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22 posts from September 2011

September 30, 2011

Friendship, Happiness, and Courage in the Workplace

As an employer, I'm aware that job satisfaction is critical for retaining great employees. Employers would love to be able to control all of the factors that lead to job satisfaction; but, as we all know, they can't. Many things factor into what makes an employee happy and satisfied. In this post, I would like to discuss a few articles that with deal some of those factors. Let's begin with the topic of friendship. Ralph Waldo Emerson wrote, "A man's growth is seen in the successive choirs of his friends." My guess is that if you ask people on the street, "Does your happiness increase with the number of friends you have," the majority of people would answer, "Yes." After all, who doesn't like to be popular and popularity is measured by volume rather than depth.

A recent study, however, claims that the size of the social network you have may be determined by your genetic make-up rather than your sparkling personality. An article about the study asserts, "The number of friends you have can be accurately predicted by the size of a small almond-shaped part of the brain called the amygdala." ["How many friends you have can be predicted by the size of your ...," Gizmag, 27 December 2010]. Actually, the study's authors use the terms "social life" and "social networks" rather than "friends." The article reports:

"According to a university study, ... the strong correlation between a larger amygdala and a full social life holds true regardless of age or gender. Scientists have discovered that the amygdala, deep within the temporal lobe, is important to a rich and varied social life among humans. 'We know that primates who live in larger social groups have a larger amygdala, even when controlling for overall brain size and body size,' says Lisa Feldman Barrett, PhD, of theAmygdala_hippocampus_lateral_large1 Massachusetts General Hospital (MGH) Psychiatric Neuroimaging Research Program and a Distinguished Professor of Psychology at Northeastern University, who led the study. 'We considered a single primate species, humans, and found that the amygdala volume positively correlated with the size and complexity of social networks in adult humans.' The researchers also performed an exploratory analysis of all the subcortical structures within the brain and found no compelling evidence of a similar relationship between any other subcortical structure and the social life of humans. The volume of the amygdala was not related to other social variables in the life of humans, such as life support or social satisfaction. 'This link between amygdala size and social network size and complexity was observed for both older and younger individuals and for both men and women,' says Bradford C. Dickerson, MD, of the MGH Department of Neurology and the Martinos Center for Biomedical Research. 'This link was specific to the amygdala, because social network size and complexity were not associated with the size of other brain structures.' Dickerson is an associate professor of Neurology at Harvard Medical School, and co-led the study with Dr. Barrett."

If, in the hypothetical question I posed above, you replaced the words "numbers of friends you have" with the "size of your social network," my guess is that the majority of people would answer, "No." Friends and social networks are not equivalent. As George Washington put it, "Be courteous to all, but intimate with few, and let those few be well tried before you give them your confidence." As an employer, it would be interesting to have access to data indicating the size of a person's amygdala before hiring them as sales or marketing people. The larger a person's social network, the better they should be at those tasks. But, as far as happiness and job satisfaction go, it would tell employers nothing.

People can and, hopefully do, have friends at work; but, that is not always the case. So what else can affect a person's happiness and sense of well-being either at or away from work. In a book entitled The Happiness Equation, author Nick Powdthavee, an economist at the University of York, attempts to share what economists and psychologists have learned about "the secrets of human happiness." ["Lessons From Cloud Nine," by Bryan Caplan, Wall Street Journal, 16 August 2011] In his book review, Caplan, a professor at George Mason University, writes:

"Powdthavee ... deftly explains the main determinants of happiness: the small effect of money, the great effect of marriage and friends, the massive effect of personality. Even extremely good news (such as winning the lottery) and extremely bad news (such as losing a spouse) rarely changes an individual's happiness for more than a couple of years. Mr. Powdthavee also explores the effect of happiness on success: Happiness today predicts higher job performance, better relationships and more years of health in the future."

Based on that brief abstract of Powdthavee's book, you can understand why employers should be concerned with the employee's happiness -- even if there doesn't seem to be a lot they can do about it. Caplan continues:

"In his discussions of money, Mr. Powdthavee puts special emphasis on relative income. People don't care only about the numbers on their paychecks, he writes; their happiness also depends on whether they make more or less money than their peers. Yet Mr. Powdthavee's explanation of the income-happiness connection is both misleading and confusing. He suggests that large differences in relative income can have a large influence on happiness, basing this claim on Richard Easterlin's atypical, somewhat dated finding that the richest Americans are twice as likely to be 'very happy' as the poorest. Yet he buries the standard, lower estimates after a long discussion of statistical methods that only an expert could understand, and he relegates to an endnote the powerful international evidence against the importance of relative income that has been gathered by Justin Wolfers and Betsey Stevenson. While absolute poverty can have a powerful negative affect on happiness, in First World countries there is little connection between either absolute or relative income and happiness."

Despite deep analysis that "only an expert could understand," common sense tells you that within a company peers getting significantly different salaries could be a source of conflict and unhappiness. Certainly a person's self-esteem could affected by knowing that he or she makes less than a peer for performing similar work. That's the reason that so many companies have policies that prohibit employees from sharing salary data. Caplan, who is an economics professor, is a bit offended by Powdthavee's book because it "unjustly caricatures the economics profession as dogmatically hostile to the very concept of 'happiness'." Caplan claims, "The topic has been mainstream for more than a decade, and only a tired minority continues to insist that if you can't objectively measure it, it doesn't exist." It shouldn't surprise you, then, that Caplan concludes:

"If you've never read another book on happiness, you may learn a lot from 'The Happiness Equation.' But better books on the same subject already exist—most notably, Daniel Gilbert's 'Stumbling on Happiness' and Arthur Brooks's 'Gross National Happiness.' Mr. Gilbert, a Harvard psychologist, is a virtuoso writer, while Mr. Brooks, the president of the American Enterprise Institute, seamlessly interweaves the data with reflections on the human condition. 'The Happiness Equation' can only really be recommended to those with a deep interest in the subject who have read other books on the topic and plan to read more. Mr. Powdthavee deserves credit for concluding his book with some of the big questions: 'Is happiness overrated?' 'Should government force people to be happy?' But he neglects the many ways in which government could sharply increase happiness by intervening less."

I would like to conclude with the discussion of two interrelated topics: fear and courage. There are people, I suppose, who never doubt their abilities or chosen course in life. But indications are, those people are rare. I think it's both appropriate and useful to question yourself on occasion. But, according to Melinda Beck, doubts can be taken to the extreme with the result being unfounded fear. ["Conquering Fear," Wall Street Journal, 2 January 2011] She writes:

"The boss loves your work. Your spouse thinks you're sexy. The kids—and even the cat—shower you with affection. But then there's the Voice, the nagging presence in your head that tells you you're a homely, heartless slacker. Even people who appear supremely fit, highly successful and hyper-organized are sometimes riddled with debilitating doubts, fears and self-criticisms."

Beck reports that the nagging doubts aren't really the problem, it's making sure that they don't become debilitating that matters. According to her article, a new "wave of cognitive-behavioral therapy is catching on in psychology and self-help circles. It holds that simply observing your critical thoughts without judging them is a more effective way to tame them than pressuring yourself to change or denying their validity." She continues:

"'Tame' is an interesting word," says Dr. [Steven C.] Hayes, who pioneered one approach, called Acceptance and Commitment Therapy. 'How would you go about taming a wild horse? You wouldn't whip it back into a corner. You'd pat it on the nose and give it some carrots and eventually try to ride it.' This new psychology movement centers on mindfulness—the increasing popular emphasis on paying attention to the present moment. One of its key tenets is that urging people to stop thinking negative thoughts only tightens their grip—'like struggling with quicksand,' Dr. Hayes says. But simply observing them like passing clouds can diffuse their emotional power, proponents say, and open up more options."

Although this "mindfulness" therapy remains controversial, employers should be aware of it because they may have employees who suffer from debilitating self-doubts. If you know someone who fits the description, point them to the article. The opposite of fear is courage. Natalie Angier writes, "Courage is something that we want for ourselves in gluttonous portions and adore in others without qualification. Yet for all the longstanding centrality of courage to any standard narrative of human greatness, only lately have researchers begun to study it systematically, to try to define what it is and is not, where it comes from, how it manifests itself in the body and brain, who we might share it with among nonhuman animals, and why we love it so much." ["Searching for the Source of a Fountain of Courage," New York Times, 3 January 2011] She continues:

"A new report in the journal Current Biology describes the case of a woman whose rare congenital syndrome has left her completely, outrageously fearless, raising the question of whether it's better to conquer one's fears, or to never feel them in the first place. In another recent study, neuroscientists scanned the brains of subjects as they struggled successfully to overcome their terror of snakes, identifying regions of the brain that may be key to our everyday heroics. Researchers in the Netherlands are exploring courage among children, to see when the urge for courage first arises, and what children mean when they call themselves brave. The theme of courage claims a long and gilded ancestry. Plato included courage among the four cardinal or principal virtues, along with wisdom, justice and moderation. 'As a major virtue, courage helps to define the excellent person and is no mere optional trait,' writes George Kateb, a political theorist and emeritus professor at Princeton University. 'One of the worst reproaches in the world is to be called a coward.' Yet defining what it means to be courageous has often proved as thistly as distinguishing the wise ones from the fools. For Plato and many other authorities, courage is above all a martial art, most readily displayed on the battlefield — the iconic brave solder running into the line of fire to retrieve an injured comrade. But Dr. Kateb points out that if courage finds its highest expression in war, then the trait paradoxically becomes an immoral virtue, ennobling war and carnage by insisting that only in battle can men — and it usually is men — discover the depths of their nobility. Marilynne Robinson, the novelist and social critic, has observed that courage is 'dependent on cultural definition' and 'rarely expressed except where there is sufficient consensus to support it.' Where religious martyrdom is lionized, there will be martyrs; where social or political protest is seen as glorious warfare in civvies, there will be a rash of red-faced declaimers, soapboxes on every street."

That brief history of studies and thoughts about courage is interesting, but has only tangential interest to happiness and satisfaction in the workplace. The following study noted by Angier is more pertinent. She writes:

"In pioneering work from 1970s and beyond, Stanley J. Rachman of the University of British Columbia and others studied the physiology and behavior of paratroopers as they prepared for their first parachute jump. The work revealed three basic groups: the preternaturally fearless, who displayed scant signs of the racing heart, sweaty palms, spike in blood pressure and other fight-or-flight responses associated with ordinary fear, and who jumped without hesitation; the handwringers, whose powerful fear response at the critical moment kept them from jumping; and finally, the ones who reacted physiologically like the handwringers but who acted like the fearless leapers, and, down the hatch."

Of those three groups, only the "jumping handwringers" were judged to be courageous. Expanding on that definition of courage, Angier writes, "Courage becomes democratized and demilitarized, the property of any wallflower who manages to give the convention speech, or the math phobe who decides to take calculus." That doesn't mean that the "fearless" group won't be good paratroopers or good employees, quite the opposite. A business needs both the fearless and the courageous. But courageous employees are important because they can help point out uncertainties and challenges that a fearless person might not. They are courageous because they "are aware of a danger but proceed in the face of it." What you don't need in your business is someone who is stupidly courageous (i.e., someone who proceeds with an activity that can have devastating effects on your business with little upside potential). The rogue traders in European banks come to mind. Rewarding courageous employees with a bit a praise or a bonus goes a long way to increasing their self-esteem and satisfaction at work.

The bottom line of this discussion is that employers must be cognizant of a lot more than job performance to extract the best from employees. In situations where inattention can result in serious injury or death, being aware of an employee's needs or predilections and recognizing changes in behavior or mood are even more important. Happiness, fear, and courage all play their role in the workplace and the more we understand about them the better.

September 29, 2011

Orabrush, Laughter, and the Wal-Mart Supply Chain

Every manufacturer wants to get its products on Wal-Mart's shelves. The reason is simple: Wal-Mart is the world's largest retailer. If you are a small company with a niche product, getting a share of that shelf space is not easy. Orabrush, a company that makes tongue cleaners, managed to do just that. Orabrush's story came to my attention while reading an article by Sarah E. Needleman on the power of YouTube. "Can a YouTube video bring in big business," Needleman asks. "If it goes viral, it just might." ["How a Start-Up Landed Shelf Space at Wal-Mart," Wall Street Journal, 23 September 2011] She continues:

"[In late September,] Provo, Utah-based Orabrush Inc. announced its flagship product – a tongue cleaner – would be carried in 3,500 of Wal-Mart Inc.'s 3,800 U.S. stores thanks to a social-media campaign launched two years ago. Orabrush initially marketed its tongue cleaners directly to consumers with a TV infomercial in mid-2008, according to founder Bob Wagstaff, who invented the product. But the strategy didn't perform well. 'We spent $40,000 on it and sold practically nothing,' says the 76-year-old, who next cold-called several large retailers, asking them to carry the product, to no avail. Unsure why his efforts failed, Mr. Wagstaff approached a marketing professor at Brigham Young University about his dilemma. The professor agreed to let Mr. Wagstaff solicit students for suggestions on how to get the word out. One student suggested creating a YouTube video and volunteered to take up the task. Mr. Wagstaff accepted the offer, which resulted in a comedic two-minute video that cost about $500 to make. It quickly went viral and a series of related videos also made by the same student, now Orabrush's chief marketing officer, followed soon after."

At this point, I think it best if the folks at Orabrush tell their own story. If you watch the attached video, you'll get an idea of why the company's humor has allowed it to laugh all the way to the bank.

Needleman reports that "the company has its own YouTube channel that boasts more than 39 million views and 160,000 subscribers, who get alerts whenever a new video is posted to it. The channel, called Cure Bad Breath, is the third most popular YouTube channel behind OldSpice (No. 1) Apple (No. 2), according to, a Web-analytics firm. Orabrush also has nearly 300,000 fans on Facebook, which the company uses to promote its videos." Mark Twain once wrote, "Humor is mankind's greatest blessing." Advertisers have known for years that humor will keep a potential customer's attention longer than a serious commercial; but can humor clinch the sale. Orabrush certainly thinks so. Needleman continues:

"Cure Bad Breath features 88 original shorts, all comedies, with titles like 'Diary of a Dirty Tongue,' 'World's Biggest Tongue,' and 'Is Your Tongue Kissable? Does Your Breath Stink?' The company's more recent videos are slicker than the originals and cost more to produce -- between $3,000 and $5,000, says Orabrush's CEO, Jeff Davis. Most of the actors in them are college students and recent graduates, which are also the company's biggest customers."

If you watched the video, you know that the company targeted Wal-Mart employees in the Bentonville, AR, area to bring home its message that Wal-Mart employees are not immune to bad breath. However, a Wal-Mart spokesperson, Tara Raddohl, told Needleman that "Wal-Mart didn't base its decision to stock the tongue cleaner on Orabrush's YouTube popularity." I wonder if Ms. Raddohl's (well brushed) tongue was firmly planted in her cheek? Raddohl did tell Needleman that Orabrush's "videos likely raised its profile among consumers." I don't think that you'll ever convince the executives at Orabrush that their YouTube campaign wasn't the motivating factor behind Wal-Mart's decision. Davis told Needleman that the YouTube campaign definitely got the company's product into other retail stores. They know that because "store managers approached Orabrush on their own, citing requests for the product from customers who'd learned about it online." Although Needleman reports that Orabrush "is on track to post $10 million in annual revenue this year," she cautions that "posting a video on YouTube far from guarantees success." She explains:

"Larry Chiagouris, professor of marketing at Pace University's Lubin School of Business, says that while it may not take a lot of time or money for a small business to promote itself on a social-media outlet like YouTube, success can be tough to achieve and the odds of a video going viral are slim. 'Making a video that's interesting and provocative usually requires some degree of skill,' he says. 'It has to be something people want to share. That's what gets it going.' It also helps to have an affordable product that offers value to the consumer, he adds. That said, the effort to make a compelling marketing video could pay off in a big way. 'If you're close to closing a deal with a major retailer,' says Mr. Chiagouris, 'something like this could put you over the top.'"

Rhymer Rigby insists, "Humour is one way that brands can punch far above their weight in terms of awareness. When it works, a funny campaign or brand identity can differentiate a commodity product from its peers." ["Brands that laugh all the way to the bank," Financial Times, 6 January 2011] One example that Rigby uses is Kulula, a low-cost South African airlines. Back in early 2010, the airline painted one of its 737-800 aircraft (shown below) with a "Flying 101" scheme. The plane was an instant hit.


Nadine Damen, Kulula's marketing manager told Rigby, "Humour is part of our brand ethos, although it's almost less about being funny and more about being down to earth and honest. We have other aeroplanes painted in cow spots, camouflage and one with a zipper down the side." In order to get people to pay more attention to the mandatory safety briefing, Kulula hired comedians to write them. Damen indicates that the company "got a lot of flak for this at first" but, critics had to agree that people paid more attention. Rigby continues:

"'In a few sectors like beer, it's almost a category norm,' says Jim Prior, chief executive of The Partners, a branding consultancy. However, he adds, it is hard to do well. 'Generally, you see some humour in advertising, which is quite discreet. But it's rarely all that funny and it rarely goes all the way through. To do that, you have to be brave and confident.' Many brands manage to be sporadically funny but those that successfully build themselves around humour are far more unusual."

Rigby notes that "humour can also reinvigorate older brands. The example, he notes, is Old Spice.

"Old Spice has found a new audience with its 'Smell like a man, man' ads. Iain Tait of Wieden+Kennedy, the agency behind the campaign, says because a lot of men's toiletries are bought for them by women, 'we needed to create a character who was adored by ladies but who men don't find threatening'. The answer was a character who combines extreme handsomeness with being funny. 'It's a very knowing kind of humour that comes from the character playing it straight,' says Mr Tait."

Since Needleman reports that Old Spice is the number one channel on YouTube, you'd have to admit that its campaign is working. The big question, Rigby notes, is: "Why don't more brands take the plunge?" The answer, as noted above, is that "it is hard to do well." Rigby concludes:

"Mr Prior says companies worry that being amusing makes people question their credibility. But, he argues, 'consumers are more sophisticated than that. If you take an airline, passengers know that airlines take safety very seriously.' '[The Old Spice ads don't] send up the product and he doesn't make fun of himself,' explains Mr Tait. 'You need to treat the audience with a bit of respect and credit them with intelligence. When you try and spoon-feed them the gag, that's when it becomes embarrassing.' Still, as the case of Kulula shows, the potential rewards are huge. 'We're a little airline at the bottom of Africa,' says Ms Damen. 'Who in the wider world would have heard of us if we hadn't done this?'

Or who in the world would have heard of Orabrush if hadn't gone viral on YouTube? Getting noticed for being humorous or a being great product is, of course, the ideal. If you are an unknown company, however, any attention can be helpful. Alan Sorensen, an economics professor at Stanford University's Graduate School of Business, believes that "for small brands fighting for recognition in crowded markets, almost any publicity is beneficial." ["Better to be reviled than ignored," The Economist, 24 February 2011] The same cannot be said for established companies or brands. The article explains:

"One reason is that, for lesser-known brands, negative perceptions fade more quickly in consumers' minds than their general awareness of the product. When coming across a brand whose boss is, say, a philanderer, they recognise it but don't remember why. With established brands, on the other hand, the whiff of bad publicity lingers longer. ... There are some limits to the theory. Vitaly Borker, the founder of DecorMyEyes, an online optician, tried to generate publicity by replying abusively to dissatisfied customers, and even allegedly threatening some of them with violence. Mr Borker boasted to the New York Times that provoking masses of complaints bumped him to the top of Google searches for eyewear. His brilliant plan backfired, however: Mr Borker was arrested in December [2010]."

Obviously, given the choice of generating laughter or revulsion, laughter wins hands down. William James once wrote, "Common sense and a sense of humor are the same thing, moving at different speeds. A sense of humor is just common sense, dancing." Orabrush's humorous campaign is a winner because its message makes sense. Let's hope the company keeps dancing.

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September 28, 2011

Managing Supply Chain Risk

Supply chain risk management expert Daniel Stengl writes, "After a major disruption there are many firms [that] severely suffer and take a long time to fully recover. On the other side of the spectrum there are a few companies that continue to satisfy their customers demand, and thus use these capabilities to retain and acquire new customers in the process." ["Robust Strategies for Mitigating Disruptions," Supply Chain Risk Management, 25 May 2011] The focus of Stengl's post is a paper written by Professor Christopher Tang, the Edward W. Carter Chair in Business Administration at UCLA's Anderson School of Management, entitled "Robust strategies for mitigating supply chain disruptions" [International Journal of Logistics: Research and Applications, March 2006]. Stengl writes:

"Tang defines 'robust' strategies as those which fulfill two objectives at once:

  • Help reducing costs or improve customer satisfaction during times without a disruption,
  • Support the firm during and after a disruption in continuing operations.

"The goal therefore is to create a win-win situation where the investment into the strategy can pay off no matter if a disruption occurs or not."

Tang obviously believes that such win-win strategies are possible; but, he is baffled by the fact that so many "firms perceive serious supply chain risk, yet do not take commensurable actions." Tang points to several studies that conclude that a large percentage of corporations with supply chain vulnerabilities fail to adequately address those vulnerabilities. He continues:

"While the exact reasons are not known, [James B. Rice, Jr., and Federico Caniato] and [George A. Zsidisin, Alex Panelli and Rebecca Upton] made the following conjectures:

"• Firms underestimate the risk in the absence of accurate supply chain risk assessment.

"• Firms are not familiar with ways to manage supply chain risks.

"• With inaccurate estimates of the probability that a major disruption would occur, many firms find it difficult to perform cost/benefit or return on investment analysis to justify certain risk reduction programmes or contingency plans.

"All of the three reasons are plausible, but I speculate that the last reason is most probable."

Tang offers three cases of companies with resilient supply chains that implemented his win-win strategy. He writes:

"Essentially, an established robust supply chain strategy would enable a firm to deploy the associated contingency plans efficiently and effectively when facing a disruption. Therefore, having a robust supply chain strategy could make a firm become more resilient. Three case studies reported in the literature are the following.

"(1) Nokia changed product configurations in the nick of time to meet customer demand during a supply disruption. Both Ericsson and Nokia were facing a shortage of a critical cellular phone component (radio frequency chips) after a key supplier in New Mexico (Philips's semiconductor plant) caught fire during March 2000. Ericsson was slow in reacting to this crisis and lost 400 million euros in sales. In contrast, Nokia had the foresight to design their mobile phones based on the modular product design concept and to source their chips from multiple suppliers. After learning about Philips's supply disruption, Nokia responded immediately by reconfiguring the design of their basic phones so that the modified phones could accept slightly different chips from Philips's other plants and other suppliers. Consequently, Nokia satisfied customer demand smoothly and obtained a stronger market position. ...

"(2) Li and Fung changed its supply plan in a flash to meet customer demand during a currency crisis. When the Indonesian Rupiah devalued by more than 50% in 1997, many Indonesian suppliers were unable to pay for the imported components or materials and, hence, were unable to produce the finished items for their US customers. This event sent a shock wave to many US customers who had outsourced their manufacturing operations to Indonesia. In contrast, The Limited and Warner Bros. continued to receive their shipments of clothes and toys from their Indonesian suppliers without noticing any problem during the currency crisis in Indonesia. They were unaffected because they had outsourced their sourcing and production operations to Li and Fung (, the largest trading company in Hong Kong for durable goods such as textiles and toys. Instead of passing the problems back to their US customers, Li and Fung shifted some production to other suppliers in Asia and provided financial assistance such as line of credit, loans, etc. to those affected suppliers in Indonesia to ensure that their US customers would receive their orders as planned. With a supply network of 4,000 suppliers throughout Asia, Li and Fung were able to serve their customers in a cost-effective and time-efficient manner. Despite the economic crisis in Asia, this special capability enabled Li and Fung to earn its reputation in Asia and enjoy continuous growth in sales from 5 billion to 17 billion Hong Kong dollars from 1993 to 1999. ...

"(3) Dell changed its pricing strategy just in time to satisfy customers during supply shortage. After an earthquake hit Taiwan in 1999, several Taiwanese factories informed Apple and Dell that they were unable to deliver computer components for a few weeks. When Apple faced component shortages for its iBook and G4 computers, Apple encountered major complaints from customers after trying to convince its customers to accept a slower version of G4 computers. In contrast, Dell's customers continued to receive Dell computers without even noticing any component shortage problem. Instead of alerting their customers regarding shortages of certain components, Dell offered special price incentives to entice their online customers to buy computers that utilised components from other countries. The capability to influence customer choice enabled Dell to improve its earnings in 1999 by 41% even during a supply crunch."

Obviously, having a resilient supply chain isn't the only key to success. Nokia, for example, in the years following its disruption coup, has struggled to maintain market share. Nevertheless the strategies used by each of the companies highlighted above demonstrate how resiliency is a plus during both good times and bad. Tang writes, "The common theme of these three companies is that they have established different robust supply chain strategies." He explains:

"Essentially, supply chain issues can be classified into two major groups: supply management and demand management. Supply management issues include supplier selection, supplier relationship, supply planning, transportation and logistics, etc. while demand management issues include new product introduction, product line management, demand planning, product pricing and promotion planning, etc."

Tang goes on to "describe nine different robust supply chain strategies that aim to improve a firm's capability to manage supply and/or demand better under normal circumstances and to enhance a firm's capability to sustain its operations when a major disruption hits." Tang summarizes "the key features of these nine robust supply chain strategies" in the following table (click to enlarge).

Strategies for mitigating supply chain disruptions

For a more complete description of these strategies, you can click on the provided link and read the paper in its entirety. Stengl writes that there are "challenges which have to be considered before implementing the strategies." Three of those challenges are:

  1. "Cost versus benefits -- These strategies probably make it easier to justify the investments due to their positive effects with or without disruptions; nonetheless, there is still a tradeoff which has to be analyzed. Tang suggest[s] [that companies] think of the remaining cost surplus as insurance premium.

  2. "Strategic fit -- Not every strategy may fit for every company. For example Dell's pricing strategy might be adaptable for airline tickets but not for heavy machinery with a new quote every day.

  3. "Proactive execution -- Proactive strategies (e.g., rerouting of shipments after a port strike) can be better than reactive strategies (e.g., increasing stocks)."

In his conclusion, Stengl writes, "I am missing some clearer description of the ways to generate these strategies. Also, there is no consideration of the completeness of this listing. So I have to assume that it is probably a good starting point."

John Westerveld notes that disasters are not the only risks facing supply chains. He agrees that disasters are "cause for concern" and "that supply chain professionals should have mitigation plans in place to address" them. He goes on to write, "But risks can take other forms, and these risks can be just as devastating to a company's bottom line." ["Natural disasters aren't the only risks in town," The 21st Century Supply Chain, 22 July 2011] He writes that he read about a company that "survived the chaos and upheaval of Hurricane Katrina, only to fall victim to other risks." He goes on to detail those other risks:

  • "Rapid growth – Rapid growth sounds like a great situation to be in, and it can be. But it can also cause significant problems. Companies have growing pains just like people do and processes that worked before can become problematic with higher volumes. Suppliers might not be able to grow at the same pace you are and qualified people might not be available to meet hiring demand.

  • "Expanded and new facilities – New facilities are really systems wrapped in a building and like any system there can be problems getting things working. As you bring new facilities on-line or as you renovate and expand existing facilities, you need to plan for potential start-up issues.

  • "Increased and changing product range – Things can be simple when we have one or two products but as the product offering grows, complexity grows with it. Care must be taken when adding new products not to kill demand for existing products, at least until supply has been whittled away. Apple is a master at this – when a new product is coming, even before it is announced, supply starts to dry up for existing products so that as Apple transitions to the new product, they reduce the risk that they will be left with large quantities of the outgoing product.

  • "New, large (and more demanding) customers – New customers are wonderful. Large customers, even better! But… there can be a downside. Maybe others have noticed this little truism – the larger the customer, the more demanding the customer. They want what they want, when they want it. And because this customer now makes up a healthy portion of a company’s revenues, the incentive is there to make sure these customers are satisfied. The risk is that if you have successfully ramped the company to meet this demand and the customer subsequently leaves, you are left with significant excess capacity and expense.

  • "Changes to the supplier base – Suppliers come and go. As the supplier base changes, so does the performance characteristics of your supply base. Quality, on-time delivery performance, lead times, costs, all impact profitability.

  • "Changes to IT systems – This can be a killer. IT systems are often the brains of the operation. If the brains aren’t working, not a lot of stuff can get done. Companies are often lured into huge projects to overhaul and replace their systems. If done right, the change can be quite beneficial. If done incorrectly, the results can be disastrous, sometimes leading to litigation."

Westerveld directs his readers to an article by Mark Humphlett, director of enterprise resource planning product marketing at Infor. In that article, Humphlett writes that "savvy supply-chain chiefs who strengthen the agility and resilience of their supply channels [will] first answer several key questions." ["Manufacturers Must Brace for Global Supply Chain Uncertainty and Risk," IndustryWeek, 31 May 2011] I agree with Humphlett that good answers result from asking good questions. The questions that Humphlett believes need to be answered include:

  • "Have the key sources of risk been identified and their impact assessed?
  • "Have we built a supply chain that can absorb the disruptions?
  • "Is risk management viewed as a one-off exercise, initiated after an unexpected event occurs, or are employees actively building risk mitigation into their everyday activities?"
  • I have noted in a number of previous posts that identifying every possible source of disruption is impossible and, therefore, a waste of time. The best place to start is by identifying critical processes and assets and then assessing their vulnerabilities. Plans must then be made to address those vulnerabilities. Humphlett indicates that supply chain executives must "also develop a plan that can be turned into a competitive weapon allowing them to take an unplanned event and turn it into an opportunity." On that point, he agrees completely with Professor Tang. He offers his own "strategies for doing just that":

    • "Develop networks that endure potential upheavals.

    • "Software tools and other technologies are available to analyze the sources of risk for your company. In the process, they can help determine where and when to make, buy, store, and move products through your networks. These tools help to evaluate different sourcing, production, transportation and inventory strategies to match changes in the business environment, such as the impact of supply disruption, single sourcing versus dual sourcing and alternate parts, for example. Companies can then make use of their assets most effectively, trim costs, reduce inventory levels, and improve customer service.

    • "Employ advanced supply-chain tools to assess all risks."

    It's easy to recommend the development of networks that can survive upheavals, but it is much more challenging to actually put them in place. The more complex the supply chain is the more difficult that task becomes. Humphlett does offer a few recommendations for how that can be done. He writes:

    "Companies should construct various what-if situations and test them extensively. For instance, determine how the company would cope with, say, a three-month disruption in supply of a critical part or product. You can assess where you can obtain supplies from different vendors, and at what cost. You can figure out how much the changes could affect costs and profits and customer deliveries. These and other real-life scenarios can be tested in advance allowing you to make contingency plans."

    This is a recommendation I heartily endorse (see my post entitled Examining the "What Ifs" in Life). His next recommendation is to view risk holistically. He writes:

    "Establish a companywide business process that takes risk into account. Ensure the process assesses the risks and the impact to your supply chain. Involving your sales, operations and financial units in this strategic planning process will help identify and flesh out the issues. Using a comprehensive sales and operations planning process involves more than simply demand-supply balancing because it takes into consideration alternative demand-supply situations as well as their effect on profit margins and sales."

    As I've written in the past, "Segmenting risk management rather than addressing it holistically is like trying to keep water out of a boat filled with holes." Risk management cannot be a siloed business activity. Humphlett's next recommendation continues with that theme.

    "Include risk identification into your operations. Managers should recognize what potential sources of risk could impact their part of the business and identify new ones that emerge. Risk management should be as pervasive as your quality management or your sustainability strategy. Otherwise, the assessment of risk will fail to deal with those sources of risk where the impact may prove the highest."

    His final recommendation involves doing something more about risk mitigation than just thinking about it. He believes that companies should be pro-active.

    "Developing sound risk-mitigation strategies will help you build an agile supply chain. These strategies can deliver a huge competitive benefit and greatly diminish your supply chain risk. You should consider all the potential sources of risk to a supply chain and what to do should an unplanned event occur is no easy task. But, it's the only way to mitigate risk proactively rather than after the fact. And today's software tools and other technology make the evaluation and execution process much easier."

    Westerveld writes, "If you were to pick one [of these strategies] that you absolutely must implement, it would be to build risk management into all aspects of your business. Make risk assessment and mitigation a key part of your decision making process. A good place to start would be to add risk assessment and mitigation to your monthly S&OP process. What better place to ensure that all teams are thinking in terms of what risks exist and how best to manage them?" I couldn't agree more.

    Important Notice:

    Enterra Solutions is sponsoring a webinar entitled "Building a Learning Supply Chain: New Success at Newell Rubbermaid and Conair"
    October 12, 2011 | 2 p.m. ET | Duration: 1 Hour

    As supply chains become increasingly global and integrated, information systems need greater agility to manage the resulting complexity and the need to act in a real time. Companies are asking for technologies to improve sensing to drive a dynamic response. They are frustrated with traditional technologies that do not sense change in real-time or drive a fixed response despite changing conditions. Join this webinar to understand how Enterra Solutions is enabling Newell Rubbermaid and Conair to build a learning supply chain: one that senses before responding and one that adapts based on situational awareness and learning.

    September 27, 2011

    Is Risk Assessment Getting More Difficult?

    Despite access to more information and significant increases in available computing power, Carol Matlack concludes, "As the global economy gets more connected, it has become harder for insurers like Munich Re to determine risk." ["How Munich Re Assesses Risk," Bloomberg BusinessWeek, 2 December 2010] Munich Re is one of the world's largest reinsurers. Simply stated, a reinsurer assumes the insurance written by another company. This allows the original insurance company to issue higher limit policies because some of that risk is now transferred to the reinsurer. How an insurance company assesses risks should be of interest to supply chain professionals since many of the risks being assessed could cause supply chain disruptions. The Munich Re website claims that the company's "recipe for success is to anticipate risks and deliver needs-based solutions." It continues:

    "Reinsurance 'off the peg' is simply not enough in these days of new and changing markets with ever more complex risks that are becoming increasingly difficult to calculate. ... We consistently expand and enhance our risk competence through our global network and exchange of knowledge with selected cooperation partners. This is how we produce solutions that are both forward-looking and sustainable. Solutions for tomorrow's world."

    Obviously, for Munich Re to remain a profitable company, it has to have a pretty good idea of the risks against which people and organizations are insuring themselves. As Matlack writes, Munich Re's reinsurance business provides the "company an unparalleled view of just about everything that could go wrong in the world." She also admits that "figuring out where and why those things might happen is getting a lot more complicated." In preparation for her article, Matlack interviewed Munich Re's chief risk officer, Joachim Oechslin. He told her, "The most significant changes in risk management have taken place in the past 7 to 10 years." Matlack continues:

    "'Today it's not only about data gathering'—using geological records, say, to predict the likelihood of a volcanic eruption—'but trying to figure out the relationship of things,' such as how an event like the Iceland volcano can ripple through a supply chain. While Munich Re specialists are studying the eruption, they say they still lack the tools to accurately predict the chain of damages unleashed by such a disaster. ... Munich Re specialists pore over data to help them calculate the likelihood of a dizzying array of mishaps. They know the probability that Los Angeles will suffer a major earthquake in the next three decades (it's 97 percent) and the odds that a 60-year-old American man will die from a heart attack by age 70 (3.2 percent if he doesn't smoke, and 8.4 percent if he does). They search for patterns in data from past accidents, learning, for instance, that boats are most likely to spring leaks during the early months of an economic upswing. The reason: During downturns, vessels are often placed in dry-dock, where wood shrinks as its dries, leaving gaps where water can enter when the boat returns to service."

    Risk managers for companies that could be crippled by a supply chain disruption must do the same kind of homework being done by Munich Re analysts. Obviously, their efforts need to be focused on the risks associated with their particular business. Matlack continues:

    "Increasingly, Munich Re is focusing on what it calls emerging risks: subtle, often seemingly innocuous trends that could carry the seeds of disaster—everything from rising prices at art auctions (which can increase theft) to the widespread installation of rooftop photovoltaic panels (a fire risk). ... Munich Re learned the hard way about the need for more sophisticated risk controls. A decade ago, it had invested about 20 percent of its capital in equities. ... After markets worldwide tanked in 2002, the company booked an unprecedented $492 million loss for 2003. Since then, Munich Re has greatly diversified its investments, with less than 3 percent in equities. ... One of the new risks Munich Re is tracking is climate change. The company has the world's most comprehensive database on natural disasters, with information going back centuries. It shows that the frequency of serious floods worldwide has more than tripled since 1980, while hurricanes and other severe windstorms have doubled. 'Global warming is real, and it affects our business,' says Peter Hoppe, who heads the company's climate-change research. Munich Re has become a leading advocate for renewable-energy development, even joining a venture that plans to generate solar power in the Sahara and ship it under the Mediterranean to Europe."

    Munich Re obviously has no ideological position when it comes to climate change -- it only has the bottom line to worry about. And the bottom line doesn't look too good when it comes to paying out claims for weather-related damages caused by climate change. Matlack continues:

    "Other Munich Re specialists try to understand human risk-taking behavior. Rainer Sachs, who heads the company's emerging risks research unit, spends his days pondering such head-scratchers as the fact that, while traffic deaths have dropped sharply in recent years, the rate of serious injuries from accidents has not. His conclusion, buttressed by studies of driver behavior in several countries: With airbags and other safety features, drivers take more risks because they believe their cars are safer. 'Everyone has his own risk thermostat,' he says. 'We introduce risk-mitigation devices that are supposed to make life safer—and then we change our behavior to make life more interesting.' Those insights could help Munich Re develop computer models to predict the likelihood of accidents in a wide range of settings, including financial markets. ... Other human behaviors defy prediction. Terrorism, for one. While insurers can draw conclusions by studying the actions of groups of people, 'You cannot model the decision-making of small numbers of individuals,' says Heike Trilovszky, Munich Re's corporate underwriting chief. 'We're convinced that terrorism is not insurable.'"

    Munich Re obviously has to take a holistic approach to risk management. Companies need to do the same. Jordan Kass, Executive Director of C.H. Robinson's Managed TMS Service, claims that "overly optimistic projections" and historical extrapolation discount the magnitude of potential risks. ["Lessons From Japan," TMC connect, 8 April 2011] He writes:

    "Whether we are forecasting product demand or trying to anticipate movements in fuel prices or freight rates, there is a tendency to use past experience as a guide to future behavior. We have seen time and again that this approach is flawed, particularly as supply chains and the businesses they support have become much more complex. Maybe a better approach is to use scenario planning to prepare for future disruptions. Companies such as Shell have been using this method for a number of years, and some very interesting supply chain applications have been developed by Dr. Mahender Singh at the MIT Center for Transportation & Logistics. The basic premise of Singh's approach is that instead of seeing the future as a single, backward-looking, linear path that starts in the past or the present, companies need to consider many possible paths. This is accomplished by creating multiple scenarios based on plausible future worlds, and brainstorming the implications of each scenario. The results are used to develop risk management strategies that prepare the company for various outcomes. Simulating possible outcomes through scenario planning reveals both the kinds of uncertainty that companies face and potential courses of action. The scenarios can be constructed to explore particular business issues and environments or they can be more generic in nature."

    In other words, Kass recommends that companies follow Munich Re's lead -- concentrate most of your efforts on the future rather than the past. Robert J. Bowman, Editor of SupplyChainBrain, writes, "Let's assume that you're a supply-chain manager who has finally awakened to the need for a real risk-management strategy. Where do you start?" ["Another Disaster, Another Supply-Chain Disruption. Will We Ever Learn?" 11 April 2010] Jim Lawton, president and general manager of D&B Supply Management Solutions, told Bowman that "fewer than 10 percent of the companies he deals with have contingency plans in place to cope with a major supply-chain disruption." Bowman continues:

    "Lawton says companies need to get a detailed picture of their supply chains, well beyond the Tier 1 suppliers with whom they deal directly. If some subassembler relies on Japanese-made microchips, you need to know that. The answer will determine how you distribute your global supply base. Sole-sourcing can be an effective means of holding down procurement costs and gaining maximum leverage with suppliers. But it also exposes you to a huge amount of risk, warns Lawton. Wherever possible, it's a good idea to funnel some work to an alternative vendor on a regular basis. If Supplier A encounters a disruption, you're in line ahead of all those other companies that are banging on Supplier B's door for emergency parts. 'Most of the time,' says Lawton, '100 percent of a strategy is the wrong thing. A more nuanced implementation is the one that ultimately makes sense.'"

    That's just another way of saying: don't put all your eggs in one basket. What Lawton doesn't address is going beyond getting a "detailed picture" of supply chains to getting a better understanding what risks could disrupt that picture. Bowman continues:

    "Paul Martyn, vice president of global marketing with BravoSolution, can[not] understand why so many companies have yet to devise a risk-management plan. 'How do you plan for something you can't foresee?' he asks. To that question I would add: How do you sell top management on a costly effort that only proves its worth when nothing bad happens? In the end, it's all about supply-chain agility. By all means, diversify your supplier base wherever possible. Think about shifting some production out of Asia entirely, and closer to home. But rather than painstakingly prepare for some specific event, which is seldom the one that actually happens, a company might be better off creating an organization that can react quickly to whatever happens. That means knowing precisely which individuals are responsible for executing an emergency-response plan, and equipping them in advance with the tools necessary to do the job. At the same time, companies need to question the conventional wisdom around concepts such as just-in-time manufacturing and lean inventories."

    The purpose of "what if" scenarios and simulations is not to prophesy what events will occur but to explore possibilities and figure out how your company would respond if disaster did strike. Participation in such activities makes leadership teams better prepared to respond "to whatever happens." Like any skill, those skills associated with crisis response and disaster mitigation need to be occasionally exercised. Bowman concludes:

    "Assuming, of course, that businesses really are ready to learn their lesson about the need to prepare for disruptions of any kind. 'Supply-chain risk mitigation is an ongoing process,' says [Sundar Kamakshisundaram, senior manager of solutions marketing with Ariba]. 'It's not a one-time thing. It needs to be part of the DNA of the business.' Don't forget it."

    So to answer the question posed in the title of this post -- Is risk assessment getting more difficult? -- the answer is yes. The world is getting more complicated. Historical patterns of natural disasters are being disrupted. Extended supply chains that cross borders and cultures make things more complex. Yet Munich Re's success in recent years, including coming through the Great Recession in good shape, demonstrates that understanding risks and planning for them can have a significant payoff.

    Important Opportunity:

    Enterra Solutions is sponsoring a webinar entitled "Building a Learning Supply Chain: New Success at Newell Rubbermaid and Conair"
    October 12, 2011 | 2 p.m. ET | Duration: 1 Hour

    As supply chains become increasingly global and integrated, information systems need greater agility to manage the resulting complexity and the need to act in a real time. Companies are asking for technologies to improve sensing to drive a dynamic response. They are frustrated with traditional technologies that do not sense change in real-time or drive a fixed response despite changing conditions. Join this webinar to understand how Enterra Solutions is enabling Newell Rubbermaid and Conair to build a learning supply chain: one that senses before responding and one that adapts based on situational awareness and learning.

    September 26, 2011

    Improving Supply Chain Performance

    Last December, Max Jeffrey, an integration consultant at Kinaxis, asked an important question, "Do you know the impact of the supply chain on your business?" [The 21st Century Supply Chain, 8 December 2010] You might think that question is a bit flippant. Of course you know the impact of your supply chain to your business. Or do you? Before simply dismissing the question, remember that Jeffrey is a serious analyst asking a serious question. What prompted Jeffrey to pose the question was a survey he read "in which respondents reported a drop in the amount of overall cost savings as well as lower increases to revenues as a result of supply chain management initiatives." He writes:

    "There’s no dispute about the benefits obtainable through use of supply chain management. There's also no question that during the economic downturn, companies relied on supply chain management to weather the storm. I must admit, however, that I am somewhat surprised by the results of a recent survey. ... The survey, 2010 Global Survey of Supply Chain Progress, was jointly conducted by CSC, Supply Chain Management Review (SCMR), and Michigan State University, with assistance by the Council of Supply Chain Management Professionals (CSCMP) and Supply Chain Europe magazine. Twenty industries were represented in this year's survey, and respondents included representatives from both large and mid-sized companies, with sales ranging from $250 million to over $1 billion. One of the surprising—at least to me, anyway—findings was that when asked about the overall impact of supply chain initiatives on cost reduction over the past three years, the number of respondents answering 'none' or 'don't know/not sure' grew from 13 percent in 2009 to 20 percent this year. And as a follow-up, when asked about the overall impact of supply chain initiatives on increasing revenue over the past three years, the percentage of respondents indicating 'none' or 'don’t know/not sure' rose from 30 percent in 2009 to 47 percent in 2010. How should that be interpreted? Is it actually a lack of impact, or a lack of direct measurement to understand the impact?"

    I have to agree with Jeffrey that it is surprising that so many respondents didn't believe (or didn't know) whether their supply chain initiatives had resulted in a significant impact on business. A supply chain analyst once stated, "Companies don't compete — only supply chains do." If that is true, then any supply chain initiative is going to have impact on the company (for good or ill). Before supply chain professionals feel underappreciated as a result of the survey's findings, however, Jeffrey continues with some good news. He reports:

    "I am encouraged by other results (which, to a degree, are counter-intuitive to the stats above). For instance, supply chain management is largely held to be of considerable importance. In fact, 82 percent of the respondents replied that supply chain management is considered to be a core importance for their organization, and when asked how much influence supply chain management has on running the business, 52 percent replied 'to a great degree'—while another 35 percent indicated a 'moderate degree.' ... Indeed, 78 percent of the participants indicated that their firms increased emphasis on supply chain management [in 2010]. Additionally, given the growing emphasis on supply chain management, it only stands to reason that S&OP is increasingly valued as well. For instance, 66 percent of the respondents reported a moderate to high degree of impact using S&OP to improve the company's agility so it can better respond to changes in customer demand."

    In other words, don't stop trying to improve your supply chain just because the exact impact of specific initiatives is underappreciated. Continuous improvement, according to John Williford, President of Global Supply Chain Solutions for Ryder System, Inc., is one of the four critical elements in supply chain execution. ["Four Critical Elements for Excellence in Supply Chain Execution," Logistics Viewpoints, 19 May 2011] The other critical elements are having: a proven template, deep expertise, and lean principles. He writes:

    "Faced with serious pressures to cut costs and boost profits, many companies have re-examined how they source, store and deliver their products. Flexibility, innovation and the ability to operate with virtually no margin of error have become requirements when it comes to logistics outsourcing. A company's ability to respond to change, to be nimble and innovative, depends on its ability to execute at the highest levels."

    As noted above, Williford believes there are critical "elements of good supply chain management that must come together to achieve exceptional execution." For him, they begin with a proven template. He writes:

    "Proven template: Firms that are undertaking a significant change to their logistics network are most often successful if they have a model to follow. This model becomes a pattern for a standard, replicable solution set that can be applied across different areas of the supply chain. This is not to say that all supply chains should be approached with a 'cookie cutter' model. Rather, a standard solution set comprised of best practices becomes foundational and can then be customized to meet each specific logistics engagement undertaken. In the absence of a proven model, it can be difficult to know what best practices or methods will breed success."

    As the old says, "If you don't know where you're going, any road will take you there." Having a template (or road map) of what you hope to achieve and how you are going to do it is important. If you're on the cutting edge of technology and trying something for the first time (i.e., no template exists), then I suggest using pilot or prototype programs. They can help establish that template. Williford next turns to the subject of deep expertise. He writes:

    "Deep Expertise: Today's complex supply chains require applied knowledge not only in their inner workings, but also with big-picture insight of the impact that changes made in one area of the supply chain will have across the network. Great execution requires functional expertise in distribution management, transportation management, cross-docking and network design; it also requires industry expertise in the unique aspects of customer requirements, drivers of profitability, challenges and trends for a particular industry segment. Functional and industry-specific knowledge allow companies to better synchronize supply and demand to achieve the optimal flow of goods across the network."

    When Williford talks about "the network," he is talking about the end-to-end supply chain network. I would take that idea one step further. Top supply chain executives need to have deep expertise across the entire business, not just across the entire supply chain. That is, they need deep expertise both vertically in the supply chain and horizontally across the business. Gartner refers to this kind of model as a Demand-Driven Value Network (DDVN). Others believe that Sales & Operations Planning should be referred to as Integrated Business Planning. The point is a more holistic approach to deep expertise is required. On that point, I agree completely with Williford. His final topic involves lean principles. He writes:

    "Lean principles: Applying lean processes is key to delivering long-term value and consistent performance. In a lean culture, logistics teams are empowered to identify and eliminate waste in every process that occurs as an order is fulfilled. Lean tools, such as visual cues, problem solving jackets, and root cause analysis, result in shortened lead times, built-in quality and continuous improvement – ultimately increasing speed to market."

    I believe there is a caveat here. As I've noted in the past, a supply chain can get too lean. Lean systems can be brittle and inflexible. When people write things like companies must have "the ability to operate with virtually no margin of error," they are all but admitting that processes aren't very resilient. That can't be a good thing. Yet earlier Williford also discussed the importance of supply chain flexibility. Finding the operational sweet spot for your particular company can be tricky; but it can be done. Williford concludes with the topic of continuous improvement. He writes:

    "Continuous improvement: We've found that ongoing, incremental improvements – both small and large in scope – add up to a significant edge. An important tool for continuous improvement is Value Stream Mapping. Value Stream Maps are created for many aspects of the supply chain such as detailed workflow management, warehouse productivity, route optimization and, on a larger scale, total landed costs. They combine engineering talent with practical operational knowledge to find the best opportunities for change and continuous improvement."

    Steve Hensley, president of Blue Sky Technologies, agrees with Williford and notes, "Identifying the loss of five minutes here and 10 minutes there can quickly add up to big savings when applied across thousands of employees. ... [When] you start putting $38 per hour to it. All of a sudden, you are talking big money." ["Using Visibility to Target Supply Chain Inefficiencies," SupplyChainBrain,15 August 2011] Williford concludes that "by achieving the right combination of proven templates, deep expertise, lean principles, and continuous improvement, your supply chain will ultimately get products to market faster, improve efficiencies, reduce costs, open new markets and enhance customer satisfaction. That's why when it comes to logistics, execution is everything."

    Supply chain analyst Dustin Mattison believes that companies need to start thinking differently about supply chains. He believes that supply chains are a "truly strategic resource that most companies today are dramatically underutilizing." ["How can we make America's supply chains more dynamic and innovative? Dustin Mattison's Blog, 25 May 2011] In that regard, Mattison agrees with Jeffrey and would probably ask the same question that Jeffrey did, "Do you know the impact of the supply chain on your business?" As new technologies permit supply chain data to become an integral part of company-wide information systems, supply chain professionals will increasingly find themselves the focus of business activity. The new attention should be welcomed; but, supply chain professionals must be ready to prove that supply chain management can and does make a difference.

    Important Notice:

    Enterra Solutions is sponsoring a webinar entitled "Building a Learning Supply Chain: New Success at Newell Rubbermaid and Conair"
    October 12, 2011 | 2 p.m. ET | Duration: 1 Hour

    As supply chains become increasingly global and integrated, information systems need greater agility to manage the resulting complexity and the need to act in a real time. Companies are asking for technologies to improve sensing to drive a dynamic response. They are frustrated with traditional technologies that do not sense change in real-time or drive a fixed response despite changing conditions. Join this webinar to understand how Enterra Solutions is enabling Newell Rubbermaid and Conair to build a learning supply chain: one that senses before responding and one that adapts based on situational awareness and learning.

    September 23, 2011

    Creating Jobs in America, Part 2

    In yesterday's post, I discussed some of the initial recommendations offered by the President's Jobs and Competitiveness Council as well as some of the programs that the President put forward in his jobs bill. Having listened and read what is being offered on the jobs front, opinion columnist Robert J. Samuelson believes that politicians and their constituencies "need a refresher course in Job Creation 101." ["Job Creation 101," Washington Post, 11 September 2011] He writes:

    "Recall that the private sector is the main employment engine. Businesses create jobs when two conditions are met. First, extra demand for their products justifies more workers. Second, the extra demand can be satisfied profitably. There are qualifications to these generalizations (start-ups, for instance), but these are the basics. By contrast, government is less a job creator than a job changer. It supports jobs (soldiers, teachers, scientists) by taxing, borrowing and regulating. If government taxed, borrowed or regulated less, that money would stay with households and businesses, which would spend it on something else and, thereby, create other jobs. Politics determines how much private income we devote to public services."

    Samuelson reminds us why demand is down. First, there was "the housing collapse." Not only did the collapse result in the unemployment of large numbers of construction workers, but "potential buyers" have remained out of the market "waiting until prices reach bottom." Perhaps a bigger reason is that U.S. "households have lost $7 trillion in wealth, mostly from lower home and stock prices." Rather than spending (i.e., increasing demand), U.S. consumers "are saving more, spending less and repaying debt." As a result, Samuelson writes, "Demand is insufficient [to justify companies hiring new employees]." It's almost a Catch-22 situation. Demand is down because unemployment is high and unemployment is high because demand is down. Breaking that vicious circle is what economists and politicians are trying to figure out. Samuelson believes that psychology is going to play an important role in that effort. He writes:

    "The answer, I think, is psychology. Small changes in precautionary behavior by anxious consumers and companies offset stimulus. Suppose, for example, consumers raised their savings rate by three percentage points; that would neutralize three-quarters of Obama’s program. The surprise and brutality of the financial crisis left a powerful legacy of risk aversion. Companies — like consumers — have become defensive. They accumulate a cash hoard against unknown threats. Our political leaders have also compounded the caution and fear; indeed, government policies sometimes cause unwanted behavior. ... Republicans and Democrats exult in vitriolic attacks on each other. Their pleasure from mutual vilification comes at the public cost of lower confidence. By contributing to this, the disarray over long-term deficits also undermines employment."

    The most profound thing Samuelson writes is:

    "No policy will succeed unless it results in self-sustained hiring by private firms. This means giving job creation precedence over other goals. It means conducting the debate so that the nation's spirits — and hence, private spending — are not further depressed by partisan rancor. It suggests taking proposals from both parties, because neither can be sure its approach will work. It ought to be about building confidence, not scoring political points. This is a tall order. As the 2012 election approaches, it may be too tall."

    In yesterday's post, it was pointed out that somewhere between two and three million jobs are currently available for qualified workers. So the jobs creation debate needs to start with how to train workers to fill those jobs. Lawrence F. Katz, an economics professor at Harvard, believes that the federal government has acted too timidly. He writes, "There are no signs of recovery in the labor market. Public-sector employment fell in the last year and private-sector employment growth remains tepid. The employment crisis has exacerbated the longer-term trends of rising inequality and a decline in middle-class jobs. Bold action by the federal government is needed." ["Invest in Workers," New York Times, 6 September 2011] He recommends three specific steps for the government to take. He writes:

    "First, a net job-creation tax credit for the next two years could provide a powerful incentive for private-sector employers to speed hiring and create momentum for a jobs recovery. Private employers who increase employment would get a tax credit to cover a substantial share (say 40 percent) of the payroll costs of net new hires; they would get a check even if they didn't owe taxes. Such a tax credit would focus the incentives on expanding businesses, where the new jobs are more likely to persist, even after the subsidy expires."

    The economy is in such a deep hole, I'm not sure that a two-year timeframe for such a tax credit would be long enough. The thing I like most about this recommendation is that it is aimed at helping create jobs that persist. As Samuelson points out, temporary jobs created by stimulus money have little long-term impact. Persistent jobs are needed. Employees with good long-term outlooks become consumers. As consumption increases, so does demand. Katz continues:

    "Second, increased federal spending of at least several hundred billion dollars a year for the next two years is needed to offset weak private-sector demand and crumbling state and local government finances. I would emphasize aid to state and local governments to prevent further layoffs and to increase spending on infrastructure for public schools and community colleges. Recent research shows that investments in public school infrastructure can raise property values and student performance. The most promising transportation, research and development and energy-efficiency investments should also be included."

    This recommendation is in line with one of the recommendations made by the President's Jobs and Competitiveness Council. There seems to be a general consensus that America's infrastructure is in need of serious attention. For more on that subject, read my post entitled America's Infrastructure. Although Katz seems to believe that improving infrastructure needs to be entirely a governmental enterprise, I suggest that public/private partnerships are a better way forward. Katz continues:

    "Third, the work force investment and re-employment system needs to be revamped. Re-employment services can be cost-effective in helping dislocated and disadvantaged workers find employment more rapidly. The economic rewards from community college and other postsecondary education remain high for young workers and some dislocated workers. There is much evidence that well-functioning training and education programs — like Job Corps, the National Guard Youth Challenge and Career Academies — help disadvantaged youths. Existing employment and job-training systems are fragmented and hard to navigate. We need to make sure all workers have the resources and information to invest in high-return training. ... Industry-specific training programs that prepare disadvantaged workers for skilled jobs and help connect them to employers have been shown to raise earnings and should be expanded."

    The above recommendation begins to attack the problem of intransigent unemployment; but, not everyone believes that programs like the Job Corps, the National Guard Youth Challenge and Career Academies have been "well functioning." James Bovard, for example, writes:

    "Earlier this year, the Government Accountability Office reported that there were 47 different federal employment and training programs, costing taxpayers $18 billion a year. There is massive overlap and duplication, and few programs seriously evaluate their impact on trainees. If federal job training efforts worked, Congress would not have thrown out the programs it has created every decade or so and enacted new ones. In reality, government training has always been driven by bureaucratic convenience, or politicians' re-election considerations. There is no reason to believe the latest round of proposals will be any different." ["What Job 'Training' Teaches? Bad Work Habits," Wall Street Journal, 13 September 2011]

    Surely we have people smart enough to create a job training/re-training program that is both effective and efficient. Perhaps Bovard and Katz should get together and design such a program. Although Katz sees a large government role in job creation, Arthur Laffer, chairman of Laffer Associates, has a different approach for creating jobs in extremely depressed areas. I'll discuss Laffer's recommendations below. Finally, Katz discusses unemployment insurance. He writes:

    "Unemployment insurance should be made more flexible so that employers have an incentive to shorten workers' hours instead of laying them off. Jobless workers trying to start new businesses should be eligible for continued unemployment insurance benefits. Wage-loss insurance should be granted to help buffer the earnings losses of displaced workers who take new, lower-paid jobs."

    Katz believes that "these initiatives could start us down the road to a sustained jobs recovery with more broadly shared prosperity." As I noted above, Arthur Laffer recommends taking a different approach for creating jobs. I think Laffer might categorize Katz as someone who believes that "government can create jobs by taxing and borrowing from people with jobs and then giving that money to people without jobs." ["How to Fight Black Unemployment," Wall Street Journal, 12 September 2011] Obviously, Laffer believes that is poor strategy. He writes:

    "Government taxes cigarettes to stop people from smoking, not to get them to smoke. Government fines speeders so they won't speed, not to encourage them to drive faster. And yet contrary to common sense, it seems perfectly natural to some people that government would tax people who work or companies that are successful only to give that money to people who don't work and to bail out losing companies. The thought never crosses their minds that these policies are the very reason why our economy is in such bad shape."

    Nevertheless, Laffer does believe that government policies can play an important role in helping the private sector create jobs. He is particular concerned about creating jobs in the most depressed areas of the country. He continues:

    "African-Americans are suffering inordinately in the Obama aftermath of the Bush Great Recession. While overall U.S. unemployment stands at 9.1%, black unemployment has jumped to 16.7%. Black teenage unemployment is bordering on 50%, and that figure doesn't even take into account 'discouraged' workers, 'involuntary' part-time workers and 'underemployed' workers. But even these numbers don't tell the real story. They represent real people who are suffering deeply and have been suffering for a long, long time. Behind these numbers are millions of lives discouraged and despondent. People who've lost their self-esteem and pride. The young who have given up on America and some of whom have even turned to crime. Scars are being made across a whole ethnic subset of America. Unemployment, underemployment and involuntary part-time employment represent the loss of a precious natural resource that can never be recouped. No one can feel good about himself if he's living on handouts from Uncle Sam. We as a nation can't wait until 2013 to address this issue."

    On that last point, I think that Samuelson, Katz, and Laffer can agree. Laffer's recommendation centers around a concept he calls "enterprise zones." He continues:

    "While enterprise zones are desperately needed in our inner cities, there are lots of areas in the hollows of Kentucky and West Virginia that need enterprise zones as well, not to mention barrios in California and New Mexico. Enterprise zones should be areas that are geographically defined with exceptionally high concentrations of poverty, underachievement and unemployment."

    What I like about the enterprise zone concept is that it tries to create jobs in the areas where they are most needed. The problem, of course, is that the skill level of potential employees in these areas is extremely low. As noted above, Laffer believes that government's role is to establish policies that make enterprise zones work. He believes that "the policies applicable to enterprise zones should include":

    "A) For all employment within the enterprise zone of people whose principal residence is also the enterprise zone, there should be no payroll tax whatsoever, neither employer nor employee portions. The employer need not be headquartered in the enterprise zone to take advantage of the elimination of the employer's portion of the payroll tax. The locus of employment does have to be in the enterprise zone. Don't for a moment think that this will be a budget buster. Right now there aren't many jobs in our inner cities anyway and the few dollars of tax revenues lost will be more than offset by reductions in welfare spending because people will have jobs and won't need welfare. The best form of welfare is still a good job."

    I agree completely with the statement that "the best form of welfare is still a good job." The important modifier in that sentence is "good." Laffer's next recommendation seems to undercut that statement a bit. He writes:

    "B) Federal and state minimum wages must be suspended in the enterprise zone. If not for all employees, then at least for employees under 30. These young people need on-the-job training, and at the present minimum wage many of them aren't worth hiring. That is why they are unemployed. Even for teenagers who are in school, a summer job is an enormous benefit for a future productive career. This summer and last summer only 30% of all teens worked—all-time lows. We need to break this vicious cycle right now by getting rid of the youth minimum wage in our enterprise zones."

    I believe that Laffer is trying to address Samuelson's second condition for creating persistent employment, i.e., that demand must be able to be satisfied profitably. He is addressing the reality that the skill level in extremely depressed levels is not very good. The fact is: It costs money to train workers. Frankly, when it comes to suspending the minimum wage, I'm more concerned about workers over 25 than I am about younger workers. Perhaps some of Katz' recommendations about supplementing income for older workers, while they are being trained, could prove useful. Laffer continues:

    "C) In the enterprise zones the government should do an expedited review of all building codes, regulations, restrictions and requirements to make sure that they don't unjustifiably impede economic growth. For example, mandated union membership rules should be voided in enterprise zones as should all prevailing wage provisions and the like. When I lived in Chicago I reviewed a number of rules and regulations and restrictions whose primary impact was to impede our inner cities from ever achieving prosperity. I'll bet they're even worse now."

    The recommendation to expedite review of building codes, regulations, restrictions and requirements, is in line with the recommendation of the President's Jobs and Competitiveness Council to "cut red tape so job-creating construction and infrastructure projects." I suspect, however, that Laffer's recommendation about eliminating mandated union membership would be met with stiff opposition from some quarters. Look at the trouble the government is giving Boeing over its new plant in South Carolina. Rather than applauding Boeing for creating good jobs, the NLRB is accusing Boeing of union busting. Laffer's final recommendation deals with profits and taxation. He writes:

    "D) Profits generated by companies operating and employing people within the enterprise zone should only be taxed at one-third the regular tax rate. No matter how many fewer regulations a company faces, those companies still quite rightly respond to profits for their shareholders. Businesses don't move their plant facilities as a matter of social conscience. They do it to make profits for their shareholders. If you want more jobs in our most depressed areas, make those areas more profitable for companies to relocate there. It's as simple as that."

    Laffer is correct that if you want to get businesses interested in creating jobs, especially in highly depressed areas, you have to make a business case for them to do so. Laffer is trying to make that business case. He's pretty confident about his program. He concludes, "Once [the President] sees how this plan works for our most depressed areas of America, he can then extend enterprise zones to cover the whole country." It should be clear from the numerous job creation plans that have been put forth that no consensus is likely to be forthcoming; especially, in the months leading up to a presidential election. The longer that the economy remains in the doldrums the more severe long-term challenges are going to become. Recovery begins with jobs. I think that most parties agree with that premise. Frankly, the most important jobs to create are manufacturing jobs. The reason is simple: manufacturing jobs create other jobs. Estimates are that up to eight supply chain jobs are created for every manufacturing job created. That's a great "tooth to tail" ratio for job creation.

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    September 22, 2011

    Creating Jobs in America, Part 1

    In June, two members of the President's Jobs and Competitiveness Council, Jeffrey Immelt, the Council's Chairman as well as the chairman and CEO of General Electric, and Kenneth Chenault, the CEO of American Express Co., wrote an op-ed piece explaining what the Council is doing to try and generate jobs. ["How We're Meeting the Job Creation Challenge," Wall Street Journal, 13 June 2011] They stated the obvious when they wrote that "the inescapable truth is that we have a persistent jobs challenge that demands an aggressive response." The Council, which includes 26 private-sector leaders, was established to develop "ideas that will accelerate job growth and improve America's competitiveness." The June op-ed piece was the Council's "initial 'progress report' to the president." It included "a series of steps" that Council members believe "can help spur hiring in the short term in areas like construction, manufacturing, health care and tourism." Immelt and Chenault admitted that the challenges are daunting and the solutions difficult. They wrote:

    "No single idea, however well-conceived, will solve our nation's employment challenge. So we're taking a comprehensive approach with eight teams focused on specific areas such as skills and training, regulatory reform, and innovation. We analyzed which actions are critical to accelerating job growth in high-potential sectors, while also addressing areas of concentrated unemployment."

    Immelt and Chenault reported that the Council recommended five "fast-action" steps to the President, that they believe "can support the creation of more than one million jobs within these industries." The step involves training:

    "• Train workers for today's open jobs. There are more than two million open jobs in the U.S., in part because employers can't find workers with the advanced manufacturing skills they need. The private sector must quickly form partnerships with community colleges, vocational schools and others to match career training with real-world hiring needs."

    Senators Mary L. Landrieu (D-LA) and Patty Murray, (D-WA), claim that in the months since Immelt and Chenault published their op-ed piece available job openings have increased to 3 million. They ask, "With so many Americans out of work, what is the delay?" ["How to Close the Skills Gap," Wall Street Journal, 10 August 2011. They continue:

    "Workers want to work, and so many businesses want to hire—but there is a widening 'skills gap' that prevents many Americans from filling the jobs of the 21st century economy. If we want to get our economy back on track and get workers back on the job, we will have to address this issue in a better way. ... We believe that the skills gap is a consequence of our failure to seriously invest in the education of America's work force. Without an educated pool of workers from which to hire, small businesses are bearing the financial burden of teaching these skills. John Russo, the president of Scientific Analytical Solutions in North Kingston, R.I., recently talked to the AP about the problem his small business faces: 'It's very difficult to find the right person, and there's all walks of life trying to find jobs. I honestly think there's a large swath of unemployable. They don't have any skills at all.' The Small Business Administration (SBA) hears the same sentiments from those on the front lines in its field offices across the country. At a recent roundtable organized by the Senate Small Business Entrepreneurship Committee, SBA district directors repeatedly cited the alarming, widening skills gap in the nation as preventing small businesses from expanding."

    Even though business leaders and politicians agree that a skills gap is keeping workers from getting hired, they can't agree on what to do about it. The Senators offer their recommendations:

    "Closing this skills gap needs to be a top priority. A critical first step: reauthorizing and reforming the Workforce Investment Act, our nation's foundational federal work-force development policy. We also need to expand innovative approaches that have produced results, such as career pathways programs that provide labor-market information to students and job seekers about in-demand jobs, and the skills and education necessary to get them. Other important elements of tackling this problem include integrating education and work-based learning, and supporting strategies that allow learners to work while receiving training (also known as 'earn and learn' strategies). We should also support public–private partnerships that draw on the expertise of successful members of the business community to help provide assistance and job-preparation advice to our work force. Building a bigger and more highly skilled work force will help our small businesses step up to global competition. There's no excuse to delay getting to work on the problem any longer."

    Their recommendations would have had greater impact had they been bipartisan; but, finding politicians willing to work with the other party is a tougher challenge than dealing with unemployment. Training is certainly critical, but, as Immelt and Chenault imply, it must targeted geographically. In a bad economy, many workers aren't free to move to locations that have job openings. So training an unskilled worker in Mississippi to fill a job opening in North Dakota isn't going to work. That means that the best way to fill those two or three million job openings is to train workers who already live in the area where openings exist. Immelt, Chenault, and the Senators agree that such training should involve public/private partnerships since both sectors benefit. The public sector reduces its welfare rolls and increases its tax rolls while the private sector gains the workers it needs to foster growth and increase profits. The Council's next recommendation involves government permits.

    "• Streamline permitting. Cut red tape so job-creating construction and infrastructure projects can move forward. The administration can take a few simple steps to streamline the process of obtaining permits, without undercutting the protections that our regulatory system provides."

    Promoting infrastructure construction was one of the main thrusts of the President's recent jobs speech. The President "seeks $50 billion to invest in highways, transit, rail and aviation, including upgrading U.S. airports and supporting Nextgen Air Traffic modernization. Mark Zandi, chief economist at Moody's Analytics, said the spending increases have a 'large bang for the buck' when there are so many unemployed construction workers." ["Factbox: Key elements of Obama's $447 billion jobs plan," by Alister Bull, Jeff Mason, Laura MacInnis and Caren Bohan, Reuters, 9 September 2011] The Council's next recommendation deals with tourism.

    "• Boost jobs in travel and tourism. This industry is one of America's largest employers, but the U.S. has lost significant market share. By making it easier to visit the U.S. through improved visa processes, we can win back market share in travel and tourism and create hundreds of thousands of jobs."

    The U.S. isn't the only economy in the doldrums. With money tight around the world, the tourism sector is unlikely to offer significant relief to the unemployment rate. Not only that, but many of the jobs in that sector are minimum wage positions that come with few benefits. You can't rebuild the economy on those kinds of jobs. The Council's next recommendation deals with small business credit.

    "• Facilitate small-business loans. Help small-business owners obtain the information and support they need to access Small Business Administration funding. At Jobs Council town halls in Dayton and Minneapolis, small-business owners expressed frustration about the challenges in obtaining financing and assistance. We must move quickly to allow easier access to SBA funding. SBA Administrator Karen Mills is already tackling this challenge, and the administration should accelerate and prioritize these efforts."

    The news has not been good on the small business front. According to recent reports, "The ranks of self-employed Americans are shrinking. In August, 14.5 million people were self-employed, down 2.1 million from the most recent peak in December 2006, according to Bureau of Labor Statistics data." ["Fewer people choose to be self-employed," by Laura Petrecca, USA Today, 7 September 2011] Lack of access to business loans has certainly played a role in this troubling trend. Professor Scott Shane, a professor of economics at Case Western Reserve University, agrees that more attention should be given to small businesses; especially those that are already established. "If we want to create a lot of jobs," he writes, "it ... make[s] more sense to get existing small businesses—across all industries—to return to hiring [than it does to expend money on technology start-ups]. ["To Create More Jobs, Go Where the Jobs Are," Wall Street Journal, 13 June 2011] He bolsters his case by reporting, "Census researchers figure the private sector generated 14 million-plus positions from March 2008 to March 2009—and in a the midst of a recession, no less." While the data supports much of what Shane recommends, I have two concerns. First, existing firms are not going to create new, high growth industry sectors that have the potential of generating thousands of new jobs so you can't completely ignore start-ups. I agree with Shane that such superstar start-ups are rare; but, they are nevertheless important cogs in the job creation system. Second, by solely concentrating efforts where the jobs are (instead of where they are not), systemic, intransigent unemployment never gets addressed. I don't mean to imply that Shane believes that start-ups should be neglected or persistent unemployment ignored. I just don't want a short-term focus to keep America from addressing long-term needs. The final recommendation is specific to the construction industry.

    "• Put construction workers back to work. More than two million construction workers don't have work. Every city in America has commercial buildings that can be made more energy efficient. Both the private and public sectors can step up to create good jobs and save energy."

    I don't disagree that "every city in America has commercial buildings that can be made more energy efficient," but there must be some compelling reason for private sector building owners to spend the money to upgrade them. Potential long-term energy savings is a good but not sufficient reason. If it were a good enough reason, owners would be pursuing the upgrades without having to be encouraged. The President wants to spend $30 billion to modernize schools and community colleges and another $15 billion to rehabilitate and refurbish vacant and foreclosed homes. Modernizing schools and colleges only makes sense if the education provided by those schools is also upgraded. Our educational system remains in crisis; but, that's another story. As for fixing up vacant and foreclosed homes, refurbishing a building only to have it sit vacant doesn't make any sense. With credit tight and unemployment high, such projects could be a bad investment unless they are accompanied by a jobs creation program in the neighborhood being rehabilitated. More on that subject tomorrow.

    Immelt and Chenault admit that these initial recommendations are "not enough" to solve the current unemployment challenge. They conclude:

    "To truly bend the curve over the longer term, we need a more strategic view. ... This strategic approach will emphasize a number of areas for job growth. First, we need to focus on fast-growth companies and small business. Second, we need to make America the most attractive place on Earth for high-tech services and manufacturing jobs and to accelerate foreign direct investment in the U.S. Finally, we need to address the competitiveness of America's infrastructure. ... By year-end we also will have looked at and made recommendations on building and improving systems for national competitiveness, including R&D investment, tax policy, visa reform and high-skilled immigration, as well as applying business concepts (like the Lean Six Sigma approach) to regulatory processes. Some of these ideas, by their nature, require bipartisan legislation and therefore may take longer to move forward, but they are all critical. America needs more growth. The United States needs to reverse trends that developed over a long period of time, and the solutions aren't easy politically, socially or economically. The economic decisions we make now will determine American job creation and competitiveness in the years to come. Government, business and labor need to work together to get this done."

    How critical is short-term job creation? According to a Wall Street Journal survey, a "persistent slowdown in hiring is the biggest threat to the U.S. recovery." ["Sluggish Hiring Seen as a Threat to Recovery," by Phil Izzo, Wall Street Journal, 13 June 2011] Economist Nicholas S. Perna, of Perna Associates, told Izzo, "If jobs don't grow fast enough, the recovery will sputter." Manufacturing jobs are particularly critical. It has been estimated that for every manufacturing job that is created, eight jobs in the supply chain sector are also created. Some analysts talk about the risk of a double-dip recession. Other analysts, looking at the unemployment rate, insist we can't have a new recession because we've never recovered from the Great Recession.

    September 21, 2011

    The "Big Data" Dialogues, Part 3

    In Parts One and Two of these dialogues, I discussed the subject of big data from a supply perspective -- specifically, the perspective of supply chain analyst Lora Cecere. Cecere keeps her pulse on cutting edge concepts; but, she's not the only one. Big data has also caught the attention of IBM CEO Sam Palmisano. He recently traveled to Silicon Valley to meet "with venture-capital firms to explore how to take advantage of shifts in 'big data'." According to Deborah Gage, Palmisano is "the latest tech executive to tap the connections of early-stage investors." ["IBM Visits 'Big Data' Arena," Wall Street Journal, 8 September 2011] Gage continues:

    "Mr. Palmisano was treading a well-worn path of tech executives seeking to mine the knowledge of Silicon Valley venture capitalists, who often spot new technologies before giants like IBM. Among other non-Silicon Valley tech firms, Microsoft Corp. has opened a Mountain View office to work with start-ups and venture capitalists, AOL Inc. has posted hiring billboards along Highway 101, and EMC Corp., Citrix Systems Inc. and Research In Motion Ltd. have all bought start-ups in the region."

    As I noted in the first part of this series on big data, Cecere believes that, within five years, "the holistic use of this data will be mainstream." Apparently, others also believe that the big data future is rushing at us at breakneck speed. Gage continues:

    "IBM has said it expects to spend $20 billion on acquisitions between 2011 and 2015. The Armonk, N.Y., company has focused for several years on 'big data,' the advancement in data-storage capacity, processing power and analytical ability that has begun to transform industries. IBM Vice President Rod Smith said venture-backed start-ups can help IBM's big-data push because 'we can't do it all. We're seeing a lot of start-ups. It's a nice, big ocean, and we know we can float a lot of boats.'"

    All of this interest in big data has "sparked an arms race among the start-ups for math specialists who can slice and dice data about users' online behavior to generate more revenue." ["Online Trackers Rake In Funding," by Scott Thurm, Wall Street Journal, 25 February 2011] Although the financial sector, with its supersized compensation packages, still attracts its share of math whizzes, Thurm reports that the big data sector is now drawing some of the best mathematicians into its circle. He reports:

    "Some [mathematicians] have migrated to advertising from Wall Street. Ari Buchalter, chief operating officer at digital-ad firm MediaMath Inc., holds a Ph.D. in astrophysics and once ran a hedge fund that based trades on mathematical formulas. The company's CEO, Joe Zawadzki, is a former investment banker. Media6Degrees, which also analyzes users' social connections, employs four Ph.D. holders. Its chief scientist is a renowned data analyst and machine-learning specialist."

    One of the reasons that big data has become a hot topic is because a "free software named after a stuffed elephant" is making the analysis of such data much easier. The software about which I write is called Hadoop, which was created as an "open-source software ... by a group of Yahoo! developers." ["Getting a Handle on Big Data with Hadoop," by Rachael King, Bloomberg BusinessWeek, 7 September 2011] King writes:

    "With its online sales less than a fifth of Amazon's last year, Wal-Mart executives have turned to software called Hadoop that helps businesses quickly and cheaply sift through terabytes or even petabytes of Twitter posts, Facebook updates, and other so-called unstructured data. Hadoop, which is customizable and available free online, was created to analyze raw information better than traditional databases like those from Oracle. 'When the amount of data in the world increases at an exponential rate, analyzing that data and producing intelligence from it becomes very important,' says Anand Rajaraman, senior vice-president of global e-commerce at Wal-Mart and head of @WalmartLabs, the retailer's division charged with improving its use of the Web."

    King reports that other large corporations using Hadoop include: Walt Disney, General Electric, Nokia, and Bank of America. She notes that the software's popularity is, in large part, based on its flexibility. "The software can be applied to a variety of tasks," she writes, "including marketing, advertising, and sentiment and risk analysis." Perhaps the best endorsement the software has received came from IBM, which "used the software as the engine for its Watson computer, which competed with the champions of TV game show Jeopardy." For more on that competition, read my post entitled Artificial Intelligence and the Future. King asserts that "Hadoop is riding the 'big data' wave, where the massive quantity of unstructured information 'presents a growth opportunity that will be significantly larger' than the $25 billion relational database industry dominated by Oracle, IBM, and Microsoft, according to a July report by Cowen & Co." Obviously, large numbers (like $25 billion) get my attention since Enterra Solutions is also in the big data analysis business. Enterra's technologists are also familiar with Hadoop and flexibility it provides. King continues:

    "This year, 1.8 zettabytes (1.8 trillion gigabytes) of data will be created and replicated, according to a June report by market research firm IDC Digital Universe and sponsored by EMC, the world’s biggest maker of storage computers. One zettabyte is the equivalent of the information on 250 billion DVDs, according to Cisco Systems' Visual Networking Index."

    Now you know why people call it "big" data. King continues:

    "One of the challenges of Hadoop is getting it all to work together in a corporation. Hadoop is made up of a half-dozen separate software pieces that require integration to get it to work, says Merv Adrian, a research vice-president at Gartner. That requires expertise, which is in short supply, he says. ... [Nevertheless,] the increasing popularity of Hadoop software also mirrors the growth in corporate spending on handling data. Since 2005, the annual investment by corporations to create, manage, store, and generate revenue from digital information has increased 50 percent to $4 trillion, according to the IDC report."

    Enterra Solutions specializes in the handling of unstructured data. This kind of analytical support is essential because, "about 80 percent of corporations' data is the unstructured type, which includes office productivity documents, e-mail, Web content, in addition to social media." Making sense of unstructured data is difficult because it involves nuances that traditional analytical systems simply can't master. King continues:

    "Oracle sells companies its Exadata system to manage huge quantities of structured information such as financial data. 'Hadoop plays in a much larger market than Exadata and is a materially cheaper way to process vast data sets,' says Peter Goldmacher, an analyst at Cowen & Co. in San Francisco."

    King reports that the potential of Hadoop is so large that analysts "expect Oracle to make a Hadoop-related announcement in October." King also mentions another tool we use at Enterra -- MapReduce. She writes:

    "Web companies were the first to face the big-data challenge now confronting large corporations. In 2004, Google published a paper about software called MapReduce that used distributed computing to handle large data sets."

    King brings up the MapReduce paper because she indicates that it was part of the inspiration for Yahoo employee, Doug Cutting, to create Hadoop in 2006. She reports that Cutting, named the software "after his son's stuffed elephant." According to King, "Cutting now works at a company called Cloudera that offers Hadoop-related software and services for corporations. Its customers include Samsung Electronics, AOL Advertising, and Nokia." She continues:

    "'It was obvious to me that the problems that Google and Yahoo and Facebook had were the problems that the other companies were going to have later,' says Cloudera Chief Executive Officer Mike Olson. While Yahoo developers have contributed most of the code to Hadoop, it's an open project, part of the Apache Software Foundation. Developers around the world can download and contribute to the software. Other Hadoop-related projects at Apache have names such as Hive, Pig, and Zookeeper."

    Cutting is apparently not the only Yahoo programmer to leave the company and pursue Hadoop activities elsewhere. King reports, "Some of the original Yahoo contributors to Hadoop have formed a spinoff called Hortonworks to focus on development of the software. The company expects that within five years more than half of the world's data will be stored in Hadoop environments." My guess is that Hortonworks was named after Dr. Seuss' famous elephant Horton (from Horton Hears a Who!).

    King asserts that Wal-Mart is making a big bet on Hadoop. She explains:

    "Wal-Mart, recognizing that the next generation of commerce would be social, purchased startup Kosmix for $300 million in April to create @WalmartLabs. The acquisition gave it immediate expertise in big data: Kosmix co-founders Rajaraman and Venky Harinarayan co-founded Junglee, the company that pioneered Internet comparison shopping in 1996 and was later purchased by Amazon. At Kosmix, they also built something called the Social Genome, which uses semantic-analysis technology and applies it to a real-time flood of social media to understand what people are saying. For now, @WalmartLabs uses Hadoop to create language models so that the site can return product results if the shopper enters a related word. For example, if somebody searches for a 'backyard chair' on, the site will return results for patio furniture. In the future, Wal-Mart may be able to return styles of patio furniture most likely to appeal to a particular shopper based on his tweets and Facebook updates. The company also uses Hadoop in its keyword campaigns to drive traffic from search engines to The software collects information about which keywords work best to turn Internet surfers into shoppers, and then comes up with the optimal bids for different words."

    King reports that Nokia is "another company that recently recognized the treasure trove of data it's sitting on." She explains:

    "'Sixty percent of the world's population has mobile devices, and Nokia has 25 percent of those mobile customers,' says Amy O'Connor, senior director of analytics at Nokia. 'Over the course of the past year we realized we had all this data we could use competitively.' For example, Nokia collects information for its Navteq mapping service that it sells to large businesses. The company can tap into data from probes and mobile devices around the world to collect data on traffic. To figure out information about a particular street, the company used to have people weed through hundreds of terabytes of data. 'It was a manual process before Hadoop,' O'Connor says. Now that the company is taking advantage of this unstructured information, the amount of data that it manages is skyrocketing. Over the next year or so, O'Connor anticipates that Nokia’s network will be handling as much as 20 petabytes (20 million gigabytes) of information, up from several hundred terabytes managed over the past year. 'The tsunami of data is not going to stop,' O'Connor says."

    The fact that "the tsunami of data is not going to stop" is exactly what companies involved in the big data sector are counting on. Since it is an open source software, Hadoop is likely to continue to play a major role in how big data is handled. Companies, like Enterra Solutions, will build upon what Hadoop has to offer to ensure that clients get the most benefit they can from the growing oceans of unstructured data.

    September 20, 2011

    The "Big Data" Dialogues, Part 2

    In Part 1 of this series, I discussed a blog by supply chain analyst Lora Cecere that introduced us to the concept of Big Data Supply Chains. In that post, she defined Big Data Supply Chains as "value networks that extend from the customer's customer to the supplier's supplier that sense, shape and respond by listening, testing and learning with minimal latency." In her second post on the subject ["Big Data Supply Chains: Boosting your Vocabulary," Supply Chain Shaman, 18 August 2011], Cecere argues that companies will never build effective Big Data Supply Chain architectures if they don't understand and embrace the concepts involved. "This includes," she writes, "using new types of data and exploiting the increasing power of computing."

    To help us understand these underlying concepts, Cecere offers a vocabulary primer (see below). She believes that if we get the concepts right "we have the opportunity to change the plumbing." She writes:

    "The 1990s definition of integration is obsolete. I believe that an architecture that combines Enterprise Resource Planning (ERP), Advanced Planning Solutions (APS), Supply Chain Execution (SCE) Systems plus Business Intelligence (BI) is not sufficient. Why? Today, supply chain architectures respond. In most cases, it is not even an intelligent response. In fact, it is a DUMB, SLOW and often INACCURATE response. Current technologies either help us make better decisions through the use of optimization in planning or through improved visibility of enterprise transactions."

    Since Cecere's post is about how "big data" solutions can be game changers, she obviously believes that data is important. But the data has to be handled correctly. In today's business environment, she asserts, it is not being handled correctly. She explains:

    "The data is dirty. The latency of information is long. Most companies have invested in enterprise technologies on a project basis. For most users, satisfaction is low. It should be no suprise that Excel is the number one planning application. Today's technologies are primarily about supply. Deep solutions for demand are needed and [offer] an untapped opportunity. I believe that the future of supply chain technologies will define processes from the outside-in based on a deep and comprehensive solution for demand. Solutions that sense, shape and drive a profitable response bidirectionally from sell-side to buy-side markets."

    Another well-known supply chain analyst, Bob Ferrari, agrees with Cecere that Big Data Supply Chains represent the future and that the capabilities she discusses are "the foundation for predictive analytics or supply chain cockpit capabilities. They are in essence, the next frontier for enabling smarter and more informed decision making in S&OP and other enterprise management processes." ["A Response to Big Data Supply Chains- Channel the Problem Into Desired Outcomes," Supply Chain Matters, 24 August 2011]. There is a difference between knowledge and wisdom. Wisdom encompasses the ability to use knowledge effectively. Cecere and Ferrari make the case that new technologies are going to help supply chain professionals make wiser decisions. Cecere continues:

    "If used correctly, I believe that the emerging technologies can allow us to drive a more intelligent response than we were able to achieve in the 1990s through optimization alone. I believe that through the concepts of Big Data Supply Chains that we can evoke the power of computing power to help our supply chain networks not just respond, but to dynamically sense, listen and learn. And, for the more advanced companies, I believe that they will fine tune their architectures to sense, listen, test, shape and drive continuous learning. It is the dawning of a more agile supply chain platform. Machine to machine learning can help our supply chains continuously learn."

    When Cecere talks about systems that dynamically "learn," I suspect that she is referring to systems that incorporate some form of artificial intelligence (AI) within them. Although it's important that human stakeholders in the supply chain continuously learn to do their job better, it's even more important that underlying technology solutions learn and improve. System knowledge is permanent and shared whereas personal knowledge provides more limited gains company-wide. As companies move towards more holistic systems, the ability for the entire company to gain from learned system knowledge will also grow in importance. As Cecere wrote in her first blog, "In big data supply chains, focus on one system of record. Everyone has the moments when they show up at a business meeting only to argue about 'whose report has the right data'. Solve this problem by writing once and using many times." Cecere does address human learning. She writes:

    "New approaches are emerging, if we can be open to the outcome. It is a time to learn, unlearn and relearn. The other day, I was interviewing a VP of Supply Chain about the future of supply chain technologies. I asked him, “If he had a magic wand, how would he describe what supply chain technologies of the future would look like?” His response, “Lora, I don’t know. I am frustrated. I just know that what we have does not work very well. Somehow, we need to be able to have a more agile sensing platform. Our current architectures are too rigid and the response is too late.” For reference, he works at a global company that is very advanced in supply chain thinking. They have 19 instances of SAP for ERP, and have gone through five different solutions of Advanced Planning (APS), and have superlative systems for order management, warehouse management, and transportation management. They were also early adopters of Multi-tier Inventory Optimization and Strategic Modeling technologies. If you buy my argument, it is time to retool and learn a new jargon."

    Before we get to Cecere's "new jargon," let's return to Ferrari's comments. In Cecere's first blog, she talked about challenges facing companies that desire to transform current supply chains into Big Data Supply Chains. One of those challenges was change management. On that topic, Ferrari writes:

    "In her commentary, Lora rightfully outlines some of the significant challenges involved towards achieving this concept. While these new approaches have the potential to allow the supply chain to 'learn and predict', they do present challenges for gaining executive level investment support, especially the CFO, not to mention the CIO who has to deal with the consequences of exploding data eating up IT infrastructure. ... Without executive level leadership and sponsorship, many IT initiatives have little chance of success. Also, as many in our community know, previous multi-year ERP implementation that ended up consuming far more management time and costing too much money have left a sour taste for technology leapfrog. The principles of predictive analytics imply that various supply chain functional teams will need to have much deeper skills in data management, trading partner collaboration and analytics disciplines. It further implies that trading partners and customers will be comfortable with sharing of sensitive data. There are also strong implications for some organizational centralization of analytics teams. In our view, all of these factors point to fairly significant change management. Change does not occur until and unless organizational motivators for change exist. We continue to believe that success, for the business and for customers and suppliers, are always the best catalyst for change, especially in the current volatile and uncertain business environment."

    Ferrari is correct that "change does not occur until and unless organizational motivators for change exist." In the past, I came across a formula for change management, but (unfortunately), I can't remember its source. The first factor in the change management equation is dissatisfaction (D=Dissatisfaction with the current state). The second factor in the equation is vision (V=Clear vision for change). This is what Cecere is trying to help business leaders see. The third factor is process (P=Process for getting it done). Ferrari addresses the "P" in his next comment (see below). The final factor in the change management process is cost (C=Cost of change). Displayed in a mathematical formula, change management looks like this D x V x P > C. If any of those factors isn't present (i.e., equals zero) then change won't occur. If D=0 (i.e., if there is no felt need for change), then resistance to change will be overwhelming. If V=0 (i.e., if there is no clear vision), the organization will experience both confusion and anxiety if change is undertaken. If P = 0 (i.e., if there is no established process for making change happen), then frustration will be high and change will ultimately be rejected. When any factor is zero, then the cost of change will obviously higher than the benefits of change. Ferrari recommends changing a little at a time to reduce the resistance to change. He explains:

    "Instead [of leapfrogging ahead], why not channel big data challenges into baby step initiatives aimed at a portfolio at information hubs augmented with predictive analytics competencies. Consider pilot programs targeted at specific problems in demand sensing, supply risk, or logistics and distribution orchestration. ... Consider that if we are thinking of doing a major renovation of our homes, and we do not understand all that is involved, we often do some homework, seek knowledge from experts, set a reasonable budget and timeline and gain the support of fellow family members. This same analogy can be applied to channeling the frustration of drowning in data into the harvesting of predictive supply chain capabilities. Walk before you run and take steps that bring teams to initial successes along the journey."

    In her first post, Cecere asserted "within five years, I believe that the holistic use of this data will be mainstream." If she is correct, companies may not have the luxury of taking all of the baby steps that Ferrari would like them to take. Nevertheless, I agree with Ferrari that pilot programs and prototype projects are an excellent way of discovering if the benefits outweigh the costs. If Cecere is right, they undoubtedly will and full implementation will proceed apace. The first baby step towards understand "the Art of the Possible for Big Data Supply Chains" is becoming familiar with the jargon. Cecere offers the following "new terms to know":

    "Big Data Supply Chains. Each person that you talk to will define this differently. When it is used in a business concept, ask what the user means. There is no standard definition, but in general, it means a dataset that is too large and awkward to use conventional relational data base techniques for capture, storage, search, visualization and sharing of data. It is the world of terabytes, exabytes and zettabytes of data.

    "Columnar Store. A type of database management system that stores information by column versus by row. Columnar databases enable in-memory processing, column pruning and compression. They enable outrageous compression factors, it is not uncommon to compress a Terabyte of traditional row-store data into tens of Gigabytes. The advantage is the ability to aggregate similar data to increase computational speed. SAP HANA architecture is an example of advances being made in in-memory processing through advances in columnar store architectures. It has advantages and disadvantages. I believe that SAP HANA will help us with visualization of large data sets, but it is far from a panacea to help redefine supply chain architectures. IBM, too, provides columnar database capability to speed data warehouse queries. The IBM Smart Analytics Optimizer provides this capability with DB2 relational DBMS on z/OS (mainframes), and related technology like the Informix data warehouses (e.g. the Informix Warehouse Accelerator).

    "Fuzzy Logic. A form of computer reasoning that is approximate versus binary logic that is fixed and exact. It enables decision making that is not 'black and white' where the best answer lies in understanding the range between completely true and completely false. While optimization helped drive business intelligence in the 1990s, new forms of pattern matching and the use of fuzzy logic will be combined with artificial intelligence to drive new ways to sense, act and then respond. For an early solution in this area, check out Enterra Solutions.

    "Hadoop. A framework designed to support data-intensive distributed applications to support thousands of nodes and petabytes of data. It is often referred to as open source Apache Hadoop and is being designed by global community using Java. Yahoo is the largest contributor. It is new and largely unproven for use by product manufacturers. IBM builds on Apache Hadoop with its InfoSphere BigInsights product to provide an analytic infrastructure for massively distributed data.

    "MapReduce. MapReduce is the framework of Hadoop. Introduced to the market by Google in 2004, this software framework uses map and reduce functions commonly used in functional programming to speed processing through distributed computing on large data sets on clusters of computers. There are few use cases for the supply chain, but Teradata’s acquisition of Aster Data opens up new possibilities to combine MapReduce and SQL to solve big data supply chain problems. It makes the processing of distributed semi-structured data easier.

    "Pattern Recognition. Pattern recognition uses fuzzy logic to recognize sets of data like others and identify patterns in large data sets.

    "'R' A freeware or open source programming language for statistical computing and graphics. Recently, it has been widely adopted by statisticians for developing statistical software and data analysis. R is not well suited for big data problems unless you like to write tons of code. It has been widely adopted by bio-informatics but has yet to penetrate the larger analytics market. Companies will be constrained by architectural memory limitations of R, but the open source nature of R will enable data-centric processes.

    "Natural Language Processing. To harness the power of unstructured, electronic text data in machine learning.

    "Ontology. A rules-based approach for semantic association and category relations. We are seeing the use of rule-based ontologies in the evolution of Sentiment data (SAS), Supply Chain Execution (Enterra Solutions) and Supply Chain Risk Management (Dunn and Bradstreet/Open Ratings).

    "Semi-structured data. A form of data which contains both structured and unstructured components. It does not conform to formal structural definitions of relational data base tables and data models, but can may contain some defined fields, such as subject line or date, in addition to free format text data, such as the body of an email.

    "Unstructured data: A data set without pre-set structure. Unstructured data abounds in call-center logs, social listening, contract, servicing and warranty data and risk management applications. Early applications to harness the power of unstructured data for the supply chain is Dunn and Bradstreet’s application Open Ratings and SAS Inc.'s Social Media Analytics application for social media listening."

    Since Cecere mentioned Enterra Solutions a couple of times in her post, you can understand why this topic is of interest to me. Enterra Solutions is deeply involved in trying to make Big Data Supply Chains a reality. We're taking baby steps using prototypes and pilot programs in order to prove concepts and gain trust. In the end, however, we believe that the kind of user-friendly knowledge new technologies can generate and present to decision makers will prove that Cecere's vision of the future is on the mark.

    September 19, 2011

    The "Big Data" Dialogues, Part 1

    Supply chain analysts Lora Cecere and Bob Ferrari have engaged in an online dialogue about big data in the supply chain. In this post, I'll look at Cecere's original post on the subject. Tomorrow, I'll look at Cecere's follow-on post and Ferrari's response. In the third post of this series, I'll look at what else is happening in the world of big data.

    Cecere begins, "Data volumes are exploding, data velocity is increasing and data types are proliferating. Most companies that I am working with are struggling. The question is how to develop a road map to best use the many types of data the right way." ["Minding our P's and Qs: It is more than R's and P's," Supply Chain Shaman, 16 August 2011] She continues:

    "The list is long and includes: transaction data, sensor transmission, social text proliferation, downstream channel data, distributor network sales, warranty information, customer contracts, product IDs for serialization, geo-location and map data. Yes, data is exploding both in type and volume. It will continue to grow, but more importantly, it allows us to define new capabilities. This growth will be exponential. Today, it is on the doorstep of our supply chain, early adopters are experimenting and will use it to power supply chain innovation; and within five years, I believe that the holistic use of this data will be mainstream."

    If Cecere is correct, then companies don't have any time to waste in getting their IT infrastructures in place. Five years comes very fast. Cecere believes that there are a number of drivers propelling this high-speed trend down the tracks. They include: convergence, supply chain transformation, and global infrastructure. She explains:

    "A major force is convergence: unleashing the power of mobile, geolocation, digital and social data together. Innovators ... are busy marrying structured and un-structured data to harness new opportunities in their big-data supply chains. ... The second opportunity is building TRUE customer-centric supply chains. Demand-driven is not sufficient. We must do more than sense and shape demand. ... The third driver is global infrastructure. The average manufacturing client has three ERP instances (one for each geography), and each has over a terabyte of data. The good news is that hardware is cheaper, the bad news is that these systems have become so integral to the business environments, that they can no longer afford the outages associated with maintenance upgrades and system upgrades."

    Cecere goes to describe what she calls a "Big Data Supply Chain." She writes:

    "Let's start with a definition. What do I mean by Big Data Supply Chains? They are value networks that extend from the customer's customer to the supplier's supplier that sense, shape and respond by listening, testing and learning with minimal latency.

    • "What it looks like: It combines structured and unstructured data to sense, listen, test and learn to shape the intelligent response horizontally and cross-functionally. The processes are outside-in not inside out. They are bi-directional from buy to sell-side markets connecting the customers's customer to the supplier's suppliers. Because the data volumes are so immense –with high velocities and variabilities– the creation of big data supply chains will require new techniques for the capture, storage, search, visualization and sharing of data. It is the world of terabytes, exabytes and petabytes.

    • "The building blocks: A pre-requisite is excellence in today's business analytics: reporting, scorecards/dashboards, optimization, and intelligent rules. It will challenge today's world of supply chain applications. I believe that it will transform the Advanced Planning and Scheduling (APS) market and will redefine Customer Relationship Management (CRM) and Supplier Relationship Management (SRM) applications. Hence the title of this blog post. It will transform today's R&P applications–APS, CRM, SRM, ERP–but, only for those that mind their Ps and Qs of supply chain understanding to harness the power of big data supply chains."

    Cecere doesn't pretend that the transition to a Big Data Supply Chain is going to be easy or quick. That's why her 5-year horizon for big data ubiquity looms so large. Among the challenges are: a lack of visionary business leaders; the continued presence of siloed business operations; a lack of understanding that the supply "is the business"; and the fact that most business road maps are leading their companies towards the big data promised land. The reason for the last challenge, she writes, is that the road that must be taken is "unproven ... with dead-ends, uncertainty, and lots of opportunity." She laments the fact that "supply chain investments historically have focused on improving efficiency. Supply chains respond. It is seldom an intelligent response." She continues:

    "These new approaches, allow the supply to learn and predict. This machine to machine learning is a radical shift for supply chain leaders. We can learn the impacts in the financial and insurance industries where technology enabled a continuous learning environment, allowing the organization, to listen, learn and then drive an intelligent response. Based on many-to-many rules mapping (versus traditional one to one fixed mapping), the new approach allows the learning to be around the clock and across geographies. The larger challenge will then become change management. Organizationally, we don't know how to listen and learn. And, within organizations, not all people want to be measured or even share their data."

    Cecere insists that in spite of the challenges that are going to be faced during any transformation to a Big Data Supply Chain, the end results are going to be worth the effort. She also knows that change management is never easy. In order to foster change management, she asserts that a shift of focus is required. She writes:

    "As supply chain teams mature, the focus shifts from vertical process excellence, to cross-functional and horizontal processes to deliver a supply chain strategy. These horizontal processes gain more value from external data sources. Examples include Sales and Operation Planning (S&OP), Revenue Management, Supplier Development, Demand Sensing and shaping, etc. The combination of structured and unstructured data gives a more holistic view to make these horizontal processes more effective."

    She believes that convincing people that the promised land exists is going to be difficult because many of the past promises proffered by those peddling integration have largely been unfulfilled. She writes:

    "Enormous integration challenges still abound in companies with structured data, and it is even greater with unstructured data. This is true even in companies that have standardized on a common ERP system. The proliferation of data sources from outside the enterprise external to ERP will make this issue worse before it gets better. The emerging technologies associated with Big Data Supply Chains offers hope. ... While the goal was to standardize on ERP and eliminate disparate systems, this was largely a pipe dream. It has not happen[ed]."

    She believes that things will be different this time around because computing power has increased 20 times since the early client server days a decade ago. Despite this increase in computing power, Cecere writes, "The evolution of 'R and P' technologies has largely ignored the possibility of what can be done with parallel processing and in-memory capabilities." She issues a clarion call for visionary leaders to step up and capture the potential. She insists, "The pace of adoption and gaining competitive advantage will be gated by the lack of business visionaries and their ability to pull their noses off the grindstone to envision how this can benefit the business."

    Another reason Cecere believes that things are going to be different this time around is the fact that costs are coming down. She writes:

    "The beauty of the new techniques is that the cost of computing is going down, and the techniques are no longer just for the VERY large corporations. Cloud, mobile, in-memory, and vertical or functionally targeted applications and services are making the barrier to entry much lower than ever before."

    She concludes her post with a few guiding Principles:

    "I want to be sure that we are grounded in guiding principles to take this work on [a] deliberate, systemic path versus a [course of] splintered projects that lead to nowhere.

    • "Build cross-functional teams to unleash the power. All too often, the groups that know the most about disruptive technologies are adjunct to eCommerce teams. Make this mainstream and challenge the group to think about what new processes could be if they build horizontal processes with minimal latency from the outside-in.
    • "There is no data mart cheap enough. This was a quote that I heard recently from eBay. I think that it is very true. Our foray into data marts is largely driven by a project approach versus a deliberate, and conscious choice on building effective value networks.
    • "Focus on meta-data design and master data will be easier. Try new master data techniques. While I hear many business users fret about master data issues, many times the issue is lack of attention to metadata design (especially customer, product and supplier data). I also see innovators attempting new techniques to solve the master data issues: bypassing traditional techniques by indexing their data for rapid assembly. This gives flexibility to embrace the differences between master data registry and master data reference.
    • "Never let anything come between the user and their data. Empower the business user by focusing on self-service. To maximize the use of data for insights, empower the business users to directly use the data and even manage it (mapping, extracting etc.) themselves. Who knows the data better than the user, right? Focus on training and design to enable self-service by the line of business user.
    • "Write once and read many times. In big data supply chains, focus on one system of record. Everyone has the moments when they show up at a business meeting only to argue about 'whose report has the right data'. Solve this problem by writing once and using many times.
    • "Success. While many companies feel that success happens when a project is installed on time and on budget, I feel that success happens when line of business managers USE the systems. For most companies today, that use Excel and Access, after pouring millions of dollars into 'R & P' systems, this should be a lesson learned and a mistake that should be avoided. I feel that adoption, usage, and user satisfaction are better success criteria."

    In her first post, Cecere promised to keep writing about this subject in future. In her next post, Cecere provides us with some "definitions for the supply chain leader's big data supply chain vocabulary. Words to know to understand what is happening." I've only touched the surface of Cecere's blog (which is about twice as long as this post). If the topic is of interest to you, I recommend you read her post in its entirety.