or in space. Other teams have approached [the] problem by mimicking DNA or [protein]-synthesis in the creation of objects. ... Once some of these ideas are realized or integrated into a working form, the possibilities are almost endless. Blurring the line between materials and mechanics, it may even result in new states of matter. One possibility are 'infoliquids' and 'infosolids', materials [that] straddle the line between solid and liquid, with information encoded into its chemistry. Another possibility is the creation of robots that can shift sizes and even states of matter to squeeze through narrow passages or around obstacles. Wired also points to Intel, which has done research into the field as well, theorizing models that can mimic shapes in real-time, similar to holograms. This could allow a replica of yourself to exist and move as you do somewhere on the other side of the world. Forget Autobots and Decepticons, this is the real deal."

Apparently CNN did a report on Intel's research into claytronic atoms, or catoms, that included a video that Dan Gould called "absolutely mind blowing." ["Ultimate 3D Printing: Intel’s Shape-Shifting, Programmable Matter," psfk, 6 March 2009] The video was removed from YouTube because CNN asserted its copyright and I couldn't find a link to the report. Writing about Intel's work, Mark Hachman wrote, "Eventually, clothes or objects could be manipulated, so that their form and function could be shifted dynamically. Imagine a PDA that could transform itself into a marble or bracelet when not in use." ["Shape-Shifting Materials, Wireless Power at IDF," ExtremeTech, 21 August 2008]. Hachman explains what catoms are:

"Essentially, catoms are tiny silicon spheres or tubes, small enough that they could be manipulated by electrostatic or electromagnetic forces. The demonstration by Jason Campbell of Intel Research Pittsburgh showed an array of a few spheres just a few millimeters wide – smaller than a penny – where orientation could be slightly, slowly manipulated. Really cool to watch, but … The reality: This is far, far away. As Envisioneering analyst Peter Glaskowsky remarked, 'On a scale of 1 to 100, where 100 is making catoms a reality, they're at 0.1.' Still, Intel has already shown that catoms can be manufactured with the same photolithography techniques they use to make chips."

One of the things that Smith discussed above was "robots that can shift sizes and even states of matter to squeeze through narrow passages or around obstacles." An article in The Economist talks about the usefulness of such robots. ["Return of the blob," 8 March 2010] The article reports:

"Trapped under a pile of rubble, you wait for rescue. Then, to add to your troubles, you see a small blob ooze through a nearby crack. It is not, however, an extra from a horror film in search of a meal, for soon afterwards it is followed by the emergency services digging down to find you. This scene is science fiction now, but it might not be for much longer. Traditionally, people have thought of robots as whirring bits of metal, but there are those in the field who ask why that need be so. Instead of trying to build a robot that looks like a human, an insect or even a tank, some robotics experts have decided to look to the humble amoeba for inspiration."

Once again it is DARPA that is behind the research to create these kinds of robots. The article reports that DARPA provided a research grant to "iRobot (a company best known for its vacuum-cleaning robot, the Roomba)." The goal that DARPA is aiming for is a robot that can "fit through an opening half its full diameter." The article continues:

"The result is the blob-like Chembot, which moves by deforming one side. To achieve this, iRobot's engineers used a concept called 'jamming', which takes advantage of the fact that some particulate materials are quite stiff when compressed but, given space, flow like liquids. Dr Jones says the phenomenon is much like that observed in a vacuum-packed coffee brick. An unopened brick is stiff and strong because the external air pressure is compressing it. When the plastic or foil is cut, however, air gets in, equalising the pressure. The coffee then acts like the pile of particles it is, and the brick can change shape. The Chembot is a vaguely spherical structure made of soft triangular panels, each of which is filled with particles. The control system, which uses tiny compressors to pump air in and out of the panels, is in the centre. The triangular panels remain stiff until a small amount of air is pushed inside them. That lets the particles move around and allows the panel to deform. Increasing the pressure inside one set of panels while holding it constant in the others causes the robot to bulge out on one side and thus move in the opposite direction. This deformability, however, permits more than just movement. It also allows the robot to enter any space no smaller than its fully compressed state, more or less regardless of the shape of that space."

The Economist reports that iRobot isn't the "only contender for the artificial-amoeba crown." The article states that a mechanical engineer at Virginia Tech named Dennis Hong is also working on the problem, but using a different approach. It explains:

"He has looked at the way natural amoebas move, and tried to replicate it. The Chembot moves by pushing itself along. Real amoebas, however, pull themselves. They extend a pseudopod in the direction they wish to travel, and the rest of the amoeba then flows forward into the pseudopod. Dr Hong could not exactly duplicate that, but he came up with something similar: the idea of an extended toroid. The toroid would simply turn itself inside out, accomplishing by different means the same thing the amoeba does. For bigger robots, he accomplishes this with a series of hoses, arranged like ribs, to form the torus. Each hose can be expanded and contracted independently. Doing so in sequence along the length of the torus generates forward motion. For small robots Dr Hong has used rings made of a polymer that changes shape in response to a specific chemical stimulus. The result is a robot that scuttles along when an appropriate chemical is brushed on one end. Dr Hong will not yet say which chemicals he uses, but the robot moves impressively fast. It can also, like the Chembot, squeeze through openings smaller than its initial diameter."

The article notes that such robots could be useful beyond the search and rescue scenario it proposed. For example, they could be used in "endoscopy—the process by which doctors insert a camera into someone through an orifice to perform an internal examination." That doesn't sound very pleasant; but, the article reminds us, "at the moment, the camera has to be fitted to the end of a stiff, yet flexible cable." It concludes, "A soft, squishy robot, sufficiently small, could be an alternative. How patients would feel about having an autonomous blob roaming around inside them is another matter."

Materials that can change in response to external conditions could prove very useful in the supply chain. It is not hard to imagine how reusable, programmable packaging material could help protect oddly-shaped or extremely fragile goods in transit. Until the materials become a reality and can be produced in large quantities, we won't really know how creative people will put them to use. Smart materials is an exciting field and worth watching.