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21 posts from October 2011

October 31, 2011

Five Things to Do and Five Things to Avoid when Managing Supply Chain Risk

The past couple of years have witnessed some unprecedented natural disasters that have created major disruptions to supply chains (e.g., volcanic eruptions, earthquakes, tsunamis, and flooding). The most recent disaster is flooding in Thailand that has closed manufacturing plants there. The disastrous events in Japan earlier this year probably received the most press and the supply chain disruptions that followed were intensively studied. Not too long after those events occurred, supply chain analyst Bob Ferrari wrote about reading an article published in the Financial Times ["Industry Left High and Dry," by Peter Marsh, 12 April 2011]. He penned:

"The article outlines the far-flung nature of today’s global supply chains by profiling an interview with David Cox, the head of operations for San Francisco based Blue Coat, a manufacturer of internet equipment with a worldwide supply network of more than 1000 companies. Beyond the specific incident of Japan, Mr. Cox asks a profound question, one that came to my mind, and was probably on the mind of many in our community. What if this type of tragedy actually occurred near China’s Guangdong province, the heart of manufacturing for many different high and low-tech industries? Beyond the far-reaching scope of the impacts to supply, how would individual companies be able to quickly respond to a disruption of that magnitude and scope? It is an interesting and timely question that perhaps has been posed in your own organization. If it has not, assure the best you can, that it is raised." ["Supply Chain Risk Has Much More Meaning and Lessons to be Learned," Supply Chain Matters, 20 April 2011]

In addition to recommending that companies take risk management seriously, Ferrari hoped that they had learned how important it is to have "access to timely information relative to the complete supply chain footprint, supply risk profiles, revenue vulnerability and alternative sources of supply." He asserts that such access "will become mandatory for globally stretched supply chains." Another lesson he hoped had been learned was "that procurement and finance can no longer [be] view[ed as] cost reduction targets without some linkage to operational risk and capability." His final observation was, "In the end, the loyalty of suppliers to long-standing customers may be the key differentiator to crisis mitigation. ... Supply chain risk and resiliency are unfortunately the new table stakes for today’s globally based supply chains, and skills and process competencies need to be directed at identifying and mitigating risk on a much timelier basis."

If your company is still wrestling with how to deal with risk management, Nathan Pieri, Senior Vice President of Marketing & Product Management at Management Dynamics, Inc., recommends "taking proactive measures [that] can ensure rapid and effective crisis management." ["Five Ways to Prepare for Global Supply Chain Disruptions," Supply Chain Digest, 14 April 2011] From the date of his article, you won't be surprised to learn that it was the events in Japan that triggered his thoughts. He begins:

"Even if you have an overall planning process in place with established long-term goals, short-term contingency plans tend to receive less considered thought. Rarely do they result in quick and decisive action when it is most needed. Below are some measures you can take proactively to limit risk exposure and enable rapid and effective crisis management."

As Pieri points out, the real value of contingency plans is in exercising them. No plan will get all of the details right, but by exercising the plan, participants are much better prepared to take "quick and decisive action when it is most needed." The first thing to do, of course, is develop a plan. Pieri writes:

"1. Develop a Plan -- Form a contingency team composed of key supply chain partners, (e.g., from the OEM, manufacture, logistics sides); and identify contingency scenarios:

  • Re-examine sourcing partnerships and identify alternatives
  • Model the impact of disruptions on your sourcing and inventory strategies
  • Identify a core contingency inventory strategy – in what form and quantity across the entire procurement, manufacturing, and distribution network – to be fine-tuned as the need arises
  • Develop a list of appropriate immediate and follow-up actions to achieve an optimal outcome for each contingency scenario, and, most important, appoint a point person to take charge of each contingency"

Obviously, simply appointing a person to take charge in case of a contingency is insufficient. That individual also needs some specialized training and learned skills that need to be tested under stress. Actually trying to implement "appropriate immediate and follow-on actions" may reveal that a little tweaking is in order. Pieri next turns the subject of visibility. He writes:

"2. Create Visibility -- It is essential that all networks linking trading partners support end-to-end visibility and that all network partners participate in contingency strategies. In this way you can monitor supplier performance in real-time and address any variances in your risk management system."

That may be a bit of wishful thinking. Real disasters almost invariably disrupt communications along with everything else. That means that "real-time" information is not likely to be available. Nevertheless, the end-to-end visibility that was available prior to a disaster should provide a foundation on which to build mitigating responses following the disaster. As soon as communications are restored, every effort needs to be made to achieve the kind of visibility that was available before the disaster. Pieri next turns to another oft-discussed characteristic of good supply chains -- flexibility. He writes:

"3. Build Flexibility -- An agile supply chain can help mitigate risks. Look at opportunities to alleviate current supply chain bottlenecks, model alternative transportation network configurations and look for alternative sources of supply."

In other words, Pieri seems to be recommending that your company engage in some "what if" exercises. To learn more about why such exercises are important, read my posts entitled Modeling "What If" Scenarios and Examining the "What Ifs" in Life. Pieri next discusses decisive response.

"4. Respond Decisively -- Proactively link contingency plans and business objectives; and assure that point people have previously obtained corporate authority and buy-in for the rapid execution of your strategy."

It's Leadership 101 that you shouldn't give someone a significant responsibility if he or she isn't also given the authority to execute those responsibilities. In a contingency situation, the last things you need are turf fights or confusion. Pieri's final recommendation is to follow up.

"5. Continuously Improve the Plan -- Continuously update the plan against long-term business objectives as well as changing market conditions, supply constraints, changing demand patterns, and other country-risk scenarios."

If you never exercise the plan, I can guarantee that you won't "continuously update the plan." I would have probably stated that the plan should be routinely updated rather than continuously; but, that's really just a matter of semantics. Your company can't be obsessed with risk management but it must be actively involved in it. Bindiya Vakil, President & CEO, Resilinc and Hannah Kain, President & CEO, ALOM, assert that, in addition to things that you should do, there are mistakes that should be avoided when trying to manage supply chain risk. ["Five Mistakes Companies Make When Trying to Effectively Manage Supply Chain Risk," SupplyChainBrain, 25 July 2011] They write:

"Supply chain resiliency is the ability of a company to recover from a disruption, as determined by the time and cost of recovery. It is a function of everyday decisions such as which suppliers the company sources from, how the volume is split between sources, where manufacturing facilities are located, how much inventory and second sourcing has been put in place, etc. Yet, there are many factors eroding the resiliency of today's supply chains. Over the last 15 years companies have adopted lean and just-in-time practices as well as build-to-order type capabilities in a big way. This means that global supply chains are overly optimized to operational parameters such as lead times, and often have low levels of buffers that would help to withstand disruptions. In addition, business metrics focus heavily on cost reduction and inventory turns – short-term incentives tied to these metrics further result in decisions at every level, which further erodes resiliency in the supply chain."

I have noted on a number of previous occasions that supply chains can be too lean. Lean supply chains are brittle. Yet almost every supply chain analyst, like Pieri, talks about the importance of supply chain flexibility. Vakil and Kain assert, "A growing focus on cost, inventory reduction and lean in the backdrop of a globally dispersed and multi-tiered supply chain has resulted in small disruptions causing a big impact." In their mind that is one of the mistakes that companies make. They continue:

"Traditional supply chain management practices leave vast gaps in resiliency because supply chain risk management is fundamentally different from everyday operations management. When companies fail to recognize and appreciate these differences, they fail to manage risk effectively."

They go on to outline "five mistakes commonly made in managing supply chain risk and ways in which companies can improve the resiliency of their supply chain." You won't be surprised to learn that there is some overlap between their recommendations and Pieri's. Their first mistake involves impact.

"1. Quantifying Everything by Spend and Not by Impact -- Supply chain functions are typically prioritized by spend. When asked to name critical suppliers or parts, most supply chain professionals will identify the top 20 percent of parts or suppliers that constitute 80 percent of the total spend. ... Over the past 15 years, the global dynamics have changed. With the ease and cost to set up offshore operations and outsource parts of the supply chain to subcontractors, companies now have multi-layered supply chains spread across the globe. Often, disruptions occur in the long tail – the 80 percent of suppliers representing 20 percent of the spend – especially if the low-spend category relies mostly on single-sourced or custom material."

As you can imagine, this is a non-trivial mistake. When I've done risk assessments for large organizations, I've always started by helping them identify their critical assets and processes. Based on their above comments, Vakil and Kain wouldn't be surprised to learn that executives often don't really know which of their assets and processes are most critical for organization survival. As Vakil and Kain point out, "In order to ship a product, every single part needs to be present – this is the fundamental challenge for supply chain practitioners." Obviously, the missing part always has the greatest impact. I'll have more to say about this particular point in a future post. The second mistake is not having enough supply chain visibility.

"2. Not Getting to the Root Cause of the Problem – Visibility -- The fundamental challenge with risk management today is the lack of visibility across global supply chain dependencies. The answer to 'what is my true supply chain?' is incomplete at best. There is often no visibility into where parts come from or who is building them. Are dual-sourced parts truly dual-sourced or are there single-sourced dependencies one or two levels up the supply chain?"

It's impossible to read an article that discusses the characteristics of a good supply chain without somewhere in that article reading about supply chain visibility. One of the reasons that my company's products have been so well received is that they are focused on increasing supply chain visibility. So in my opinion, you just can't talk enough about this subject! Vakil and Kain admit, "While there is widespread acknowledgment of the problem, very few have done what is needed to gain visibility and enable control." The next mistake companies make, Vakil and Kain claim, is not taking the long view.

"3. Consistently Putting Risk Management Under Immediate, Short-Term Priorities -- The world of supply chain management is highly dynamic. Organizations must constantly address operational challenges such as shortages, demand increases, excess, supplier issues, delivery delays and quality problems, while often being under intense budget constraints. As a result, organizations often must flit from one issue to another; always reacting or scrambling to address problems. Key decision makers lack the time to step back and assess the supply chain proactively or take efforts to gain greater visibility and control."

I read an article recently that talked about how quickly many large companies are burning through CEOs. Executives are aware of this trend and, in order to keep their jobs, it is no wonder that they focus on short-term wins. As Vakil and Kain note, "Rewards and incentives are also tied to achieving short-term goals." Unfortunately, ignoring the long view is never in the best interests of a company. Their next mistake involves accountability.

"4. No One Person is Accountable for Risk Management -- A 2008 Procurement Strategy Council report indicated that the vast majority of CEOs hold the Chief Procurement Officer (CPO) accountable for response to supply chain disruptions. However, it is not at all clear who the CPO holds accountable in his/her organization. Most companies do not have this responsibility assigned to a person or group within the supply chain or procurement organization – i.e., someone who can take leadership at an operational level. This means, when there is a crisis, there is a large amount of confusion and lack of coordination as extraordinary response actions fall outside the normal scope of activities."

There is an old adage that goes: "When everyone is responsible, no one is responsible." That is certainly true when it comes to risk management. As Vakil and Kain put it, "Every crisis needs a leader for effective response coordination and recovery." That leader, they say, needs to be strong, "appointed in advance, [and be] trained and equipped with information." He or she also needs to be given "tools and a solid crisis response infrastructure." To describe their final mistake, Vakil and Kain use a sports metaphor.

"5. Subconsciously Endorsing the Diving Catch Approach -- A crisis, even a small one with low to no impact, is an opportunity to learn and take proactive steps for risk management. However, this critical point is not sufficiently appreciated. Often we think we got lucky when we are not impacted or are able to recover quickly. A crisis war room is also perceived to be the place where employees get exposure to top executives, only adding to the resistance to dedicate resources to proactive risk management. ... While necessary in extraordinary times, this type of 'diving catch' approach for every situation has a dramatic impact on profitability."

Like Pieri, Vakil and Kain recommend that companies take time to learn lessons and revise plans. They conclude:

"Supply chain risk management has to be thought of as a strategic investment and viewed in the context of long-term gains. To be effective, it needs a fundamentally different approach from traditional supply chain management. As long as these differences go under-appreciated, companies will not focus efforts where they are truly required, nor will they solve the visibility-related issues that are at the root cause of the problem. In the end, companies are not empowering or encouraging people to make resilient choices proactively, which means they will be in a reactive mode in every disruption – scrambling to catch up."

In a post that included a discussion about Munich Re, a reinsurer, I noted that the company's analysts report that, as a result of climate change, they are seeing an increasing number of more intense natural disasters. That means that companies with extended supply chains can no longer put risk management on the back burner. In fact, Vakil and Kain believe that "supply chain risk management is on the fast track to become a corporate governance issue requiring the attention of not only the CPO but also the CEO and eventually the board."

October 28, 2011

Innovation Hubs and Regional Innovation Clusters

Last fall, New York Times' columnist Thomas Friedman found himself in a conversation with Kishore Mahbubani, the dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore. At one point, the conversation turned to the subject of innovation hubs. Singapore has spent around a billion dollars to make itself a biomedical science hub. As a result, that small country has attracted some of the world's best researchers in the field. Friedman told Mahbubani that President Obama had recommended that the U.S. establish "eight innovation hubs to solve the eight biggest energy problems in the world." Friedman calls this "the most exciting, moon-shot-quality, high-aspiration initiative proposed by President Obama that no one has heard of." ["Build 'Em and They'll Come," New York Times, 12 October 2010] The proposal calls for an investment of $25 million in each hub; but, at the time Friedman wrote, "Congress, concerned about every dime we spend these days, is reluctant to appropriate the full $25 million for each center, let alone for all eight at once, so only three are moving ahead." Mahbubani couldn't believe that Friedman was correct about his numbers. He insisted that Friedman must have meant billions rather than millions. Friedman assured him that his numbers were correct. Friedman continued:

"This may seem like a little issue, but it is not. Nations thrive or languish usually not because of one big bad decision, but because of thousands of small bad ones — decisions where priorities get lost and resources misallocated so that the nation's full potential can't be nurtured and it ends up being less than the sum of its parts. That is my worry for America."

I agree with Friedman that the implementation of great ideas has gone missing in efforts to help the U.S. recover from the Great Recession. Nothing has been built that leaves the country better off coming out of the recession than going into it. Friedman continued:

"But none of this is inevitable. So let's start with the good news: a shout-out for Obama's energy, science and technology team for thinking big. Soon after taking office, they proposed what Energy Secretary Steven Chu calls 'a series of mini-Manhattan projects.' In the fiscal year 2010 budget, the Department of Energy requested financing for 'Energy Innovation Hubs' in eight areas: smart grid, solar electricity, carbon capture and storage, extreme materials, batteries and energy storage, energy efficient buildings, nuclear energy, and fuels from sunlight. In each area, universities, national labs and private industry were invited to put together teams of their best scientists and research ideas to win $25 million a year for five years, to, as Chu put it, 'accelerate the normal progress of science and technology for energy research' and thereby 'discover and commercialize the energy breakthroughs we need' and thereby spawn new jobs and industries."

Instead, taxpayer money went towards saving failing businesses and buying troubled assets. Perhaps the biggest black eye for the government in all of this was the failure of Solyndra, a California solar company backed by 500 million dollars in loan guarantees. Last month the company shut its doors and laid off its 1,100 employees. Surely that money would have been better spent creating innovation hubs. Governments have a terrible track record when it comes to betting on businesses and technologies. Those kinds of bets should be left to the private sector. Governments have a much better track record when it comes to supporting basic research and then leaving commercial development to the private sector. The failure of Solyndra will probably prove to be a fatal blow to the Obama administration's efforts to advance green technologies. According to Friedman, the three "hubs" that are likely to get some funding (but certainly not all that was recommended) are "Penn State and two national labs." Friedman continued:

"In my view, Congress should be funding all eight right now for five years — $1 billion — so that we not only get graduate students, knowing the research money is there, flocking to these new energy fields but we get the benefit of all these scientists collaborating and cross-fertilizing. Chu, who holds a Nobel Prize in physics, says he understands and respects that Congress has to make tough budgeting choices today, so I cannot get him to utter one word of criticism about our lawmakers' spending priorities. But he waxes eloquent about what it would mean for American innovation if we could actually fully pay for this focused moon shot on energy. The idea behind the hubs, explained Chu, is to 'capture the same spirit' that produced radar and the first nuclear bomb. That is, 'get Nobel Prize winners in physics working side by side with engineers' — not to produce an academic paper but 'to solve a problem in a way that will actually be deployed' and do it much faster than the traditional academic model of everyone working in their own silo. 'We don't want incremental improvements,' said Chu. 'We want real leaps — game-changing' breakthroughs — like a 75 percent reduction in energy used in a commercial building through affordable design and software improvements. 'America has shown we can do this,' concluded Chu. 'The scientists and engineers see the problem; they see the opportunity; they see what is at stake, and they want to help.' That is why we should fully fund all eight now."

I think that another reason that these hubs should be funded is that the current crop of politicians are denying rising generations even a glimmer of hope. Their general lack of vision provides few reasons for young people to get excited about the future and little hope that their lives will be better than their parents. The hubs could give hope a shot in the arm. Friedman concluded:

"All of this reminds me of my favorite business quote from a consultant who had worked for the German technology giant, Siemens. He said: 'If Siemens only knew what Siemens knows, it would be a rich company.' Ditto America. We still have all the right stuff. The president's instinct to push out the boundaries of energy science is spot on, but Congress has to think big, too, and help unlock and scale everything that America knows. Please, please: Stop lavishing money on repaving old roads and pinching pennies when it comes to pioneering new frontiers."

With some exceptions, hubs have proven to be a good way to create jobs as well as advance research and promote innovation (see my post entitled The Birth and Death of Industry Hubs). But you just can't create hub anywhere and expect it to succeed. As I noted in the post I just mentioned, 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 last I heard the site sits vacant. Like any geographically-based enterprise, location is everything. Currently, "U.S. innovation is most[ly] concentrated on the coasts, with the highest density on the West Coast, according to urban theorist Richard Florida." ["U.S. Innovation Clustered on Coasts," by Conor Dougherty, Wall Street Journal, 22 September 2010] Regardless of the occasional hiccup and Congress' inaction, some policymakers are starting to get on board with the idea of "regional innovation clusters" (RICs), which could be centered around innovation hubs -- although that is not a necessary condition. A Brookings Institution report states:

"After a decade of delay, the executive branch and Congress have joined state and local policymakers in embracing 'regional innovation clusters' (RICs) as a framework for structuring the nation's economic development activities. At the state level, governors and gubernatorial candidates of both parties are maintaining or stepping up their longstanding interest. And additionally, a broad range of business leaders, mainstream commentators, and policy analysts have been calling in the wake of the recent recession for a different kind of growth model that depends less on bubbles and consumption and more on the production of lasting value in metropolitan economies and the super-productive clusters within them. All of which, at a moment of deep economic uncertainty, makes it appropriate to revisit the cluster paradigm and consider its special relevance at a moment of deep economic uncertainty, fiscal crisis, partisan gridlock, and necessary governance reform." ["The New 'Cluster Moment': How Regional Innovation Clusters can Foster the Next Economy," by Mark Muro and Bruce Katz, Brookings Institution, September 2010]

In this era of extreme partisanship, Muro and Katz ask, "What explains clusters' renewed popularity?" They continue:

"To be sure, some of the concept's new and bipartisan relevance owes to its sound non-partisan concern with the mechanics of value-creation in local economies, whether metropolitan or rural, high-tech or manufacturing. And it's true that as a matter of policy action clusters—ranging from the famous Silicon Valley technology cluster to the Vermont cheesemaking cluster—are all about synergies and efficiencies, and don't tend to cost too much. But what is most timely beyond all that may be the possibility that the new prominence of regional innovation clusters reflects something deeper: a positive interest in locating a more grounded, realistic way to think about the economy and development efforts so as to put both on a more productive footing. In this setting, the new cluster discussions redirect attention, analysis, and policymaking to the more grounded, day-to-day interactions by which real companies in real places complete transactions, share technologies, develop innovations, start new businesses—and yes, create jobs and locate workers. To that extent, clusters—whether of airplane manufacturing in Wichita or cleantech in Colorado or biomedical innovation in Cleveland—represent an antidote to the nation's recent economic history of bubbles and consumption and also a framework for recognizing and bolstering the real-world variety and dynamism of regional economies. Hot spots of productivity and collaboration as well as competition, clusters are the locations most likely to deliver a new economy that is export-oriented, lower carbon, innovation-driven and so opportunity and prosperity rich."

I like the fact that Muro and Katz refer to regional innovation clusters as "an antidote." Antidotes are used to counteract the effects of poison. In this case, the antidote is for both Washington's partisan poison and Wall Street's poison of greed. Muro and Katz conclude:

"Cluster thinking and cluster strategies have the potential to accelerate regional economic growth and assist with the nation's needed economic restructuring, but they are more a paradigm than a single program. In that sense, the opportunities that a cluster policy framework provides for delivering impact, clarifying economic priorities, and coordinating disparate programmatic efforts will only grow more important in the coming era of intensified competitive pressures and tightened resources."

Muro's and Katz' study is filled with policy recommendations for all levels of government. For anyone interested in the subject, it's a "must read" document. In order for economies to grow, a degree of hope in the future must be generated. That hope has been glaringly absent for the past decade. Luke Johnson recently wrote:

"The US has named its current twenty-something cohort 'Generation Limbo': a highly educated group whose lives have stalled because the jobs they expected when they graduated are not there. Their plans for high-flying careers have been postponed or cancelled. ... If someone aged 25 loses hope, they will not invest in a career, a home or a family – let alone a business. And if whole generations take that attitude, it becomes a form of collective suicide. Leaders in ... the US must raise the spirits of twenty-somethings, and break down obstacles in areas such as housing and business start-ups. Such initiatives will boost morale, and might counter a national mood of slow-motion self-destruction: anything less would be a tragedy." ["A national epidemic that hurts the young," Financial Times, 13 September 2011]

Innovation hubs and regional innovation clusters don't hold all of the answers for making the economic future of America brighter; but, they are forward looking and inspiring. RICs are particularly exciting since they are primarily driven by the private sector and, as a result, have shown they can draw bipartisan support -- and that, in and of itself, is a hopeful sign.

October 27, 2011

The Big Data Dialogues, Part 5: Algorithms

In the prologue to the book entitled Algorithms, Professor Sanjoy Dasgupta, from the University of California - San Diego, and Professors Christos Papadimitriou and Umesh Vazirani, from the University of California at Berkeley, write:

"Look around you. Computers and networks are everywhere, enabling an intricate web of complex human activities: education, commerce, entertainment, research, manufacturing, health management, human communication, even war. Of the two main technological underpinnings of this amazing proliferation, one is obvious: the breathtaking pace with which advances in microelectronics and chip design have been bringing us faster and faster hardware. ... The other intellectual enterprise that is crucially fueling the computer revolution [is] efficient algorithms."

You simply can't talk about "big data" without talking about algorithms. The good professors insist that the invention of algorithms did even more to advance humankind than the invention of the printing press. They continue:

"The decimal system, invented in India around AD 600, was a revolution in quantitative reasoning: using only 10 symbols, even very large numbers could be written down compactly, and arithmetic could be done efficiently on them by following elementary steps. Nonetheless these ideas took a long time to spread, hindered by traditional barriers of language, distance, and ignorance. The most influential medium of transmission turned out to be a textbook, written in Arabic in the ninth century by a man who lived in Baghdad. Al Khwarizmi laid out the basic methods for adding, multiplying, and dividing numbers even extracting square roots and calculating digits of [pi]. These procedures were precise, unambiguous, mechanical, efficient, correct -- in short, they were algorithms, a term coined to honor the wise man after the decimal system was finally adopted in Europe, many centuries later."

Until now, you might have thought that algorithms were named after the former Vice President, Al Gore, instead of a Muslim mathematician named Al Khwarizmi! (Just kidding of course.) In addition to paying homage to anonymous Indian mathematicians and Al Khwarizmi, Dasgupta, Papadimitriou, and Vazirani, pay tribute to one additional genius, Leonardo Fibonacci. They write:

"Al Khwarizmi's work could not have gained a foothold in the West were it not for the efforts of one man: the 15th century Italian mathematician Leonardo Fibonacci, who saw the potential of the positional system and worked hard to develop it further and propagandize it. But today Fibonacci is most widely known for his famous sequence of numbers 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, ... , each the sum of its two immediate predecessors. ... No other sequence of numbers has been studied as extensively, or applied to more fields: biology, demography, art, architecture, music, to name just a few. And, together with the powers of 2, it is computer science's favorite sequence."

If you want to get into the math behind Fibonacci's sequence or learn more about algorithms, go the Khan Academy and do a search on the subject about which you're interested. You'll be able to watch a short, easy to understand video on that subject. To learn more about the Khan Academy, read my post entitled Teaching Problem Solving Skills in Math and Science, Part 2. If you really want to immerse yourself in algorithms, buy the book written by Professors Dasgupta, Papadimitriou, and Vazirani.

The point of this historical discussion is that algorithms are becoming increasingly important in our lives as we get deeper into the information age. Why? The simple answer is because the human mind can't rapidly deal with the oceans of data being generated every second of every day. Algorithms are being used to help us make sense of this data. Algorithms sound mysterious and complicated (and they certainly can be complicated); but, the simple definition of an algorithm is: A set of steps used to solve a mathematical computation. Seth Freeman, a writer for television, reminds us, "Algorithms, as you probably know, are the computer programs that infer from your profile (in the case of Facebook) and from the content of your e-mails (in the case of Gmail) your interests and preferences, enabling ads to be displayed to the customers most likely to be interested in specific products. This feature is prized by advertisers and accounts for the multibillion-dollar value of the most successful Web networks." ["Me and My Algorithm," New York Times, 17 January 2011]

If you know anything at all about big data, you know that companies like Google and Facebook generate billions and billions and billions of bytes of data. Data that, in order to be useful, needs to be analyzed. Sometimes this "analysis" can prove humorous. Freeman continues:

"The algorithms are programmed, I believe, to get to know us better over time, and rather than resent the invasion of privacy I have come to feel a grudging respect for, and even a growing sense of intimacy with, my own personal algorithm. You have to admire, for example, the inventive audacity of a program that would read an e-mail someone sent me about 'Holocaust deniers' and think that I might be shopping for a Holistic Dentist. And when I conceded in an e-mail that something 'was cheeky of me ...' I found it rather endearing that the algorithm tried to sell me a New Razor from Gillette®. I had a similar reaction when a reference to the fine actor Christopher Plummer produced: Get a Plumbing Quote Now. Find a local Plumber. Of course, these slightly off-base pitches have a certain logic that is easy to discern, revealing, more than anything else, the program's digital dyslexia."

What we, as individuals, might find amusing, companies trying to improve their bottom lines find annoying. They pay good money to get the best analytics possible and quirky nuances of language can throw a wrench into such analysis. That is one reason that Enterra Solutions uses an ontology that understands linguistic nuances and can establish proper relations when sorting through mountains of data. The fact of the matter is, however, that the occasional glitch is likely to arise anytime you are dealing with unstructured data.

Simon Dell, director of TwoCents Group, an Australian marketing, advertising and branding company, believes that as a result of increased use of algorithms, "We're in danger of losing the spontaneity in our lives. Well, at least our digital lives." ["Algorithms want to rule the world," posted by Peter Roper, Marketing Magazine, 10 October 2011] Dell explains:

"Google was built on the back of 'I'm feeling lucky', but now we're slaves to what our social networks and our search engines want to tell us we should be looking at and who we should be connected to. We're gradually collapsing in on ourselves on the premise that someone somewhere is trying to save us time. ... Facebook decided to roll out some significant changes, including a removal of our option to switch between all stories and top news. Instead, our news feed has been decided for us, based on a complex algorithm and delivered to us as 'top stories'. The tool that originally allowed us to filter meaningless news out of lives, and allow us to choose who and what we followed, has now come full circle and is choosing for us. And there's no off button."

Dell is not alone in his concern about how algorithms are trying to "rule the world." If you have about 15 minutes to spare, I recommending watching the presentation that Kevin Slavin delivered at TEDGlobal earlier this year. The TED site states:

"Kevin Slavin argues that we're living in a world designed for -- and increasingly controlled by -- algorithms. In this riveting talk from TEDGlobal, he shows how these complex computer programs determine: espionage tactics, stock prices, movie scripts, and architecture. And he warns that we are writing code we can't understand, with implications we can't control."

Returning to Simon Dell's article, he argues that there is "a shadowy figure that now stands over us: the once-innocent algorithm." He continues:

"Google have been developing algorithms for years – it's the basis for their entire business model – but as Eli Pariser revealed in his TED talk, those algorithms now deliver different search results based on who is doing the search. No longer did we all get the same search feed, but our location, age, sex and previous searching and browsing habits combine to deliver a result tailored just for us. ... Many of you might shrug your shoulders and ask, 'So what?' It’s only Facebook and Google, and they're not the be all and end all of marketing. Well, the use of algorithms to communicate to us will eventually evolve to other platforms. Let's think about how we anticipate the future will evolve. Digital billboards that can detect who is walking past them. Cars that log us into our iTunes accounts when we start them up. Smartphone apps integrated with artificial intelligence programs anticipating us being late for meetings."

Eli Pariser's TED video takes less than 10 minutes to watch. His point is that algorithms can be used to filter, isolate, and present information in ways we may not like but have no control over. Dell, a marketer, is concerned that algorithms can be used in a very intrusive way to manipulate our lives. Some people seem happy about all this tailoring and even willingly offer up their habits to share with others. Others, of course, are concerned over privacy issues, ethical issues, and control issues.

For manufacturers and retailers, however, data has always been important. They want to filter data to get the information they need to make smart business decisions. Obviously, algorithms play an essential role. As I've pointed out in previous posts, there are still a number of companies that do most of their data-crunching on Microsoft Excel spreadsheets. Although Excel is a great program, it was never intended to crunch big data -- and that's a problem for large companies. It also explains why algorithms play an increasingly important role in supply chain management. Companies, like individuals, need to know what the algorithms employed in their behalf are doing. If they don't, they might find themselves suffering consequences like those described in Slavin's talk.

As CEO of a company that relies on algorithms to serve its clients, I'm obviously a big proponent of their use. The upside of using algorithms far outweighs any downside. Like any technology, however, computer embedded algorithms need to be understood and refined to deliver desired results. If the analysts and academics cited above are to be believed, we will soon leave the age of information and enter the age of algorithms.

October 26, 2011

Supply Chain Sustainability Takes Root

Steve Hall, Deputy Editor of Procurement Leaders, asks an interesting question in a blog entitled "Sustainability: When is it your problem? ["Procurement Blog, 21 January 2011] What inspired him to write his post was a talk given by Professor Richard Lamming, who explained to a roomful of Chief Procurement Officers "that the time to answer [this question] is much closer than it might seem." Hall explains:

"Sustainability is often, as you'd expect, about emotive language and rhetoric. Lamming's path was to present some very challenging ideas – for example, suggesting we are collectively using the resources of around 1½ planet earths – but then framing it with 'do you care? Maybe, maybe not'. He has a point. There are very convincing arguments as to why sustainability can save money and drive revenue, but that has its limits and certainly some industries find they simply don't apply. So from a business point of view maybe they didn't care."

As I've previously argued, the only sustainability initiatives that are going to have legs are those for which a business case can be made. Hall goes on to report that "Lamming presented plenty of reasons why even [those who don't care now] might reconsider." He continues:

"[Lamming] referenced research by Chemistry Innovation KTN, which looked at the availability of elements over the next 20, 50, 100 years. For some the threat is immediate, for others, a long term scarcity of supply of basic elements is a real danger. [Particularly eye-catching was] one slide in particular with big red crosses through elements in the periodic table that were likely or predicted to be disappearing. As one CPO asked after: 'My organisation needs a lot of these materials, and if they’re disappearing what can I do about that?' No-one, for me, had a convincing answer. But what struck me more was the earnestness of the question. This is was a CPO of a major technology company and he wanted to know what he or his team should be doing to combat a threat that was, quite possibly, many years away. Perhaps that was enough to prove Lamming’s original point about where this horizon is, over which these sustainability problems were going to start being CPO's problems. For some it's just about here."

CPOs, of course, view sustainability from the perspective of diminishing resources. But there are other C-level perspectives that are also at play. Robert J. Bowman, Managing Editor of SupplyChainBrain, reports, "A growing number of shareholders are pressuring companies to take action on a slew of social and environmental issues. And management is starting to listen." ["Environmentalists, Human-Rights Activists Take Aim at Global Supply Chains," 29 August 2011]. He goes on to detail a number of statistics about the rising number of shareholder petitions that are being introduced at annual meetings which are aimed at pressuring companies into becoming more sustainable. He concludes:

"Regardless of the issue at hand, all of the proposals were in some way related to the makeup of companies' supply chains. A common theme among activists today is a lack of transparency – that companies are not revealing 'where their supply chains go, and where the goods they ultimately sell come from,' says Amanda Kloer, senior organization with Change.org. Kloer's group specializes in generating online petitions for social change. It's pressuring companies on a number of fronts related to human rights – again, a major issue for multinationals with complex supply chains. ... For any company concerned about its image – and, not incidentally, the welfare of workers all over the world – it pays to be proactive when it comes to human rights. As Kloer puts it: 'Most companies don't just want to be perceived as ethical. They actually want to be ethical.' The best way to make that happen is to be intensely aware of what's going on at every stage of your supply chain. Even before shareholders stand up and start making noise."

Kloer may be giving companies too much credit. Historically companies seem only to worry about ethical practices when disregarding them affects the bottom line. That is why many activists look for ways negative ways to impact profits. According to Duane Stanford, CEOs are starting to listen -- not because they want good PR, but because sustainability initiatives are saving them money. "Long a cause célèbre of the eco crowd," he writes, "sustainable business practices are yielding big savings at companies like PepsiCo and Wal-Mart." ["Why Sustainability Is Winning Over CEOs," Bloomberg BusinessWeek, 31 March 2011] Stanford continues:

"At many companies, being socially responsible has typically meant handing out checks to victims of natural disasters, environmental groups, or producers of green TV commercials. Now the corporate sustainability movement has a simple premise: Saving the planet can save big bucks. Executives are trying to realize meaningful cost savings by coming up with innovative ways to go easier on the environment."

Stanford again underscores the point that it is the business case that wins not ethical argument. He notes that commodity volatility -- the boogeyman for procurement professionals -- is one reason that practices that reduce waste have become so important. He continues:

"How fully companies adopt sustainability efforts in this decade could have a real impact on their shareholder value, says Daniel C. Esty, an environmental policy professor at Yale Law School. Esty thinks sustainability will become as transformative for business as the earlier quality and information technology revolutions, once more top executives recognize the huge potential to trim costs. Sustainability has emerged as a factor in determining which companies win in the marketplace, and smart CEOs are investing in a more rigorous approach to the environment,' says Esty, on leave from Yale to run Connecticut's Environmental Protection Dept., which will have additional energy responsibilities pending approval from the legislature. 'A good number of companies begin to see the upside opportunity. The very best companies see the brand and corporate identity opportunity.' Wal-Mart Stores is far ahead of Target and Sears Holdings when it comes to realizing savings by working with retailers to reduce packaging. That translates into lower freight and warehouse costs. Wal-Mart's Seiyu chain in Japan in 2009 converted packages for its private-label fresh-cut fruit and salads from oil-based to corn-based plastic. That cut the packaging's weight by 25 percent and its cost by 13 percent, saving more than $195,000 a year."

Seiyu's actions, while laudable from a packaging standpoint, probably raised the hackles of other activists by using a food crop to produce plastic. It's a tough world out there. Stanford goes on to provide other examples of companies that have helped the bottom line by implementing sustainability initiatives. PepsiCo is one such example. He reports, "At PepsiCo, Chief Executive Officer Indra K. Nooyi has pushed a strategy she calls Performance with Purpose, which links green efforts in all businesses to the bottom line." Stanford concludes his article by detailing many of PepsiCo's initiatives.

Ed Crooks reports that not every company is adopting sustainability initiatives voluntarily. Some companies, he asserts, are succumbing to outside pressure. The kind of pressure described above by Bowman. ["US companies yield to environmental push," Financial Times, 7 March 2011] He reports:

"Twenty US companies have agreed to take more account of environmental issues, such as water use and greenhouse gas emissions, as a result of investor resolutions, in a sign of increased pressure on industries such as power generation and oil and gas production. This year’s round of proxy voting at US companies’ annual meetings saw 96 environmental resolutions filed by shareholders, according to Ceres, the Boston-based network of investors and environmental groups."

Being forced by your shareholders to become more sustainable can't be good for a company's image. "Of those resolutions – which included calls for actions such as investigating the threat of the loss of water supplies or aligning executive pay to environmental performance," Crooks reports, "20 have now been withdrawn because the companies satisfied the investors' demands." He continues:

"The pressure from shareholders for companies to meet environmental objectives comes as regulations proposed by the US Environmental Protection Agency are being challenged by Republicans and some Democrats in Congress. More than 30 investors, including state pension funds from California, New York and Connecticut; Calvert, a sustainable investment company; and religious groups such as the Adrian Dominican Sisters, have filed environmental resolutions."

Not all shareholders concerns deal with the impact that companies have on the environment. Some concerns have to do with the effect that the environment will have on the company. Crooks explains:

"One of the resolutions that has been withdrawn called on the board of Southern Company, the large Atlanta-based power group, to publish a report on the threat that water shortages might pose to its operations and set out how it planned to mitigate those risks. Brooke Barton of Ceres said investors had become increasingly aware of the costs of forced shutdowns or expensive modifications to enable plants to keep running. 'The rivers are getting hotter, and they are getting hotter at the worst time of year, when power systems are strained because of the demand for air conditioning,' she said. Southern has promised to deliver its report by November."

You would have thought that Southern Company's executives would have been doing that kind of "what if" scenario planning themselves without having to be prompted by shareholders. According to Crooks, Southern's shareholders are not alone. He explains:

"Investor interest in climate risk was demonstrated recently by a report from Mercer, the consultancy, on the implications for long-term investment strategy. The report was supported by 16 large investors including state pension funds from California and Maryland, the British Telecom Pension Scheme, and AustralianSuper, a multi-industry retirement fund. Kevin Parker, global head of Deutsche Asset Management, described the Mercer report as a 'watershed event' in shareholders' views of the threat of climate change. He said: 'The nature of the risks that these investors are considering is inherently long-term. And they get it. They understand that climate change is a quantifiable, long-term risk that is extremely germane to their asset values.'"

The answer to the question posed by Steve Hall at the beginning of this post -- when does sustainability become your problem? -- is: Yesterday, if not years ago. Does that mean that your company needs to scour the horizon looking for green initiatives to implement? No. It means that you need to start thinking about how commodity shortages, climate change, shareholder pressure, government regulations, environmental groups, and other factors could affect your bottom line. Whenever you find something that could be substantially (and adversely) affect your company's future, that is where you should look to initiate sustainability programs. It is in those reas where the business case can be made and the initiatives will have lasting impact.

October 25, 2011

Supply Chain Performance

Companies are forever trying to come up with clever names to support the solutions they are pushing. I admit that we're no different at Enterra Solutions. Product names and catchy slogans can help differentiate your company from the competition. There are some names, however, that are so well-established that trying to change them makes little sense. For example, supply chain analyst Lora Cecere feels that way about efforts to change the name of Sales and Operations Planning (S&OP). To find out why, read her post entitled "S&OP: Letter Perfect." [Supply Chain Shaman, 7 June 2010] In a recent article, Sue Gillman, Partner and Co-owner of Aveus, adds to the confusion by referring to organizational structures as "performance chains" then tries to differentiate them from "supply chains." ["Supply Chains vs. Performance Chains," SupplyChainBrain, 6 October 2011] She's not the first. Others have used terms like "value chains" instead of "performance chains." She writes:

"A lot of people toss around the phrase 'supply chain.' Sometimes quite loosely. While the supply chain is certainly a key aspect of many businesses, too often companies spend an inordinate amount of time and resources on that one piece of the puzzle. What too many leaders fail to capitalize on is that the supply chain is just one piece of a much larger chain: the performance chain. Supply chain. Performance chain. What's the difference? By definition, the supply chain is the sequence of processes from supplier to customer involved in the production, sourcing, planning, and distribution of a commodity (here's how Wikipedia defines it, for another perspective). Meanwhile, the performance chain is all the tangible and intangible elements that have to move from the moment you trigger demand until you have cash in the bank – all the ins and outs that have to work together to drive the outcome you want. Why is it important to understand the difference? Because it's easy to get caught up in the day-to-day or local supply chain problems: The need to streamline invoices, reduce inventory, or increase manufacturing performance and on-time fulfillment, for example."

Although I agree with Gillman that the supply chain "is just one piece of a much larger" organization, I think that calling that organization a "chain" can be misleading. A company is more like a complex organism than a chain. Processes within an organization are not necessarily linked end-to-end like a chain. They are not even linked intricately like a medieval knight's chain mail. By her own admission, an organization involves a lot of "tangible and intangible elements." Her point is well made, but her choice of monikers is misleading. I think she would have been better served calling her concept a performance network of which the supply chain is a major part.

My biggest concern, however, is that by embedding the supply chain in a larger "chain" she may be undervaluing the important role that supply chain processes can play in helping integrate and align an organization -- especially the S&OP process. Some consultants would like to change the name of S&OP to integrated business planning (IBP) because they see it as the essential process around which companies can and should organize. As noted above, Cecere is dead set against this. She agrees with how essential S&OP is as a driver for the supply chain and she agrees that it should be a driver for the entire company, but a name change won't make it any better. When implemented properly, S&OP can help break down traditional corporate silos and ensure that all executives and planners are using the same data. You can't achieve integration and alignment if you're not talking about the same data set. As Cecere likes to say:

"Write once and read many times. In big data supply chains, focus on one system of record. Everyone has the moments when they show up at a business meeting only to argue about 'whose report has the right data'. Solve this problem by writing once and using many times."

Other analysts disagree with Gillman's premise that "companies spend an inordinate amount of time and resources on" supply chain issues. For example, back in 2008, Randy Littleson, a Vice President of Marketing at Kinaxis, wrote that he didn't think C-level executives paid enough attention to supply chain matters. ["Companies don't compete; supply chains compete," Industry Week, 26 November 2008] He wrote:

"[I] came across this good post entitled 'Companies don’t compete; supply chains compete' which attributes this quote to the CIO of Nortel. I'm not sure you'd get everyone to fully agree with this given how many other pieces there are to the puzzle, but I think it's more true than not. Worse yet, I think there are way too many important people that wouldn't believe this at all."

"Companies don't compete; supply chains compete" is a mantra that I've read often in supply chain literature. It recalls Napoleon's strategic insight that "an army marches on its stomach," meaning that without a good supply chain wars can be lost. Ulysses S. Grant believed in and used this strategy to win the Civil War. The North's supply chains were superior to the South's. Napoleon and Grant were positioned well to act on their insights. In the corporate world, CEOs and other high-level executives occupy those positions. As Gillman writes:

"If you're an executive overseeing a business unit or larger enterprise ... you're in the position to oversee the big picture. You are one of the few people in your company who has the ability to see how processes are working together (or not working together) across the organization. ... You are the one who can and should ask the tough questions, determine the overall health of the performance chain, identify the pain points that need attention and assign the right people to address them."

I agree with that assessment; but it begs the question, "How does an executive get the big picture?" An executive might be in a position to see the big picture, but he or she needs to know where to look or someone needs to paint it for them. That's where supply chain professionals can really add value in an organization. Gillman, however, is not convinced. She goes on to describe four "ways [that] supply chains differ from performance chains—and what those differences mean for you and your business." She writes:

"1. Day-to-day vs. Big picture -- Keep in mind, the supply chain is just one piece of the larger performance chain across your business. While you definitely want to pay attention to your supply chain(s), you most certainly want to step back regularly and take a look at what's going on from the moment you trigger a customer's need to the moment there's cash in your pocket."

That's absolutely correct; but, as I stated above, where does an executive go get that information. Nowadays the answer is probably found "in the cloud." It's supply chain professionals who make sense of big data and help provide the big picture. That's why IBM is moving quickly into the supply chain arena. Gillman continues:

"2. Flow of products vs. Velocity of cash -- Sure, it's important to make sure products and processes are flowing smoothly across the supply chain. However, at the end of the day, cash reigns supreme. Businesses live on the circulation of dollars from customers to the bank. So, make sure you're taking a closer look at how processes like turnaround time, closed lot cycle time, time to market and days cash outstanding are impacting your cash flow and what steps you can take to speed up that flow, without sacrificing customer experience and quality (because you don't have to)."

What am I missing here? Does Gillman really believe that supply chain professionals aren't concerned about cash flow and the financial impacts that the supply chain has on a business? A quick perusal of supply chain literature should disabuse anyone of that notion. A number of recent articles talk about how CFOs are getting more involved in supply chain matters. Why? Because the supply chain has such a significant impact on corporate finances. She continues:

"3. Product-based vs. Industry agnostic -- Supply chains are typically focused on companies that sell products. Manufacturing companies, for example. The product goes from point A to point B and on down the line until it's in the customers' hands. Performance chains are relevant in any product or service industry. They are industry-agnostic. Why? Because a performance chain contains all the tangible and intangible elements, or the people, decisions and processes that must move successfully to translate demand into a solved customer need and cash in your bank."

Although Gillman wants to believe that service-oriented businesses don't have a supply chain, I believe she's mistaken. It may not be as complex an industrial supply chain, but it exists. I agree with her that many service-oriented businesses don't have a Chief Supply Chain Officer or even a logistics department. They are, however, likely to have a professional services group that focuses on delivering the right product, at the right time, in the right format. The names may be different, but the underlying principles are the same. Gillman concludes:

"4. Heavy on IT/tracking systems vs. All kinds of business processes -- Supply chains tend to rely heavily on IT and tracking systems. Think about FedEx. What an incredible supply chain—from the moment a customer sends a package to the moment the intended target receives it. But, that supply chain is dependent on complex and highly efficient IT and tracking systems that make that flow possible. The bigger performance chain involves all sorts of people and processes that paint a more complete picture of the FedEx customer experience—from the time the customer realizes a need to the time FedEx has money in the bank. Be sure to think about all the processes that go into delivering on a customer's need—not just the IT team and tracking enablers."

The best supply chains are more than IT and tracking heavy. Karin L. Bursa, Vice President of Marketing at Logility, insists that a successful S&OP system will take into account "people, process, and technology" ["A Foundation for Successful S&OP," Supply Chain Digest, 10 February 2011]. She writes:

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

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

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

The bottom line is that Gillman is straining too hard to sell a name (the performance chain) and is doing so by creating a straw man supply chain just so she can knock down the straw man. Her intentions are good (as are the principles she espouses); but, she didn't need to denigrate the supply chain to make her point. The best supply chain experts understand the big picture. They understand the need for alignment, agility, and transparency. Get the supply chain and its associated processes correct and you will have a much better chance of improving what Gillman calls the performance chain (aka the organizational network). Just ask Apple or Procter & Gamble -- companies that have been recognized for their supply chain excellence.

October 24, 2011

Consumer Goods Technology Features Enterra Webinar

Earlier this month, Enterra Solutions sponsored a webinar entitled "Building a Learning Supply Chain: New Success at Newell Rubbermaid and Conair." The webinar involved a panel discussion moderated by Kara Romanow, Executive Editor of Consumer Goods Technology (CGT) magazine. Included on the panel were Lora Cecere, from the Altimeter Group, John Mayorek, from Conair, and, from Newell Rubbermaid, Bill Shipman, and Nikki Van Dyke. I joined the panel after the formal presentations for the question and answer session. In a short article about the webinar, CGT wrote:

"Today's supply chain is challenged by increasing variability, uncertainty, and complexity. There is a need to plan globally and execute locally, but the intricacies are daunting. Multiple technologies, complex large data sets, supply chains, and geographies need to be aligned and synchronized in real time. The question is how? The answer drives the need for a new approach.

"On October 12, 2011, during a CGT web seminar sponsored by Enterra Solutions, LLC, Newell Rubbermaid revealed how it is able to look out five days in advance and foresee what retail compliance related challenges it may face. Conair also explained how it extended visibility 21 days out into the future to see what shipping and manufacturing delays can affect inventory and delivery obligations to retailers. Below are some more highlights from the web event:

-- Lora Cecere, a partner in the Altimeter Group, shared how new approaches for supply chain management are redefining the business problem. For example, she talked about how the rules of supply chains have changed when it comes to instances such as natural disasters, mergers and acquisitions, market shifts and commodity price pressure. Cecere brings up the question: 'What if we could have systems that were more adaptive; systems that could learn as situations change?'

-- John Mayorek, senior vice president at Conair Corporation, explained how his company is using Enterra proprietary technology to drive a dynamic response in international sourcing. 'Every customer has different guidelines, requirements, procedures, and to follow these manually is very difficult,' Mayorek explained. Conair now sees late or delayed shipments on ships, railways, and trucks to help prioritize and allocate limited inventory on high-demand products to optimize fill rates for high value customers, and thereby reduce compliance penalties and increase customer satisfaction.

-- Bill Shipman, group program manager, Newell Rubbermaid - Home and Family IT, and Nikki Van Dyke, group business process owner at Newell Rubbermaid - Home and Family, explained how they are using Enterra's new approach to sense compliance rule changes by the retailer and adapt customer order requirements to improve customer service and reduce deductions. The challenge for Newell Rubbermaid was that it was difficult to proactively monitor and prioritize possible 'at risk' orders, resulting in unnecessary violation of requirements and credits issued. 'We were trying to identify potential process improvements by implementing a standard solution across multiple business units, across multiple departments, where everybody was using the same language about why these orders were at risk and how to eliminate those deductions,' said Shipman."

["Newell Rubbermaid, Conair Boost Supply Chain Visibility," 19 October 2011]

The entire hour-long webinar is available for viewing at the following link.

Last year Conair Corporation received an Outstanding Achievement Award in Supply Chain Excellence at the annual Consumer Goods Technology (CGT) Business & Technology Leadership Conference. This prestigious award is presented annually to three consumer goods firms that demonstrate outstanding achievement in executing supply chain improvements. Conair received the runner-up award and was honored for its participation in the development and implementation of Enterra's Retailer Compliance Module. Earlier this year, Enterra Solutions was selected as one of 25 companies featured in the Editors’ Pick section of CGT's 2011 Readers’ Choice Issue.

Although unrelated to its work with Enterra, Newell Rubbermaid was also recently recognized by CGT. The company received "the Most Innovative Company Award," which "honors the consumer goods company that has continually driven growth through product and/or process innovation in 2010/2011." ["CGT Reveals 2011 Innovation Award Winners," 26 September 2011] The article explains why it honored Newell Rubbermaid:

"Over the past five years, Newell Rubbermaid has successfully transformed its business model from a manufacturing and product focus to one that is consumer centric and built on marketing, branding and consumer-driven innovation. To do this in part, the company implemented a strategic, company-wide approach to uncovering insights and unmet consumer needs to drive new product innovations and put the consumer at the heart of the business. Today, through consumer-driven innovation Newell Rubbermaid delivers products that surprise and delight consumers — like the Calphalon Unison Nonstick Egg Poacher and Parker Ingenuity pen — creating an emotional bond with its brands over time."

I offer my heartiest congratulations to the folks at Newell Rubbermaid. The company is on a streak. Last year the company won CGT's Dick Clark Supply Chain Award, which is "named in honor of the supply chain visionary." The "award is presented to a consumer goods firm for excellence in executing improvements in supply or demand planning, warehouse management, transportation management, S&OP processes or supply chain network design." ["CGT Reveals Business & Technology Leadership Award Winners," 27 October 2010] Concerning Newell Rubbermaid, the article stated:

"Early in 2008, improving S&OP was identified as a key priority for Newell Rubbermaid. Inventory growth had outpaced sales over the previous 3 years, inventory turns were down by 25 percent, forecast accuracy was well below best-in-class levels, and working capital as a percentage of sales ranked at the bottom of its peer group. In response, a global S&OP improvement initiative was launched. The initiative has delivered double-digit decreases in inventory, significant increases in forecast accuracy, higher inventory turns and various other benefits throughout the business. The improved S&OP process also helped cash flow, generating 30 percent more cash in 2009 for a total of $603M despite one of the most challenging business environments in a generation. Now entering its second major phase, the S&OP improvement initiative at Newell Rubbermaid will take advantage of the strong foundation built so far to enable rapid improvements in related areas such as forecasting, inventory optimization, and overall supply chain responsiveness."

Enterra Solutions is honored to be working with companies that are being recognized for their foresight, innovation, and achievement. If you want to learn more about the supply chain solutions they are working on with Enterra, I recommend listening to the webinar.

October 21, 2011

"Startup America" Finally Starts Up

For readers who really pay close attention to detail, you might have noticed that I've removed entrepreneurism as one of the topics this blog will cover in the future. It's not that I'm uninterested in the subject; after all, I remain at heart an entrepreneur. Because this is a corporate blog, I've decided to concentrate on topics more closely related to areas in which my company deals, namely: technology, business, and government with a focus on supply chain management, artificial intelligence, and innovation. Therefore, this will be my final post directly dealing with the subject.

Earlier this year, I noted that the Obama administration had hopped aboard the entrepreneurial bandwagon. In late January, it "announced a string of initiatives—collectively called 'Startup America'—designed to spur innovation and growth at private U.S. firms." ["Kickstarting Entrepreneurship With 'Startup America'," by Colleen DeBaise, Wall Street Journal, 1 February 2011]. Months later "a major part of the initiative" has finally been implemented. ["Long-Awaited Startup America Program Opens for Business," by Emily Maltby, Wall Street Journal, 26 September 2011] Maltby reports:

"The initiative is made up of a series of public-private programs designed to spur small-business growth. The two operations of Startup America have different missions to accomplish the same goal – boost entrepreneurship and job creation. On the private side, a number of initiatives have rolled out over several months including classroom and mentorship programs provided by nonprofits and corporations. But the principal agenda for entrepreneurs, called the Startup America Partnership, launched only [in September]. It is now allowing entrepreneurs to apply for free or discounted products and resources such as Google Adwords, Intuit payroll services and Salesforce technology. Collectively, there are more than 25 partners who have pledged $730 million worth of in-kind resources to help small firms grow."

If you're interested in the program (or, more importantly, if you want to advantage of the program), you should click on the link above and check out the website. It's a straight forward, user-friendly site. As the attached graphic from the site shows, you might be able to find help regardless of the stage of the process you are currently at.

Startup America web

Explaining why it took so many months to get up and running, Scott Case, chief executive of the Startup America Partnership, told Maltby, "We've spent the last six months recruiting partners. Now, we're open for business." Maltby continues:

"The partnership is currently accepting applications and is looking to admit 100,000 high-growth start-ups (incorporated firms, usually with at least two founders and with plans to hire and grow); 10,000 ramp-ups (with five employees and a revenue stream); and 1,000 speed-ups (typically 25 or more employees). Sole proprietorships, freelancers, independent consultants and aspiring entrepreneurs with no more than an idea are less likely to be accepted, says Case."

So what does the Startup America Partnership actually do? Its website explains the Partnership this way:

"Entrepreneurs are at the heart of the Startup America Partnership. We're bringing together a coalition of mentors, advisors, funders, major corporations and serviceproviders to deliver strategic and substantive resources to help entrepreneurs start and scale companies. The Startup America Partnership is:

"- A movement by entrepreneurs, for entrepreneurs - launched January 31, 2011, at the White House to help inspire and celebrate entrepreneurs, their firms and the people that join them.

"- An independent, private-sector entity – leveraging the work of our close partners in the U.S. government, but with the fierce freedom, independence and agility that define American startups themselves. Focused on bringing the private sector together to maximize the success of America’s entrepreneurs – and maximize America's competitiveness in an increasingly global world.

"- A tool to showcase a wide range of entrepreneurs, elevating them as innovators and job creators, while celebrating entrepreneurship as a core American value. We aspire to make starting or joining an American startup the most desirable job in the world.

"Our 'customers' are the entrepreneurs themselves. We will take steps to encourage the creation of new startups, however, our principal focus will be on supporting the entrepreneurs who are leading existing firms with high-growth potential (what we call 'speedups')."

Given the current high level of unemployment in America, the Partnership's focus on creating jobs is not only natural but needed. The site goes on to explain how the Partnership is going to support "speedups" to become even more successful. It says:

"We will do this by assembling commitments from a wide range of companies and organizations to provide assistance to entrepreneurs in the following areas:

"Expertise: Connect entrepreneurs with training, mentors, advisors and accelerators

"Services: Provide entrepreneurs access to critical services at reduced costs

"Talent: Assist entrepreneurs in recruiting and training the people that can help them grow

"Customers: Help to scale startups through new and existing markets

"Capital: Highlight sources of capital available to entrepreneurs in various regions and sectors

"Through quality resources provided by our partners, we're going to help more startups accelerate their growth and become speedups. We're gathering a suite of resources to help them smartly grow their organizations, expanding from dozens of employees to hundreds and someday thousands."

With millions of jobs needed in the U.S. at the moment, the faster companies can move from hiring dozens to hiring thousands the better the country will be. Maltby continues her article with an explanation of what the Startup America initiative is doing in the public sector. She writes:

"On the public side, the administration is focused on creating policy and programs on the municipal level that can help small firms grow. The Small Business Administration has facilitated the launch of new state funds to help with capital access, mentorship programs and roundtables throughout the country to get input from entrepreneurs on how to eliminate burdensome government barriers. (That feedback is now being considered by various federal agencies and is available for public review.) Government agencies have also launched numerous competitions, such as the $12 million i6 Green Challenge and the $37 million Jobs and Innovation Accelerator Challenge to help regional industry clusters across the U.S. The latter announced its winners last week."

The press release that announced the winners of the Jobs and Innovation Accelerator Challenge noted that the winning "public-private partnerships are expected to create more than 4,800 jobs and 300 new businesses, as well as retain another 2,400 jobs and train approximately 4,000 workers for careers in high-growth industries." If the estimates hold true, the government would have spent approximately $5200 to create or retain each job. That's not a bad investment. If you add in the extra 4000 workers who could fill openings that already exist in high-growth industries, the average investment per job is only $3300. The press release reports that "each of the 20 awards average about $1.8 million per project, and winning clusters will contribute another $13 million in total matching funds." The winners were:

  • Rockford, IL: Rockford Area Aerospace Cluster
  • Southeast, MI: Southeast Michigan-Advanced Energy Storage Systems Initiative
  • Pittsburgh, PA: Southwestern Pennsylvania Revitalization
  • Northeast, OH: Northeast Ohio Speed-to-Market Accelerator
  • FL: Space Coast Clean Energy Jobs Accelerator
  • Knoxville & Oak Ridge, TN: Advanced Composites Employment Accelerator
  • Milwaukee, WI: Milwaukee Regional Water Accelerator Project
  • MO and KS: KC Regional Jobs Accelerator
  • GA: Atlanta Health Information Technology Cluster
  • AR, MO, OK: The ARK: Acceleration, Resources, Knowledge
  • St. Louis, MO: St. Louis Bioscience Jobs and Innovation Accelerator Project
  • OR and WA: Portland Regional Clean Tech Advance Initiative
  • San Diego, CA: San Diego-Imperial Valley Renewable Energy Generation Training and Demonstration Center
  • Puget Sound, WA: Washington Interactive Media Accelerator
  • Hudson Valley, NY: New York Renewable Energy Cluster
  • Finger Lakes, NY: Finger Lakes Food Processing Cluster Initiative
  • MT, ND, SD: Upper Missouri Tribal Environmental Risk Mitigation
  • South Central, KS: Center for Innovation and Enterprise Engagement
  • Northeast, MN: Minnesota's Mining Cluster
  • Northern, Maine: GreenME

If you are interested in knowing more about why "clusters" are important, read my post entitled The Birth and Death of Industry Hubs. Charles R. Schwab, founder and chairman of the Charles Schwab Corporation, also believes that encouraging entrepreneurism is important. In a recent op-ed piece, he wrote, "We can spark an economic recovery by unleashing the job-creating power of business, especially small entrepreneurial businesses, which fuel economic and job growth quickly and efficiently. Indeed, it is the only way to pull ourselves out of this economic funk." ["Every Job Requires an Entrepreneur," Wall Street Journal, 28 September 2011] Sparks only work when fuel and oxygen are also present. For the economy, the fuel is demand and oxygen is resources. Schwab correctly points out that "we cannot tax our way out of this. We cannot artificially stimulate our way out of this. We cannot regulate our way out of this." So how do we get out of this morass? I guess we "ask Chuck." He continues:

"What we can do—and absolutely must—is knock down all hurdles that create disincentives for investment in business. Private enterprise works. I founded Charles Schwab in 1974, when America was confronting a crisis of confidence similar to today's. We had rapidly rising inflation and unemployment, economic growth grinding into negative territory, and paralyzed markets. The future looked pretty bleak. Sound familiar? Yet I had faith that our economy would recover. My vision was simple: Investors deserve something better than the status quo. I launched the company with four employees, a personal loan on my home, and an audacious dream. I didn't know exactly how we were going to do it, nor could I foresee that over the decades we would end up building a business that serves over 10 million accounts. But we went for it."

I agree with Schwab that it is private sector businesses that generate both jobs and wealth, not the government. He looks at his own story for evidence of "the potential power of the entrepreneur's simple leap of faith." He asserts, "The success of a single business has a significant payoff for the economy." As evidence he once again references his own company. My only problem with using a financial sector example is that many people credit the financial sector for the current recession. Robert J. Samuelson reports that U.S. "households have lost $7 trillion in wealth, mostly from lower home and stock prices." ["Job Creation 101," Washington Post, 11 September 2011] Nevertheless, Schwab's larger point is valid -- investment in businesses is critical for economic growth. A single business, he reminds us, buys "services and products from other companies in a diverse set of industries, from technology to communications to real estate to professional services" and in doing so helps "suppliers create businesses and jobs." As I've noted before, the biggest bang for the buck comes when a manufacturing job is created. Estimates are that 8 supply chain jobs are created along with it. Schwab concludes:

"The simple fact is that every business in America was started by an entrepreneur, whether it is Ford Motor Co., Google or your local dry cleaner. Every single job that entrepreneur creates requires an investment. And at its core, investing requires confidence that despite the risks, despite the hard work that will certainly ensue, the basic rules of the game are clear and stable. Today's uncertainty on these issues—stemming from a barrage of new complex regulations and legislation—is a roadblock to investment. We have to clear that uncertainty away. ... Republicans and Democrats ... need to review every piece of existing legislation and regulation with a clear eye to what impact it will have on business and growth. If something is a job killer, put a moratorium on it. Stop adding to the litany of new laws and regulations until we've had time to digest those in place and regain some certainty about the future. Proposed laws and regulations should be put to a simple test: What will this do to encourage businesses and entrepreneurs to invest? What will it do for jobs?"

Back during the earliest stages of the Great Recession, I recommended that Schwab's final question be asked about every piece of stimulus legislation that was being proposed. Unfortunately, Congress joined the Bush and Obama administrations in following a different path and massive job losses were the result. They now appear clueless about how to get the country out of the current morass. Not all regulation is bad; but I agree with Schwab that job killing regulations need to be identified and nullified.

October 20, 2011

Upgrading Your Supply Chain without Breaking the Bank

In a post entitled Supply Chain Transformation, I cited an interview that Dustin Mattison had with Jeffrey Boudreau, a Partner at XCD Performance Consulting. In that interview, Boudreau claims that right now the is right time for companies to improve their supply chains. He notes that the era of supersizing seems to have ended and cites the fact that many companies are breaking into smaller companies that are focusing more tightly on a specific product lines. As a result, Boudreau insists, "This is really a year to pause, breathe and catch up. Now they can optimize their supply chain rather than supersize their supply chain."["Improving Supply Chain Without Capital," Dustin Mattison's Blog, 25 August 2011] Before discussing how companies can improve their supply chains with little or no capital, Boudreau takes us on a tour d'horizon of the corporate landscape. He writes:

"I think that traditionally executives look for strategy, process and technology to improve their supply chain. ... What we have seen this year and what we have heard pretty much across many industries is that there are no capital budgets left for this year. ... We are finding executives have operating budgets, but they have no Cap X budget to spend or invest in new upgrades for their supply chain. ... Without this capital budget, we are seeing a couple things. We are seeing that initiatives are getting elevated to get approval. In the past a vice president could approve a project. Now it is getting elevated to a senior vice president, an executive vice president or perhaps even the CFO. We are certainly seeing a lot more active CFO involvement even in modest initiatives."

Boudreau makes an interesting observation about increased CFO involvement in supply chain decisions. In several past posts, I've noted that CFOs are getting more and more involved in areas from risk management to sustainability -- all of which affect the supply chain. Frankly, some of these areas of expertise are beyond the ken of money men so they need all the help they can get. Most of that help, I believe, will come from supply chain professionals. Boudreau continues:

"The second thing we are seeing is that there is almost no spending on new technology. During the past few years of rapid growth on the other hand, there had been so much spending on new technology and there was tight timeframes to get it in and working. There has been a massive overlook in getting these technologies and processes optimized. As a result, we are seeing that it is now time to optimize and not supersize."

I agree with Boudreau that companies are looking to optimize their legacy systems rather than invest in replacement technologies.

"The third thing that we are seeing is that CFOs are being very receptive to schedule an initiative or a new supply chain improvement to become funded directly from existing operating budgets."

This just makes sense. An improvement that "costs nothing" or quickly pays for itself is a win-win.

"A fourth thing is inventory. Actually, I think the U.S. has done almost too good of a job here, where they have done massive productions and inventory positions, freeing up all kinds of capital, really creating an instant line of credit. However, it is almost at a risk of destroying their supply base."

In other words, Boudreau believes that some supply chains have become so lean that they have become brittle. In an age that requires supply chain agility and flexibility, brittleness can be fatal.

"A fifth thing we are seeing is a technique which has been used in the past, but I think it's more important now. The technique is to actually bundle several initiatives together so that the savings from one part of the initiative can actually fund another. An example might be a labor of management program that kicks off a lot of labor savings; then use that to pay for a new supply chain execution or warehouse management software installation. Or we are seeing executives go back and negotiate just about every contract they have, from telecom and support services to rent, and then use those savings to pay for upgrades or new technology."

This sounds like Congress' pay-as-you-go scheme. In theory it sounds great. Seldom, however, can you find tit for tat savings that match exactly the amount you need to implement some new improvement. If you can pull it off, however, it's a good strategy. The final activity that Boudreau is seeing is more outsourcing. He writes:

"The sixth thing we are seeing is that there has been a big increase in outsourcing day-to-day activities. Transportation has been outsourced for decades; you've seen 3PLs do a lot of outsourcing of inventory, warehousing, Pick, Pack & Ship. However, I think it is even more important now to maintain day-to-day activities and outsource special projects or one-off initiatives that require a lot of distraction and outside expertise. With the explosion of available experts out there—just look at LinkedIn—we are seeing more and more people engaging experts on one-off initiatives. More people are actually taking short-term gigs to help a company with a project. And we are seeing a big shift away from the big consulting firms and more toward the network of experienced, specialized professionals to help out with pretty big projects at big companies."

I wish Boudreau would have explained why he believes that it is "important now to maintain day-to-day activities" rather than outsource them. With unemployment remaining high, his recommendation to hire subject matter experts to do one-off projects makes a lot of sense. There are a lot of talented people looking for work, even if it's temporary. Even though some companies are flush with cash, Boudreau says that many of them have "a 'use what we've got' mentality." He indicates that this is not a bad thing since many companies have never really "realized the full functionality of their technology, their software and their systems." As a result, he writes, "There is now an opportunity to really build expertise with folks learning how to better use the business systems and technologies to optimize and run their business. I think this is a unique opportunity that hasn't been around for quite a long time."

Improving how a company uses its legacy systems is certainly one way to improve supply chain performance without spending much money. Boudreau, however, believes that the best way to free up funds to make supply chain improvements is to make changes in labor management. He writes:

"Labor is still a big untapped opportunity. Labor management has really started to get some traction in the past 6 to 7 years. Although the concept is well over a hundred years old, and has been a mainstay in manufacturing for decades, it has only been getting traction in supply chain in the last 10 to 15 years. There is a big untapped opportunity for companies to understand how to transform their labor-intense operations to a performance-focused culture. If I look at all the supply chain initiatives or strategies companies can take, labor typically floats to the top in terms of highest ROI."

Boudreau claims that labor management reform is most applicable to "labor intense businesses, such as retail and consumer products distribution, high-tech refurbishing and kitting, field service operations and customer care operations." He explains:

"There are new technologies that can help companies report on performance versus expectation. We can compare their actual performance versus the performance goal. We can then report that to management in terms of a score, and use that to evaluate, motivate and even incent people to take charge of their own performance. Traditionally, this has been somewhat difficult to do in jobs that are not direct labor. However, there are new techniques now to look at what we call white-collar and support operations, where there might be some thought intensity or there might be time in task, there might be customer interaction. It is not a directly measurable amount of work, and those have always classically been a challenge for engineers to figure out what is good performance for that person over some period of time. We can use new techniques out there that have become a more prevalent, more widely used, and use them as a part of a comprehensive performance-management program; what we like to call workforce motivation."

Such reforms obviously aren't easy to make. Employees, who are not used to having big brother watch their every move, are likely to chafe under the scrutiny. However, if they see that customer satisfaction goes up or they are rewarded for better performance, the reforms may go down easier. Economists have repeatedly noted that even though productivity has risen over the past few decades, employees haven't been the beneficiary of those improvements. Boudreau indicates that there ways "to engage people and let them take part in a true taste of capitalism, where they can actually, in a small way, be in business for themselves when they are actually at work as an employee for a company." Such schemes are good for both the company and its employees. He continues:

"Look at where are the big operating budgets, and those are most likely your biggest opportunities from which to fund an initiative. It is likely going to be your labor and transportation budgets. ... Go where the money is—that would be the first place to look. If it's related to labor, workers may misunderstand and think you are changing the way that the value they add to their workday is perceived. It is all about the people, and it is all about creating the right culture and the right workforce strategy. Unfortunately, we are seeing this pushed or promoted as a software initiative or as an engineering project. Those are two important and necessary components of a labor and management project. However, they are certainly not the overarching emphasis or the underlying theme for what these programs need to be to be successful."

Clearly, if you are going to make a successful transformation of the way you do business, you have to get everybody on board. That's a very difficult task -- especially when it comes to labor relations. Boudreau continues:

"[Implementing] a labor-management program or paid-for performance, [is] clearly optional. It is like going to the gym; it's not something you have to do, but if you do it, you get great results. Since it is optional, therein lies its greatest risk. The risk is that once the economy turns around, or there is a merger or divestiture, or something else that takes management's attention. Management will think that they have got the management program licked and they take all their attention away from it. These programs can easily wither on the vine and die. It is a big opportunity for companies to improve their supply chain without any capital, but they need to understand the commitment they're going to make once they head down that road."

Boudreau claims that, when labor management initiatives are implemented correctly, the payoff is significant. He indicates that interviews with "dozens of executives who had done this program" indicated that the improved productivity from "those programs was about 45%." When he and his colleagues "looked at what the top ten—the top-tier programs, the ones who had done just about everything right," the improvements were even more spectacular. "Those top performing companies that use these programs averaged a 62% productivity improvement." Improved productivity was not the only improvements that Boudreau and his team found. There were other positive side effects as well. He explains:

"We are also seeing a lot of qualitative improvement to the supply chain in terms of strengthened and bolstered management skills. We're seeing lower turnover. We are seeing a shift over time to a higher mix of people in the workforce. So think of it going from a rec soccer team to the travel club soccer team. The mix of players on the team has been elevated over time; so the folks who are drawn to that type of environment tend to stick around. We are also seeing [another] interesting side effect. We found that all the prior investments in software technology automation became improved. ... They get much more return on assets or much more utilization out of their existing infrastructure."

When incremental improvement programs positively affect the way employers and employees see their relationship, they move from a "use what we've got mentality," which excites no one, to a "let's get the most out of what we've got mentality," which makes every individual a valuable stakeholder in the process. You can only get there by bringing everyone willingly along with you. People who feel that they have been coerced and/or exploited are going to undermine change management. Done right, change management provides long-term vision along with short-term wins to demonstrate the value of change.

October 19, 2011

Supply Chain Sustainability Becoming Center Stage

When a particular business topic can dramatically affect a company's reputation or bottom line, one way of making sure that it receives the proper attention is to assign a top-level executive to oversee activities in that area. A good example is the Chief Financial Officer. The next "Chief" that may be taking a seat at the executive table is the Chief Sustainability Officer. "Roughly every decade a new role is created inside corporations with claims to equality with the existing 'C-suite'," writes Anthony Goodman. "This decade the new contender is the chief sustainability officer." ["Sustainability eyes its own corner office," Financial Times, 3 January 2011] He continues:

"Is this a fad or a role that will endure? CSOs already have their own professional association. The Sustainable Forum boldly claims on its website that 'as regulations and compliance issues grow, it is certain that the role of the CSO will be as necessary as the CFO, CIO, or CEO'. The evidence, however, is mixed. In 2007, Heidrick & Struggles, the recruitment firm, reported on the emergence of the new CSO role. The firm said it had 'witnessed a substantial rise in demand for a new breed of environmental, health and safety (EHS) leader – now often known as the Chief Sustainability Officer (CSO), to mark the transformation of the role.' However, last year Ellen Weinreb, the CEO of Sustainability Recruiting, analysed the number of US CSOs that occupy the position of one of the five named executive officers in a company’s securities filings. The answer: 'I found just two CSOs: David Clary from Albermarle Corporation and Frank O'Brien-Bernini from Owens Corning.' However, Ms Weinreb notes that there has been an 'increase in senior-level corporate positions – those with VP and Director titles.'"

Goodman reports that, even though the titles may vary, a number of large companies have appointed a senior executive to "a CSO role." Those companies "include Coca-Cola, GlaxoSmithKline, IBM, Nestlé, Walmart and Unilever." Although it seems natural to me that a CSO would have a supply chain background, Goodman indicates that they "come from a variety of backgrounds including engineering, innovation and communication." The reason for such varied backgrounds is that sustainability deals a broad number of diverse activities. Peter Capozucca, sustainability strategy leader at Deloitte, told Steve Minter, "If you consider sustainability broadly, inclusive of not just climate change but issues related to energy, materials, recycling, waste, the use of water, companies are extremely focused on that. They are not viewing it necessarily as a standalone sustainability initiative but more as linked with issues and strategic priorities they are dealing with anyway, whether on the cost or revenue side of the equation." ["Sustaining a Green Strategy," Industry Week, 16 March 2011] In other words, sustainability issues involve many of the same activities already involved in most companies' sales and operations planning (S&OP) process anyway. That's one reason that I believe someone with supply chain background would make a good CSO. Minter continues:

"Neil Hawkins, Dow's vice president of sustainability, cites global issues such as renewable energy, clean drinking water and the rising consumerism that goes along with an expanding middle class in emerging markets, as the sustainability drivers in the world. They also, he says, are drivers of growth for business."

It's that connection between sustainability and business growth that is really getting the attention of CEOs and company boards. In companies that don't have a chief sustainability officer, that role often falls onto the shoulders of the CFO. Kate O'Sullivan writes, "Once the domain of tree-hugging do-gooders, the green movement now offers bottom-line appeal, and finance executives are taking notice." ["Going for the Other Green," CFO Magazine, 1 September 2011] She reports:

"Today, CFOs looking to squeeze as much efficiency out of their plants and operations as possible have found that certain cornerstones of the sustainability movement, such as reducing waste and power usage, offer fresh ways to do what they do so well: manage risk and control costs. The environmental benefits are a nice outcome, too, of course, but they are not the main motivation behind many companies' heightened focus on green initiatives. Finance executives are also realizing that greener practices may be able to help them control volatile energy and input costs, which are a growing concern. ... Whether the cost of energy and materials will continue to soar as a result of growth in emerging economies, or whether weak demand in the United States and Europe will keep it in check, price volatility in one direction or another seems certain. For CFOs, one way to hedge against price swings and maintain some ability to plan and forecast is to figure out how their companies can reduce their use of such wildly fluctuating commodities. Between the cost-cutting opportunity and the possibility of making materials costs more predictable, finance chiefs are finding that green business has transformed from an idealistic approach to an incredibly pragmatic one."

Procurement analyst Paul Teague agrees with O'Sullivan. He writes, "A new report from consultancy Ernst & Young says that there is increasing pressure for finance officers to take the lead in their company’s sustainability efforts." ["Want to get closer to the CFO? Wear green," Procurement Blog, 26 September 2011] Teague continues:

"[Sustainability is] a responsibility, the firm says, that would have been unimaginable a few years ago. But, the report continues, the impetus is understandable: investors are seeing the confluence of sustainability, risk management, corporate reputation, and revenue."

Teague says that Chief Procurement Officers "should rejoice in the report's finding because of the opportunities it presents." He explains:

"Among the steps CFOs should take, the report advises, is development of a reporting system to track a variety of metrics on their companies' sustainability efforts. Well, CFOs are in luck because CPOs have already done that to track sustainability efforts in their supply chains. In companies from IBM to Walmart to P&G to Estee Lauder, procurement officers have been tracking their suppliers' sustainability records for some time and including those efforts in the criteria they use to judge supplier performance. And, they have amassed big savings from their efforts. Some companies, like PepsiCo, are even finding ways to create new revenue streams from sustainability efforts. Surprisingly, even emerging-world companies are finding profits from greenery. In other words, CPOs know how to track sustainability performance and use the results of their tracking to benefit the top and bottom line. CFOs can learn from them. ... As Humphrey Bogart's character 'Rick' said to Claude Rains' character 'Captain Renault at the end of the movie Casablanca, 'This is the beginning of a beautiful friendship.'"

Eric Johnson writes, "If you're looking for a buzzword in the logistics industry of late, it doesn't get much buzzier than 'sustainability.'" ["The green Tiebreaker," American Shipper, 11 April 2011] For transportation companies, sustainability is becoming a significant issue. According to Johnson, an American Shipper survey revealed "nearly 40 percent of 156 respondents said they ask their logistics services providers (LSPs) to submit a sustainability plan ahead of buying decisions." Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, told Johnson, "As far as the importance of sustainability as a factor, I believe it is being considered on par with the other traditional criteria such as price and service. Rates and service, particularly service, are still key factors, but sustainability is definitely being discussed and considered. Is it a key decision right now? I don't think so, but it's definitely in the mix. It depends on the company, and how they do the rankings. For some it will be higher than others."

So what sorts of activities do senior-level sustainability executives engage in? Goodman writes:

"What do these new CSOs actually do? Research analyst Verdantix noted: 'Whilst the job titles vary the responsibilities are similar: improve sustainability governance, develop climate change strategy, launch climate change and sustainability products and implement policies that move the organisation on a global basis towards strategic sustainable business goals.'"

Goodman, a partner at Tapestry Networks, a professional services firm, indicates that he and his colleagues "have spoken to numerous CSOs in the past two years to identify the challenges they are facing." From those discussions, "three main challenges" emerged: "getting traction inside the business, working with external stakeholders, and encouraging the innovation necessary to meet stretch goals." Concerning the first challenge, Goodman writes:

"Dealing with internal blockages is a challenge that every new entrant to the C-suite has faced. The recent wave of new chief risk officers (CROs) appointed after the financial crisis face a similar problem. Neither CROs nor CSOs can achieve their objectives without embedding risk management or, in this case sustainability, in often reluctant business units. The new chiefs have little positional authority and even smaller budgets and headcount, so influencing skills become paramount. A European CSO told me: 'Internal management is the most important aspect in my job.' A US CSO added: 'You need someone leading the sustainability group from the business side who already has credibility with business units. Relationships make a difference.'"

Shouldering a big responsibility with little authority is never an enviable position. The secret to success is making those who do have authority (and budgets) believe that the big responsibility is theirs. Concerning his second challenge, Goodman writes:

"CROs may have spent hours with regulators over the past few years, but CSOs spend extensive time outside their company working with a broader array of stakeholders from investors to regulators to NGOs. A CSO told us: 'Thirty years ago, we became defensive when we were targeted by NGOs. Now, we've opened up more and engaged with our critics, without going in the other direction and greenwashing.'"

Face it companies are always going to face charges of greenwashing. After all, the sustainability programs that are going to have legs are those for which a business case can be made. That doesn't mean that CSOs shouldn't buddy up with stakeholder NGOs. The best NGOs understand that their goals are inextricably linked to corporate behavior. Fostering those goals within the corporate community is best achieved through cooperation rather than confrontation. About the final challenge, Goodman writes:

"The final challenge CSOs face is to meet the aggressive goals set by their companies. For instance, Unilever's CEO Paul Polman has said that the company has set itself the challenge of 'doubling the size of its business whilst at the same time reducing its environmental footprint.' The company has also said that it doesn't know how to achieve that objective today. Often it is the CSO who is responsible for seeking out ground-breaking new technologies that support ambitious goals like Unilever's. One European CSO remarked: 'There are some areas where we've said we have a goal, and don't know how [to achieve it].'"

There's nothing wrong with establishing "stretch goals." As the old adage goes, "Necessity is the mother of invention." By making those stretch goals a necessity, innovations necessary to achieve them are more likely to be found. Goodman concludes:

"Previous holders of the C-suite 'newcomer of the decade award' can still be found on the executive floor. Chief information officers play a critical role in supporting enterprise effectiveness. CROs seem to become more entrenched after each new corporate crisis. Others, like chief strategy officers, simply fade away. Whenever a new C-suite role appears, commentators argue about whether the role will eventually lead its inhabitants to the promised land of the CEO's corner office? So, what does the future hold for the CSO? With increasing commitment to sustainability across the corporate world, a considerable span of internal and external responsibilities and a skill set that includes both technical and leadership capabilities, the CSO could become a real contender for the CEO's job. At the very least, the role of CSO could be an important developmental step on that road. If CSOs can also prove that they have been instrumental in their companies achieving innovative breakthroughs that benefit investors and other stakeholders alike, then they will be in a strong position to demand their reward."

As I noted in a post entitled C-Level Supply Chain Executives, the promotion of Tim Cook to replace Steve Jobs as Apple's CEO is a step towards getting more supply chain professionals in the top position at major corporations. Sustainability is just another of the many titles that such professionals can wear. The bottom line is that more and more companies are coming to recognize that the supply chain is at the heart of their business. They cannot be the best, like Apple, if their supply chain is not world class. Supply chain professionals have known this for years and they welcome the fact that others are beginning to recognize this as well.

October 18, 2011

The "Big Data" Dialogues, Part 4

In Part 3 of these on-going dialogues about big data, I discussed a couple of software tools that are widely used to crunch large data bases: MapReduce and Hadoop. In that post, I noted that IBM used Hadoop as the engine for its Watson computer, which became famous for beating human champions on the television game show Jeopardy. For more on that competition, read my post entitled Artificial Intelligence and the Future. In mid-September, healthcare provider WellPoint announced that it was hiring IBM to provide the Watson technology as diagnostic tool. This was "the first time the high-profile project will result in a commercial application." ["WellPoint's New Hire. What Is Watson?" by Anna Wilde Mathews, Wall Street Journal, 12 September 2011] Mathew reports:

"WellPoint said it plans to use Watson's data-crunching to help suggest treatment options and diagnoses to doctors. It is part of a far broader push in the health industry to incorporate computerized guidance into care, as doctors and hospitals adopt electronic medical records and other digital tools that can record, track and check their work. ... The first Watson deployment would come early next year with WellPoint nurses who manage complex patient cases and review treatment requests from medical providers. Then the insurer will roll out the technology to a small number of oncology practices, which would likely allow doctors to access it through their own computer systems or tablets. Lori Beer, a WellPoint executive vice president, said the company hopes the service will improve quality of care, which it believes could lower costs. WellPoint officials said they ultimately want to provide the Watson service more broadly to physicians who treat complicated chronic conditions, and they hope to create an application that could be accessed directly by patients seeking health information."

Steven A. Mills, Senior Vice President of IBM's Software Group, told Mathews that Watson technology "could be used in settings as varied as call centers and offices doing engineering and scientific work, and he believes the Watson technology carries the potential to grow into a business generating $1 billion of annual revenue." Earlier this year, Karen Butner, Global Supply Chain Management Leader for the IBM Institute for Business Value, suggested that Watson technology could "help supply chain managers gain meaningful insights from massive amounts of unstructured data." ["How Watson Could help Supply Chain Management Operations," Supply Chain Digest, 20 May 2011] She writes:

"Anyone watching Watson's victorious performance on Jeopardy! couldn't help but be wowed by the machine's ability to answer really difficult questions on many different subjects. And global supply chain executives-- who must simultaneously manage a myriad of issues ranging from customer demand variations to logistical constraints as part of their daily routine -- undoubtedly took note of Watson's prowess. Watson represents a major breakthrough in using computers to answer questions posed in natural language on a virtually unlimited range of subjects. Developed by a team of IBM scientists, Watson can quickly, accurately and confidently answer complex questions using advanced analytics and scoring algorithms, all of which could bring tremendous benefits to supply chain management operations."

Watson's "prowess" is really a matter of brute force. Using Hadoop it plows quickly through oceans of data looking for potential answers and pops out its best guess. Because it draws from a vast data base (the so-called "big data") its guesses are usually pretty good. Butner writes, "During its Jeopardy! matches Watson analyzed 'clues' to comprehend their meaning. Then it pored through the equivalent of roughly 200 million pages of natural language content contained in its memory (sort of like reading a million 200-page books in a couple seconds) to find the correct answer." She believes, as do I, that big data technologies will have dramatic and positive impact on supply chain management. She continues:

"What Watson represents for SCM is the ability to gain meaningful insights from massive amounts of unstructured data. Watson demonstrates in dramatic fashion how advanced analytics can be applied in creative new ways, beyond traditional data warehousing or business intelligence and data mining. Watson can deliver faster, deeper insights into unstructured data (such as the burgeoning social mediasphere) and human language text. As such, it holds enormous potential to transform how computers help people accomplish tasks in business, communities and their personal lives. In the world of SCM, Watson's speed and analytics skills could go a long way in helping executives address their current challenges. According to IBM's most recent SCM study, which surveyed and interviewed 664 supply chain management executives across 29 countries, the three biggest challenges they're wrestling with today are:

  • Volatility – global complexities, market shifts, and the resulting fluctuations in customer demand
  • Visibility -lack of access to timely, worldwide information to make in-stream decisions – fast!
  • Value - the constant pressure to create value for the enterprise through end-to-end supply chain cost efficiencies and pipeline inventory optimization"

To read more about what Butner has to say of these three "Vs", but especially about visibility, read my post entitled Supply Chain Visibility. Butner goes on to describe how she believes "Watson-like" technology could benefit supply chain professionals. She writes:

"Watson-like technology could be a tremendous asset to SCM professionals in a number of ways. Imagine Watson as:

Supply Chain Synchronizer -- SCM execs could more easily achieve the intricate synchronization of supply and demand by integrating Watson-like technology in an intelligent network. If the system could read a million books in a couple seconds, imagine how quickly it could gather information across all of the supply chain functions (planning, forecasting, scheduling, sourcing, transportation, manufacturing, distribution, inventory management, customer order fulfillment). Make-to-order would take on a whole new meaning and just-in-time deliveries would be a way of life for all industries. It could also tap market intelligence, advanced analytics and varied customer communications and comments/sentiments from the social media sphere and be 'at the ready' with answers to SCM executives' broad-ranging queries as they try to preemptively identify potential fluctuations in consumer demand.

Product Lifecycle Lifeguard -- As product lifecycle traceability grows as a concern for many industries, imagine how easily Watson could track the information gleaned from smart devices as they tag products throughout the supply chain, as well as the containers and modes that are transporting them. Keeping its figurative finger on the pulse of RFID, GPS, sensors and actuators at all times, and blending this data stream with predictive planning and actual transactions (orders, inventory, shipments) should pose no problem for Watson. And it would be a reassuring source of information for SCM management.

Sustainability Savant -- Watson's analytics and modeling prowess could be used to evaluate inventories at all phases, from earth (raw material), to consumption, to afterlife ... to achieve best inventory position and levels, while managing its effects on the environment. In addition to focusing on the distribution network, Watson could help provide advice on strategic sourcing concerns which are growing in importance as SCM managers design their networks for sustainability."

I agree that Watson-like technology could be used in all those ways. But Butner isn't through yet, she foresees more uses for Watson-like technology. She writes that it could be used as an "advisor on cost-efficient practices." She writes:

"Watson could also provide advice on cost-efficient sustainability practices. Imagine having all this computing power and resources at your fingertips as you evaluate the trade offs of the carbon footprint, energy and water usage in creating, shipping or disposing of products.

Risk Ranger -- Watson could also flex its modeling capabilities to provide SCM executives and managers with probability-adjusted risk assessments for risk avoidance. Dealing with day-to-day interruptions and disruptions is an increasing concern in today's global marketplace. Watson could quickly assimilate important weather or newsroom developments to make recommendations for alternative sources of supply, transportation and routing.

Cost/Constraint Counselor -- Here's where Watson could really shine. With its instantaneous ability to provide 'What-If' modeling scenarios, SCM managers could tap Watson to determine optimal pipeline inventory levels, and determine whether to partner or outsource to benefit from flexibility, scale and skills. SCM executives could 'converse' with Watson to quickly and easily evaluate the myriad of trade-offs of cost with other constraints. They could select the best variable cost structures to enhance their supply chain networks and create cost-efficient sustainable products and practices while hedging risks with partners."

Long-time readers of this blog know that I'm a fan of "what if" analysis. For more on that subject, read my posts entitled Modeling "What If" Scenarios and Examining the "What Ifs" in Life. Although Butner earlier claimed that Watson could "quickly, accurately and confidently answer complex questions," she later admits that that Watson "actually provides a number of answers along with a confidence ranking for each answer." She concludes:

"Today's modern supply chains are incredibly complex and the demands of business just keep getting tougher. The capability that Watson could bring to this to this no-nonsense environment would provide huge competitive advantages for SCM executives who are looking to better understand their customers, gain greater supply chain visibility and exploit global efficiencies in ways that create value for their enterprise."

I think that Butner makes a great case for "Big Data" technology. Analyzing big data requires a big capability. But the IBM approach is not the only "big data" approach that can or should be used. Humans provide answers to questions on two levels. For example, if you ask someone, "What color is the sky," they will quickly answer "blue" without much thought. That is what Watson does (but Watson's intuitive, or short-term, recall is massive). It's a great capability and it has its place in supply chain analytics. But humans are also asked to answer questions that require them to think harder, dig deeper, and tap relationship that aren't always obvious. Watson can't do that. Enterra Solutions uses another approach (one that involves a unique and carefully constructed ontology). An ontology deals with how entities can be grouped, related within a hierarchy, and subdivided according to similarities and differences. The following graphic (a depiction of Cycorp's Cyc Knowledge Base) shows how intricate and nuanced these relationships can be (click to enlarge).

Ontology 02

The benefits of using an ontology include: Sharing common understanding of the structure of information; enabling reuse of domain knowledge; making domain assumptions explicit; separating domain knowledge from the operational knowledge; and analyzing domain knowledge. Together IBM's approach and Enterra's approach more closely replicate human thought processes, but on a massive level. IBM's technology is great for short-term recall and, when that is insufficient, Enterra's ontology approach provides more nuanced, analysis along the lines of long-term recall and relational thought processes. Each approach has its strengths and both approaches are capable of dealing with big data. Enterra is already providing supply chain optimization solutions in the commercial world. With IBM now having its first Watson-like technology engagement, I suspect that it will enter the supply chain market in short order. The era of big data is rapidly approaching (if not already here -- more on that in Part 6 of this series). Fortunately, the technology tools are also being developed to bring understanding from the mountains of data involved.