Enterra Insights

The Panama Canal Expansion and the Future of the Supply Chain, Part 2

In Part 1 of this two-part series, I discussed the views of five of the six experts interviewed by Bob Trebilcock, Executive Editor of Modern Materials Handling, regarding the impact that the expanded Panama Canal will have on supply chains. ["Big Picture: Voices of the Supply Chain," 1 December 2011] Those experts were: Alberto Aleman Zubieta, CEO, Panama Canal Authority; Greg Buza, director of supply chain operations, BASF Corp.; John Carver, executive vice president of port, airport and global infrastructure, Jones Lang LaSalle; Page Siplon, executive director, Georgia Center of Innovation for Logistics; ­and Donald Ratliff, executive director, Georgia Tech Supply Chain & Logistics Institute. The sixth expert, Rick Blasgen, president and CEO, Council of Supply Chain Management Professionals (CSCMP), raised so many interesting issues, I felt his comments deserved a post of their own. The CSCMP is "designed for supply chain professionals passionate about their careers and the supply chain profession. Council of Supply Chain Management Professionals members receive practical, 'how to' solutions on the industry's current hot topics from receiving member exclusives such as publications, professional education, online benefits, networking opportunities, and cutting-edge research."

As noted above, the focus of Trebilcock's interviews is the 2012 opening of the expanded Panama Canal, which he believes is going to be a catalyst for changes in supply chains. On that topic, "the biggest impact of the expansion of the canal, Blasgen believes, will be the opportunity for companies to assess the state of their logistics." Blasgen then takes the opportunity to expound on "several trends" he believes will affect "the very physical business of moving goods through the supply chain." His list of things that are going to affect the future of supply chains would be a good one to add to the lists provided by Bob Ferrari and Lora Cecere (see my post entitled Supply Chain 2012: What Lies Ahead?) Trebilcock's interview with Blasgen begins:

"Plan for supply chain disruptions: Over the first six or seven years of the new millennium, low energy prices, steady growth and stable governments led to migratory supply chains. Manufacturers chased the lowest wage areas to produce their products. The wheels came off that train in 2008. Oil spiked to $140 a barrel in the spring and the economy crashed in September. Since then, supply chains have been disrupted by the Arab spring and a volcano in Iceland. Interest rates may be at zero now, but they could shoot back up. All of these events have turned risk into a four letter word. ..."

I couldn't agree more. One of the reasons that I write so many posts about supply chain risk management is that global supply chains have exposed companies to increased risks of disruptions. Curt Barry, president of F. Curtis Barry & Co., a multichannel operations and fulfillment consultancy, claims that many businesses believe they have a business continuity/disaster recovery (BC/DR) plan in place, "but it's often not the case." ["Develop a master disaster plan," Multichannel Merchant, 1 February 2011]. He writes:

"Natural or man-made, disruptions and disasters that could pose threats to the well-being of our employees, physical plants and business viability are more common than we think — and it's human nature to be overconfident about our preparedness. ... Concerns about costs, as well as the 'it can't happen to us' mindset, prevent many companies from addressing these crucial issues."

Barry is correct that overconfidence and denial can prove disastrous for a company. For all of the reasons mentioned by Blasgen, a Supply Chain Digest article in 2010 indicated that, when CEOs think about supply chains, "cost cutting and risk management are at top of the agenda" ["How CEOs are Thinking about Supply Chain," 9 March 2010]. Blasgen, however, believes it is a serious mistake for CEOs to look at supply chain management merely as an operational cost of doing business that needs to be cut as much as possible. He believes that companies should view "supply chain management as a revenue generator." Trebilcock continues:

"For years, manufacturing, distribution and transportation were thought of as costs of doing business. Increasingly, they are the competitive differentiator. 'The best companies realize they can generate revenue if they can manage their supply chains better than the competition,' Blasgen says, who points out that Wal-mart's last two CEOs came out the retailer's logistics operations. If you have any doubts, look at how free shipping from Amazon has upended the world of online retailing. The practice costs Amazon money, like everyone else. However, since Amazon does a better job at warehousing, distributing and shipping than the competition, it gives up less of its profit margin while taking market share. 'We were once a necessary evil,' Blasgen says. 'Now we're coming into our own.'"

Half a dozen years ago Lisa Harrington wrote, "Logistics and supply chain management continue to grow in stature within the corporate world. But merely gaining visibility in the boardroom doesn't make logistics and supply chain equal players at the senior executive table." ["Logistics at the C-Level. Are We There Yet?" Inbound Logistics, June 2005] Despite the fact "that Wal-mart's last two CEOs came out the retailer's logistics operations," and that Apple's new CEO, Tim Cook, shares a similar background, there still aren't enough supply chain management executives occupying seats in the boardroom. In a sidebar to Harrington's article, Gene Tyndall, a partner at Supply Chain Executive Advisors, indicates that "some CEOs understand the value of the supply chain, [but], the majority do not." While that may demonstrate a lack of interest on the part of some CEOs, it also represents a lack of good communication on the part of supply chain executives. The next topic raised by Blasgen in his interview with Trebilcock is infrastructure. He asks, "Who owns the infrastructure?"

"For all the talk of American competitiveness, one area where we are clearly lagging is in investing in the infrastructure that supports our supply chains. 'We are not investing in an infrastructure that can support increases in population and demand,' Blasgen says. 'That’s because no one agency owns the problem. There is no central agency to address these issues.'"

The challenge of improving America's infrastructure is not new. Two years ago op-ed columnist Bob Herbert wrote passionately about the need to upgrade the country's infrastructure. ["What the Future May Hold," New York Times, 17 November 2009]. He wrote:

"What will the United States be like in 20 years when today’s toddlers are in college or trying to land that first job or maybe thinking about starting a family? The answer will depend to a great extent on decisions we make now about the American infrastructure. ... In 20 years, will today's toddlers be traveling on bridges and roads that are in even worse shape than today's? Will they endure mammoth traffic jams that start earlier and end later? Will their water supplies be clean and safe? Will the promise of clean energy visionaries be realized, or will we still be fouling the environment with carbon filth to the benefit of traditional energy conglomerates and foreign regimes that in many cases wish us anything but good? The answers to these and many other related questions will depend to a great extent on decisions we make now (even in the midst of very tough economic times) about the American infrastructure. We're trundling along in the infrastructure equivalent of a jalopy, with bridges rotting and falling down, while other nations, our competitors in the global economy, are building efficient, high-speed, high-performance infrastructure platforms to power their 21st-century economies."

Many people would argue that hard economic times are exactly when you need to invest in infrastructure. Unfortunately, with the current crop of politicians in Washington, DC, appear incapable of dealing with any major issue including decaying infrastructure. Trebilcock's article concludes:

"Blasgen says the infrastructure isn't just about roads, bridges, rail and ports. It's also about talent. 'In transportation, we have a driver shortage,' he says. 'Some of our universities are producing kids who are really well prepared for supply chain jobs, but they can't get experience. We have to ask how we can secure and retain supply chain and logistics leaders.' Right now, that isn't clear."

Blasgen makes a great point. Whenever you talk about a business, you need to discuss processes, technology, AND people. I was a little surprised by his comment that we "are producing kids who are really well prepared for supply chain jobs, but they can't get experience." According to Victoria Taylor, supply chain management could be "the next big thing." ["Supply Chain Management: The Next Big Thing? Bloomberg BusinessWeek, 12 September 2011] She reports, "Hiring is strong for supply-chain managers and salaries are rising. No surprise that it's an increasingly popular MBA option." In fact, she goes to report, "Supply chain jobs are available out there." And the jobs are not just for individuals with advanced degrees. She indicates that companies want employees with undergraduate degrees to get a little experience before they seek an advanced degree. Having some experience makes any graduate program more effective and meaningful. To learn more about supply chain management education, read my posts Supply Chain Management Education, Part 1 and Part 2.

As you can see, Blasgen covered a lot of territory in a very few paragraphs. He gives us a lot to think about as we move forward into a new year.

The Panama Canal Expansion and the Future of the Supply Chain, Part 1

In yesterday's post entitled Supply Chain 2012: What Lies Ahead, I looked at some predictions about what is going to take place in the supply chain sector made by Bob Ferrari as well as some trends being closely watched by Lora Cecere. In this two-part series, I'd like to discuss "the most important factors shaping the future of the supply chain" as identified by "six supply chain experts": Alberto Aleman Zubieta, CEO, Panama Canal Authority; Greg Buza, director of supply chain operations, BASF Corp.; John Carver, executive vice president of port, airport and global infrastructure, Jones Lang LaSalle; Page Siplon, executive director, Georgia Center of Innovation for Logistics; Donald Ratliff, executive director, Georgia Tech Supply Chain & Logistics Institute; and Rick Blasgen, president and CEO, CSCMP. ["Big Picture: Voices of the Supply Chain," by Bob Trebilcock, Modern Materials Handling, 1 December 2011] You have to admit that Trebilcock assembled an excellent group of individuals from which to draw insights. The particular focus of the experts' remarks is the expansion of the Panama Canal scheduled to be completed in 2012. Trebilcock believes the expanded canal will be a catalyst for change and he was interested in knowing how it "might impact what happens inside the four walls of manufacturing and distribution facilities." He writes:

"Materials handling solutions may happen inside the four walls of a facility, but they are affected by what happens outside of a facility. To be truly efficient, a system needs visibility— those two windows—into what is happening downstream and upstream."

His statement about the importance of visibility is true for whatever aspect of the supply chain you desire to discuss. Even before the expanded canal opens, it has already had some impact (see, for example, my post entitled Ports Vie for Increased Market Share). Trebilcock decided that the best expert to start the discussion was Alberto Aleman Zubieta, CEO of the Panama Canal Authority. He writes:

"When looking at the expansion of the Panama Canal, most logistics experts have focused on the impact bigger ships will have on supply chains centered in the Gulf of Mexico and the Eastern Seaboard. Aleman agrees with this assessment. 'Some are calling this a game-changer for the maritime industry,' Aleman says. However, Aleman believes the more important change could be in where and how companies with global supply chains locate and distribute their products. 'Panama is becoming the most important distribution hub in the Americas, especially if you want access to the growing markets in Central and South America and the Caribbean,' Aleman says. As proof, he points to a growing number of warehouses in the Colon Free Trade Zone on the Atlantic coast and Panama Pacifico and to the fact that Panama is the only country with connectivity to two oceans. As such, he argues that the country is uniquely positioned to be a value-added distribution platform for global companies. Aleman also envisions Panama becoming a hub for redistributing at the level of the ship load. 'You can bring a full container into a distribution center, break it down and repack the product for a specific market before shipping it back out to a customer,' he says. 'Or, you can offload the containers from a large vessel onto several smaller vessels headed to different markets. At the end of the day, this is a value-added route and not just a passage way between the Pacific and Atlantic oceans.'"

Aleman could be right if so-called "conveyor belt routes" are established by ocean carriers between Panama and other destinations. Maersk recently began running such a service, called Maersk Daily, between Asia and Europe. This kind of a system could provide enormous shipping flexibility for suppliers. Trebilcock's next expert, Greg Buza, director of supply chain operations, BASF Corp., seems to agree that the expanded canal will provide more flexibility, even if Panama is just passage between oceans.

"The expansion of the Panama Canal is one of the catalysts that has BASF kicking off the first comprehensive review of its North American distribution network supply chain since 2004. 'The most important driver of our warehousing and transportation operations is the balancing of service and cost,' says Buza. 'We ask: How close are we to our customers, how quickly can we get product to our customers and what is the cost of getting those materials to our customers?' An expanded canal may create opportunities to reduce supply chain costs by relocating facilities now operating on the West Coast to the East Coast or the Gulf region. 'We are especially looking at Houston and New Orleans to expand our shipments to Asia,' says Buza. 'Freight for Asia is typically railed to the West Coast. If we can save money by bringing vessels into the Gulf through the canal, that could change how we crossdock and store materials.' While the expansion is first and foremost a network design puzzle for Buza, he says BASF is rethinking its order fulfillment processes. 'We are looking at automating more of our warehousing and standardizing our processes across our network to lower our costs,' says Buza. In North America, for instance, Buza is focusing on integrating supply chain management systems for greater visibility and efficiency. Globally, the company has built highly automated distribution centers in Asia and South America. 'We're taking what we've learned and looking to add automated handling and storage in North America in the future,' he says."

Automated handling and storage permits companies to leverage management-by-exception. If routine matters are handled automatically, decision makers can spend more of their valuable time dealing with potential at-risk shipments, emerging delays, and so forth. The sooner problems can be identified, the more time a decision maker has to mitigate the outcome. Those are issues that my company, Enterra Solutions, is helping clients address by giving them more visibility into their supply chains. Trebilcock next interviewed John Carver, executive vice president of port, airport and global infrastructure, Jones Lang LaSalle.

"The expanded canal will result in new supply chain opportunities, new areas of efficiencies and new strategies for transportation and distribution. 'There is an imaginary line where things destined for the East Coast come in east of the line and everything else comes in through Long Beach,' says Carver. 'Right now, that line is somewhere around Memphis. We believe it's going to shift to Dallas. That’s going to result in new distribution strategies.' That doesn’t mean that every product destined for the eastern half of the country will automatically be diverted away from Long Beach. Carver believes that products with a shelf life, including everything from food to trend-sensitive fashions and fast-moving consumer electronics, will still enter through the West Coast. Raw materials and basic products with a longer shelf life will find the most economical way to reach their final destination. 'That is likely to be the East Coast because of the canal,' says Carver. Wherever that cargo lands, Carver is predicting more warehouse space because of slow steaming, slowing a vessel down from 25 knots to 18 knots to save fuel. 'Talk to carrier lines, and they'll tell you that trend is here to stay,' Carver says. 'That suggests more inventory and more warehouse space.' Anyone who has watched the development of warehouse and distribution space around the ports in Long Beach, Oakland or Savannah understands that the expansion of the canal will affect more than just the cost of shipping a container. It will also affect the industrial real estate sector and supply chain logistics. 'The amount of growth and investment within the broader logistics universe will be exponential, impacting everything from shipping and rail line construction to warehousing and terminal development around the world,' predicts Carver. He adds that there are already discussions underway between major shippers and logistics providers about new facilities even if the expansion is several years off. 'Logistics providers realize that shippers drive business to their ports and warehouses,' Carver says. 'They’re going after the Wal-marts, Home Depots and Ikeas of the world to address their needs.'"

Carver raises an important point when he talks about how entire distribution systems are going to be impacted by revised shipping routes and practices. The trucking and rail industries are also going to have to adapt to some new realities once the expanded canal opens. Carver's remarks lead me to believe that supply chains will become even more complex which will increase the need for technologies that can help deal with that complexity. Trebilcock next interviewed Page Siplon, executive director, Georgia Center of Innovation for Logistics.

"'There's no question. The expansion of the canal is going to change the importance of logistics in the United States,' says Siplon. 'Volume growth is going to dictate that companies look at where they put their four walls and how they operate to handle that increased volume.' Siplon believes five factors will drive the development of distribution centers in the coming years.

"Site selection: 'Proximity to customers remains a key basic of site selection,' says Siplon. 'But they're also asking questions like whether there is the right kind of infrastructure and whether there will be enough truck drivers in a radius to serve their customers.'

"In-house or outsource: Siplon is intrigued by one distribution stat in particular: 51% of companies with more than $2.5 billion in sales have more than 10 distribution centers in their network. Those networks will have to expand to accommodate increased growth and volume. 'The one commonality I hear when I talk to end users is whether they should outsource some of their network to a 3PL,' Siplon says. 'They want the flexibility to scale up or down, they want to reduce their costs and they want to mitigate their risks. With a 3PL model, the headaches become someone else's headache.' Small manufacturers and distributors are especially attracted to the 3PL model as they look to expand internationally, according to Siplon.

"Add value: Importers and exporters are increasingly looking at their distribution centers as value-added centers, places to configure a product before it is shipped to its next destination. 'It's expensive for cargo to stop,' says Siplon. 'If it must stop in a warehouse, why not use that pause in the supply chain to do something that adds value.' Since value-added services change over time 'that fits perfectly the flexibility you get in a 3PL model,' Siplon says.

"Add technology: Materials handling automation is still the exception for most of the DCs in and around Savannah, but that is changing. 'We're talking to companies that want to double their throughput in Savannah,' Siplon says. 'We’re also talking to companies that are trying to get new customers in industries like pharma and food that have very specific inventory management requirements. Companies that want to play in that game need technology to scale and compete.'

"Labor matters: Yes, we have 9% unemployment. But distribution operations continue to struggle to recruit, train and retain qualified labor. 'In Georgia, we have about 100 different logistics offerings in our high schools, community colleges and universities,' says Siplon. 'When we sit down with businesses and ask them what they need, the first thing they says is: How do you train a good work ethic.' As the volumes of freight being stored, processed and moves increases, that is going to become more of an issue nationally. And, it may drive the adoption of automation and technology. 'If we're going to get manufacturing back to the U.S., we have to figure out how to make the workforce compete,' Siplon says."

­Siplon makes some important points. I was particularly interested in what he said about "industries like pharma and food that have very specific inventory management requirements." As product tracking becomes more important in those sectors, Siplon is correct that "to play in that game [companies] need technology to scale and compete." Enterra is looking into how its basic Sense, Think/Learn, Act system can be used in this area. Trebilcock next interviewed Donald Ratliff, executive director, Georgia Tech Supply Chain & Logistics Institute.

"How will the expansion of the canal impact global trade? Ratliff says the answer is not a simple one. He poses three key questions that need to be answered:

"Will bigger ships be cheaper to operate? While Ratliff has seen estimates that larger ships could save anywhere from 10% to 40% per container, he asks whether the ships will be operationally cheaper once a shipper factors in the investment in these big new ships.

"Will shipping lines pass on the savings? 'Right now, shipping companies are in a world of hurt,' Ratliff contends. 'They have additional capacity and they're slowing their ships down to save fuel. If you’re currently losing money and can’t currently fill up your smaller ships, will you be able to fill up the bigger ships? And, if you do, will you pass on those operational savings to your customers?' Ratliff believes the jury is still out.

"What will be the impact on service levels of bigger ships? Will carriers continue to send one ship a week once they go to bigger ships? Or will they make fewer deliveries? And, if it now takes one day to unload a smaller ship, will it take three or four days for a bigger ship? If either of those events occur, shippers will need to carry more inventory to offset the longer delivery times.

"Bottom line: 'There is a lot of uncertainty in my mind about the canal.' What is certain, he says, is that the expansion is forcing major manufacturers and distributors to take a hard look at their international supply chains. 'Ultimately, that's going to result in more efficient supply chains, and that's a good thing,' Ratliff says."

In some ways, the timing of the opening of the expanded Panama Canal is unfortunate. As Ratliff points out, the shipping industry is "in a world of hurt" and the new post-Panamax ships will only add to the overcapacity from which the shipping industry now suffers. To learn more about the current state of the shipping industry, read post entitled Update on the Shipping Industry.

Trebilcock's final interviewee was Rick Blasgen, president and CEO of CSCMP. Blasgen raised so many interesting topics, that I've decided to discuss his comments separately in part 2 of this series.

Supply Chain 2012: What Lies Ahead?

This is the time of year when people start thinking about the months ahead. In this post, I'll look at what some respected analysts and business leaders are saying about the supply in the year ahead and beyond. Perhaps the boldest of the prognosticators is Bob Ferrari, who makes ten predictions about the global supply chain in 2012. ["Supply Chain Matters Blog 2012 Predictions for Global Supply Chains- Part One," Supply Chain Matters, 9 December 2011] He begins with the economy:

• A continued spillover of high uncertainty of events related to the global economy will make business growth highly challenged, and thus provide another challenging year in global supply chain management.

Based on the fact that politicians in Washington lack both the courage and common sense to tackle pressing budget issues, I would say that Ferrari's first prediction is probably a safe one. Although politicians in other areas have shown slightly more courage in tackling economic issues than Washington, it's fair to say that the global economy is going to be lackluster through most of next year. The fact that it is a presidential election year in the U.S. doesn't help. Politicians don't want things to get better for fear that an improved economy will help one or the other party. Ferrari next turns to commodities and supplies.

• Commodity and component price increase levels experienced in 2011, with some exceptions, will moderate in 2012, but procurement teams need to maintain a keen eye on both pricing and supplier health and performance and supply network agility.

Let's hope he's right. Volatility makes life miserable for everyone. In another post, Ferrari explains why he made this prediction. ["Supply Chain Matters 2012 Predictions for Global Supply Chains- Part Two," Supply Chain Matters, 9 December 2011] He writes:

"Moving into 2012, all indications point to continued moderation of inbound price hikes, especially if economic output activity begins to falter. The U.S. Department of Agriculture has forecasted food inflation levels to moderate in the range of 2.5 to 3.5 percent in 2012 over the 3.5 to 4.5 rate increases experienced in 2011. Similarly, metals prices are expected to moderate or decline, especially if world economic output takes a dramatic negative turn in 2012. The October 2011 Manufacturing ISM Report on Business reported the ISM Prices Index as 15 percentage points lower than September, with areas such as plastics, primary metals, electrical equipment, chemicals, papers, among others, all indicating lower prices."

His next prediction involves supply chain sourcing and risk management.

• As a result of the major supply chain disruption events that occurred throughout 2011, senior management among global manufacturing firms will call for a re-visit of supply chain component and finished goods outsourcing strategies, weighing overall risk as well as low cost parameters.

In another post, Ferrari explains what he thinks will occur in this area in the coming year. ["Supply Chain Matters 2012 Predictions for Global Supply Chains- Part Three," Supply Chain Matters, 12 December 2011] He writes:

"Attention will turn towards increased scenario planning, particularly for low-probability but high impact events along with the need to have more built-in redundancies across the global supply chain. ... There are now increasing indications that the major global insurers and reinsurers will re-evaluate weather and natural disaster risk profiles in certain geographic regions that have had recent multiple occurrences or have the potential for increased natural disaster risk. Insurers will begin to request more detailed information related to global supply chain sourcing presence. Depending on that re-assessment, the criteria for global sourcing of components, contract manufacturing and finished goods may well have to include weighting for increased casualty and business continuity costs associated to a specific geographic region, particularly coastal regions of Asia Pacific."

There is also a good chance that many manufacturers will reconsider near-sourcing in order to reduce costs, risks, and supply chain complexity. Ferrari next makes predictions about some specific industry sectors.

• Three specific industry sectors, B2C, Pharmaceutical and High Tech, will be especially affected by significant supply chain challenges or turmoil in 2012.

Ferrari explains his prediction this way:

B2C Sector

"The B2C sector will continue to be impacted by the momentum of online multi-channel commerce and a more technology empowered consumer who demands multiple buying options and service experiences. Retailers have quickly come to discover that their supply chains need to have the ability to respond and execute holistically across all consumer buying channels, including online, in-store, vendor direct-ship, or combinations thereof. ...

Pharmaceutical and Healthcare

"An article published in Strategy and Business in mid-November re-iterates that the Pharmaceutical industry must fundamentally re-think its supply chain. The article notes: 'There is minimal communication, little effort toward mutual improvement, and no real desire to pursue efficiency gains.' ... Frankly, the industry has shown no public signs of resolving a myriad of supply chain issues involving the increased complexity of a global supply chain involving generic and contract manufacturing relationships. Rather than a mentality that views supply chain as a burden of cost centers, the industry must embrace supply chain efficiency and responsiveness, disciplined and meaningful sales and operations planning as a competitive differentiators.

High Tech and Consumer Electronics

"We have added High Tech / Consumer Electronics because of the residual impacts of the devastating monsoon related floods that impacted Thailand and other Southeast Asian nations in the fall of 2011. There are all indications that a significant shortage of hard disk drive components and production capacity will extend to the mid-2102, possibly to through the end of the year." ["Supply Chain Matters 2012 Predictions for Global Supply Chains- Part Four," Supply Chain Matters, 13 December 2011]

Ferrari next turns to the concept of control towers. He writes:

• The concept for 'supply chain control tower' coupled with more leveraged use of predictive analytics will come to the forefront, but in 2012 there will be a need for vendors and consultants to focus on market education and early adoption support.

To read more about the control tower concept, see my post entitled Have You Heard about Supply Chain Control Towers? Ferrari's next prediction is about cloud computing.

• Cloud computing and managed services options directed at enabling supply chain business processes will continue to gain more traction.

In recent months, Oracle, SAP, and IBM have all paid premium prices for cloud-based companies. To learn more, read my post entitled SAP Heads for the Cloud. Ferrari predicts those acquisitions will continue.

• Expect additional M&A and partnership activity among supply chain technology and ERP providers as vendors shore up application areas with the best prospects for sustained future growth.

Ferrari next turns to the subject of "counterfeit products, cargo theft, and other scurrilous activities." He writes:

• The challenges related to higher incidents of counterfeit products, cargo theft and other scurrilous activities within and across global supply chains will finally motivate government and industry to step-up process standards and corrective mitigation efforts.

To read more about what is being done in the area of cargo theft, read my post entitled Piracy on the Freeways. Ferrari next turns to technology. He predicts:

• Wider scale leveraging and adoption of in-memory computing technologies among enterprise and specialty supply chain vendors, coupled with broader leveraging of data mining, have the potential to be game changing influences on supply chain business planning and response management.

Ferrari explains:

"This is ... an area where the challenges for managing and mining large data volume and the fusing of the physical and digital aspects of supply chain can be brought together. The question is timing and demonstration, and readers should note that we have not affixed a firm 2012 timing for this prediction. The converging forces of a more rapid clock speed of business change, along with senior management imperatives for quicker, more timely and responsive decision-making in response to events, continue to motivate supply chain management teams to shed sequential supply chain planning and execution processes in favor of a combined response management process that is built upon more rapid planning and predictive analytics that anticipate various scenario responses to an unplanned event. Today’s cadence and process-sequential S&OP processes are having some difficulty with keeping up with the current clock speeds of business change. The goal now equates to delivering the most timely knowledge and insights to the point or process of need."

I like the way that Ferrari refers to clock speeds of business change. The clock is definitely speeding up and decision aids need to keep pace. Ferrari's final prediction involved mobile technologies and social media. He predicts:

• The leveraged use of systems of engagement, namely mobility and social media applications within select supply chain, PLM and manufacturing process areas will gain additional momentum.

Another supply chain expert, Lora Cecere, offers up seven trends to watch during the coming year. ["Trends I Am Watching," Supply Chain Shaman, 28 November 2011] She doesn't make explicit predictions about these trends, but the fact that she is watching these areas implies that she expects significant activity in these areas. Her first trend deals with big data. She writes:

"Big Data Supply Chains. The concept of the big data supply chain is the evolution of technologies to harness the explosion of data and new data sources–sensor data, unstructured text, demand and supply sensing, transactional data forms– to drive a near real-time response. ... I will also be closely following the expanding capabilities of in-memory processing and the growing capabilities for reporting and analytics."

Since my company, Enterra Solutions, is involved with analyzing big data (both structured and unstructured), I obviously agree with Cecere that significant progress is going to be made in this area over the coming months and years. The next trend she will be watching involves outside-in supply chain processes. She writes:

"Definition of Outside-in Supply Chain Processes. Today’s supply chain processes are designed from the inside-out (from the enterprise processes of procure to pay and order to cash). Tomorrow’s processes will be designed from the outside-in (from the external environment to internal processes). The focus will be on sensing, shaping and driving an intelligent response. This evolution will take many years and will require the redefinition of current supply chain architectures. I will be following these trends."

Cecere has been preaching the benefits of outside-in processes for some time. I suspect that her prediction that "this evolution will take many years" is based on some of the frustration she feels that companies are moving faster in this direction. Her next trend involves another of her favorite subjects -- social commerce. She writes:

"Digital Path to Purchase and Social Commerce. ... In October [2010], Altimeter hosted an event – Rise of Social Commerce – to focus on the evolution of social processes to drive commerce. A year later, I find that the goals are still aspirational, but following one of four paths: extension enrichment of eCommerce, social as a new channel, social convergence of mobile/social and digital in the digital path to purchase and open innovation. The intersection of the open and social graph is still largely an untapped opportunity for the customer-centric supply chain."

For more on this topic, read my post entitled Multi-Channel Commerce Gaining Ground. Her next trend, like her first, involves big data. She writes:

"Evolution of Supply Chain Adaptors. To connect the end-to-end supply chain, companies need adaptors for both demand and supply relationships. These adaptors cleanse, harmonize, translate and normalize disparate data types to improve demand and supply sensing. Demand signal repositories (DSR) were an early form of this technology category. Companies are learning the hard way that building the end-to-end supply chain is not as easy as connecting ERP and APS building blocks."

I believe that Cecere and Ferrari agree on this point. It is why Ferrari predicts that large ERP providers will continue to acquire companies that provide the adapter services described by Cecere. Her next trend to watch involves supply chain security. She writes:

"Safe and Secure Supply Chains. With changing legislation for serialization in pharmaceuticals and food safety in global supply chains, I will be following the impact on supply chain execution and the extended supply chain."

The Food and Drug Administration reports that "every year, 1 out of 6 people in the United States — 48 million people — suffers from foodborne illness, more than a hundred thousand are hospitalized, and thousands die." As technologies improve and become more affordable, making the supply chain safer and more secure should be a top priority. In questionable economic times, however, anything that adds cost in the supply chain is received lukewarmly at best. Still, I agree with Cecere that this is an area to watch. Her next trend deals with sensing. She writes:

"Supply Chain Sensing. Today, supply chains respond. They do a poor job of sensing. While latency in the extended supply chain is weeks (and the concepts of the bullwhip effect are understood academically), the impact is largely ignored in the extended supply chain system design."

Proctor & Gamble CEO Robert McDonald agrees with Cecere that the future depends on sensing. He told McKinsey Analysts Michael Chui and Tom Fleming:

"We’ve been working with all our data partners to help them understand that our need is for real-time data. For us it's really constraint theory—understanding where the constraint in our data is and pushing it all the way to the data source. Then, change the data source. For companies like ours that rely on external data partners, getting the data becomes part of the currency for the relationship. When we do joint business planning with retailers, for example, we have a scorecard, and the algorithm is all about value creation. Getting data becomes a big part of the value for us, and it's a big part of how we work together. We have analytic capabilities that many retailers don't have, so often we can use the data to help them decide how to merchandise or market their business in a positive way." ["Inside P&G’s digital revolution," McKinsey Quarterly, November 2011]

The final trend that Cecere is watching concerns benchmarking. She writes:

"Redefinition of Supply Chain Benchmarking. Software as a Service (SaaS) offers companies the opportunity to redefine benchmarking practices to represent the near real-time supply chain potential of peer groups. I will be closely following this trend as SaaS offerings embrace content and global supply chains align to near real time performance signals."

Since Enterra's products are cloud-based SaaS offerings, I obviously agree that companies like mine have the potential to change how companies view and use supply chains. Individuals involved in supply chain management should be grateful to analysts like Bob Ferrari and Lora Cecere who have the courage to look into the future and offer their insights. They may not be right in all cases, but their views are an important part of the continuing discussion that must be held if supply chain management is going to remain relevant in the years ahead.

Multi-channel Commerce Gaining Ground

Scott Fenwick, senior director of product strategy for Manhattan Associates, writes, "With consumers' growing expectations to shop the way they want, traditional brick-and-mortar retailers have overcome their fear of ecommerce cannibalization of store sales, adopting dotcom storefronts and strategies to help ensure a consistent experience across all channels—and ultimately increase sales." ["Other Voices: Tools for Cross-Channel Retailing," Modern Materials Handling, 28 June 2011] Managers at traditional brick-and-mortar stores probably aren't as happy with multi-channel commerce as corporate headquarters; but, they are learning to adjust. As Jayne O, writes, "Online and offline experimentation will be omnipresent this holiday season, as retailers and consumers both try to figure out the most effective way to shop. There is much at stake for the retailer who can't figure out how to integrate online and in-store shopping. Those who aren't optimized for digital and mobile devices could lose customers." ["Lines Blur for Online and In-Store Shopping," CRM Daily, 29 November 2011] Fenwick notes that figuring it out is not necessarily an easy thing to do. He continues:

"With these new cross-channel opportunities come new challenges, and perhaps going somewhat unnoticed and unattended is the impact to store operations. Perhaps the most common cross-channel activity among consumers today involves completing research online prior to making a purchase in the store, but a number of other permutations have materialized to keep customers happy—and sales on the books:

• Buy online/pick up in store;
• Buy anywhere/ship from store to home;
• Buy online/transfer to store for pick up;
• Research online/reserve in store;
• Buy online/return to store; and
• Endless aisle buy in store/ship to store or home

"But new channels, along with new services, bring new challenges. Retailers need new and improved store systems and processes in place to address this business problem."

Without even going into detail about each of the shopping options listed by Fenwick, the complexity they bring to retailing is obvious. Fenwick writes, "To transform a store from simply being an end-point in the supply chain and a gateway for the in-store shopper into a fully functional 'node' in the supply chain, [a number of] technology capabilities must exist." The first deals with inventory management. He explains:

"Tightly managing the flow of merchandise into the retail store is the first step in improving inventory accuracy, which is the life-blood of any cross-channel retail enablement initiative. Retailers should look for solutions that offer the ability to receive goods into the store electronically and perform and audit quality inspections. For retailers that receive shipments directly from external vendors, they should also look for the flexibility to print store specific price tickets at the point of receipt."

For some merchandise, one excellent method to achieve this goal is through the use of RFID tags. They have the potential for providing improved inventory management, audit quality inspections, and data that can be used to improve stocking and planograms as well. Fenwick next turns to order fulfillment. He writes:

"Both cross-channel and endless-aisle initiatives involve better leveraging inventory assets residing at the store to fulfill customer orders. This approach ensures sales opportunities are not lost and takes advantage of the most cost-effective fulfillment strategy. Retailers should look for the ability to negotiate and accept orders being fulfilled from their store locations as well as direct store associates to pull merchandise from the retail shelves efficiently and either pack and ship, or hold, depending on the customer-delivery model. For goods being shipped to other store locations for pick-up or direct to the consumer’s home, retailers will require the ability to leverage common parcel carriers dynamically to perform rate shopping, generate shipping labels and documentation, track the shipments, and possibly capture electronic signatures for proof of delivery."

To achieve this goal, a retail chain obviously needs a robust IT backbone and needs to establish close collaborative relationships with shippers. Fenwick next discusses supply chain visibility.

"To facilitate most ... business processes, ... store managers need visibility well beyond their own front door. Retailers should look for solutions which give them instant access to information pertaining to inbound shipments (from any point in the supply chain), outbound shipments (to any point in the supply chain), current order status, as well as inventory (both on-hand and intransit goods). This information should be rendered in easy-to-use and flexible formats, which are purpose built for the in-store operator."

My company, Enterra Solutions, specializes in offering the kind of visibility Fenwick recommends so this is obviously a topic of interest for me. Some companies still fear sharing information up and down the supply chain; but, their reluctance could be costing them profits. Professors Martin Christopher, from Cranfield University, and Hau Lee, from Stanford University, have asserted, "If information between supply chain members is shared, its power increases significantly. ... Mason-Jones and Towill (1997 and 1998) have demonstrated that 'information-enriched' supply chains perform significantly better than those that do not have access to information beyond their corporate boundaries." ["Mitigating Supply Chain Risk Through Improved Confidence," International Journal of Physical Distribution & Logistics Management, 2004] Fenwick next addresses another area in which Enterra excels -- business analytics. He writes:

"Finally, once the store is operating as a fully functional distribution point, it is critical to gather key performance measures from each store to monitor efficiency and effectiveness over time. Retailers should look for solutions that automate the collection of these execution-centric metrics and consolidate those across all distribution channels."

Fenwick concludes that even though the challenges are daunting, new technologies can overcome them. "Retailers now have much more cost-effective options for deploying robust and easy-to-use supply chain capabilities across their hundreds and thousands of retail store locations," he writes. "By leveraging web-based deployment methodologies, retail execution capabilities can now be deployed centrally at the corporate IT location and be fully leveraged by store associates located anywhere in the world." Jayne O reports, however, that "many retailers are dawdling, some even stumbling, when it comes to courting increasingly tech-savvy shoppers." She continues:

"Less than half of the top 30 retailers have iPad apps, and none have Web sites that are specifically optimized for the iPad. Three-fourths of the top U.S. retailers are not meeting shoppers' expectations that mobile Web pages should load in five seconds or less, according to Compuware. 'Retailers don't appear to be investing enough to capture that market,' says Steve Tack, Compuware's chief technology officer for application and Web performance. Dissatisfied consumers could quickly move on to competitors at a time digital sales are one of the few bright spots in holiday retailing, Tack says."

Perhaps one of her most profound observations is that "technology shifts behavior." Retailers that don't adapt to changed consumer behavior are obviously going to be left behind. Richard Wilson, a marketing professor and a director of the Kellogg Center for Global Marketing Practice, told her, "Technology is quickly making new norms possible. Pervasive digital data plans and in-store Wi-Fi are enabling shoppers to do it all at once, to combine offline and online excursions together." She continues:

"One in four consumers 'frequently' or 'always' use a mobile device to compare prices while shopping in a store, a new Kellogg study shows. Nearly two-thirds said they do so at least 'occasionally.' Nearly half of smartphone and tablet users plan to make holiday purchases with a mobile device this year, according to a study conducted by Ipsos for PayPal. The uptick in online shopping is good news for retailers: The holiday shopper who uses multiple channels -- such as online, mobile and in-store -- will spend 22% more than people who shop only in stores, says NRF spokeswoman Ellen Davis. There are several factors affecting the increase, Davis says, including more merchandise options available through multiple channels and the convenience of online shopping."

From the number of store closings that have already taken place during the current recession, it's clear that maintaining profitability in a brick-and-mortar store is not easy. And apparently there are more closings to come. SupplyChainBrain reports, "While most retailers have already closed their worst performing stores and made their operations as lean as possible over the past few years, the uncertain economic climate might lead to a substantial number of store closures in the first quarter of 2012. By conservative estimates, next year will likely bring more than 5,000 store closings, says Michael S. Wiener, president and CEO of Excess Space Retail Services Inc., a national consulting and advisory firm specializing in disposition and lease restructuring. And that’s not counting closings related to bankruptcies and liquidations." ["Store Closings Are Likely to Top 5,000 in 2012," 29 November 2011] Despite these closings, brick-and-mortar stores play an important role in multi-channel commerce. Jayne O continues:

"Most people don't solely shop online or only shop in a store, [Martine Reardon, Macy's executive vice president of marketing and advertising,] says. They pick and choose the channels based on what fits in their lives. Her goal: to let shoppers know that Macy's can meet their holiday needs, whether it's in physical stores, at Macys.com, on a Macy's app or another Macy's-branded avenue. 'All I care about is that they (consumers) are engaging with the Macy's brand -- whether they choose to do that online, on the desktop or on their mobile device while walking the store,' she says. Walmart has a similar stance. Its holiday plan is to provide a 'seamless experience' for the online, mobile and in-store shopper, spokesman Ravi Jariwala says. With its range of initiatives -- which include new tablet apps and giving Walmart.com users sneak peeks of in-store specials -- 'customers can shop Walmart when, where and how they choose,' he says. Macy's is increasingly giving tablets to clerks to search online inventories through a Macys.com app. Customers can view and order merchandise that may be out-of-stock or not sold at a local Macy's."

Jayne O indicates that Sears and Home Depot are also using mobile devices. Dana Mattioli reports that they are part of a growing movement that is in increasing the use of mobile devices in store. She reports that a number of "retailers use mobile devices to ring up purchases right on the sales floor." ["Gadgets Unchain Cashiers," Wall Street Journal, 28 November 2011] Jayne O continues:

"While consumers are clamoring for more digital shopping options, retailers' efforts to merge online and offline worlds are about more than customer satisfaction, retailing experts say. It's more efficient for retailers to limit the inventory they keep in stores, says retail branding and design expert Ken Nisch. Distribution centers allow retailers to ship directly to stores or to online customers. That reduces the need for markdowns at stores where products didn't sell, as well as the cost of shipping products between stores. 'Online is not a default mechanism for the failure of bricks-and-mortar stores to satisfy the customer, but a complement,' Nisch says."

I think Nisch is right that consumers still enjoy a good in-store experience, but will increasingly complement that experience through the use of mobile devices. Retailers are learning that lesson and are jumping on the bandwagon rather than trying to slow it down. To read more on this topic, see my post entitled Multi-Channel Commerce: The Rise of E-Commerce. The data has not been analyzed for this past holiday season, but it will be interesting to see what it shows when all the results are in.

Resilience, Risk, and Personality

Having read this post's headline, you might be wondering what personality has to do with resilience and risk. In a very interesting interview that Dustin Mattison conducted with Maja Puljic, a doctoral researcher and PhD candidate at Manchester Business School in England, Puljic explains why she believes personality matters. ["Influence of Personality on Supply Chain Risk Management," Dustin Mattison's Blog, 1 December 2011]. The first question Mattison asked was, "Why are psychological aspects interesting and why should the psychology of individuals be considered in supply chain risk management?" He continues:

"Maja believes we need this approach so that we can learn how to appropriately consider the so called 'people' dimension in the management of supply chain risk. That way you get a more complete picture of what is going on behind decisions that determine supply chain risk strategies. In addition to the structural and technical aspects of managing supply chain risk, there is another set of crucial variables – the human variables that need to be considered if we are to fully understand how supply chain risks are perceived, how they are assessed and how supply chain risk management decisions are made."

I'm sure that most executives would like risk management to be a cut and dried system that mathematically calculates risks and offers an optimized plan for dealing with those risks. We know, however, that risk management is not that simple. Puljic is correct that human variables matter. One of the first things that a good financial advisor asks a client is, "How much risk are you willing to take?" One way or another, all companies ask themselves that same question. The answer to that question relies primarily on the psychology and personality of the decision makers involved. As Puljic notes, "The decisions are not made by the supply chain, they are made by supply chain managers. That is why we need the behavioral approach to supply chain risk management just as much as we need other approaches to help us shed light on that particular factor in the equation." The second question posed by Mattison was, "Which specific issues are being investigated?" He continues:

"The starting point or underlying assumption is that the initial assessment of supply chain risk, especially when it comes to probability and estimated frequency of supply chain disruptions is still very much down to the individual perception of the supply chain managers. The impact of supply chain disruptions is usually easier to estimate because companies can work with financial records. The probability that a supply chain disruption will occur is much more difficult to estimate. This is usually where the individual perception of the supply chain manager takes the lead."

Frankly, Puljic's answer surprised me a bit. I would have thought that probabilities and frequencies of risks would have been based more on historical factors than individual perceptions. Puljic explains why she believes her position is correct.

"We know from previous research in other areas that managers perceive risk objectively and that it is a highly individual matter. Managers perceive risk in a way that deviates from what is so called unbounded rationality. It means that managers, due to time constraints, unlimited transparency of information, etc., as a rule will not analyze the whole situation or environment. To a certain extent or perhaps a large extent they will have to rely on their own perception of risk."

I believe she meant to say that managers perceive risk "subjectively" vice "objectively." An objective viewpoint is supposed to be unbiased whereas a subjective viewpoint is biased. Her thesis is that these biases affect supply chain risk management decisions. Mattison reports, "This is where Maja works with the individual's risk perception." He continues:

"Other factors which come in are individual differences. Other issues investigated are personality traits, individual cognitive biases, judgment and decision making biases, and differences such as past experiences, individual working style, problem solving style, coping with uncertainty, ambiguous situations etc."

For me, all of those factors bear on how much risk a manager believes his company can tolerate, but, I suppose, they could also influence the perception of the probability that a particular risk will or will not occur. The third question posed by Mattison was, "What is the contribution or benefit of this new research approach for supply chain management practice?" He concludes:

"With this research Maja and her team will learn about the degree of subjectivity in the perception and management of supply chain risk. This means that they will be able to isolate that human element from the whole situation. They will be able to attribute certain variances in decisions to the individual or behavioral elements, as opposed to structural and technical factors and financial objectives. They will be able to see the main causes for variations in supply chain risk perception. They will also be able to determine if these variations are due to the leadership and personality traits, individual styles, cognitive patterns, the way the person copes with uncertainty, etc. When they know these things they will be able to provide strategies, tools and methods that will help supply chain professionals improve their decisions associated with managing supply chain risk. De-biasing and improving the quality of your decisions to become more objective and accurate is actually something that can be learned and trained. A particular contribution of this research will be that they will be able to develop and provide methods and tools for de-biasing and improvement in decision making in supply chain risk management."

Puljic is not the only researcher interested in the psychology aspects resiliency. Diane L. Coutu, a senior editor at Harvard Business Review, wrote, "Resilient people share three traits: acceptance of reality; a deep belief that life is meaningful; and an uncanny ability to improvise." ["How Resilience Works - Improvising Your Way Out of Trouble," Working Knowledge for Business Leaders, 26 August 2002] Coutu asserts that "resilience can help you survive and recover from even the most brutal experiences." ["How Resilience Works," Harvard Business Review, Vol. 80, No. 5, May 2002] If Coutu is correct, CEOs would do well to ensure that their risk managers are grounded in reality rather than being eternally Pollyanna-ish. She claims that a resilient person "take[s] a sober, down-to-earth view" of reality and the situation in which they find themselves. When a person does that, they are able "to endure." She calls this, "training ... to survive before the fact."

Being based in reality doesn't mean that a person is either dour or pessimistic. Coutu claims that a resilient person never cries, "Why me?" Instead, they "build bridges" from any "present-day ordeal to a fuller, better future." The important part of this "search for meaning," she claims, is that "those bridges will make the present manageable, by removing the sense that the present is overwhelming."

Perhaps the most important characteristic of a resilient person, however, is the ability to improvise. In the first article by Coutu cited above, she focuses on that trait. She writes:

"The third building block of resilience is the ability to make do with whatever is at hand. Psychologists follow the lead of French anthropologist Claude Levi-Strauss in calling this skill bricolage. Intriguingly, the roots of that word are closely tied to the concept of resilience, which literally means 'bouncing back.' Says Levi-Strauss: 'In its old sense, the verb bricoler…was always used with reference to some extraneous movement: a ball rebounding, a dog straying, or a horse swerving from its direct course to avoid an obstacle.' Bricolage in the modern sense can be defined as a kind of inventiveness, an ability to improvise a solution to a problem without proper or obvious tools or materials. Bricoleurs are always tinkering—building radios from household effects or fixing their own cars. They make the most of what they have, putting objects to unfamiliar uses."

The Indians also have a word that fits this concept -- "Jugaad" (pronounced jewgard). It is an Indian term used to describe a unique innovation process. Literally, "jugaad" means " somehow get it done." Apparently, this is a great trait for a risk manager to possess. The reason, according to Coutu, is that "when situations unravel, bricoleurs muddle through, imagining possibilities where others are confounded." She continues:

"Resilient organizations are stuffed with bricoleurs. ... Indeed, companies that survive regard improvisation as a core skill. Consider UPS, which empowers its drivers to do whatever it takes to deliver packages on time. Says CEO Eskew: 'We tell our employees to get the job done. If that means they need to improvise, they improvise. Otherwise we just couldn't do what we do every day. Just think what can go wrong: a busted traffic light, a flat tire, a bridge washed out. If a snowstorm hits Louisville tonight, a group of people will sit together and discuss how to handle the problem. Nobody tells them to do that. They come together because it's our tradition to do so.' That tradition meant that the company was delivering parcels in southeast Florida just one day after Hurricane Andrew devastated the region in 1992, causing billions of dollars in damage. Many people were living in their cars because their homes had been destroyed, yet UPS drivers and managers sorted packages at a diversion site and made deliveries even to those who were stranded in their cars. It was largely UPS's improvisational skills that enabled it to keep functioning after the catastrophic hit. And the fact that the company continued on gave others a sense of purpose or meaning amid the chaos."

Coutu stresses that encouraging bricolage is NOT the same thing as tolerating "unbridled creativity." She notes that "UPS lives on rules and regulations." She continues:

"As Eskew says: 'Drivers always put their keys in the same place. They close the doors the same way. They wear their uniforms the same way. We are a company of precision.' He believes that although they may seem stifling, UPS's rules were what allowed the company to bounce back immediately after Hurricane Andrew, for they enabled people to focus on the one or two fixes they needed to make in order to keep going. Eskew's opinion is echoed by Karl E. Weick, a professor of organizational behavior at the University of Michigan Business School in Ann Arbor and one of the most respected thinkers on organizational psychology. 'There is good evidence that when people are put under pressure, they regress to their most habituated ways of responding,' Weick has written. 'What we do not expect under life-threatening pressure is creativity.' In other words, the rules and regulations that make some companies appear less creative may actually make them more resilient in times of real turbulence."

So what are the lessons to be learned from Puljic's and Coutu's studies? First, and foremost, is the fact that you cannot eliminate human variability from the risk management equation. Any attempt to do so will result in frustration. Second, question assumptions. If, as Puljic insists, supply chain risk managers perceptions affect contingency plans, then every assumption upon which such plans are based should be fully vetted by a team of people with different perspectives. Finally, identify people within your organization who are natural bricoleurs. Make them a part of your crisis management team. You will find them to be corporate treasures.

Christmas 2011

Although Sunday is the Christian holiday celebrating the birth of Jesus, it is part of larger holiday season that marks the end of another year. One of the favorite carols sung during the holiday season is the "The 12 Days of Christmas." For the past 28 years, PNC Wealth Management has calculated how much it would cost to buy the gifts mentioned in the song. This year's grand total is $24,263.18 -- up 3.5 percent from last year. To see how PNC Wealth Management calculates this total, click on this link for a fun, interactive train ride.

The $24,263.18 figure is the grand total only if you don't take the song at it's word, which requires your true love, on each subsequent day, to buy anew all of the presents that came before. For example, on the first day, the song says that your true love bought you a partridge in a pear tree. On the second day, your love true bought you two turtledoves AND a partridge in pear tree. If you follow that pattern through to the end of the song, this year's total surpasses the $100,000 for the first time (the exact amount being $101,119.84, a 4.4% increase on last year). Quentin Fottrell provides a gift-by-gift explanation of how this total is reached. ["The '12 Days of Xmas,' Itemized," Wall Street Journal, 2 December 2011] Let's get the gifts rolling:

Day 1: Partridge in a pear tree: $184.99 (+14%) -- The pear tree accounts for $170 of that price, up more than 13% on last year, according to PNC Wealth Management investment strategist Rebekah McCahan, who compiled the list. The full-grown "Chukar" partridge costs $15, a 14% spike from last year, she says.

Day Total: $184.99

Running Total: $184.99

Day 2: Two turtle doves: $125 (+13%) -- The cost of feed as well as availability sent the two turtle doves soaring 25% from last year -- still weaker than the 79% increase in 2010. However, doves are less common than some of the other breeds and, as such, more expensive. Some can run up to $400 to $500 apiece, she says. McCahan sourced her doves at the National Aviary in Pittsburgh, Penn.

Day Total: $309.99

Running Total: $494.98

Day 3: Three French hens: $150 (unchanged from last year) -- After significant increases last year, prices for most of the birds remained relatively stable this year, in part due to the lack of demand. McCahan used "Houdan hens" -- named after a town in France -- and first imported to North America in 1865. Originally raised for meat and eggs, the Houdan is now predominantly used as a show bird. For money-saving purposes, experts say it does lay decent-sized eggs.

Day Total: $459.99

Running Total: $954.97

Day 4: Four calling birds: $519.96 (-13%) -- The calling birds dropped in price by over 13% to $519.96. Male song birds usually have a territorial call and are more expensive, but this year the male and female birds were the same price. Strictly speaking, calling birds are European blackbirds, but consumers can also use canaries or other caged exotic birds, which would do the job just the same.

Day Total: $979.95

Running Total: $1934.92

Day 5: Five gold rings: $645 (-1%) -- These 14-carat gold ladies rings were chosen for their very narrow band, which is why they're so inexpensive. As recession-fearing consumers are still being careful with their holiday spending, the price for gold rings is actually down, despite the rise in gold over the last 12 months. "While gold commodity prices are at or near record highs, the demand for retail gold is waning," Dunigan says.

Day Total: $1624.95

Running Total: $3559.87

Day 6: Six geese-a-laying: $162 (+8%) -- Geese, which were sourced at the National Aviary, are a more popular seasonal dish than calling birds and Houdan French hens, so they were not nearly as expensive as those other items, McCahan says.

Day Total: $1786.95

Running Total: $5346.82

Day 7: Seven swans-a-swimming: $6,294.03 (+12.5%) -- The price of these gifts fluctuates wildly depending on supply and demand. The cost of the seven swans-a-swimming typically provides the biggest swings from year to year in the survey: They rose by 12.5%, almost double last year's 6.7% price hike, to $6,300. McCahan priced Trumpeter swans, with long necks, which are rarer and, therefore, more expensive than other breeds.

Day Total: $8086.95

Running Total: $13,433.77

Day 8: Eight maids-a-milking: $58 (unchanged on last year) -- The maids' costs remained flat along with the federal minimum wage, which currently hovers at $7.25, and hasn't changed since The Fair Minimum Wage Act 2007, which increased the minimum wage by nearly 11%. However, this doesn't include tips, and the minimum wage rules vary from state-to-state. For instance, Oregon doesn't allow tips to be included in that state's minimum wage of $8.50.

Day Total: $8144.95

Running Total: $21,578.72

Day 9: Nine ladies dancing: $6,294.03 (unchanged on last year) -- McCahan got an estimate on how much it would cost to hire nine modern dancers for a private event from Philadanco, a Philadelphia Dance Company. Clearly, these would be an extravagance. "We are talking about a small basket of goods and services here compared to the Consumer Price Index," Dunigan says.

Day Total: $14,438.98

Running Total: $36,017.70

Day 10: Ten lords-a-leaping: $4,767 (unchanged on last year) -- These were priced based on an estimate given by the Pennsylvania Ballet and the lack of price hikes reflect the company's rates. However, the Pennsylvania Ballet is currently offering 20% to 30% off subscription packages, depending on how many performances are booked in advance.

Day Total: $19,205.68

Running Total: $55,223.38

Day 11: Eleven pipers piping: $2,428 (+3%) -- The price of these Scottish bagpipers was estimated with the help of a local musicians union in Philadelphia, McCahan says. Jimmy Mitchell, this Texas-based bagpiper, says the final cost would also depend on the requested playing time, location of the event (he does weddings and funerals) and whether his presence is required at a rehearsal.

Day Total: $21,633.28

Running Total: $76,856.66

Day 12: Twelve drummers drumming: 2,630 (+3%) -- Again, the cost of these drummers was based on trade union rates. But there are hidden expenses for eccentric romantics with cash to spare who would like to emulate the list in its entirety. McCahan, who has been compiling the list for 26 years says the total price of the list doesn't include a barn. "And, to house all of these, you would probably need one," she says.

Day Total: $24,263.18

Final Total: $101,119.84

The Twelve Days of Christmas might be a bit extravagant for your taste; but, that's alright. As an alternative, the late author Oren Arnold (1900-1980) recommended the following "Christmas gift suggestions: To your enemy, forgiveness. To an opponent, tolerance. To a friend, your heart. To a customer, service. To all, charity. To every child, a good example. To yourself, respect." From all us at Enterra Solutions -- Happy Holidays.

Radical Innovation: Can It Still be Done?

Jill Jusko, a Senior Editor at IndustryWeek, writes, "Global competition is in a take-no-prisoners mode. To compete, the U.S. manufacturing community is re-examining its innovation and product development processes to be better, faster and cheaper." ["Smarter Product Development," 17 August 2011] She continues:

"The manufacturing community is and has been painfully aware of the critical importance innovation and product development play in the competitiveness of their organizations. Survey results tell the tale, with nearly three-quarters of respondents to a Boston Consulting Group survey ranking innovation among their companies' top three strategic priorities. A far smaller percentage has been satisfied with the payoff of their efforts."

Jusko published her article just before Apple's Steve Job resigned as CEO and shortly before he finally succumbed to cancer. Following his resignation (and especially following his passing), Jobs was universally recognized as an innovator who changed industries. Andrew Hill openly wonders if changes in the ways that companies are approaching innovation and management are making it less likely that the type of innovations that characterized Jobs' career will occur in the future. ["Is radical innovation a thing of the past?" Financial Times, 27 September 2011] Before continuing that line of inquiry, let's continue with Jusko's article. She continues:

"The growing focus on innovation and product development as keys to competitiveness raises a number of questions: What is the manufacturing community -- not only manufacturers but all the players who contribute to the health of this sector -- doing to be more successful in their innovation and product development efforts, and what should they be doing? ... If you want to grow your company in any significant way, innovation is a required element. That's Eaton Corp.'s perspective. The Cleveland-based power management manufacturer aims for 12% to 14% growth every year 'and the lion's share of that has to come from organic growth,' says Michael Wynblatt, Eaton vice president for engineering technology. Organic growth typically requires grabbing a larger share of an existing market or entering entirely new markets or segments. These options require purchasers to either give up a competitor's product or possibly buy from a company with which they are not familiar. 'Why is someone going to start buying Eaton, maybe for the first time ever? Probably only if the product is very distinctive, and has high differentiation from what the competitors have,' Wynblatt says. 'Innovation is the way that you get there.' Those highly differentiated products also deliver higher margins, he notes."

Attracting customers away from competitors to increase market share is good for a company (if difficult to do), but it is not necessarily good for the economy. Creating "entirely new markets or segments" is much better for the economy, but it normally involves radical innovation -- the type of innovation that Hill suspects we are going to see less of in the future. Jusko continues:

"Wynblatt helps drive Eaton's innovation efforts. He is responsible for Eaton's Innovation Center. The center is spread across six locations globally, four of which are in the United States and one each in India and China. ... The upfront work is extremely important, Wynblatt emphasizes, given the expense of product development. 'To make that kind of investment, you want to make sure that the product is going to work and that customers are going to want to buy it,' he says."

If a product isn't bought, it isn't an innovation. For something to be called an innovation, it has to be new, it has to have value, and it must be realized (i.e., succeed in the marketplace). Jusko continues:

"Wynblatt ... notes that a key component to the current model is the 'innovation champion.' That project leader is responsible not only for overseeing the technology, but also it is his job to overcome all of the barriers that any new innovation faces, whether it be a technical, business case or organizational barrier. 'I think that is what makes this model successful,' compared with models that distribute the job functions among multiple individuals, Wynblatt says."

I suspect that Wynblatt is correct. Of course, in order to overcome the types of barriers mentioned by Wynblatt, an innovation champion must have a great deal of autonomy and authority. Those were key factors in Steve Jobs' ability to innovate. Jusko continues:

"While globalization has presented manufacturers with new challenges in innovation and product development, it has presented new opportunities for innovation as well. ... Wynblatt provided the example of a hydraulic technology that has the potential to produce significant fuel savings, depending on how a vehicle employing the technology is used. In its investigation, Eaton discovered that a particular vehicle was used very differently in China than in the United States, changing the business case for the product."

One of interesting things about true innovations is that end-users often imagine ways of using the technology that developers never dreamed of. Microsoft's recent advertising campaign about its Kinect system provides an excellent example of what I mean. Jusko quotes Kaigham Gabriel, deputy director of DARPA, who said something profound, "The reality is that innovation happens when you try to make something." I believe that. Jusko continues:

"Gabriel suggests that the power of speed in innovation cannot be underestimated. For DARPA that translates to 'increasing the number and diversity of people who can contribute, who can make, who can design, who can realize their designs, and increasing the speed at which those cycles of innovation and design happen,' he says."

Most creativity consultants agree with Gabriel that involving a number of people from diverse backgrounds normally improves both the quantity and quality of ideas considered. He makes an interesting point about it also speeding up the innovation process. Jusko continues:

"Joachim Ebert, a partner with management consulting firm A.T. Kearney, believes many U.S. companies struggle with product development due to their struggle with the 'gated' product development process that many employ. Gated processes are characterized by the concepts of stages or phases. The number of stages can vary and incorporates processes such as concept exploration, business analysis and ultimately a ramp-up to production. Between each stage are the toll gates, which provide management with an opportunity to review the output of the prior stage or phase and decide whether to proceed. Ebert said that companies' struggles with the gated process have led to additional bureaucracy and documentation requirements."

There is a bit of Catch 22 here. The reason that gated processes were initiated in the first place was to ensure that a doomed project didn't continue to bleed a company of resources. Killing projects is more difficult than one might imagine. For more on that subject, read my post entitled Killing Ideas as Part of the Innovation Process. It appears that it is the gates not the tolls to which Ebert objects. You still need some process that can kill bad ideas before they drain the coffers. Jusko continues:

"Ebert ... says it is time to consider moving from the 'fairly rigid, gated process' with its somewhat one-size-fits-all approach to a flexible process that not only affects product development but also the product development organization. ... Ebert says a more beneficial approach would be to focus more strongly on problem prevention through effective knowledge management. ... 'Don't misunderstand me, I'm not saying get rid of all the discipline that is being brought about by a gated development process,' Ebert says. Just recognize the amount of nonvalued-added bureaucracy it may be adding unnecessarily to the product development process."

Just as Wynblatt touts the virtues of an innovation champion, Isabelle Royer believes that organizations "need to recognize the role of 'exit champions': [individuals] with the temperament and credibility to question the prevailing belief, demand hard data on the viability of the project, and, if necessary, forcefully make the case that it should be killed." ["Why Bad Projects are So Hard to Kill," Harvard Business Review, February 2003] An exit champion could be just what Ebert is looking for in streamlining the gate process.

As noted above, Andrew Hill is concerned that radical innovation is dead. He writes, "It is hard to identify radical innovations from the past decade and [it is] tempting to think great breakthroughs are no longer possible." He does admit that that "plenty of thinkers would beg to differ." One of those thinks is Professor Gary Hamel, a well-known management thought leader. Hamel told Hill that "the pace of change is putting pressure on organisations to make more radical changes." Hill continues:

"[Hamel believes] new tools allow companies to exploit collective wisdom in unprecedented ways, and younger workers – the 'digital natives – are impatient with old hierarchies and value systems. 'I would be willing to stake my reputation that we will see more dramatic change in the way management is organised in the next 10 years than we’ve seen in the last 60 or 70,' he told me last week."

Hill, on the other hand, believes that new technologies are more likely to produce incremental change rather than radical innovation. He concludes:

"While I'd be happy to be proved wrong, I think the technology fuelling these small-scale improvements makes a 'eureka' moment less likely. As in product innovation, the fact that managers can identify, share and match advances, favours rapid evolution, rather than revolution, with best practice continuously revised and improved. Progress, yes: but more by leapfrog than by giant leap."

So who's right? Were I to place a bet, I'd go with Wynblatt's hybrid model that has a powerful innovation champion leading a diverse innovation team. That approach is much closer to the way that Jobs actually made his breakthroughs at Apple. Right after Jobs resigned, Steve Lohr, the New York Times' technology columnist, wrote, "Let’s look at Mr. Jobs as a role model. Above all, he is an innovator." ["Reaping the Rewards 0f Risk-Taking," 27 August 2011] He continued:

"Mr. Jobs’s career can be viewed as a consistent pursuit of improving those odds, both for himself and the companies he has led.Mr. Jobs, of course, has enjoyed singular success. But innovation, broadly defined, is the crucial ingredient in all economic progress — higher growth for nations, more competitive products for companies, and more prosperous careers for individuals. And Mr. Jobs, experts say, personifies what works in the innovation game. 'We can look at and learn from Steve Jobs what the essence of American innovation is,' says John Kao, an innovation consultant to corporations and governments."

I'm much more optimistic about the future of innovation than Andrew Hill. I don't believe that radical innovation is dead. I'm not sure that Hill believes it is dead either.

Global Trade Management

The consulting world offers all sorts of management solutions to companies. For multinational corporations, one of the latest solutions to come along involves Global Trade Management. According to the ARC Advisory Group, "Global Trade Management (GTM) solutions streamline and automate processes related to customs and regulatory compliance and trade financing." ["Despite Declining Trade, the GTM Market Does Well," Global Trade Management Worldwide Outlook] The article continues:

"GTM solutions facilitate the flow of information, money, and goods in global trade supply chains that include buyers, sellers, and intermediaries including customs agencies, banks, and freight forwarders. GTM solutions automate trade processes."

As supply chains get extended across the globe, their complexity rises dramatically. GTM solutions are aimed at helping reduce that complexity through automation. The article explains:

"Managing the flow of goods, information, and money across borders is a highly complex, regulated, and dynamic process — and becoming more so every day. Therefore, companies can no longer rely on manual processes to manage their global trade operations. This is why the Global Trade Management systems market will be one of the fastest growing segments of the enterprise software industry."

Gene Nusekabel, Worldwide Industry Lead – Wholesale Distribution at IBM, agrees that "getting goods to a foreign destination is not a simple game." ["Global Trade Management: Are You on Top of Your Game?" Logistics Viewpoints, 8 November 2011] Despite the complexity, Nusekabel reports that "some supply chain organizations are able to 'win' this game, day in and day out." He continues:

"As you would expect, organizations that take a more a systematic approach and utilize GTM/supply chain solutions [are among those that] succeed at this game. So, if most organizations are 'getting the job done' when it comes to global trade management, where is the opportunity for improvement? Getting the job done is fine, but getting on top of your game requires the merging of 'International Execution + Technology = Game Changer.'"

The primary purpose of technology is to help make people more productive. As complexity increases, technology can perform complex behind-the-scenes activities that make decision making and process execution appear simpler. GTM solutions are no different. Nusekabel continues:

"GTM solutions are bi-directional–imports and exports–and both require a comprehensive solution that includes both execution and technology. Importing, however, poses a larger challenge for US companies as they continue to source globally and have to comply with ever-changing security and customs regulations. Solution flexibility is a crucial consideration for companies as they continuously analyze the off-shoring/near-shoring equation, and they must also take into account the growing compliance requirements (and their resulting complexity) as foreign nations look to manage sustainability and the economic issues impacting their countries."

A good GTM solution will take all of those factors into account when an order is received. If a potential challenge is detected, the solution should alert executives so that a plan of action can be determined to deal with the challenge. Business is much simpler if you can manage by exception. Technology helps you do that. Nusekabel continues:

"Research shows that companies can achieve cost and productivity benefits by investing in technology to manage the complexity of global trade processes. But in considering a game-changing GTM solution, the key is to look at your international shipping activity. Will sourcing in foreign countries continue to grow imports? As companies look to emerging markets for future growth, will this contribute to more exports? If so, added complexity will take place in both imports and exports for the organization."

Even though complexity may increase, the benefits from economic growth should outweigh the cost of dealing with the added complexity. But Nusekabel wonders if organizations really know whether that it true. He continues:

"Most people would agree that managing freight transportation costs is a critical factor in global trade management, but that is often because these costs are clearly visible and measurable. Most organizations can easily state how much they spend on freight costs (by carrier, origin country, etc.), but how many know how much they pay in duties, entry fees, or penalties in a given period? For a given order? Who even has responsibility for capturing and reporting such information in the organization? Logistics? Procurement? Finance? Customs Compliance?"

A good GTM solution should capture all of those variables and provide a fairly definitive answer about corporate profitability in various locations around the globe. By understanding its various costs, a company is in a much better position to make informed decisions about where it needs to improve and to see where opportunities exist. According to Nusekabel, "a recent publication survey noted that the average global shipping expenditure for companies with $100 million to over $1 billion in sales was 18 percent. While the focus on annual RFP negotiations to attain the 'best' transportation rates is understandable, a better focus would be to improve GTM processes." He notes that the "US Customs and Border Protection [Agency] expects import product value to triple by 2015," and he expects complexity increase as well. He continues:

"The complexity of the global playing field requires an integrated GTM technology solution to mirror TMS execution, not just in being timely, but also in gaining more visibility to all the data points that impact the movement of a shipment. This integrated process design merges transportation management systems (TMS) with GTM solution functionality to create a single source of truth, breaking down the silos of information on which to act. This single source of truth being composed of all the data from EDI execution status; product description compliance; and applying country-specific preferential trade agreements and contract management."

Nusekabel's observations are in line with most other supply analysts who insist that corporate silos must be done away with, a single source of data must be used throughout a company, and improved visibility must be achieved throughout the supply chain. Nusekabel continues:

"An integrated GTM process consists of automating critical applications for rates, routes and carriers while optimizing both the international and domestic segments of a shipment, something that eludes many organizations today. The inclusion of freight auditing, invoicing, logistics execution and contract management functions provides additional value to the solution design. In addition, the seamless flow between internal and external partners in the supply chain is a fantastic win by giving invested partners, through visibility dashboards, their unique information in support of the process. Each member then contributes their value to bring success to the overall team."

I agree completely with functionality that Nusekabel describes for a good GTM system. For many companies, such a system would indeed be a game changer. Steve Banker asserts that, if you are having a difficult time convincing your CEO that the company needs a good GTM solution, you might want to convince the CEO that he or she could go to jail if they don't. ["Buy Global Trade Management System, Keep Your CEO Out of Jail!" Logistics Viewpoints, 28 November 2011] He writes:

"At one of the conference receptions I attended this fall, I heard an interesting story about a Global Trade Management (GTM) system implementation. At one level, the business case was focused on fine mitigation. US Customs had warned this company several times about shipments lacking the proper licenses, permits, and classifications. Finally, customs lost its patience and fined the company more than $50 million. Part of the business case for implementing a GTM system was so that the company could argue to customs, 'We have a system with the proper controls, and we won’t do it again.' The argument worked and the fine was reduced to less than $5 million. That is a solid Return on Investment! But there was a second part to the business case: It was about keeping the company’s CEO out of jail. Now that is a project almost guaranteed to get the green light!"

What were employees doing that could land the CEO in jail? Banker explains:

"The company's foreign sales executives were modifying trade classifications to win business. In some countries, multiple layers of licenses and import duties can add another 75 percent to the base price. In some of these countries the sales force was dealing with customers who were saying in effect, 'If you can manage to get this tax lower, we will do business with you.' The sales force would then print out the trade document prepared by the compliance department, modify values or classifications on those documents without letting the compliance department know, and complete the sales transaction. The company thought this form of corruption was only happening in Latin America. But after implementing the GTM, it locked down the Adobe application so that users could not modify values and fields in the trade documents without the proper password. Sales people from all regions of the world called and asked for the password; corruption was endemic! It goes without saying that this permission was not granted."

It's one thing to take a perp walk for your own unethical behavior and quite another to be imprisoned for something that someone else did. In Banker's case study, the GTM solution not only uncovered corruption, it helped establish a new corporate culture and helped improve corporate alignment. Banker continues:

"Another control exists in the GTM itself. Once a shipment is confirmed by the company's ERP system, the GTM trade documentation associated with the shipment is locked down and cannot be changed. In response to these changes, the sales force began to make angry and even threatening calls to the compliance department. Obviously, this company's culture needed to change as well. A system, even one with good controls, will be hard pressed to keep up with the ingenuity of users seeking to subvert those controls."

For Banker's case study company, GTM really was a game changer -- for a lot of reasons. Without advanced technology, the complexities of global trade are simply too difficult to deal with effectively. Nevertheless, getting information from some stakeholders remains a challenge. Increased implementation of GTM solutions could go a long way in encouraging all supply chain stakeholders to collaborate better.

Piracy on the Freeways

You read a lot these days about piracy on the high seas; but, you read relatively little about what could be considered piracy on the freeways. Earlier this year, with food prices on the rise, the New York Times reported that, "a gang of thieves stole six tractor-trailer loads of tomatoes and a truck full of cucumbers from Florida growers. They also stole a truckload of frozen meat. The total value of the illegal haul: about $300,000." ["Price of Tomatoes Has a Lot to Do With These Thefts," by William Neuman, 14 April 2011] Neuman continued:

"Industry and insurance company officials said it appeared to add a new wrinkle to a nationwide surge in cargo theft. In the case of the stolen tomatoes, the thieves seemed deeply versed in the ways of trucking companies and the produce industry. Transportation company executives and a law enforcement official said the criminals appeared to have set up a bogus trucking company with the intention of stealing loads of produce and other goods."

It's an interesting article and worth reading in its entirety. Commenting on the article, supply chain analyst Adrian Gonzalez wrote, "No doubt, this was an inside job, perpetrated by people with knowledge and connections in the produce industry. Tomatoes are perishable goods, so there had to be buyers ready to take these stolen shipments." ["Stolen Tomatoes Raise Serious Transportation Questions," Logistics Viewpoints, 25 May 2011] He continued:

"Simply put, these thieves gamed the system…and transportation brokers were easy victims. I’m just left with a lot of questions:

• What does this incident say about the security of our transportation networks?
• Is checking federal registration and insurance coverage enough due diligence when selecting a carrier, especially a carrier that’s been in business for only a month?
• Should shippers also bear some responsibility here? How does this impact the way shippers select brokers and how they align their objectives and work together?
• What will happen when capacity constraints worsen? Will shippers and brokers fail to 'walk the talk' and loosen their standards in order to move a load?

"It's the last question that concerns me the most, and based on past experience, I'm afraid that failing to 'walk the talk' is the likely outcome. ... I also remember attending a conference in 2004, during the height of the capacity crunch, and a transportation executive from a very large manufacturer, in response to a question about their transportation strategy, half-jokingly said, 'Our strategy? In this environment, we don't care who shows up, as long as they have a truck.' Maybe the times have changed. Or maybe not."

In an attempt to change things, "a new global security standard to protect high-value consumer goods traveling on international roads has been launched by the Transported Asset Protection Association (TAPA)." ["New Trucking Security Requirements to Combat Organized Crime on International Highways," TAPA press release, SupplyChainBrain, 22 November 2011] The release states:

"Cargo crime levels ... are estimated to cost in excess of $10bn per annum. ... Cargo crime is one of the biggest supply chain challenges for manufacturers of high-value, high-risk products and their logistics service providers. In the European Union alone, the cost to businesses is estimated at €8.2 billion a year and is still growing while in the Americas, estimates for losses range from $3bn to $5bn per annum. Globally, some 85 percent of all major cargo thefts occur during road transportation so the need for a robust and consistent trucking standard is critical."

The fact that "85 percent of all major cargo thefts occur during road transportation" should cause a lot of people to sit up and take notice. The release continues:

"The updated and enhanced Trucking Security Requirements 2012 (TSR) replaces the 2008 version and takes effect Jan. 1, 2012. TSR has proven to be extremely effective for TAPA members in helping to eradicate what is a growing problem for manufacturers and global supply chain service providers. Organized criminals target what they regard as vulnerable cargo loads as they move on roads in all parts of the world. In one of the most recent incidents, a truck driver lost his life in a violent criminal attack. The mounting cost of losses and insurance claims is also impacting product prices for consumers."

Combating trucking piracy is, in its own way, just as difficult as combating maritime piracy. The release continues:

"The Association previously took similar action in 2001 when it launched its original Freight Security Requirements (FSR) to protect warehouse operations from attacks by criminals. Today, FSR is recognized as the world’s leading standard for securing freight centres. Having significantly reduced incidents involving warehouses, TAPA has since seen a dramatic increase in road-based crime. In a joint statement, TAPA's regional chairmen, said: 'The world of cargo crime is no longer about an opportunist individual snatching a product from a box in a warehouse. Today, we are dealing with gangs of organized criminals that are often armed and prepared to go to any lengths as we saw as recently as September with the murder of a driver during a hijack of his vehicle in the Philippines. Vehicles are attacked whilst being parked up overnight, at motorway service stations and even while moving and, in some countries, this may start with truck drivers being stopped by what turn out to be authentic-looking but bogus law enforcement officers."

Although trucking companies, along with their clients and employees, are first-order victims, as TAPA notes, eventually so are consumers. That is why efforts like TAPA's should be supported. The release explains some of what is involved in its new initiative:

“The new and enhanced TAPA Truck Security Requirements, which includes mandatory certification, supports the users and providers of trucking services, providing a common standard of security measures and taking into account the different ways these services are provided globally. When adopted, TSR is a mandatory standard and adherence to it is validated and auditable by a TAPA-approved and trained independent auditor. We believe that TSR certification will result in TAPA members globally seeing a continued reduction in crime involving vehicles, similar to the significant decline in losses from warehouse attacks witnessed by members that have FSR certified facilities."

In a joint statement, TAPA's regional chairmen stated:

"We are very grateful to the companies that supported this initiative by committing employees' time to work on this critical project. It is very much an investment in the greater good and an opportunity to change some of the ways companies do business with each other to further protect the supply chain."

The release concludes by stating:

"TAPA members, when supported by TAPA security standards, incur significantly lower theft loss levels than the industry average. Through participation in TAPA and the many opportunities for sharing crime intelligence, training, networking and its close co-operation with regulatory bodies and international law enforcement agencies, TAPA members learn to identify and understand security risks and how they can best be mitigated. TAPA’s 2010 Financial Benchmark report indicates that losses incurred by non-members are three times higher than for TAPA members."

Although TAPA is naturally trying to promote membership in its association, its research does support the common sense conclusion that more can be accomplished when organizations, even competitive ones, cooperate for the common good. Future cooperation will be essential because, as Jim Tierney reports, cargo theft is now more organized and is here to stay. ["Cargo Theft a Growing Part of Organized Retail Crime," Multichannel Merchant, 17 August 2011] He writes:

"Cargo theft among organized crime groups will likely increase in the future according to Joe LaRocca, senior asset protection adviser for the National Retail Federation. As retailers, mall security and law enforcement professionals continue to clamp down on store theft and fraud, 'we can expect criminals to take the path of least resistance,' LaRocca says. 'Cargo, if the opportunity exists, remains a lucrative and vulnerable target.'"

It is that vulnerability that TAPA is trying to address. Retailers are as interested in cargo theft as carriers. According to Tierney, "half of the 129 retailers surveyed this year by the NRF said they were victims of cargo theft in the past year. The majority (57.4%) of these organized retail cargo thefts occurs between the distribution center and the store." He continues:

"According to the FBI, cargo is any commercial shipment moving via trucks, planes, rail cars, ships, etc., from point of origin to final destination. If merchandise is stolen at any point in between—highway, truck stop, storage facility, warehouse, terminal, wharf, etc.—then it's considered cargo theft, LaRocca adds. In a cargo theft case, the victim can be a manufacturer, shipping company or retailer. Stolen goods have a significant financial loss, and affect not only store inventory levels but the customer experience as well, LaRocca says. And in most cases, 'these thefts have a significant impact on local and state tax revenue as well.' Victims work with local law enforcement agencies and the FBI if interstate nexus, or connection, is achieved, LaRocca adds. If the case has an international nexus, federal law enforcement will work with their legal contacts overseas and other international law enforcement partners."

While TAPA is addressing what its members can do, Tierney rhetorically asks, "What can retailers do to combat cargo theft?" He answers his question this way:

"Manufacturers and retailers should select a reputable firm to transport goods, LaRocca advises. 'Keep details of the shipment, especially highly desirable goods, on a need to know basis. In advance of the shipment, identify the quantity and timeline for delivery.' Retailers have been working with manufacturers and law enforcement to address cargo theft incidents and many companies are now sharing information, LaRocca says. Advancements in technology can provide quick identification of suspect goods and GPS tracking of shipments worldwide. Last year the FBI added Cargo Theft to the Uniform Crime Report, which elevates the awareness of the issue and begins the process of determining the losses and scope of the problem, LaRocca says."

As the TAPA noted, cargo thefts can result in serious injury or death. According to Tierney, "more than 10% of these crimes included some level of violence such as physical assault and/or battery." He continues:

"The safety of employees and service providers is a top priority, LaRocca says. 'Many companies develop policies and train employees to avoid placing themselves at risk. The financial losses, potential customer service issues and brand impact pale in comparison to the severity of these incidents when someone is injured.'"

An interesting report by the Supply Chain Information Sharing and Analysis Center provides a lot of data about where and when cargo thefts take place. In an article about the report, the staff at SupplyChainBrain writes, "In tracking cargo theft activity by state as reported to the Supply Chain Information Sharing and Analysis Center, in the second quarter of 2011 we see California moving back to its spot at the top and New Jersey dropping to second followed by Georgia." ["California Still the Top State for Theft from Cargo Trucks," 13 July 2011] The article continues:

"Texas fell back in the number of incidents and that could be the result of some major indictments against a group of Florida transplants and local gang members made by law enforcement in the Dallas area. Last year, California had by far reported the most cargo theft activity in North America, holding the top spot the entire year. Texas, New Jersey, Georgia, Illinois, Pennsylvania and Tennessee had each appeared as one of the top reporting states for the past year and remain in the top eight."

If this is a topic that interests you, I recommend your reading the Supply Chain Information Sharing and Analysis Center report. I suspect that supply chain security will be a topic of increased interest in the years to come.

Emerging Markets and the Supply Chain

Emerging market countries have been on an economic roller coaster over the past couple of years. Analysts continue to insist, however, that the world's economic future rests on the shoulders of a growing global middle class. According to Edward Tse, Bill Russo, and Ronald Haddock, the "global middle-class market ... encompasses a huge customer base." ["Competing for the Global Middle Class," Strategy + Business, 23 April 2011] They explain:

"In 2011, it includes about 400 million people in the mature middle classes of the U.S., Europe, and Japan, and another 300 to 500 million people, depending on how the middle class is defined, in emerging economies. (The World Bank defines middle class as people who are above the median poverty line of their own countries. This might make them poor by the standards of Europe or the U.S., but gives them enough purchasing power to become consumers of manufactured goods and services.) This new global middle class is particularly evident in Brazil, China, India, Indonesia, Mexico, Nigeria, Turkey, Vietnam, and other countries with relatively large working populations and rapid economic growth rates."

Identifying countries with growth potential has become a sport in some circles. As I wrote in a previous post:

"As emerging market countries increase in importance with regards to the global economy, identifying them has become an interesting game of acronyms. First there were the BRIC countries (Brazil, Russia, India and China). They were joined by the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa). Then Indonesia got promoted into the BRICI (I suppose that left the C-VETS with new acronym). My guess is that all aspiring emerging market countries want their nation represented by a letter in an acronym because it is an honor that identifies them as an up-and-coming economic powerhouse -- a place where investors should look to get a good return on investment." [Knowing Your BRICs and CIVETS]

CIVETS seem to be getting almost as much attention as BRICs nowadays. "The so-called 'CIVETS' countries ... are now touted as hot markets because they have diverse economies, fast-growing populations, relatively stable political environments and the potential to produce outsized returns in the future." ["The New BRICS on the Block: Which Emerging Markets Are Up and Coming?" Knowlege@Wharton, 19 January 2011] The article continues:

"Far-flung geographically and shaped by vastly different cultural, religious and political structures, the CIVETS show the potential to develop rapidly and reward those willing to take on emerging market risk beyond the more-established BRIC countries, experts say. ... In a recent survey conducted by Knowledge@Wharton and the global communications firm Fleishman-Hillard, a majority of corporate executives, investors and business leaders indicated that they would be interested in doing business with multinationals in the CIVETS countries. Respondents said they were most attracted to CIVETS because of low labor and production costs and the countries' growing domestic markets. When asked to identify weaknesses, the survey participants cited political instability, corruption, a lack of transparency and infrastructure, and homegrown companies without much of a reputation or brand identification."

Supply chain analysts are beginning to recognize that the growing global middle class could significantly affect supply chains in the future. For example, Malory Davies, Editor of Supply Chain Standard, writes, "Just as we all got used to the idea that BRIC is where it is all happening and must figure in any self-respecting supply chain strategy, it turns out that BRIC is now last year's thing and we must all now refocus on CIVETS." ["Drop the BRIC, it's time to focus on the CIVETS," 28 November 2011] As noted above, even CIVETS might be "last year's thing." Davies continues:

"For most organisations, there is still plenty of room to take advantage of the opportunities in the BRIC economies - both as sources of products and as markets. But at the moment, there is no denying that economic globalisation has gone off the boil. In fact, there is clear evidence of a decline in global trade levels. Capgemini's latest Global Trade Flow Index for the third quarter reveals a fall of 1.3 per cent quarter on quarter. At the same time, local domestic consumption around the world is still growing slowly. Perhaps the emergence of the CIVETS will give the process of globalisation added impetus. It will certainly have an impact of the shape and structure of supply chains in the future."

That begs the question: "What kind of impact will the global middle class have on the shape and structure of supply chains in the future?" Will Connors reports that one obvious impact will be in the types of products that appeal to global consumers. ["Catering to New Tastes as Incomes Climb," Wall Street Journal, 10 February 2011] Connors' article focuses on one commodity that seems to appeal to most middle-class consumers -- meat. He discusses how a company called Zambeef is trying to become "Africa's Coca-Cola for meat." A taste for meat isn't the only thing that changes when people find themselves with a little discretionary cash. The difficulty, of course, is that what people want to buy differs dramatically depending on culture and locale. Not only do products have to cater to local tastes they have to adapt to local circumstances. In many homes in emerging market companies, there is little storage room so sizes and quantities can't be like those found at Costco, Sam's Club, or BJ's. That's why McKinsey & Company analysts Yuval Atsmon, Ari Kertesz, and Ireena Vittal ask, "Is your emerging-market strategy local enough?" [McKinsey Quarterly, April 2011] They write:

"Creating a powerful emerging-market strategy has moved to the top of the growth agendas of many multinational companies, and for good reason: in 15 years’ time, 57 percent of the nearly one billion households with earnings greater than $20,000 a year will live in the developing world. Seven emerging economies—China, India, Brazil, Mexico, Russia, Turkey, and Indonesia—are expected to contribute about 45 percent of global GDP growth in the coming decade. Emerging markets will represent an even larger share of the growth in product categories, such as automobiles, that are highly mature in developed economies. Figures like these create a real sense of urgency among many multinationals, which recognize that they aren’t currently tapping into those growth opportunities with sufficient speed or scale."

The analysts note that some emerging market countries are so large that "it isn’t enough, as many multinationals do, to develop a country-level strategy." They insist, "As developing economies become increasingly diverse and competitive, multinationals will need strategic approaches to understand such variance within countries and to concentrate resources on the most promising submarkets—perhaps 20, 30, or 40 different ones within a country." They conclude:

"There is no one-size-fits-all strategy for capturing consumer growth in emerging markets. What’s clear, though, is that traditional country strategies and other aggregated approaches will miss the mark because they can’t account for the variability and rapid change in these markets. As the battle for the wallet of the emerging-market consumer shifts into higher gear, companies that think about growth opportunities at a more granular level have a better chance of winning."

Tse, Russo, and Haddock agree that "the world is far from homogeneous." They write:

"The buying power, needs, and desires of the middle classes vary by nation and region. In developing nations, for example, middle-market customers are seeking products that have some of the premium features and quality that customers in developed nations are used to, but at lower price points. Furthermore, customers in each geographic market are drawn to buy products that fulfill local needs and desires. ... To successfully serve middle-market customers, companies must identify which product attributes the customers in a specific market value and don’t value. Then, they must either add those attributes to or cull them from their existing products. [Pankaj Ghemawat, professor of global strategy at IESE Business School,] uses the examples of McDonald's, KFC, and Coca-Cola, all of which vary their products geographically: Coke, for instance, uses cane sugar as sweetener in some countries and corn syrup in others. This type of variation adds complexity across product and marketing mixes, and in all the operations and functions related to them. It can require much extra expense and attention from companies, especially those with heavily centralized, scale-driven business models."

If supply chains weren't complex enough, customizing products to fit local needs and tastes can exponentially increase complexity in sourcing, manufacturing, distributing, and retailing. Tse, Russo, and Haddock note, however, that "companies that seek leadership positions in their industries may have little choice but to pursue the global middle market." They indicate that companies that believe that "they don't need to alter [their] products — [they] just need to educate [their] customers" — are naive if not delusional. They suggest a "better alternative is to rethink the value chain entirely." Stefan Wagstyl concludes, "Multinational companies cannot afford to ignore emerging markets. Nor can they afford to ignore the difficulties involved." ["Compelling reasons to increase engagement," Financial Times, 14 April 2011] Marcus Blosch, research vice president with Gartner, claims that "companies are predicting that 40 to 60 percent of their growth in revenues will come from emerging markets over the next decade." ["The Dynamic Landscape of Emerging Markets," SupplyChainBrain, 24 October 2011]

Undoubtedly, companies will try to remove some supply chain complexity by building plants closer to demand centers and by buying more supplies locally. The greatest risk to this strategy will be local events (natural or manmade) that could severely disrupt both supply and production. It's clear from the above discussion, however, that these risks are far outweighed by the benefits of tapping into the buying power of the emerging global middle class.