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22 posts from September 2011

September 16, 2011

Attention to the Cold Arctic Heats Up

Last December I wrote about the attention that the so-called Northwest Passage is receiving now that climate change has made that passage accessible for more months of the year (see Supply Chains and the Northwest Passage). More recently, I wrote about the increased international attention that is being given to potential Arctic riches that are becoming more accessible (see Search for Resources at the Top of the World). The U.S. Navy has certainly taken notice of what is happening in the Arctic. The Navy's chief oceanographer, Rear Admiral David Titley, who is also the director of the Navy's task force for climate change, recently stated, "In the past, the Arctic was largely inaccessible, but increased seasonal melting of the sea ice is opening the region and creating opportunities for oil and gas exploration, maritime shipping, commercial fishing and tourism. We are confronted by a new ocean for the first time in 500 years." ["Amid melting ice, Navy assesses strategic demands in Arctic," by Geoff Ziezulewicz, Stars and Stripes, 17 August 2011]

Another member of the Navy's climate change task force, Commander Blake McBride, whose specific job is analyzing Arctic affairs, explained why the region is of such interest to the Navy. He said, "With Alaska's coastline, the U.S. can lay claim to roughly 200 thousand square miles of territorial and exclusive economic zone waters." This is no small matter since China wants to maintain the Arctic as an international resource and is pressing that position hard in international organizations. Ziezulewicz reports that the Navy began a five-year study of its "Arctic Roadmap" back in 2009. He also reports that Naval leaders are concerned about increased operational commitments in the region because the area is vast, has no supporting shore infrastructure, lacks dedicated logistical support, involves unreliable communications systems, and seasonal icing can compromise sensors and weapon systems.

Ziezulewicz further reports that politicians are taking notice of what is happening in the region. He notes that, during a July hearing on the emerging Arctic Ocean, Sen. Jay Rockefeller, D-W.Va., chairman of the Committee on Commerce, Science and Transportation, said, "The fact that the U.S. is an Arctic nation is one that, in the past, has gone unrecognized by much of the American public due to Alaska's separation and distance from the contiguous 48 states. But that is changing — and the Arctic is changing."

The U.S. Navy is not the only military group paying close attention to the Arctic. Last year Norway moved "its military command centre 1,000km north from its former location" to highlight "the rising strategic stakes in the Arctic amid predictions that global warming will unlock icebound resources and shipping routes." ["Battle hots up for Arctic resources," by Andrew Ward, Financial Times, 4 July 2011] Ward continues:

"Norway is not the only country turning its military's attention to the frozen north. Russia's defence ministry announced plans last week to create two army brigades to defend its polar territory, and Canada is sending more than 1,000 troops to the region in August for its biggest Arctic military exercise yet. The build-up is fuelling fears of conflict in a region estimated to hold up to a quarter of the world's undiscovered oil and gas."

The news is not all bad from the region. Norwegian and Russian leaders actually decreased regional tensions by settling a four decades-old dispute over oil rights. Ward reports:

"The two countries last year ended a four-decade dispute involving 175,000 sq km of the Barents Sea by agreeing to split the contested area in half. The pact was ratified [in June] and [came] into force [in July], clearing the way for each country to start exploring for oil and gas in their respective zones."

Christian Le Mière, a research fellow for naval forces and maritime security at the London-based International Institute for Strategic Studies, told Ziezulewicz, "There's greater willingness now to discuss [Arctic] issues more openly, which should help negotiations." Jonas Gahr Støre, Norway's foreign minister, apparently agrees with Le Mière's assessment. He told Ward, "There is no issue in the north where the military provides the ultimate answer, and there is no challenge for Norway in the north for which Russia must not be part of the solution." Economically, the area's vast resources may be the focus of discussion. Strategically, however, Le Mière insists that "the value of an open Arctic lies in the emerging trade routes, and who controls those is key." Bernard Simon agrees with that assessment. He writes:

"The transformation of the once inaccessible north is raising tricky strategic, legal and logistical issues, especially for the five nations – Canada, Denmark, Norway, Russia and the US – with jurisdiction over all the Arctic's land and much of its water. Indigenous people of the area also face wrenching economic and social changes to their already threatened traditional way of life." ["The Arctic: Through icy waters," Financial Times, 18 August 2011]

Michael Byers, an international law professor at the University of British Columbia, agrees with Støre and Le Mière that the intense new focus on the Arctic seems to have produced more cooperation than confrontation. He told Simon, "At the moment there's an extraordinary amount of co-operation. That does give me some optimism." Byers did, however, add a note of caution. "It is possible," he told Simon, "that this move towards co-operation could be derailed. From time to time, the politicians of Arctic countries, most notably Russia and Canada, seek to mislead their publics by reaching for old nationalist symbols and sentiments concerning Arctic sovereignty. The contrast between what is said in public and what happens in private is sometimes quite stark."

Much of Simon's article is focused on trade routes that could be opened if climate change continues to reduce the ice pack that normally prevents ship movements in the region. He reports, "The Norwegian explorer Roald Amundsen was the first to succeed ... in threading his way through the North-West Passage. In the first 100 years after Amundsen's 1906 voyage, just 69 vessels followed in his wake. Yet the same number completed the trip in the five years from 2006 to 2010, not counting numerous private mega-yachts that are thought to have followed one of several routes now free of ice during the summer months." Simon continues:

"The long coast of northern Siberia has become even busier. In 2009 Russian authorities began to charge fees on vessels using the northern route to cross from the Atlantic to the Pacific. With the ice cap receding, ship operators are now eyeing an even more northerly route across the North Pole that would shave as much as 7,000km off the existing sailing distance between Rotterdam and Tokyo via the Suez Canal. Two German cargo vessels, helped by icebreakers, completed the short polar voyage in 2009."

Simon reports that it may take as long as twenty years before these routes are used extensively. The reason, he writes, is that even though the routes may become more accessible, "the Arctic remains an inhospitable environment, marked not only by severe cold and months of darkness but far away from search and rescue facilities and other amenities. Icebergs and high insurance costs will also make shipowners think twice." Despite such challenges, Simon report that interests remain high in the area, primarily for the "vast untapped resources" that experts believe lie beneath the region. Simon reports:

"The US Geological Survey, a government agency, estimates 13 per cent of the world's undiscovered oil reserves and almost a third of natural gas deposits lie under the Arctic. Several western European energy companies have eyed acquisitions and joint ventures in northern Russia as a way of gaining access to untapped oil and gas reserves. For example, BP earlier this year tried but eventually failed to acquire a stake in Rosneft, Russia's biggest oil producer, which has extensive interests in the region. Elsewhere, a bidding war erupted last winter for a big iron ore deposit being developed south of Pond Inlet on Canada's Baffin Island, about 700km north of the Arctic Circle. ArcelorMittal, the steelmaker, ended up paying $590m for a 70 per cent stake."

Last month it was announced that "ExxonMobil has formed an Arctic exploration partnership with Rosneft, the Russian state oil company, in a strategic coup over rival BP. In return, Exxon, the world's largest oil company by market capitalisation, will give the state-controlled Russian group minority stakes in projects in the US Gulf of Mexico, in onshore fields in Texas and elsewhere." ["Exxon and Rosneft sign Arctic deal," by Isabel Gorst, Charles Clover, and Ed Crooks, Financial Times, 30 August 2011] Not everyone is thrilled with how things are developing. "Marilyn Heiman, director of the U.S. Arctic Program at the Pew Environment Group, the conservation arm of the Pew Charitable Trusts, cautions that the energy industry is moving faster to start drilling than most countries are moving to craft appropriate regulations for the region. 'The Arctic is one of the most dangerous places to drill in the world and we need to have standards in place to prevent oil spills,' said Ms. Heiman." ["Arctic Riches Lure Explorers," by Russell Gold, Wall Street Journal, 1 September 2011] The below graphic that accompanied the Wall Street Journal article shows where experts believe the gas and oil are located (click to enlarge).

Arctic Gas

Simon also reports that "fish from the Arctic are set to emerge as a huge resource, but also a potential source of friction." He explains:

"Experts predict mass migration of marine life to warming Arctic waters, coupled with the growing shortage of fish elsewhere, will attract trawlers from Japan, South Korea and China, among others. 'The barriers to commercial fishing are falling pretty rapidly,' says Scott Highleyman, director of the Pew Charitable Trusts' international Arctic programme, based in Bellingham, Washington state. Trawlers could appear around the Chukchi Plateau, north-west of Alaska, within the next five years, he predicts. A Chinese vessel has already conducted marine research in the area. Michel Rocard, a former French prime minister and now the country's ambassador for polar affairs, foresees 'a splendid conflict' between coastal states and non-Arctic fishing nations. The US closed its Arctic waters to industrial fishing in late 2009. Pew, among others, is now urging Canada, Russia and the US to spearhead a multilateral agreement that would limit fishing in international waters, stretching over an area the size of the Mediterranean Sea. Such a pact would underline the international collaboration that has so far marked the opening up of the Arctic."

Russia would undoubtedly like to limit fishing in the area, but its past operating practices may put pressure on its leaders to be more open. Russia, Japan and Korea have a history of operating huge fishing fleets centered on factory ships that have been blamed for depleting global fish stocks. Professor Byers, however, is optimistic that agreements will be reached. "The Arctic is not a wild west zone," he told Simon. "It's not a place of conflict or threat of conflict." At least not right now. Simons reports, "The only land in dispute in the region is a tiny uninhabited island off Greenland claimed by both Denmark and Canada. Prof Byers dismisses this dispute and Russia's much-publicised move in 2007 to plant a flag in the seabed far below the North Pole as 'mostly domestic political noise'." Domestic politics, however, should not be so easily dismissed. A lot of dumb things have been done in the name of domestic politics. Simon apparently agrees. He writes:

"The pursuit of national interest is never far below the surface. Canada, with tacit support from Denmark, has blocked an application by the European Union for permanent observer status on the council because of the EU's stand against seal hunting, a staple of indigenous communities. ... Stephen Harper, Canada's prime minister, has made the Arctic a signature issue since his Conservative party took office in 2006, repeatedly asserting that 'we either use it or lose it'. The Tories' campaign platform in last year's election asserted: 'Canada's north is at the heart of our Canadian identity ... Our presence in Canada's north is also an increasingly important factor in defending our national sovereignty'."

In what could be an even more troubling development, "Arctic nations are also pushing to expand their offshore economic zones beyond the 200-mile limit traditionally recognised under international law." Simon explains:

"Article 76 of the UN Convention on the Law of the Sea allows states to claim rights up to 350 miles offshore if the geology of the seabed indicates a 'natural prolongation' of the continental shelf. Applications are vetted by a group of scientists. Norway has already secured an extension, Russia has applied for one and Canada is preparing an application. Mr Byers predicts that some of the claims could overlap."

The reason that cooperation rather than conflict currently rules the day is that exploitation of open passages and accessible resources hasn't really begun in earnest. Once that happens, things are likely to heat up. The hope is that the current spirit of cooperation will help generate solutions to potential problems before they emerge. Prevention, in this case like most other cases, is better than a cure.

September 15, 2011

Update: Reducing the Operating Costs of Truck Transportation

After posting a blog entitled Reducing the Operating Costs of Truck Transportation, I was contacted by Tom Stitt from Staxxon, a development stage start-up based in Montclair, NJ, that has developed an innovative folding and nesting container technology. He contacted me because I had mentioned a competitor, Cargoshell, that has also developed a collapsible TEU. Stitt told me, "The two companies have different design, business and engineering approaches to identifying opportunities for reducing the cost of empty container back-haul." I've also uncovered a third company that makes collapsible containers, Compact Container Systems (CCS), LLC. In the interest of fairness, I'll describe all three systems starting with Cargoshell. Following my discussion about collapsible containers, I provide a brief update on other trucking cost reduction topics.

One of the design differences between Cargoshell and the other two companies is the material used to construct the containers. Cargoshell's collapsible TEU container uses a composite material that is "25Cargoshell-shipping-container-concept percent lighter than a steel container, meaning significantly less energy would be required to carry every container on their estimated 200 million annual trips." ["The Cargoshell: ingenious collapsible replacement for the standard shipping container," by Mike Hanlon, Gizmag, 6 January 2010, and "Collapsible Cargoshell shipping container seeks ISO certification," by Mike Hanlon, Gizmag, 26 July 2010]. Hanlon points out that composite material has other benefits over steel. He writes:

"A Cargoshell produces only one third the amount of CO2 at the production stage, and repairs are far easier and more environmentally friendly too. The environmental benefits of a composite container extend far beyond just this however, as steel containers are forever being repainted to prevent corrosion and to keep them looking good. Composites don't corrode when they come in contact with air and seawater, and as the gelcoat can be coloured to the corporate colours of the owner, they also never need repainting."

There are drawbacks to the Cargoshell system -- cost being the primary drawback. A Cargoshell container comes with "a price tag roughly three times that of a steel container." As Hanlon puts it, "Cargoshell's biggest problem is finding someone in the freight chain who is prepared to pay the extra money to replace the world's 25 million 20-foot steel containers." The other drawback is the time it takes to collapse the container. It takes one man approximately half-an-hour to expand or collapse the container. Considering the millions of containers used around the world, that represents a significant manpower cost. The Cargoshell can collapse "to one quarter its original size, meaning four empty Cargoshells can be transported together in the space normally required for one empty current container." In addition, Cargoshell containers have roll-up doors versus traditional swing-out doors, which allow them to be stacked closer together.

Staxxon went a different direction and maintained steel construction for its containers. Another design difference is that its containers collapse horizontally rather than vertically. This means that you can get five collapsed containers in the same space as one. That's a 25 percent improvement over the Cargoshell design. According to the company's website:

"Staxxon's top sustainability objective is to reduce the number of container ship movements as well as intra-state truck movements at ports related to empty containers. While some competitors have focused their environmental objectives around the use of composite materials to replace steel, Staxxon has focused on the larger environmental challenge of reducing net sea-going vessel movements and gate entries involving empty containers."

It goes on to say, "Staxxon's folding method allows existing container fleets to be repurposed to address sea lanes and routes with high empty imbalance scenarios instead of requiring wholesale replacement of existing container fleets." Stitt informs me that the folding process for its containers is roughly the same as for the time required by the Compact Container Systems container discussed below (i.e., around 10 minutes). He points out, however, that a lot of considerations need to be taken into account when comparing systems.

"For example," he asks, "[where] is the folding/nesting (unfolding/un-nesting) done?" That's a terrific point, especially if unique handling equipment is required. Locations that might need to fold/unfold systems include: marine terminals, inland truck or rail terminals, empty container depots, distribution or manufacturing facilities. Who is completing the operation also matters (is it being done by skilled or semi-skilled personnel or by unskilled manual laborers?). Geographic location (as opposed to a type of facility) can also play a role. The following video shows how the Staxxon system works.

According the website, "Staxxon’s top business objective is to provide a retrofit and new container approach to folding and nesting that adds one-time incremental cost which is recovered rapidly from operational cost savings (fewer lift/picks/moves) and improved container utilization." Obviously, Cargoshell cannot provide a retrofit option since its containers are all new construction.

Compact Container Systems, LLC, also uses steel for its collapsible containers. According to its website, "Compact Container Systems (CCS) introduces the world's first family of foldable ISO containers -- the FOLDX-40HC. A design so revolutionary, it is sure to change the fundamental economics of the shipping industry. Fully compatible with existing intermodal handling equipment, our patented design enables the FOLDX-40HC to be folded to a quarter of its original size -- all to reduce back-haul shipping costs, storage costs and green house gas emissions." In other words, the CCS system uses a vertical folding system like Cargoshell and steel like Staxxon. Like Cargoshell, 4 collapsed containers can fit into the space of one. In addition to using cheaper steel construction, CCS advertises that "the FOLDX-40HC can be quickly reduced by a two-person team in just ten minutes." That is a 33 percent savings in manpower as well as being a much quicker conversion. Below is a video showing the FOLDX system.

It appears to me that the CCS system requires special handling equipment whereas the Staxxon system only requires a common forklift. However, CCS literature points out that the equipment can lift seven units at once, which can result in considerable savings. The good news is that these innovative companies are likely to change the future of container handling.

In my original post on reducing truck transportation costs, collapsible containers were an "Oh by the way" subject rather than the main focus. In this post, they are the main focus, but I'd also like to provide a brief update on other cost reduction topics. Since posting that blog, I found a 2008 fact sheet published by the Union of Concerned Scientists that "describes some of the technologies available ... that can be installed on trucks, or specified as options on new trucks, to improve fuel efficiency through better aerodynamics and reduced rolling resistance." Below is what the fact sheet had to say about aerodynamics and rolling resistance.

Aerodynamics

"When driving at highway speeds, about half of the power produced by the truck engine is used to overcome aerodynamic drag. Aerodynamics factors heavily into many new truck designs, but not all trucks and trailers come equipped with aerodynamic features. Some of today's heavy-duty trucks come in aerodynamic designs which include low-profile side mirrors, integrated roof fairings, fuel tank side fairings, rounded bumpers, trailer gap reducers, and hidden exhaust stacks. According to manufacturers, all of these attributes add up to significant fuel savings and can improve fuel economy 15 to 20 percent compared to 'classic' style trucks. ... More than 65 percent of the miles traveled by heavy-duty combination tractor-trailer trucks occur with box van trailers. The basic rectangular shape of the van trailer offers significant opportunities for improving the aerodynamics and fuel efficiency of the tractor-trailer combination. [Available] technologies ... are designed to reduce turbulent air flow in the front of the trailer (in between the gap of the tractor-trailer), the underside (between the rear tractor tires and the rear trailer tires), and the rear (behind the rear doors). A combination of these trailer technologies, along with low-rolling resistance or single wide tires described below, can improve overall tractor-trailer fuel efficiency by am additional 10 percent or more."

In my original post, I discussed the work of Kambiz Salari, a researcher at the Lawrence Livermore National Laboratory. He has demonstrated that a 17 percent improvement in efficiency can be achieved to through streamlining. Although that is a significant improvement, it is far less than the 25 to 35 percent improvement that the fact sheet claims can be obtained.

Rolling Resistance

"Besides decreasing aerodynamic drag, reducing the rolling resistance of heavy-duty truck tires can also help improve fuel efficiency. The friction between the rolling tire and ground, or rolling resistance, can be impacted by the design, materials, and the level of air pressure of the tire. Between 15 to 33 percent of heavy-duty truck fuel consumption is used to overcome rolling resistance. ... Truck owners can reduce rolling resistance and improve fuel efficiency [in the following ways. First, use] low rolling resistance tires. The materials and design of a tire influence the rolling resistance characteristics. The US Environmental Protection Agency's (EPA) SmartWay program identifies tire models that have the lowest rolling resistance and offer the best fuel economy improvements. ... [Second, use] single wide tires. The most common configuration for tractor-trailers is to have dual (side-by-side) tires on each axle, except for the steering tires in front. Single wide tires are designed to replace each set of dual tires with one extra wide 'super single' tire. Super singles offer both aerodynamic benefits as well as improved rolling resistance. Super singles also offer weight reduction advantages, as the super single tire and rim weigh less than the two tires and rims that they are replacing. Aluminum rims can also be utilized to further reduce weight. Reducing weight offers improved fuel efficiency, or alternatively, allows a heavy load to be carried while continuing to meet highway weight restrictions. [Finally, use] auto tire inflation systems. Keeping tire pressures maintained on heavy-duty trucks is important for maximizing fuel efficiency, tire wear, and safety. Auto tire inflation systems help to maintain the proper inflation levels at all times, rather than only during periodic maintenance checks. The EPA estimates that a 0.6 percent gain in fuel efficiency can be realized with these systems. Greater improvements will be realized from auto tire inflation systems for fleets that currently do not frequently maintain tire inflation levels."

Those are pretty pragmatic recommendations for reducing the costs of truck transportation and are in line with other recommendations that were discussed in my earlier post. The fact sheet concludes by mentioning some of those other recommendations:

"There are also additional strategies that can improve the fuel efficiency of today's heavy-duty trucks, including improved logistics systems, more efficient engine and drive trains that include hybrids, lighter weight materials, lower carbon fuels, reduced highway speeds, elimination of idling, and improved driver training."

Obviously, there are no silver bullet solutions for reducing truck operating costs. However, a combination of technologies and strategies can be used to make significant cost savings. In California alone, over 3 billion gallons of diesel fuel are consumed annually by big rigs. A modest 20 percent increase in efficiency would mean that around 600 million gallons of diesel could be saved a year. At $3.5/gallon, that's an impressive $2.1 billion in savings -- just in California.

September 14, 2011

Does Kindness Pay?

Stephen Grellet, a famous Quaker missionary, wrote, "I expect to pass through this world but once; any good thing therefore that I can do, or any kindness that I can show to any fellow creature, let me do it now; let me not defer or neglect it, for I shall not pass this way again." Most people like to be around people like Grellet. They make life more pleasant. According to a new study, however, people like Grellet don't make as much money as the ornery, nasty-tempered people of this world. ["Hey, You! Mean People Earn More, Study Finds," by Rachel Emma Silverman, Wall Street Journal, 15 August 2011] Silverman reports:

"It may not pay to be nice in the workplace. A new study finds that agreeable workers earn significantly lower incomes than less agreeable ones. The gap is especially wide for men. The researchers examined 'agreeableness' using self-reported survey data and found that men who measured below average on agreeableness earned about 18% more—or $9,772 more annually in their sample—than nicer guys. Ruder women, meanwhile, earned about 5% or $1,828 more than their agreeable counterparts."

I'm not sure that opposite of "agreeableness" is "meanness." Pushy people, for example, are not necessarily mean; but, they're certainly not agreeable. Frankly, I'm little surprised that disagreeable people are better paid in the business world. It could explain a lot about why customer service is so bad in most companies. It may be lamentable, but the study's co-author Beth A. Livingston, an assistant professor of human resource studies at Cornell University's School of Industrial and Labor Relations, admits, "Nice guys are getting the shaft." Silverman continues:

"The study 'Do Nice Guys—and Gals—Really Finish Last?' by Dr. Livingston, Timothy A. Judge of the University of Notre Dame and Charlice Hurst of the University of Western Ontario, ... analyzed data collected over nearly 20 years from three different surveys, which sampled roughly 10,000 workers comprising a wide range of professions, salaries and ages. (The three surveys measured the notion of 'agreeableness' in different ways.) They also conducted a separate study of 460 business students who were asked to act as human-resource managers for a fictional company and presented with short descriptions for candidates for a consultant position. Men who were described as highly agreeable were less likely to get the job."

Agreeability is not an oft-used word in daily conversation. We are more likely to call someone "nice," "happy," "pleasant," or "kind," than we are to call them "agreeable." That may be the problem. Silverman reports that study findings concluded, "For men being agreeable may not conform 'to expectations of "masculine behavior.'" I find the word "may" a bit off-putting when it comes to making conclusions. I tend to agree with another possible reason for the study's findings: "People who are more agreeable may also be less willing to assert themselves in salary negotiations." Silverman reports that while disagreeability may result in better paychecks for individuals, those individuals may not be good for company bottom lines. She writes:

"Other research shows that rudeness may not always benefit employees or their firms. A paper presented ... at the annual meeting of the American Psychological Association found that 86% of 289 workers at three Midwestern firms in the manufacturing and health-care industries reported incivility at work, including public reprimands and making demeaning comments. Incivility was bad for the organizations as a whole, though, increasing employee turnover, found the researchers, Jeannie Trudel, a business professor at Indiana Wesleyan University-Marion, and Thomas Reio, a professor at Florida International University."

If being disagreeable is bad for business, why do bosses reward it? Livingston claims, "The problem is, many managers often don't realize they reward disagreeableness. You can say this is what you value as a company, but your compensation system may not really reflect that, especially if you leave compensation decisions to individual managers." A decade or so ago, the U.S. Navy realized that many of its top officers had bullied their way to the top, only to find that such tactics had left intolerable messes and low morale in the commands they left behind. The Navy made a conscious effort to uncover such leadership tactics and pass over such leaders. The same is true for some companies. Silverman explains:

"Lockerz, a 65-person Seattle, Wash., social-commerce company, has what it calls a 'no jerks and divas' policy that is stressed in its employee handbook and orientation, says Chief Executive and founder Kathy Savitt. She notes, though, that there is a difference between being respectful and being agreeable. 'We are not about being "nice" or "agreeable" or "civil,"' she says. 'We have a lot of robust debates about all kinds of things. But we do stress the notion of being respectful.' Paul Purcell, chairman, president and chief executive of Robert W. Baird & Co., a Milwaukee financial-services firm, says that his 2,700-employee company 'doesn't hire or tolerate jerks. That's frankly a large percentage of people in our business. They don't get through the interview process.' The firm has fired at least 25 offenders of its 'no-jerk' policy, he says."

So maybe being unkind doesn't pay off in the end. According to The Economist, "The extraordinary success of Homo sapiens is a result of four things: intelligence, language, an ability to manipulate objects dexterously in order to make tools, and co-operation." ["Welcome, stranger," 30 July 2011] In other words, being agreeable (often an essential component of cooperation) is one of the basic things that makes us human. The article continues:

"Over the decades the anthropological spotlight has shifted from one to another of these as the prime mover of the package, and thus the fundament of the human condition. At the moment co-operation is the most fashionable subject of investigation. In particular, why are humans so willing to collaborate with unrelated strangers, even to the point of risking being cheated by people whose characters they cannot possibly know? ... Existing theories of the evolution of trust depend either on the participants being relatives (and thus sharing genes) or on their relationship being long-term, with each keeping count to make sure the overall benefits of collaboration exceed the costs. Neither applies in the case of passing strangers, and that has led to speculation that something extraordinary, such as a need for extreme collaboration prompted by the emergence of warfare that uses weapons, has happened in recent human evolution to promote the emergence of an instinct for unconditional generosity."

Based on the numbers of conflicts ongoing in the world, clearly the instinct for "extreme collaboration" has bypassed a few million people. I find it fascinating that the terms "collaboration" and "trust" find their way into so many discussions about human activities. The article reports that not all researchers believe that humans have an instinct for "extreme collaboration."

"Leda Cosmides and John Tooby, two doyens of the field, who work at the University of California, Santa Barbara, do not agree. They see no need for extraordinary mechanisms and the latest study to come from their group (the actual work was done by Andrew Delton and Max Krasnow, who have just published the results in the Proceedings of the National Academy of Sciences) suggests they are right. It also shows the value of applying common sense to psychological analyses—but then of backing that common sense with some solid mathematical modelling."

The researchers set up mathematical models that used "software agents" capable of interacting with "a computer's processor." "Each agent had an inbuilt and heritable level of trustworthiness (ie, the likelihood that it would cheat at the first opportunity) and, in each encounter it had, it was assigned a level of likelihood (detectable by the other agent) that it would be back for further interactions." The currency used to judge value in the model was an arbitrary "fitness unit." The more fitness units an agent collected over its lifetime, the more successful it was judged. Agents that cheated early were found to have lost so much trust that they didn't do well over their lifetimes. The article continues:

"After a certain amount of time the agents reproduced in proportion to their accumulated fitness; the old generation died, and the young took over. The process was then repeated for 10,000 generations (equivalent to about 200,000 years of human history, or the entire period for which Homo sapiens has existed), to see what level of collaboration would emerge. The upshot was that, as the researchers predicted, generosity pays—or, rather, the cost of early selfishness is greater than the cost of trust."

Although it seems like common sense that establishing trust is a win-win situation, the business landscape is littered with the corpses of dead companies whose leaders believed that cheating was the best way to get ahead. To me that indicates that greed can often trump whatever inherent capacity for collaboration people may possess. Fortunately, for most of us most of the time, that is not true. The article concludes:

"An open hand to the stranger makes evolutionary as well as moral sense. Except, of course, that those two senses are probably, biologically speaking, the same thing. But that would be the subject of a different article."

Nicholas Wade reports that part of our inherited sense of kindness may well be located in a chemical compound called oxytocin, which, he writes, "has been described as the hormone of love." ["Depth of the Kindness Hormone Appears to Know Some Bounds," New York Times, 10 January 2011] He explains:

"This tiny chemical, released from the hypothalamus region of the brain, gives rat mothers the urge to nurse their pups, keeps male prairie voles monogamous and, even more remarkable, makes people trust each other more. Yes, you knew there had to be a catch. As oxytocin comes into sharper focus, its social radius of action turns out to have definite limits. The love and trust it promotes are not toward the world in general, just toward a person's in-group. Oxytocin turns out to be the hormone of the clan, not of universal brotherhood. Psychologists trying to specify its role have now concluded it is the agent of ethnocentrism."

Since humans are social beings, this finding cannot be too surprising. It also explains why trust between strangers generally has to be earned. Dr. Carsten K. W. De Dreu, a psychologist at the University of Amsterdam, began studying oxytocin because he believed that no one "who placed unbounded trust in others could survive. ... Thus there must be limits on oxytocin's ability to induce trust, he assumed, and he set out to define them." Like most studies in the area of trust, De Dreu used money distribution as way to judge trust and generosity. He also deliberately set out to test "in" groups and "out" groups. Dutch college students were the "in" group and Muslims and Germans were the "out" groups.

"These nationalities were chosen because of a 2005 poll that showed that 51 percent of Dutch citizens held unfavorable opinions about Muslims, and other surveys that Germans, although seen by the Dutch as less threatening, were nevertheless regarded as 'aggressive, arrogant and cold.'"

You can read the article to learn about the methodology that De Dreu used to test students. There is one experiment, however, that is worth noting. Wade reports:

"In another set of experiments the Dutch students were given standard moral dilemmas in which a choice must be made about whether to help a person onto an overloaded lifeboat, thereby drowning the five already there, or saving five people in the path of a train by throwing a bystander onto the tracks. In Dr. De Dreu's experiments, the five people who might be saved were nameless, but the sacrificial victim had either a Dutch or a Muslim name. Subjects who had taken oxytocin were far more likely to sacrifice the Muhammads than the Maartens."

Those results don't make oxytocin sound much like "the hormone of love." The researchers indicate that the drug induced "feelings of loyalty to the in-group" rather than inciting "hatred of the out-group." In other words, it creates an "in" group bias. Wade continues:

"What does it mean that a chemical basis for ethnocentrism is embedded in the human brain? 'In the ancestral environment it was very important for people to detect in others whether they had a long-term commitment to the group,' Dr. De Dreu said. 'Ethnocentrism is a very basic part of humans, and it's not something we can change by education. That doesn't mean that the negative aspects of it should be taken for granted.' Bruno B. Averbeck, an expert on the brain's emotional processes at the National Institute of Mental Health, said that the effects of oxytocin described in Dr. De Dreu’s report were interesting but not necessarily dominant. The brain weighs emotional attitudes like those prompted by oxytocin against information available to the conscious mind. If there is no cognitive information in a situation in which a decision has to be made, like whether to trust a stranger about whom nothing is known, the brain will go with the emotional advice from its oxytocin system, but otherwise rational data will be weighed against the influence from oxytocin and may well override it, Dr. Averbeck said."

In other words, we can learn to trust strangers. We can learn to cooperate and collaborate. What about those mean people at work? Ashleigh Brilliant once wrote, "Be kind to unkind people - they need it the most." And if they continue to get paid more and fail to change their ways, remember what S. H. Simmons wrote, "Kindness is never wasted. If it has no effect on the recipient, at least it benefits the bestower."

September 13, 2011

The Birth and Death of Industry Hubs

A couple of years ago Ann-Elise Henzl, a reporter for Milwaukee's public radio station WUWM, asked a provocative question: "Is it really possible for a region to make itself the headquarters of an industry?" ["Project Milwaukee: Successful Industry Hubs Inspire Water Proponents," 10 December 2009] What prompted Henzl to ask that question was the emergence of "a coalition of community leaders [that] is pushing the city to become a global hub for water research and technology." In real estate circles, we're all aware of the mantra, "location, location, location." Milwaukee, of course, sits on the shore of Lake Michigan, one of North America's Great Lakes, which makes it a good location for water studies. Add the fact that Milwaukee has one of the highest per capita student populations in North America, and you can see why the local coalition believes the region has all the makings of an industry hub.

Milwaukee is not unfamiliar with the birth and death of industry hubs. For years, Milwaukee was the nation's hub for the beer industry. Brian Back reminds us:

"Beer made Milwaukee famous, as Schlitz liked to remind the world. Schlitz was the world's largest brewery in the 1960s. In 1980, we were home to three of the five largest American brewers: Schlitz, Miller, Pabst. Today, Miller is America's second-largest brewer. We made beer the sixth-major food group." ["The beer museum that could make Milwaukee famous," Milwaukee Journal Sentinel, 6 September 2006]

Three things made Milwaukee a hub for brewing: German immigrants, available water, and location. There was a large influx of German immigrants into Milwaukee in the 1840s and by 1856, more than two dozen breweries (mostly German-owned and -operated) were located there. Because of its location, Milwaukee could both import the supplies it needed and export the beer it produced. The industry grew until, as Back reports, the area was home to three of the five largest American breweries. Of the great breweries that once called Milwaukee home, only Miller remains.

Henzl reports that Wisconsin proponents for developing industry hubs in the state point to examples of two such successful endeavors elsewhere: Orlando as a tourist hub and the North Carolina Research Triangle as a technology hub. She writes:

"One of the most vocal cheerleaders for developing a water hub in Milwaukee is Rich Meeusen. He's CEO of Badger Meter in Brown Deer, and co-chair of the Milwaukee 7 Water Council, a group promoting the idea. Meeusen likes to talk about Disney World, when making his pitch. 'Disney in 1972 went to Orlando, they opened Disney World. The city fathers in Orlando had a meeting and said, "Oh, we can build our region into a national, or even a worldwide tourist hub,"' Meeusen says. Meeusen says they did just that. 'What they did was, they coordinated government tax incentives with zoning laws, with the industries that were there, with the schools. And now when you look at Orlando, you see that they have SeaWorld and Universal Studios and all of these other things there. In fact, the University of Central Florida in Orlando is the number-two rated university in the United States for tourism and hospitality management,' Meeusen says. Meeusen says the Orlando story illustrates how a community can build an industry cluster. Gov. Jim Doyle chooses a different example. 'North Carolina is a state that in the 1980s really created a research hub, a triangle, that got a lot of profile and created a lot of jobs,' Doyle says. The North Carolina Research Triangle now employs more than 40,000 workers. Doyle believes water could be the centerpiece of Wisconsin's hub, in part because of the research facilities already operating here."

In two recent articles, Emily Maltby talks about the birth and death of other hubs around the United States. They make interesting reading. In the first article, she discusses how "new industry hubs are drawing entrepreneurs and investors—and offering start-ups support and safety in a turbulent economy." ["Where the Action Is," Wall Street Journal, 22 August 2011]. She writes:

"It's a lesson that's all too easy to forget in a world driven by mobile devices, cloud computing and home offices. There are big benefits to setting up shop in the right spot—especially among lots of peers in the same field. Just ask sports-gear makers in Ogden, Utah. Or health-care companies in Nashville. Or nanotechnology researchers in Albany, N.Y. These cities, and others like them across the country, have become hubs for specific industries. Entrepreneurs are moving there and flourishing in the teeth of a bleak economy. The cities, in turn, are nurturing the entrepreneurs by giving them access to funding, mentors and facilities. All in all, these clusters can be ideal spots for an entrepreneur in the field. Being there means getting access to a much wider range of suppliers, customers, employees and industry experts. What's more, industry peers are often willing to support each other as they get off the ground, sharing recommendations about staffers, potential sales leads and attractive office space, or giving each other guidance and insight about the industry. ... As a hub grows, it brings other benefits to small firms. For one thing, even as businesses cooperate, they challenge each other to innovate—to come up with new ideas that make them stand out from the crowd. 'Specialization in a region increases patents, business formation and higher wages,' says Rich Bryden, director of information products at Harvard Business School, who's working with a team mapping industry hubs in the U.S. When businesses come together, they also catch the eye of big players with deep pockets—especially beneficial when the economy is weak and financing is limited."

Maltby goes on to "look at seven up-and-coming innovative centers. All have solid partnerships between the public and private sectors, a growing work force to fuel the industry and long-term strategies for development. And entrepreneurs say being there is vital to their success." The first hub she writes about is Indianapolis, IN, where a Life Sciences hub has developed. She reports:

"The state has added 8,800 jobs in the life sciences in recent years, and today some 825 medical-device companies, drug manufacturers and research labs call Indiana home. Indianapolis, which is home to big names in the field such as Eli Lilly & Co. and health insurer WellPoint Inc., is leading the transformation. Corporations like these have added the lion's share of the state's new life-sciences jobs. Now they're helping smaller companies get off the ground, too—by spinning off new businesses as well as by backing independent start-ups."

The city Maltby discusses is San Antonio, TX, where a Cybersecurity hub has emerged.

"There are more than 80 information-technology and cyber-related businesses in San Antonio, and that figure is increasing rapidly, according to the city's Chamber of Commerce. Many entrepreneurs are anticipating a flood of government contracts from the new Air Force Cyber Command headquarters in town. The military chose San Antonio in part because the armed forces have always had a strong presence there—and many of the city's workers have security clearances from the Defense Department and the National Security Agency. Another big plus: a stream of skilled graduates from the Institute for Cyber Security at the University of Texas at San Antonio."

Maltby next reports that a Nanotechnology hub has emerged in the Albany, NY, area.

"The city now boasts more than 4,000 people in the industry, centered on the College of Nanoscale Science and Engineering at the University at Albany. The school has doubled in size during the recession to its current 800,000-square-foot complex. Dozens of nanotechnology companies have established a presence there to take advantage of research facilities and business incubators; since 2008, nearly 50 new start-ups have launched within its walls."

For years we've been reading about the fact that plains states have been depopulating; but, Maltby reports that one city in America's heartland, Kansas City, is home to "Silicon Prairie." She explains:

"Kansas City, straddling the Kansas and Missouri state line, is home to tech giants like Sprint Nextel Corp. and Cerner Corp., but its industry ranks have been swelling with smaller firms. In 2009, the number of tech companies rose by 5% to 2,900, trumping the growth rates of well-known hubs like Silicon Valley, Boston and Austin, Texas, according to a 2010 study published by the TechAmerica Foundation. Part of the lure for entrepreneurs: a high-speed fiber network from Google Inc., which chose Kansas City over 1,100 other cities to set up the service. Expected to roll out next year, the network will run 100 times faster than current broadband, which will likely bolster cloud-based technologies and pave the way for high-definition streaming services that will be hard to find elsewhere. ... Entrepreneurs who have relocated from the coasts also tout the friendly business environment. It's far less expensive to build a firm and develop technology, they say, and there are fewer state and city regulations to worry about. And, as in other hubs, many entrepreneurs are helping each other."

For all you beer drinkers who have been wondering where the beer hub went when it left Milwaukee, you might want to look south to Asheville, NC. Maltby claims that city now has now become a specialty beer brewing hub. She writes:

"Craft beer is a small industry, but it has a devoted customer base. One Southern town is going after those fans with vigor. Asheville, a Blue Ridge Mountain town of 75,000, has 10 breweries, with two on the way. That can't compare with the 40 in Portland, Ore., but it stacks up to other beer havens like Milwaukee and Boulder, Colo., which both have fewer than a dozen. ... Entrepreneurs new to the area seek mentoring from the established brewmasters and the Asheville Brewers Alliance, formed to exchange ideas and promote the industry. They also tap Blue Ridge Food Ventures, an incubator for developing and commercializing products."

The next hub that Maltby examines is in Nashville, TN. Although Nashville remains the hub for country music, it is also becoming a hub for health care. Maltby explains:

"There are more than 250 health-care companies in the city, and their numbers are rising. Employment in nursing, hospital and ambulatory services jumped 16% between 2004 and 2008, for instance. That, in turn, provides fertile ground for companies that create medical devices and patient-care systems. ... Last August, the city launched an entrepreneur center to spur innovation; two-thirds of the firms that have sought mentoring and financing are related to health care. State programs have also helped propel the industry. Recently, some $180 million in public funds has been made available to burgeoning firms."

The last hub that Maltby examines, a hub for outdoor gear, is located in a city much smaller than those discussed above. It does have an essential ingredient, however -- location. The city is Ogden, UT, which nestles against the Wasatch Mountains near the skiing venue used for the Salt Lake City Olympic Winter Games. Maltby writes:

"Ogden, a small city some 40 miles north of the capital, packs a concentrated punch in the outdoor and recreation industry. Ogden made headlines in 2002, when it hosted events for the Salt Lake City Olympic Games. Those Olympic facilities, along with acres of pristine mountains, canyons and rivers, are the main reason outdoor-apparel and equipment companies have been moving to town: The site offers a perfect spot for testing new products, and it's easily accessible from a nearby airport that supports direct flights to Europe. What's more, business owners say, the growing base of competing companies in the area push each other to design the best equipment. Utah has a relatively modest share of the industry; the state estimates it's home to about 5% of the outdoor-products firms in the U.S. Still, companies that expanded in or relocated to Utah have created at least 2,550 jobs in the past six years, according to the Economic Development Corporation of Utah."

Admit it it's nice to read some encouraging news along with bad economic news with which we are constantly being barraged. I believe Maltby's article answers the question poised at the beginning of this post by Ann-Elise Henzl, "Is it really possible for a region to make itself the headquarters of an industry?" The answer, of course, is yes. A deeper reading of Maltby's article, however, makes it clear that the yes answer has a lot of qualifiers. Each hub she describes has a unique set of circumstances that makes it ideal for establishing a hub. The hubs emerged fairly rapidly, but not overnight. Finally, they required cooperation between the public and private sectors.

As Milwaukee learned with the brewing industry, hubs can die as well as be born. Complacent cities are dying cities. To remind us how quickly hubs can fade away, Maltby wrote a companion article about hubs that no longer exist. ["They Came—and Went," Wall Street Journal, 22 August 2011] In her article, she highlights four former hubs: Akron, OH; Lowell, MA; Paterson, NJ; and Lehigh Valley, PA. Akron was once the tire hub of the United States. "During the peak years, more than 300 rubber companies called the city home." Now only Goodyear Tire & Rubber Co. remains. Lowell was a textile hub. According to Maltby, "clothing, tapestries and carpets poured from 10 major complexes. Smaller companies burgeoned, too, producing products like containers for the finished fabrics and leather straps for the mill machines." Paterson, too, was in the textile trade and was once known as "Silk City U.S.A." According to Maltby, "The town had, at its peak, more than 300 major factories and countless smaller manufacturers that employed 25% of the 110,000 residents." But textiles is a fickle industry that looks for cheap labor. First, the textile industry moved south and then it moved overseas. The Lehigh Valley region "was once dotted with iron furnaces"; but today, "only a handful of the mom-and-pop foundry shops are still in the area."

As we all know, creating jobs is much more difficult than cutting them. Industry hubs are one way of helping to create jobs. Paul Davidson reports:

"Northeast Ohio is among a growing number of regions that are combating the loss of traditional factory jobs by developing industry clusters in fields such as biomedicine, renewable energy and aerospace. Besides medical devices, the Cleveland area — a more than century-old stronghold for auto, rubber and glass making — aims to carve out niches in clean energy and flexible electronics. Hubs that group manufacturers, suppliers, training programs, researchers and others in the same region, aren't new. Hot beds such as computers in Silicon Valley, biotechnology in Boston and film in Hollywood developed organically and have thrived for decades. But with the loss of 8.7 million jobs in the recession, state and local officials are more active in trying to speed the growth of nascent clusters to create new jobs. Emerging industry centers include electric-car batteries in Michigan, clean energy in Colorado and robotics in Pittsburgh. In clean energy alone, 20 regional non-profits have sprung up around the USA in the past three years to coordinate funding and product-launching efforts among companies, universities, entrepreneurs and state agencies." ["To get jobs, areas develop industry hubs in emerging fields," USA Today, 6 June 2011]

It will take a lot inspiration, hard work, and luck to create the 8.7 million jobs that were lost during the Great Recession. The jobs that will be created probably won't require the same skills as those that were lost. That is why any job creation program must be accompanied by a job skills re-training program. Although politicians would like to think that they can create job creating hubs -- they can't. They can only encourage the private sector, through policies and incentives, to establish them. Nevada has spent six years trying to develop the University of Nevada Las Vegas Harry Reid Research & Technology Park. The 122-acre site has received $2 million in federal funding but, aside from the land, has only a very nice, landscaped sign to show for Nevada's efforts. The site sits vacant. Milwaukeeans nevertheless have high hopes. They know that clean water is going to be an even more precious commodity in the years ahead and may be on the verge of establishing a hub that will have legs.

September 12, 2011

Reducing Supply Chain Complexity

In a post written last month, noted supply chain analyst Lora Cecere discussed the complexity she perceives in many corporate supply chains. "They are a tangled and knotted mass," she writes. "For many of us, they appear to be very complex. The move to global has made it worse." ["Untangling the Chains," Supply Chain Shaman, 8 August 2011] Numerous analysts believe that reducing supply chain complexity is essential for success in the years ahead. Dan Gilmore, Editor-in-Chief of Supply Chain Digest, writes that he once heard a PepsiCo supply chain executive declare, "Complexity is like a cancer that destroys supply chain efficiency." ["Supply Chain Complexity Crisis," 12 June 2008] I don't think the analysts really believe that they can reduce supply complexity for growing and expanding companies. Things that increase supply chain complexity include: global sourcing; new SKUs; natural and manmade disasters; compliance requirements; transportation availability; rising commodity prices; consumer preferences; and so on. I don't see many of those kinds of things getting less complex. The obvious way to reduce complexity is to regress rather than grow. No profit-minded CEO thinks that is a very good idea. Does anyone really believe that complexity is going to be reduced? If, like me, you believe that answer to that question is "no," then you have to ask yourself, "What are the analysts really trying to say?"

I believe they are saying that supply chain professionals need tools that can help them make sense of the complexities they face. Supply chain data presented in a user-friendly way to decision makers provides the perception of reducing complexity without having to shrink the business to accomplish it. Cecere indicates that another way to reduce complexity is to recognize that your company really has more than one supply chain. By parsing those supply chains into their natural segments, they become more easily understood and managed. She writes:

"Over the past seven years for 90% of companies that I work with deal with this tangled mess as one; yet, supply chain professionals know intuitively that they do not have just one supply chain. They also know that if they could unravel them, that they could drive higher levels of supply chain performance."

Paul Childerhouse and Denis R. Towill believe that there are twelve rules that can be applied to help companies achieve a "fully integrated, effective supply chain." They claim, that "the solution has been renamed, repackaged and adapted many times over the years, but what remains constant are the underlying principles of simplified material flow." ["Simplified material flow holds the key to supply chain integration," Omega, Volume 31, Issue 1, February 2003, Pages 17-27] As the title of their article indicates, their twelve rules are aimed at simplifying material flow. They are:

  1. "Only make products which can be quickly despatched and invoiced to customers.
  2. "Only make in one time bucket those components needed for assembly in the next period.
  3. "Streamline material flow and minimise throughput time, i.e., compress all lead times.
  4. "Use the shortest planning period, i.e., the smallest run quantity which can be managed efficiently.
  5. "Only take deliveries from suppliers in small buckets as and when needed for processing and assembly.
  6. "Sychronise 'Time Buckets' throughout the supply chain.
  7. "Form natural clusters of products and design processes appropriate to each value stream.
  8. "Eliminate all uncertainties in all processes.
  9. "Understand, document, simplify and only then optimise (USDO) the supply chain.
  10. "Streamline and make highly visible all information flows throughout the chain.
  11. "Use only proved simple but robust decision support systems.
  12. "The operational target is to enable the seamless supply chain, i.e., all players 'think and act as one'."

Even though Childerhouse and Towill wrote their paper back in 2003, some of their rules have continued to resonate through other analytic studies. For example, Rule 7 -- form natural clusters of products and design processes appropriate to each value stream -- gels nicely with Cecere's assessment that companies need to untangle their supply chains. Childerhouse and Towill sensed that the rule was so important that they collaborated with James Aitken and Martin Christopher and conducted another study that focused on its application. ["Designing and Managing multiple Pipelines," Journal of Business Logistics, 26 (2), 73-95, 2005] Simon Ellis, from IDC Manufacturing Insights, reports that supply chain segmentation isn't new, but people are regaining an appreciation for it. He writes:

"Supply Chain segmentation is not new, despite recent articles to the contrary, as manufacturing companies have explored ways to manage parts of the supply chain differently for the varied requirements of product lines or categories for decades. ... New life is being breathed into an old concept." ["Supply Chain Segmentation is Back!" Manufacturing Value Chain, 8 April 2011]

Ellis states, "Segmentation is a way to address complexity where and when it is necessary, but reject it where it is unnecessary."

Childerhouse's and Towill's Rule 9 -- Understand, document, simplify and only then optimise (USDO) the supply chain -- is another idea that has gained traction. As technology evolves, this rule (along with Rule 11 -- Use only proved simple but robust decision support systems -- are becoming easier to implement. Enterra Solutions, for example, uses it proprietary Sense, Think/Learn, and Act system in most of its supply chain optimization products. Understanding what's going on in the supply chain is the key to making smarter decisions. Their Rule 12 -- the operational target is to enable the seamless supply chain, i.e., all players "think and act as one" -- represents another bandwagon concept (collaboration) that is receiving a lot of attention. It simply makes sense that life will be easier if working relationships are more cooperative and less confrontational.

The primary goal of collaboration is to increase understanding (and, hence, reduce volatility) between supply chain stakeholders. Trevor Miles, referring to a post by Mike Burkett, from Gartner, reports that "Mike identifies the lack of collaboration between trading partners as the primary cause of demand volatility." Miles agrees with Burkett as far as he goes, but insists, "The lack of demand visibility increases demand volatility, but there are other industry dynamics that are increasing demand variability." Good collaboration, which Miles says relies on trust, does much more than simply improve demand visibility and decrease demand volatility.

In an interview with the staff at SupplyChainBrain, Collin Albrecht, senior director of supply chain with Charter Communications, cautioned that "getting simple isn't that easy." Nevertheless, he insists "there are plenty of opportunities for clearing out the 'clutter' that adds time and cost to so many parts of the chain." ["How Can Companies Simplify Their Supply Chains?" 5 August 2011] The article continues with an oxymoron:

"Simplicity can be a complicated matter. From a supply-chain perspective, Albrecht defines the concept as 'a new back to basics.' Companies must scrutinize their processes, including procurement, storage and shipping, to clean out the 'clutter' that tends to build up in facilities and data. Their guiding principles should be visibility of inventory and collaboration with supply-chain partners. Everyone benefits from the exercise, from the chief executive officer to the order picker to the end customer. Concepts such as sales and operations planning, business intelligence and analytics can be valuable tools, 'but if you can't put the correct product on a truck, you've failed your customer,' says Albrecht."

Cecere agrees that putting the correct product on the proper truck is important; but, she claims, "The traditional goal of right product at the right time at the right place is insufficient." She insists that corporate alignment is the real end goal. I'm not sure I agree with everything Albrecht next told the folks at SupplyChainBrain:

"The process of data collection is one good place to start. Managers need to rid themselves of unnecessary information, eliminating data that is of use to just one or two people in the company. The establishment of key performance indicators can facilitate the process, with an eye toward removing needless complication."

If information is of use to one or two people, they should have access to that information. Eliminating that data may hurt rather than help company performance. What Albrecht really seems to want is only the right information, delivered to the right person, in the right format, at the right time. Technology should be able to do that without having to eliminate potentially useful data collection. Albrecht believes that with a little thought and planning, processes can almost always be improved.

"Companies should map out their supply chains to get a sense of how product moves. 'If it looks like spaghetti on paper,' says Albrecht, 'the chances are it's not going to be good. To visually see how that process flows is the key thing.' In the distribution center, managers should focus on the goal of fulfilling customer orders, and not burden employees with unnecessary tasks. They should also strive to create an environment in which workers and equipment can function without encountering physical obstacles. ... Network simplification is equally important. ... When it comes to global supply chains, there are substantial benefits to be gained through better 'command and control,' he says."

In a previous post entitle Have You Heard about Supply Chain Control Towers?, I discuss how some companies are now approaching supply chain command and control. The bottom line is while are some things that can be done to reduce supply chain complexity, like shortening supply lines and segmenting supply chains, the biggest gains are going to be made from increasing supply chain understanding rather than reducing supply chain complexity. Good decision tools can make decision choices easier to understand in a complex world by helping make sense of the complexity itself. As I noted above, that happens when the right information is delivered to the right person, in the right format, at the right time. If your supply chain looks like the tangled mass described by Cecere, or a bowl of spaghetti, as described by Albrecht, then maybe it's time to take some of their suggestions to heart.

September 09, 2011

Teaching Problem Solving Skills in Math and Science, Part 2

In yesterday's post, I discussed a number of recommendations that have been offered about how to get more students into the fields of math, science, and engineering. As I stated in that post, I believe that teaching children how to solve problems using those skills beginning with their earliest exposure to education is the best way forward. By the time someone is college age, it may be too late to convince him or her to enter studies in math and/or science. Colleges are nonetheless working with businesses in some interesting ways to keep students in those fields from looking outside the field for employment.

Florine Church, from BestCollegesOnline.com, contacted me about a post her company published entitled 10 Cool Ways Colleges are Collaborating with Businesses. Practical problem solving is one of the "cool ways" that businesses and colleges are collaborating. For example, mechanical engineering students from Cedarville University helped a Dayton, Ohio, company that employs people with disabilities provide more opportunities "by taking on a project to create devices that would allow these disabled workers to quadruple their output." In another project, professors and students from North Carolina State are teaming with IBM "to improve web services and decisions through service-oriented computing." In an ongoing project called "The Hub," Syracuse University and JP Morgan Chase have teamed to create the Global Enterprise Technology program that permits "students and corporate workers ... to develop innovations for education and ... industry ... [and] prepare[s] students for real life technology careers." Two other examples are:

"At the University of Cincinnati, students work together with several large companies to create products that are useful for consumers aged 50 and over. Students have collaborated with Citi, P&G, Hill-Rom, Kraft Foods, Boeing, General Mills, and LG to turn the needs of baby boomers into final concepts for products. ... [And, finally,] the Medical College of Wisconsin's Department of Radiology has worked on a few projects with General Electric Medical Systems. Together, they have created CT scanners, diffusion-tensor magnet resonance, functional magnetic resonance imaging, and a next-generation exam room. In particular, the CT scanner project has been a long term program that has granted the college worldwide recognition."

If educational systems were aimed more at problem solving than at rote learning for standardized tests, both the students and their eventual employers would be the better for it. When it comes to teaching math, there is one name that has to be mentioned. As Dan Meyer, a high school math teacher and Stanford University PhD candidate in education, told Bryant Urstadt, "If you're teaching math in this country right now, then there's pretty much no way you haven't heard of Salman Khan." ["Salman Khan: The Messiah of Math," Bloomberg BusinessWeek, 19 May 2011]. Perhaps the best way to introduce Salman Khan is through the following video.

Although the video indicates that Khan has developed 1800 math lessons, according to his website, the number is now over 2400 lessons. The site also indicates that those lessons have been delivered over 71 million times. That's a lot of teaching. Khan's journey into math education started seven years ago when he was asked to tutor his niece, Nadia. Urstadt continues the story:

"Nadia was headed into seventh grade in New Orleans, where Khan had grown up, but she hadn't been placed in her private school's advanced math track, which to a motivated parent these days is a little bit like hearing your child has just been diagnosed with Lou Gehrig's disease. In particular, Nadia was having trouble with unit conversion, turning gallons into liters and ounces into grams. Math was something Khan, then 28, understood. It was one of his majors at the Massachusetts Institute of Technology, along with computer science and electrical engineering. He had gone on to get a master's in computer science and electrical engineering, also at MIT, and then an MBA from Harvard. He was working in Boston at the time for Daniel Wohl, who ran a hedge fund called Wohl Capital Management. Khan, an analyst, was the only employee."

Some people blame the financial sector for drawing off America's math talent with compensation packages that can't be matched by other sectors. Khan may be a case in point. Urstadt continues:

"Being a bit of a geek, Khan put Yahoo!'s Messenger to work to help Nadia, using the Doodle function to let him illustrate concepts for his niece as they spoke on the phone. Then he wrote some code that generated problems she could do on a website. With Khan's help, Nadia made it into the fast track, and her younger brothers Arman and Ali signed on for Khan's tutoring as well. Then they brought in some of their friends. Khan built his site out a little more, grouping the concepts into 'modules' and creating a database that would keep track of how many problems the kids had tried and how they had fared, so he'd know how each of his charges was progressing. Messenger didn't make sense with multiple viewers, so he started creating videos that he could upload to YouTube. ... He posted the first video on Nov. 16, 2006; in it, he explained the basics of least common multiples. Soon other students, not all children, were checking out his videos, then watching them all, then sending him notes telling him that he had saved their math careers, too."

Visit the Khan Academy website and you'll be astounded at the array of available courses in both theoretical and applied mathematics. In fact, the list is so extensive that it might scare some people off. Don't be scared. Khan is a user-friendly guy. A careful search should allow you to find just the course you need to answer a question you may have. Khan's courses are so popular that Urstadt reports he has become "a quasi-religious figure in a country desperate for a math Moses." Like Moses, Khan is leading his followers into the promised land. The future belongs to the technically adept and you can't be technical without some math skills. Also, like Moses, he offers his leadership for free (although he gratefully accepts donations). His courses are so effective that Urstadt reports they have supplanted textbooks in some classrooms. Urstadt continues:

"Khan is more than just popular. He's a darling of America's amateur educational elite—people such as Bill Gates and John Doerr—who write checks and invite him to speak at their functions. Many of his followers are tech leaders, who understand more than most how dire America's standing in math education has become and what it may mean. In its 2010-2011 Global Competitiveness Report, the World Economic Forum ranked the U.S. 52nd in the quality of math and science education. Khan's March speech at TED 2011, the ideas conference in Long Beach, Calif., was met with an immediate standing ovation and capped by Gates, who interviewed him onstage about the project."

As the above video demonstrates, "Gates is one of Khan's biggest fans." With an increasing number of courses and a growing number of fans, Khan can no longer operate the Academy alone. Urstadt reports that when he visited Khan in his new office in Palo Alto, CA, the "office was nearly empty, save for a few desks and three of eight employees, including Shantanu Sinha, the chief operating officer, who had left consulting firm McKinsey to join Khan." The Khan Academy is a non-profit organization; but, not because Khan doesn't care about money. He told Urstadt, "I do care about money." However, according to Urstadt, Khan "wasn't and still isn't sure the Khan Academy should be a business." He explains:

"Because it's a nonprofit, it's able to attract all kinds of talented dreamers, many of whom work for free. 'We're getting talent money can't buy,' says Khan, mentioning the newly hired Dean of Open Source John Resig, an expert in the Java programming language. Giving away his curriculum means Khan doesn't have to tailor it to states such as California and Texas, which, by wielding enormous ordering power, end up shaping textbooks for many other states. ... 'What you have in most education software is that they're catering to the decision-maker who makes the budget allocations, and that decision-maker has a lot of check boxes,' says Khan. ... "They could care less about the end user experience. We're very bottom up. The for-profit guys, as soon as they incorporate, they start lobbying for grants and selling into school boards and become essentially dependent on navigating this huge bureaucracy, and they completely lose sight of the end user. It's the opposite of what we're doing.'"

Clearly Khan provides enormous value and has accomplished a lot of good. As popular as his courses have been, until last year he really wasn't much of a fund raiser. Urstadt explains:

"Khan survived on donations and savings until the spring of 2010, when he got an e-mail from PayPal saying that someone had just put $10,000 into his account. It turned out to be from Ann Doerr. He wrote her his thanks and said that since she was his largest donor, he would love to name a school building after her, if the Academy had a campus. A lunch followed, and Doerr expressed shock that she was Khan's biggest donor. She put a check for $100,000 in the mail, insisting that he take a salary. More important than the money, she has become a cheerleader for the Khan Academy and often stops by the office. 'Sometimes,' says Khan, 'she even brings cake.'"

Urstadt reports that textbook publishers, like McGraw-Hill and Pearson, are "not surprisingly ... building online offerings." But they will have a difficult time competing with Khan since he "wants his stuff to be free." If you click on the link to the Khan Academy, you can watch several other videos about Khan's work, including his presentation at TED. If you're the parent of a promising young student, you might want to take a few of these courses yourself so that you can help your student excel. You might even fall in love with math yourself.

September 08, 2011

Teaching Problem Solving Skills in Math and Science, Part 1

There has been a lot of discussion about the American education system in the news recently. It seems that everyone has a favorite approach they would like to implement. If I were to select an approach, it would be a problem solving approach. Present children with problems then teach them how to go about solving them and I think that you would find them flocking to math and science rather than fleeing from them. Apparently Sol Garfunkel, executive director of the Consortium for Mathematics and Its Applications, and David Mumford, an emeritus professor of mathematics at Brown, have similar feelings. They write, "It is through real-life applications that mathematics emerged in the past, has flourished for centuries and connects to our culture now." ["How to Fix Our Math Education," New York Times, 25 August 2011] They assert that the current educational approach "is based on the assumption that there is a single established body of mathematical skills that everyone needs to know to be prepared for 21st-century careers. This assumption is wrong." They explain:

"The truth is that different sets of math skills are useful for different careers, and our math education should be changed to reflect this fact. Today, American high schools offer a sequence of algebra, geometry, more algebra, pre-calculus and calculus (or a 'reform' version in which these topics are interwoven). This has been codified by the Common Core State Standards, recently adopted by more than 40 states. This highly abstract curriculum is simply not the best way to prepare a vast majority of high school students for life. For instance, how often do most adults encounter a situation in which they need to solve a quadratic equation? Do they need to know what constitutes a 'group of transformations' or a 'complex number'? Of course professional mathematicians, physicists and engineers need to know all this, but most citizens would be better served by studying how mortgages are priced, how computers are programmed and how the statistical results of a medical trial are to be understood. A math curriculum that focused on real-life problems would still expose students to the abstract tools of mathematics, especially the manipulation of unknown quantities. But there is a world of difference between teaching 'pure' math, with no context, and teaching relevant problems that will lead students to appreciate how a mathematical formula models and clarifies real-world situations."

For the so-called mathematically challenged, the world of math can be a scary place. Even students who aren't challenged can find the subject too esoteric to be of much interest. Garfunkel and Mumford believe that by making the subject more relevant you can also make it more interesting; and, hence, you can draw many more students into math and science. They continue:

"Imagine replacing the sequence of algebra, geometry and calculus with a sequence of finance, data and basic engineering. In the finance course, students would learn the exponential function, use formulas in spreadsheets and study the budgets of people, companies and governments. In the data course, students would gather their own data sets and learn how, in fields as diverse as sports and medicine, larger samples give better estimates of averages. In the basic engineering course, students would learn the workings of engines, sound waves, TV signals and computers. Science and math were originally discovered together, and they are best learned together now. ... We believe that studying applied math ... provides both useable knowledge and abstract skills."

Jim Simons, a mathematician and retired founder of Renaissance Technologies, reminds us that even if we get the curriculum correct, we still need talented instructors to teach it. "There is no substitute," he writes, "for a gifted teacher who knows and loves his or her subject." In the areas of math and science, however, he believes that the most gifted people don't go into teaching but look for employment in areas where the remuneration is greater. As a result, he insists, "Short of repealing the law of supply and demand, the normal workings of our public education establishment cannot solve the problem." Simons, however, hasn't thrown up his hands in defeat. He writes, "Even with [facing today's] formidable obstacles, there is a straightforward solution." ["Drawing our best math and science minds into the classroom," Washington Post, 8 November 2010] He explains:

"Six years ago a group of us established a pilot program to attract and retain highly qualified, subject-knowledgeable mathematics teachers for the New York public school system. By supplying scholarship aid where required, providing meaningful stipends to supplement salaries for new and experienced teachers, and convening professional seminars and workshops, Math for America has created more than 300 outstanding teachers in New York. ... Affiliates are operating in Los Angeles, San Diego and the District, with Boston, San Francisco and Salt Lake City in the works. This initiative, financed primarily by private philanthropy, is a drop in the bucket compared with what is needed."

In this day and age, when you start talking about money and government, there is no such thing as "a straightforward solution." Simons, however, believes that federal assistance is absolutely essential to make the program work. He claims that "implemented intelligently and at sufficient scale" programs like the one in New York "could go a long way toward righting our debilitating national education imbalance." He offers two specific recommendations:

"First is a scholarship program to encourage college students majoring in math, science and engineering to simultaneously prepare for careers teaching these subjects. Few of these bright folks even consider secondary school teaching. But entering the profession is one thing; staying in it is another. The second recommendation, a National Math/Science Master Teacher Corps, addresses the heart of the issue, the need to make the profession more attractive. ... During their five-year renewable terms, members would receive annual federal stipends boosting their regular salaries roughly 25 percent, participate in corps activities, and act as leaders in their departments and schools. ... These able, knowledgeable individuals would inspire students and colleagues, and at maximum size this transformational program would cost roughly $2 billion per year. America could make no better investment."

If Simons really wants to see his program implemented, he should consider public/private partnerships that involve industrial sectors desperately seeking people with math and science skills. Visionary companies know that without the right curricula, the right teachers, and sufficient students, they will continue to suffer skill shortages far into the future. By investing in teachers, they would be investing in their own future success. Would companies be open to such partnerships? I can't really say. I do know that earlier this year "a group of executives from major companies appealed directly to state governors, ... urging them to set higher standards for student proficiency in science and mathematics." ["Confronting the coming American worker shortage," by Elizabeth G. Olson, CNNMoney, 20 May 2011] Olson continues:

"The group of executives, called Change the Equation, notes that only one fifth of today's 8th graders are proficient or advanced in math, citing figures from national educational assessments. ... The group gave each state a report card on its science, technology, engineering and math (STEM) education based on various factors including teacher licensing test results and student advanced placement test scores. If states do not set a meaningful bar for assessing these skills, the group warns, they risk contributing to the dilution of America's global competitiveness."

Olson agrees that "given current state and local budget squeezes, with teacher layoffs and the continued debate over whether education should be tightly tied to test results, it is doubtful that states will take any action." She continues:

"For decades, companies have been sounding alarms by funding a plethora of projects, studies and surveys, and publicly advocating for more training and higher education standards for American workers. Millions of jobs that underpin the middle class 'could go offshore' if the shortage of highly educated and credentialed workers persists, adds [Anthony Carnevale, director of the Georgetown's Center on Education and the Workforce]."

Instead of "sounding alarms," companies should step up and partner with educators to implement some of the recommendations discussed above. To be fair, some companies have done more than whine. Olson reports, for example, that "Raytheon Co., a major defense contractor, has developed software to help state educators, lawmakers and others develop tailored plans to improve math and science education and workforce policies." But not enough is being done. Olson explains:

"Recent research from the Forum shows that boosting the educational level of the workforce is a daunting pursuit. Only 16% of American students in their senior year of high school have both math proficiency and an interest in pursuing a career in the STEM disciplines, according to the research. And just under 60% of high school seniors are not proficient in math, so even if they are interested, their chances of landing a job in those fields are slim."

Brian Fitzgerald, executive director of the Business Higher Education Forum, a group of executives and educators devoted to improving education in math, science and related areas, told Olson:

"We don't understand the formation of interest in STEM disciplines. It's been hard to move the needle. Is it that one teacher that makes a difference? What we know is that few 12th graders are interested in these disciplines, about 50% switch to other majors in college, only 19% graduate with a STEM degree, and only 10% of those go into STEM jobs."

Olson asserts that this lack of interest is not from a lack of effort. "There are many corporate-sponsored programs," she writes, "that aim to attract and help students interested in math and science, reaching back more than four decades to when the American Chemical Society started 'Project Seed' to encourage interest in the chemical sciences among minority students." To learn more about what corporations are doing, read my post entitled Innovation and Child's Play: Those Wild and Crazy Engineers. In another effort to get companies involved, Paul Otellini, president and chief executive of Intel Corp. and a member of the President's Council on Jobs and Competitiveness, indicated that the Council "will be calling on U.S.-based firms to help sponsor mentoring programs, internships and permanent job commitments for students in engineering programs nationwide." ["How the private sector can help curb our engineering shortage," Washington Post, 4 August 2011] Those efforts, however, seem aimed at the higher education level. Student interest needs to get started much earlier.

Even though companies understand that they need to get involved in promoting math, science, and engineering education as a matter of self-interest, they also understand that education is not primarily their responsibility. As a result, Olson reports, "a group of major Business Roundtable companies warned top Congressional leaders in a letter they sent in March [2011] that, 'the private sector cannot replace' federal support 'for basic science and engineering research and math and science education that undergirds America's national economic competitiveness.'" The fact is federal support is likely to be less successful than state and local support. Companies have offices and plants in specific areas and it is in those areas where they have need of skilled employees. Start working with children in elementary school and hold out the promise of a good job at the end of the educational tunnel for students who meet exacting standards (tailored to the business involved) and I think you would have a winning formula for the future. When parents see that education is preparing their children for real jobs by teaching them useful skills that can be applied in their daily lives, they are likely to be more involved in the children's education. It might even encourage some them to go back to school knowing that their children can help them learn some of those same skills.

As a general rule, students aren't staying away from math, science, engineering careers because of money. According to the Wall Street Journal, "Graduates with engineering degrees earned average starting pay of $56,000 in their first full-time jobs out of college, topping other majors. Communications and English majors only earned $34,000 in their first jobs." ["Engineering, Computer-Science Pay More Than Liberal Arts," by Joe Light, 25 October 2011] I believe that students pursue other majors because they didn't become fascinated with math and science at an early enough age. Teach kids to solve problems and you gain life-long proponents because they will understand that math and science skills empower them. Solving problems also does wonders for a child's self-esteem. Tomorrow I'll discuss how Salman Khan, America's best-known math teacher, has tried to excite kids about math.

September 07, 2011

Entrepreneurship Not for the Faint of Heart

Although I'm a big advocate of entrepreneurship, I'm also a realist. Although many entrepreneurs dream of making their fortune by starting their own business, the truth is "the average new venture will fail within five years." ["The Entrepreneurship Myth," by John Tozzi, Bloomberg BusinessWeek, 23 January 2008] If you find that depressing news, you really won't like to hear that "even successful founders usually earn 35% less over 10 years than they would working for others." The focus of Tozzi's article was a book written by Scott Shane, professor of entrepreneurial studies at Case Western University, entitled The Illusions of Entrepreneurship. According to Tozzi, "Shane argues that increasing the rate at which new companies are formed does little for the economy or job growth; instead, expanding existing businesses would be a more efficient way to spend time and money."

Shane admits that the sector in which one starts a new business makes a huge difference. The best case for the economy and job creation is starting a business that creates a new industrial sector. The next best scenario would be to start a business in a sector that is still growing. As an example, Shane notes, "The odds that you make the Inc. 500 are 840 times higher if you start a computer company than if you start a hotel or motel." Money aside, Shane admits, "People who run their own businesses have greater job satisfaction than people who don't." There is nothing wrong with trading job satisfaction for greater financial rewards -- just do it with your eyes wide open. Desperation is not a reason to start a business.

Desperation may be behind a surge in entrepreneurism among older Americans. Anne Tergersen reports, "Faced with bruised nest eggs and high unemployment rates, older Americans—ever resourceful—are becoming entrepreneurs." ["Older Americans Fuel Entrepreneurial Boom," Wall Street Journal, 29 June 2011] Citing statistics from the nonprofit Ewing Marion Kauffman Foundation, Tergersen reports, "Individuals between the ages of 54 and 64 represented 22.9% of the entrepreneurs who launched businesses in 2010 – up from 14.5% in 1996." Tergersen also depressingly reports, "Failure rates for new businesses are high—as high as 90% by some measures."

Although entrepreneurship may have been up for seniors last year, the continuing economic malaise appears to have dampened the entrepreneurial spirit overall. John Bussey asks, "Will the damage done by the weak economy have a long-lasting effect, discouraging the next generation of entrepreneurs?" ["Shrinking in a Bad Economy: America's Entrepreneur Class," Wall Street Journal, 12 August 2011] Bussey disagrees with Shane's conclusion that "the rate at which new companies are formed does little for the economy or job growth." He reports:

"U.S. job growth depends on small businesses, which generate about two thirds of net new jobs, according to the U.S. Small Business Administration. Start-ups fuel job growth disproportionately since by definition they are starting and growing, adding employees, says the Kauffman Foundation, which researches and advocates for entrepreneurship."

Unfortunately, Bussey goes on to report, "Bureau of Labor Statistics data show the total number of 'births' of new businesses [has] declined sharply from previous years. What's more, the number of people employed by new businesses that are less than a year old—a common definition of a start-up—also declined. That trend started a decade ago." Bussey interviewed Shane for his article and Shane, discussing last year's statistics, said, "More people who were self-employed failed and left self-employment than people who entered. The net effect is negative, not positive, largely because downturns hurt those in business and those thinking of entering business."

Like Shane, Bussey notes that the sector in which a business is started makes a significant difference. He explains:

"Then there's the Web-based, fast-growth, stratosphere of the start-up firmament, where entrepreneurship is red hot. Silicon Valley and tech hubs throughout the U.S. are filled with these enterprises. 'You have a real dichotomy between the technology and Web-based economy versus the meat and potatoes economy,' says Steven Kaplan, who teaches entrepreneurship at the University of Chicago Booth School of Business. Students at the school have lately gotten record funding from venture-capital and angel-financing groups for their tech projects. 'I had two students this year, they had offers from private equity firms, and they turned down those jobs to go to work for start ups,' he says. 'I haven't seen that since the end of the 1990s.' But it is in the realm of meat and potatoes that the vast bulk of the economy resides. And it isn't well."

The biggest problem for America is that entrepreneurism is trending in the wrong direction. Bussey continues:

"Dane Stangler, director of research at Kauffman, says the annual number of new 'employer firms' — start-ups that employ more than just the founder — was steady for years and has drifted down since the mid 1990s. 'So all of the energy that we've poured into entrepreneurship over the last 30 years' — incubators, education, special funding — 'hasn't moved the needle,' he says."

That is not good news. Can anything be done to reverse this trend? Bussey is cautiously optimistic. He concludes:

"[Stangler] believes several developments could boost entrepreneurial spirits in coming years: the economy's push for lower-cost products and services, which start-ups could provide; a growing number of older adults, some retired, who will seek employment by starting their own firms; and the spread of Internet- and tech-based innovations into the broader economy, something he calls 'a completely new infusion of energy.' Other researchers say cultural characteristics such as individualism and a society's acceptance of business failure and recovery are the chief fuel for entrepreneurship, and that most other factors — consumer demand, financing, the cost of entry — are just cyclical. The U.S., which has plenty of individualism, is clearly testing that theory: Will an innate entrepreneurial spirit power up a bad economy? Or will our changing economy continue to produce fewer jobs from start-up entrepreneurship? For the moment, the trend lines aren't encouraging."

Since the technology sector is "stratosphere of the start-up firmament," politicians in Washington, DC, have finally decided to try and tap the expertise of entrepreneurial, tech savvy immigrants. ["U.S. to Assist Immigrant Job Creators," by Miriam Jordan, Wall Street Journal, 2 August 2011] Jordan reports:

"In its quest to spur job growth and jump-start the economy, Washington is reaching out to foreign entrepreneurs. Alejandro Mayorkas, chief of U.S. Citizenship and Immigration Services, a unit of the Department of Homeland Security, ... [unveiled] several initiatives designed to attract and retain foreign entrepreneurs, particularly in the high-tech sector, who wish to launch start-up companies in the U.S. Among the initiatives is a plan to make it easier for some foreigners to qualify for legal permanent residence, or green cards, if they can demonstrate their work will be in the U.S. national interest. The changes will also include a way for entrepreneurs to obtain work visas without a job offer from an established company."

For workers with a technical background, this is good news. For the unemployed without such a background it should be a clarion call to get some training. Although America desperately needs "employer firms," as the Kaufman Foundation calls them, what it really needs are "high growth" employer firms. Entrepreneur Luke Johnson writes, "All the really successful investments I've ever made have achieved great returns because the underlying companies enjoyed high growth." ["There is only one way to be a success," Financial Times, 9 August 2011] In a post entitled Not All Small Businesses are Created Equal, I wrote: "The real entrepreneurial heroes are those who create high growth companies that provide employment for people beyond the entrepreneurs, their families, and a handful of others. These are the so-called small business superstars." Doug Richard, a US-born British entrepreneur, agrees with this assessment. He told Jonathan Moules and Elizabeth Rigby, "It is not small business that supports economic growth, but young businesses that grow fast." ["Tax breaks aim to lure seed investors," Financial Times, 28 March 2011] Johnson laments, "Right now underlying growth in the west is very scarce indeed." Johnson concludes:

"Growth matters not just because it leads to rising prosperity. Growing countries tend to be more optimistic and happier. Material improvement leads to general satisfaction; decline leads to misery. Growth is also the only realistic way to generate the necessary tax revenues to pay back public debts and fund the obligations of ageing societies. ... But growth is never easy. For a start, it consumes resources, which are likely to be finite. It is cyclical and can have environmental impacts. Growth is spurred by innovation, most of which is based on technological advances. While overall these developments are welcome – better products, more efficient processes – rises in productivity usually rely on automation, thus leading to fewer jobs. So while growth engenders new jobs, it also kills old ones. It is about reinvention, which itself triggers 'creative destruction', and the requirement for retraining. Thus companies must constantly adapt, or die. Citizens must re-skill, or risk becoming redundant. This turmoil has accelerated in the digital age across our global economy. ... My conclusion is that growth is a necessity both for business and a fulfilled society. To drive it we need more patient capital, better technical education, deregulation of commerce and lower tax on private enterprise. This is a shortlist of requirements: but a fantastically difficult series of actions to implement."

The intent of this post is not to dissuade potential entrepreneurs from testing the water. I just want them to know that water could be cold. A dose of reality never hurts. Those writing about entrepreneurism can sometimes be too optimistic. That optimism is understandable. As a whole, entrepreneurs are a very optimistic group. They believe in themselves, in their ideas, and in the future. We need more of them not fewer. But we need them to get out of the garage and start high growth employer firms.

September 06, 2011

Supply Chain Visibility

Supply chain visibility is a characteristic that most analysts believe will be increasingly important in the years ahead. They also admit it will be difficult to achieve. In an IBM study that involved conversations with nearly 400 supply chain executives worldwide ["The Smarter Supply Chain of the Future," IBM Institute for Business Value, October 2010], visibility was singled out as the top challenge facing supply chains of the future. In another IBM study ["New rules for a new decade," IBM Institute for Business Value, October 2010], Karen Butner asserts that visibility is one of the three "Vs" on which supply chain experts need to concentrate. The other "Vs" are volatility and value. Here's how she defines the three Vs:

"Volatility: Complex market conditions causing constant flux in demand.

"Visibility: Need for integrated, timely information to make rapid decisions.

"Value: Constant pressure for the supply chain and operations to create enterprise value."

Beyond that one-line description of visibility, Butner writes:

"As the number of supply chain partners increases, the need for accurate, time-sensitive information becomes more acute. But lack of collaboration and integration between supply chain and product development partners continues to be a major concern. Product lifecycle traceability in consumer products, pharmaceuticals and other industries is a growing requirement. Yet, despite continued technological enhancements, lack of visibility to worldwide, timely information to make in-stream decisions remains a significant issue. The bottom line is that the requirements for increased visibility require the dexterity to make fast decisions in response to constantly changing market conditions."

Butner's point is an important one -- exposure to an increased amount of data is only a good thing if it helps executives make better and faster decisions. To help executives determine whether they have the right amount of visibility in their system, Butner asks several questions. They are:

"• Do you have real-time visibility on key control point indicators, i.e., forecasts versus orders, schedules versus production capacity, inventory in transit, shipment status, etc.?

"• Do you have integrated performance management of all events with real-time dashboards, key performance indicators (KPI's), event alerts, and performance thresholds? Do you closely collaborate with your supply chain partners?

"• Is your performance measurement system centered on customer goal achievement? Is that aligned to global versus regional versus local strategies and tactics?"

To read more about Butner's report, see my post entitled IBM Recommends New Rules for Supply Chain Management. The folks at SupplyChainBrain assert, "Supply chain visibility is no longer just about having a ready answer when customers ask, 'Where is my stuff?'" ["Using Visibility to Target Supply Chain Inefficiencies," 15 August 2011] In an interview with the SupplyChainBrain staff, Steve Hensley, president of Blue Sky Technologies, claimed that the "where's my stuff" problem "has been conquered and companies now are using visibility solutions to identify hidden pockets of inefficiency in the supply chain." I'm not sure that many supply chain managers would agree that the problem has been "conquered." Certainly supply chains are better at following inventories than they have been in the past; but, perfection has not been achieved. For more on that topic, read my post entitled Supply Chain Opacity: Looking through a Glass Darkly. That caveat aside, Henley's point about how else supply chain visibility can be helpful is important. His specific point is that data can be used to ensure that every minute is used wisely and productively. The article continues:

"Identifying the loss of five minutes here and 10 minutes there can quickly add up to big savings when applied across thousands of employees, Hensley says. He notes that one of Blue Sky's clients improved productivity by 11 percent, while another reduced indirect labor costs by 20 percent 'just by looking in the cracks of the supply chain and identifying where things were not flowing as they should.' One example of efficiency gaps might involve a warehouse employee who is supposed to get his first assignments within five minutes of clocking in at 7 a.m., says Hensley. 'If this worker doesn't get his first assignment until 7:15 a.m., it is a violation, but previously there was no way to track of enforcing this. By marrying data between the clock-in system and the warehouse management system, companies can get smart about these types of events,' he says. Similarly, a 15-minute break in the middle of the day might turn into a 20- or 25-minute break. 'One client found 1,800 such infractions averaging 6.5 minutes each in the first week,' says Hensley. 'That doesn't sound like a lot until you start putting $38 per hour to it. All of a sudden, you are talking big money.' Blue Sky's technology is able to mine hundreds, thousands or millions of transactions to look for things that 'just don’t look right,' says Hensley. This could involve employees' use of time, product throughput, or someone cheating on a labor standard, he says."

Although no one really enjoys having big brother constantly looking over their shoulder, minor breaches of standards can accumulate into major challenges when supply chain efficiency and cost reduction remain high priorities for companies and consumers alike. Returning to a more traditional discussion of supply chain visibility, James LaTart appears to disagree with Hensley that most supply chain visibility challenges have been conquered. "For well over a decade," he writes, "we've talked about how supply chain visibility will help minimize the impact of disruptions, decrease order cycle times and risk, and improve service levels. Yet, after all these years, why are people still talking about supply chain visibility like it's in the future?" ["Invisible Visibility," Logistics Viewpoints, 2 August 2011] The obvious answer is that visibility challenges remain. LaTart infers that Hensley isn't alone in believing that visibility has been achieved. He writes:

"You may be thinking you've had visibility within the four walls of your DC for years via your warehouse management system (WMS). If you have multiple DCs running the same WMS, you probably have visibility across those as well. But if you have multiple warehouse management systems, often through acquisitions or decentralization strategies, or if you have smaller warehouses and storage facilities that are not automated, your visibility may be severely restricted."

LaTart would probably agree with Hensley that the challenges he points out would qualify as "hidden pockets of inefficiency in the supply chain"; but, these are pockets involved with the "where's my stuff" problem. LaTart, however, believes that trans-organizational visibility is far from being conquered. He writes:

"What happens when you go outside your organization to suppliers, co-packers, contract manufacturers, 3PLs, distributors and other partners? Chances are visibility across this environment is slim to none. Why is that exactly? It's not the technology — system-to-system data sharing has been around for decades. It's just that people don't want to share. We're afraid our partners won't keep our data secure, or that they might use it somehow to take advantage of us. But the fact is supply chain leaders have been exposing their data to partners for years through networks such as Walmart's Retail Link. The demand-driven, hyper-competitive global marketplace is forcing companies to collaborate to meet customers' heightened demands for lower costs and faster, more personalized service. Accomplishing it requires cooperation and collaboration between all members of the value chain, and that means sharing data."

I've been writing about transparency and trust since the earliest days of this blog. Those subjects affect all sorts of transactions not just not supply chain activities. For my latest post on this topic, see Globalization, Trust, and the Supply Chain. LaTart claims that the solution lies in the clouds. He continues:

"One solution is the much-hyped, under-utilized cloud, with a new class of collaboration applications that allow trading partners to share information about orders, inventory, and shipments over secure private networks, similar to how information has been shared internally for years, but with tighter control over security."

As I have noted before, my company, Enterra Solutions, believes that Attribute-Based Access Control is an excellent way to ensure that the right data gets to the right people at the right time while ensuring that other proprietary data is unavailable to prying eyes. LaTart continues by providing an example:

"A typical CPG company with multiple plants, suppliers, and co-packers is likely receiving raw materials from many suppliers for use in their plants, as well as for use by contract manufacturers that make some of their products. For traceability and potential recall purposes, they have to track these raw materials across their network, and the finished goods these materials went into. They also need to know when and from which suppliers and plants all the finished goods are coming from in order to plan customer order fulfillment. As you can see, gaining visibility to materials and goods across this network is a major challenge. Now let's move this scenario to the cloud. What if all of this CPG company's raw materials and finished goods suppliers, contract manufacturers, co-packers and other partners could easily enter inventory information through a private cloud portal hosted by the company or a third-party hosting service? Suddenly, all the information the CPG company needs for traceability and fulfillment is at their fingertips. Built-in tools would handle the translation and integration of transactions in various formats from the network partners so the IT stumbling block is removed. Other tools would allow the company to assign security and access to information based on partner and user roles. Tools might also provide capabilities for placing orders, arranging shipments and processing billing."

The fact that few such systems actually exist (though they do seem to be increasing) is why LaTart claims that today visibility is invisible. He concludes:

"With this type of collaborative cloud capability, visibility is no longer invisible. The CPG company has immediate visibility to all of the information it needs to compete more efficiently and effectively, as well as the traceability required for compliance or recalls. And suppliers become more efficient and better partners. Just think, maybe all of that talk about the benefits of supply chain visibility will finally come true!"

Matthew Menner, senior vice president of Transplace, claims that instead of providing the basis for confrontation, improved collaboration and information sharing results in "more constructive and improvement-oriented conversations." He says, "When the right information is gathered, and there is confidence in its accuracy, companies can use that data to analyze supply chain operations and present it internally and to partners as a basis for improvement." ["Attacking Transportation Challenges in the Retail Supply Chain," SupplyChainBrain, 27 June 2011] In other words, supply chain visibility may require trust but one of its resulting benefits is an increase in trust. Supply chain visibility can help reduce natural tensions and align stakeholder partnerships in more positive ways.

September 05, 2011

Labor Day 2011

I would have liked to have titled this post "Happy Labor Day"; but, with an unemployment rate hovering over 9 percent and few prospects of it diminishing in the near term, I decided "happy" probably wasn't a very good modifier for a day dedicated to labor. Happy or not, I hope you find a way to enjoy the holiday. The following history of the holiday is taken from U.S. Department of Labor site:

Labor Day: How it Came About; What it Means

Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.

Founder of Labor Day

More than 100 years after the first Labor Day observance, there is still some doubt as to who first proposed the holiday for workers. Some records show that Peter J. McGuire, general secretary of the Brotherhood of Carpenters and Joiners and a cofounder of the American Federation of Labor, was first in suggesting a day to honor those "who from rude nature have delved and carved all the grandeur we behold." But Peter McGuire's place in Labor Day history has not gone unchallenged. Many believe that Matthew Maguire, a machinist, not Peter McGuire, founded the holiday. Recent research seems to support the contention that Matthew Maguire, later the secretary of Local 344 of the International Association of Machinists in Paterson, N.J., proposed the holiday in 1882 while serving as secretary of the Central Labor Union in New York. What is clear is that the Central Labor Union adopted a Labor Day proposal and appointed a committee to plan a demonstration and picnic.

The First Labor Day

The first Labor Day holiday was celebrated on Tuesday, September 5, 1882, in New York City, in accordance with the plans of the Central Labor Union. The Central Labor Union held its second Labor Day holiday just a year later, on September 5, 1883. In 1884 the first Monday in September was selected as the holiday, as originally proposed, and the Central Labor Union urged similar organizations in other cities to follow the example of New York and celebrate a "workingmen's holiday" on that date. The idea spread with the growth of labor organizations, and in 1885 Labor Day was celebrated in many industrial centers of the country.

Labor Day Legislation

Through the years the nation gave increasing emphasis to Labor Day. The first governmental recognition came through municipal ordinances passed during 1885 and 1886. From them developed the movement to secure state legislation. The first state bill was introduced into the New York legislature, but the first to become law was passed by Oregon on February 21, 1887. During the year four more states — Colorado, Massachusetts, New Jersey, and New York — created the Labor Day holiday by legislative enactment. By the end of the decade Connecticut, Nebraska, and Pennsylvania had followed suit. By 1894, 23 other states had adopted the holiday in honor of workers, and on June 28 of that year, Congress passed an act making the first Monday in September of each year a legal holiday in the District of Columbia and the territories.

A Nationwide Holiday

The form that the observance and celebration of Labor Day should take were outlined in the first proposal of the holiday — a street parade to exhibit to the public "the strength and esprit de corps of the trade and labor organizations" of the community, followed by a festival for the recreation and amusement of the workers and their families. This became the pattern for the celebrations of Labor Day. Speeches by prominent men and women were introduced later, as more emphasis was placed upon the economic and civic significance of the holiday. Still later, by a resolution of the American Federation of Labor convention of 1909, the Sunday preceding Labor Day was adopted as Labor Sunday and dedicated to the spiritual and educational aspects of the labor movement. The character of the Labor Day celebration has undergone a change in recent years, especially in large industrial centers where mass displays and huge parades have proved a problem. This change, however, is more a shift in emphasis and medium of expression. Labor Day addresses by leading union officials, industrialists, educators, clerics and government officials are given wide coverage in newspapers, radio, and television.

The vital force of labor added materially to the highest standard of living and the greatest production the world has ever known and has brought us closer to the realization of our traditional ideals of economic and political democracy. It is appropriate, therefore, that the nation pay tribute on Labor Day to the creator of so much of the nation's strength, freedom, and leadership — the American worker.

Although I agree with those last sentiments, I believe the best way to pay tribute to the American worker is to provide him or her with a decent job. I believe that labor, management, and government leaders need to work together to foster the conditions that generate more jobs. Private sector job creation is critical for ensuring the health of the American economy. But jobs must come neither as gifts nor as part of a welfare program. Workers need to shoulder the responsibility of preparing themselves for the jobs that are available. In the coming days, the President and his Republican rivals are going to present their recommended programs for job creation. The philosophical foundations of those plans are likely to be very different; however, no good idea should be discarded or discredited because of basic ideological differences. Job creation is too important a matter for bipartisan bickering. The polls continue to show that the American public is tired of politicians putting partisanship and ideology ahead of principled leadership. Americans want what's best for America, not what's best for the Democratic or Republican parties. Neither party can stake claim to having all of the good ideas or programs. It would be refreshing if politicians would listen intently to one another looking for an idea they can work on together. Unfortunately, it's hard to listen if you never stop talking and it's hard to agree if you are only looking to be disagreeable. I hope this Labor Day provokes politicians to remember that unemployment saps the strength of individuals, of families, and of the nation itself. Let's hope next Labor Day can be a happier one.