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23 posts from May 2012

May 17, 2012

Risk Management: Mapping Supply Chain Risks

An increasing number of supply chains disruptions over the past couple of years have brought the subject of risk management to the top of many executives' priority list. Supply chain risk management, however, is not a new concern. As a field of research and practice, it has been around for some time. Admittedly, however, it has gained new prominence over the past decade. For example, in 2005, the same year that Professor Yossi Sheffi from the Massachusetts Institute of Technology wrote a seminal work entitled The Resilient Enterprise that examined disruptions in corporate supply chains, Cisco Systems Inc. founded the Supply Chain Risk Leadership Council. ["An Introduction to the Supply Chain Risk Leadership Council," SupplyChainBrain, 19 April 2012] John J. Brown, director of risk management with The Coca-Cola Co., told the SCB editorial staff that the Council "was created to bring together risk-management experts who could share best practices and bring process standardization to the way in which risks are identified in the global supply chain." Obviously, experts wouldn't have been available to discuss the topic had the field of supply chain risk management been immature. The article continues:

"Brown defines 'risk' as 'nothing more than uncertainty.' It can be found just about anywhere in the global supply chain, touching all processes from raw materials to final delivery of product. Quickly joining Cisco in the initiative were major companies such as FedEx, Procter & Gamble, John Deere, Merck, Intel and General Electric. The wide breadth of industries represented 'is part of the value in coming together,' Brown says. 'The cross-fertilization of practices [can be] used for different supply chains.'"

Long-time readers of this blog know that I'm a fan of cross-fertilization of ideas and disciplines -- what Frans Johansson calls "The Medici Effect" (see one of my early posts entitled The Medici Effect). The article continues:

"Trying to fashion industry-wide standards is 'not a rewarding process,' says Brown. There are too many consultants and certification bodies already attempting to do just that. 'There's a lot of self-interest in developing or proliferating standards and certification,' he says. 'It's not going to improve the way you do things.' The better path is to compile and document existing best practices, and share them with as wide a membership as possible. 'The more we can improve risk management practices in all industries,' Brown says, 'the better it's going to reflect on our [individual] company's performance.'"

Implementing risk management practices is not cost-free; but, not practicing risk management comes with a much higher price when (not if) bad things happen that can affect supply chains. The article concludes:

"The biggest barrier to effective risk management today is the ability of most companies fully to document their supply chains, covering the physical flow of goods from end to end, says Brown. Most fail to understand the global connectiveness of their systems, so that a disruptive event in one location can affect every other link of the chain. The Japan earthquake, for example, ended up having a severe impact on the global automotive industry, due to the large volumes of components and materials that were sourced in that country."

Daniel Dumke insists that one of the best ways to "understand the global connectiveness" of supply chains is to visually map them. ["Solution to Strategic Supply Chain Mapping," Supply Chain Risk Management, 23 April 2012] Dumke reviews an article by M. Theodore Farris II entitled "Solutions to strategic chain mapping issues" that was published in the International Journal of Physical Distribution & Logistics Management. In the introduction to that article Farris writes that there are "compelling arguments supporting the benefits of strategically mapping the supply chain." They include:

  1. To link corporate strategy to supply chain strategy.
  2. To catalog and distribute key information for survival in a dynamic environment (in order) to direct the focus of the managers.
  3. To offer a basis for supply chain redesign or modification.
  4. Current channel dynamics can be displayed in a supply chain map.
  5. The process of building the strategic supply chain map, in itself, will help define the perspective of the supply chain integration effort.
  6. Both the process of developing the map and the process of disseminating the map should lead to a common understanding of the supply chain.

Dumke points out that "there are obstacles preventing an effective supply chain mapping. One is ... the complexity of the supply chain. Even with only a few echelons in focus the number of entities and connections just explodes." Considering how complex most supply chains are, it is little wonder that understanding them is a barrier to better risk management. Technology can certainly help get the connections right, but as Brown's and Dumke's comments imply, the job of mapping supply chains is neither easy nor quick. Dumke's article contains a number of maps used in Farris' article and a quick glimpse is enough to convince anyone of both the complexity of the process and its usefulness. Dumke provides some of the lessons learned from Farris' article. They include:

"• Utilize geovisualization techniques -- The mapping efforts utilized a geovisual technique combining weighted solid and dashed arrows and lines, defined symbology representing different trading relationships, and the representation of financial flow to develop maps rich in content."

Remember, the purpose of the maps that Dumke is discussing is to provide understanding by taking advantage of visualization. Getting into the nitty-gritty details of the supply chain is best left to analytical techniques that take advantage of other technologies. Mapping, however, is a good start to any such effort.

"• Start at a higher level -- It is highly unlikely a company would be able to, or would desire to, expend the resources required to map 100 per cent of all of their customers and suppliers. Each mapping effort must determine the economic trade-off between the level of detail of their map, the cost to gather the detail, and the benefit received. … Owing to the ready access to economic data, an industry macro map may offer the greatest mapping value for a relatively minimal investment. It is recommended that the map designer begin at a high level and then drill down."

The statement that companies probably wouldn't "desire" to map a 100 per cent of their customers and suppliers applies only to visual mapping. Using a technology like Enterra Solutions' Sense, Think/Learn, Act™ system to understand and monitor supply chain connections is (or should be) a highly desirable goal. As I pointed out in a previous post, The Missing Part is Always the Most Important Part, only automated systems capable of gathering and analyzing large amounts of data then displaying pertinent results are capable of providing the kind of visibility necessary to a complex supply chain adequately transparent.

"• Strive to keep the maps strategic -- Strategic supply chain maps must maintain a strategic emphasis, any users with a desire to drill down to an operational level should utilize alternative process-related tools such as the SCOR model. … Keep the strategic supply chain maps at a high, strategic level and avoid undue complexity."

SCOR stands for supply-chain operations reference-model. As defined in Wikipedia, "It is a process reference model developed by the management consulting firm PRTM and endorsed by the Supply-Chain Council (SCC) as the cross-industry de facto standard diagnostic tool for supply chain management. SCOR enables users to address, improve, and communicate supply chain management practices within and between all interested parties in the extended enterprise. SCOR is a management tool, spanning from the supplier's supplier to the customer's customer." In other words, Farris agrees that the nitty-gritty details of the supply are important and must be understood.

"• Manage a synergistic network -- As value chain mapping continues to evolve, map designers may find that the term 'supply chain' is a misnomer. Strategic supply chain maps quickly reflect a 'supply network' as it is not unlikely that a customer’s customer may be a critical supplier’s supplier. Recognition of these types of relationships may have far-reaching strategic impact in terms of keiretsu-type relationships or jointly beneficial marketing efforts."

Farris makes a point that I've made in the past, namely, the term "chain" no longer adequately describes the connectivity involved in today's supply networks. The term has become such a part of our culture and lexicon, however, that I don't think it will (or needs) to change.

"• Embrace mapping creativity -- It was determined there was no single approach to developing a strategic supply chain map. Creating a strategic supply chain map is as much an artistic endeavor as it is a defined process. … It is recommended that firms attempting to strategically map their supply chain embrace this fact by asking multiple individuals who create a map to use the same data set. Each variation may result in components within the map which offer easier readability and should be incorporated into the final map."

Farris' last point is an excellent one. Maps, like other forms of analyzed data, are meant to provide understanding to users. Visualization is a powerful tool for creating understanding. In my business, we worry about dashboards (i.e., intelligent user interfaces) and how analyzed data is presented to decision makers. Information that is hard to use or understand is of little or no value. If you want a better idea of how powerful visualization can be for creating understanding and providing insights, I recommend you that you visit the Gapminder web site. Dumke concludes:

"The resulting supply chain map is overwhelming at first, but which map wouldn’t be. A complex system like a supply chain and its supporting parameters are just hard to zip onto a single page. After a short while of looking at the map I was just amazed how much information could be deduced from it. I think using the lessons learned and (not too many) different information layers in a map can result in highly aggregated and informative results, ergo in a real supply chain map."

With so much at stake, I would think that companies would want to take advantage of every possible tool and technique to help them deal with a growing number of risks to their supply chains. Mapping is simply one of the tools in the kit.

May 16, 2012

The Battle Against "Showrooming" Continues

Last January I wrote a blog about Showrooming and Product Customization that discussed how Target is tired of being used as a showroom for online marketers like Amazon.com. In a letter sent to its suppliers, Target asked them to create customized products (i.e., products different enough from those that shoppers could find on-line) so that customers couldn't compare in-store products with those found on the World-Wide Web. The latest move in Target's battle against showrooming was the announcement that it would no longer sell Amazon's Kindle. ["Target, Unhappy With Being an Amazon Showroom, Will Stop Selling Kindles," by Stephanie Clifford and Julie Bosman, New York Times, 2 May 2012] Clifford and Bosman report:

"Target, with almost 1,800 stores, is one of the bigger carriers of Kindles in the offline world, though most of the devices are sold at Amazon's Web site. Like other big retailers, Target has been trying to figure out how to stop Amazon shoppers from visiting Target stores to check out products, and then buy them online from Amazon. It is a practice encouraged by Amazon; over the Christmas holiday, for example, the company offered a promotion on its Price Check app that gave shoppers 5 percent off any item scanned at a store. Now that retailers like Target are aware of this so-called showrooming, carrying Amazon's Kindle is a little 'like Starbucks selling Dunkin' Donuts gift certificates,' said Michael Norris, a senior analyst for Simba Information. ... Target dropping the Kindle, of course, won’t stop Amazon shoppers from checking out other products at Target, but analysts said it would send a message to Amazon about Target’s alliances. Target, for example, will continue to carry Apple's iPad ... and it is testing expanded displays of Apple products. Target will also sell other e-readers and accessories, from Barnes & Noble’s Nook to rather obscure ones like the Aluratek Libre."

Norris admits that Target's decision is "probably just a mild annoyance for Amazon unless other retailers follow suit." I'm sure Target executives believe that other retailers should follow their lead because they are all in the same leaking boat. Back in November 2011, in the run up to Christmas, Jonathan Birchall reported, "US shoppers equipped with smartphones have significantly increased the volume of both searches and sales made from mobile devices so far this holiday season, underlining the technology’s growing retail power." ["Retailers see rise in smartphone shopping," Financial Times, 29 November 2011] It is the comparison searches that are infuriating brick-and-mortar store retailers. Birchall continues:

"Laura Conrad, president of Pricegrabber, a comparison shopping site owned by Experian, said it had seen a 'significant spike ... in the number of people using their mobile phones both for purchases and for research. 'There is more research than buying because people are not completely comfortable making purchases [via this medium] and a lot of retailers still do not have good applications for the mobile phone yet,' she said. The Find, a search engine that also allows shoppers to compare prices, said roughly a quarter of the searches over the post-Thanksgiving weekend came from mobile devices, up from about 15 per cent a year ago. It said the total number of mobile searches was more than four and a half times greater than the volume seen a year ago."

Macy's appears to be fighting showrooming by beefing up its own on-line presence. Back in January 2011, the company announced that it was significantly increasing the number of employees it was dedicating to on-line shopping. ["Macy's Expects to Add 725 New Positions to Expand Websites," by Lauren Pollock, Wall Street Journal, 4 January 2011] Pollock reported:

"Consumers increasingly have been moving their shopping online, and Macy's, for its part, has seen its online sales grow in the double digits on a percentage basis over the past few years. For the first 10 months of fiscal 2010, online sales were up 29%. Macy's, which has about 161,000 employees, expects to add the positions in New York and San Francisco to expand macys.com and bloomingdales.com."

Macy's latest strategic twist "is building a network of online-sales distribution centers around the country—in the backrooms of its stores." ["Macy's Regroups in Warehouse Wars," by Dana Mattioli, Wall Street Journal, 14 May 2012] Mattioli reports:

"The department-store chain is responding to a distribution war going on in the retail business. Increasingly that war is being won by online-only seller Amazon.com Inc., which has built a highly efficient group of warehouses within miles of most major population centers. Amazon's success was not lost on Macy's top managers. Last summer they decided that they would shift how they got merchandise to customers. Instead of sending goods only from online warehouses, the company would begin fulfilling goods directly from impromptu shipping centers at its locations. 'We've spent the last 153 years building warehouses,' said chief stores officer Peter Sachse in an interview. 'We just called them stores.' The retailer plans to convert 292 of its 800-plus stores for the task, with expanded storerooms and new technology that dynamically updates the status of every item in every store. The goal is to better manage inventory."

Although this is a clever move, Macy's will still have to compete with on-line retailers on price. Christian Koestler writes, "The reality is that three groups – retailers, competitors and customers – need a clear picture of the competitive pricing landscape and comprise a triangle of pricing transparency. With comparisons on products and services now available round the clock, seasoned online shoppers have clear visibility to volumes of pricing data." ["A Look At Competitive Price Intelligence," Multichannel Merchant, 23 August 2011] Koestler continues:

"Competitors may have this same information. An online retailer who lacks this visibility is, in effect, working blind from its point of the triangle. And it’s not only transparency of price that affects retailers. Product availability, shipping charges, consumer rankings and reviews and taxes are similarly available, and similarly evaluated by consumers before making a purchase decision. Retailers must have the right intelligence to stay a step ahead, proactively participating in this transparent marketplace to compete for business and win customers."

I believe that is exactly what Macy's is trying to do. Mattioli explains:

"For instance, if stores have too much of an item, the excess can be shifted to the website, where it might be selling better and at full price. Likewise, out-of-stock items won't disappear from Macy's website if they can be found in a physical store. Online orders will be filled by stores closest to consumers, saving time and money on shipping."

Mattioli explains that "before it started shipping from stores, Macys.com removed thousands of sold-out items from its website each week." What that resulted in was needlessly lost sales because some of those items were available in brick-and-mortar stores. Mattioli continues:

"When the chain carried a limited-time line from Chanel creative director Karl Lagerfeld last year, half the online inventory sold out in the first day, yet Macy's stores had to discount the collection to get it sold, he said. If Macy's had been able at the time to meet online demand with Lagerfeld items shipped from its stores, he said, sales would have been much better."

Although Macy's new strategy makes sense, Mattioli notes that it "is a big gamble." She explains:

"Filling orders by hand is relatively inefficient, especially compared with Amazon's high-tech distribution centers, where robots scurry to help pick and pack products. Both opportunity and cost were on display at Macy's high-end Garden State Plaza location in Paramus, New Jersey. In the store's back recesses, Macy's converted an area where it once took telephone orders into a dimly-lit, makeshift packing area. There employees packed handbags, kitchen appliances and shoes into cardboard Macy's boxes. By noon or so, employees filled some 400 boxes, which were then put into plastic bags awaiting afternoon pickup. By 2:30 p.m. 100 more orders had come to the store, totaling $5,091 in sales. Danya El Zein, director of store fulfillment, scoured the sales floor for a white Michael Kors purse for a customer in Bowie, Md., and a Fossil wallet for a customer in California."

If the price of RFID can be significantly reduced so that it is cost effective to tag individual items, employees won't have "scour the sales floor" to locate required items. They should be able to find them quickly and efficiently. Mattioli notes, "While a robot can be programmed to find a specific item in the right size and color by reading a bar code, retail jargon can often trip up a human doing the same job by hand. It took Ms. El Zein several tries to find a LeSportsac travel tote in the color 'Journey,' a diagonal zig-zag print." Technology can surely address this challenge. Mattioli reports that Macy's strategy seems to be working. She writes:

"Macy's has been one of retail's strongest performers. In its most recent quarter, its profit jumped 38%, and its online sales grew 34%. In 2011, Macy's online sales accounted for 6.8% of total revenue. Macy's move reflects a broader strategic shift that U.S. retailers are making to compete with online rivals. The new buzzword is 'omnichannel,' where Internet operations are deeply integrated with physical stores. Such talk has been around since the late 1990s, but now much of the back-end technology is finally in place to help retailers manage inventories."

Mattioli reports that the Nordstrom chain "was one of the first to fill online orders with goods shipped from its stores. It started in 2009 and now ships from all 117 of its full-line stores. Last holiday season, Toys R Us kicked off its own program in all 800 of its Toys R Us and Babies R Us stores." To learn more about what Nordstrom is doing, read my post entitled Supply Chain Helps Nordstrom's Bottom Line. Even though we may see this strategy adopted by more retailers, Mattioli claims "there is an inherent tension in running stores as warehouses." She explains:

"Finding the items takes more time and labor. And it is more complicated arranging shipping from, say, seven separate stores than from one online warehouse. 'They're doing it at a fairly expensive cost on the back-end side,' said Craig Johnson, president of retail consultancy Customer Growth Partners. 'It sounds great initially, but it is fairly complex,' Mr. Johnson said. Greg Ahearn, Toys R Us's chief marketing officer, said its store-to-warehouses rollout required investments in its website, supply-chain systems, technology and employees. ... One thorny issue: Who gets credit for the sale, the online channel or the store that ships it? Toys R Us counts the orders as online revenue. Macy's says it is still sorting that out."

The fact that retailers are still arguing over who gets credit for a sale indicates that corporate alignment still has a ways to go. The fact of the matter is that a sale is a sale and the company as a whole benefits when a sale is made. By aligning omnichannel operations, everyone should get credit when revenue goes up. Successful retailers must understand and embrace a digital path to purchase strategy.

May 15, 2012

Big Data and Supply Chain Risk

Catherine Bulgar writes, "There’s a risk of trying to assess supply chain risk with too much data, but not enough relevant information." ["Risk Tools," Supply Chain Risk Insights, 9 April 2012] I couldn't agree more. On numerous occasions, I have stressed the point that data is irrelevant if it isn't analyzed and presented as actionable intelligence to decision makers. Bulgar continues:

"The scope of today's supply chains can imply that it's hard to get a simple answer to questions like 'where does this part come from?' A U.S. business might buy a part from a British supplier, whose factory is in China and is supplied by components from other countries. The complexity can be daunting. Business impact analysis ... looks in depth at the consequences of losing a critical process or supplier, with respect to severity as well as frequency, explains Dr. Otto Kocsis, global head of technical center business resilience and principal engineer, business interruption/business resilience at Zurich Insurance Co. in Zurich."

Another name for business impact analysis is "what if" analysis. The objective of this kind of analysis, as Bulgar states, is to look at the perturbative effects of a disruption, like the explosion in a German plant that produces cyclododecatriene (CDT) and one of the materials made from it -- PA-12 (nylon-12). That explosion affected half of the production of nylon-12 which is essential in the auto industry. To read more on that topic, see my post entitled Supply Chain Disruption: The Reason is the Resin. Had the auto industry involved itself in a little business impact analysis, it might not have had to scramble to find alternatives when a supply chain disruption caused by the explosion occurred. Dr. Kocsis told Bulgar that even with such analysis, simple answers cannot be found. He said, "If you're looking at two sites, one supplying the other, even if they are in the same group it's not always obvious how interconnected these two sites are. It might be necessary to go into more detail." Lora Cecere recommends that at a minimum you look to your supplier's supplier -- and even that may not be deep enough. Bulgar continues:

"A number of tools are available for helping businesses tame the data and draw a clear picture of their supply chain risks. They may overlay risks on a map of the world, use flow charts to show tiers of interdependence or illustrate degrees of risks with heat maps."

Because of the complexity of today's supply chains, technology is critical in supplying the kind of visibility Bulgar is talking about. As you can imagine, insurance companies like Zurich, sponsor of the blog in which Bulgar's article was posted, have created a number of tools to help them assess risk. Kocsis told Bulgar that Zurich has many more tools and much more experience than its customers because the company faces these questions as part of its business. Bulgar continues:

"Zurich has a number of proprietary tools including a tool to model business interruptions, present the disruptions graphically so they’re easier to understand and provide quantitative supply chain exposures. 'We go through all the different scenarios,' from losing a major customer to fires, storms or strikes, Dr. Kocsis says. 'We calculate the effect on the balance sheet not only to the site but to the group. We provide the list of top exposures with respect to business interruption.'"

Good risk managers know that reinventing the wheel can be time-consuming and wasteful; especially if they have business relationship with a company that might have appropriate risk management tools already, like an insurance company. Bulgar continues:

"The first step is to model the value chain, then identify the scenarios, both with respect to severity as well as impact, then get the effect of those scenarios on the balance sheet. 'It's not often that organizations would look specifically at supply chain risk as a topic to audit and understand,' says Tim Astley, Regional Practice Leader for Strategic Risk and Business Resilience at Zurich, based in Birmingham, U.K. Zurich looks at 25 supply chain risk factors to understand the breadth of management control and the extent to which a business is exposed to each factor. Scenarios encompass many kinds of risk, from internal ones like fires or machinery breakdowns to external ones such as geopolitical risk, natural catastrophes, or economic problems like high inflation."

I was surprised that Astley would state that organizations don't often look specifically at supply chain as a topic to audit and understand. That might have been true in the past, but the numerous supply chain disruptions that have occurred over the past several years have more and more companies doing just that (see my post entitled Supply Chain Risk Management Comes of Age). Bulgar continues:

"Zurich’s Risk Room looks at a wide range of country-level risks around the world and presents them in a visual format to help make sense of layers of data and their connections. The World Economic Forum worked with the Risk Room in developing its report, Global Risks 2012. Models can be updated with live data from social media or real-time news feeds in order to instantly assess how bad an unfolding scenario is and to act as quickly as possible. 'A business can gain competitive advantage by getting to a supplier first and securing supplies that may soon be hard to get,' Mr. Astley says."

Professor Yossi Sheffi from the Massachusetts Institute of Technology, provided an example of exactly what Astley was talking about in his 2005 seminal work entitled The Resilient Enterprise that examined disruptions to corporate supply chains. The very first chapter in that book was entitled "Big Lessons from Small Disruptions." It unfolds a story about how a St. Patrick's Day (17 March 2000) lightning strike in Albuquerque, New Mexico, started a fire in Fabricator No. 22 of a Phillips NV chip manufacturing plant which led to unforeseen long-term consequences. For a brief description of how Nokia and Ericsson responded differently to that fire, read my post entitled The Split Second Disruption to the Supply Chain. Bulgar continues:

"Good quantity and quality of information can give sharper definition to risks. 'Robust, comprehensive data capture is really key,' says Keesup Choe, Chief Executive of PI Benchmark, a London-based company that develops risk tools and procurement decision support solutions. The data goes into models to assess risks and highlight exposures in the supply chain. PI Benchmark has worked with Zurich Insurance to identify and map all the nodes of a supply chain, decomposing each component into the most granular bits. This can help highlight concentrations of exposures—for example, your suppliers’ suppliers’ factories are mostly located in, say, Thailand, where flooding has recently led to the disrupted production of hard disks."

Although Choe rightfully stresses the importance of data capture, I return to what I wrote at the beginning of this post -- data is only useful if it is presented to a decision maker in a way that makes it easier for him or her to make a decision. That's why Dr. Kocsis stressed visualization. Bulgar continues:

"Services exist to send alerts to companies when disasters like earthquakes occur anywhere in the world. The problem is, many don't take into account whether the company or its suppliers even have a factory near the catastrophe zone, says Patrick Brennan, chief executive of Supply Risk Solutions, a Redwood City, California, provider of supply chain risk solutions. That makes for a flood of useless alerts that can obscure truly significant events. Supply Risk Solutions checks out not just a company's suppliers' factories but also the factories of the suppliers' critical sub-tier suppliers. 'A lot of customers have thousands of suppliers, with an average of five factories each,' he says. 'We’re taking all the supplier factories as well as their sub-tier factories and mapping them. Then we marry that information to global disaster feeds we get.' Companies can be notified immediately when an event occurs within, say, a 150-kilometer radius of key supplier or subtier factories."

That's impressive but not very useful if a company hasn't previously thought about what it would do should a disruption occur. Reacting to a disruption on an ad hoc basis generally results in lost time, lost opportunities, and lost revenue. Being alerted is not the same as being prepared -- a point Brennan makes next. Bulgar continues:

"Digging down to the factory level is essential because of the effects of industrial clusters. 'Companies that are dual sourcing or multisourcing aren't really mitigating their risk because suppliers of similar technologies tend to locate their factories in the same areas,' Mr. Brennan says. By surveying suppliers on a broad scale, Supply Risk Solutions has created a large database of supplier data and can gather the information more cheaply than can individual companies on their own. In tandem with identifying tiers of suppliers and their factory locations, it's critical to take steps to reduce risk ahead of any crisis event, Mr. Brennan says. The database of suppliers to leading manufacturers offers leverage, because 'we can say to a factory, we are contacting you on behalf of several of your largest customers, whom we name. They are asking you to mitigate these specific risks. When we approach them like that, they definitely listen.'"

One of the takeaways from Brennan's observations should be that risk management must be a collaborative effort among stakeholders. To borrow from John Donne, "No company is an island, entire of itself ... any supply chain disruption diminishes profits, because every company is involved in a supply chain; and therefore never send to know for whom the bell tolls; it tolls for thee." Bulgar concludes:

"Some risk tools go beyond data capture to include site visits by risk engineers. Zurich, for example, has a vast team of risk engineers who collect data about suppliers with the experience of knowing what has gone wrong in other companies and other industries. The goal is to make a business strong enough, even at its weakest link, explains Dr. Kocsis of Zurich. 'Looking back 10 years, those companies that implemented sound risk management are often among the benchmark companies. You won't be competitive on a time scale of three to five years if you are not able to manage your supply chain in a resilient way.' Nick Wildgoose, global supply chain product manager for Zurich Insurance, says, 'There are many simple and inexpensive supply chain risk tools that companies can use; why would you not want to do this given the significant financial impact a strategic supplier failure can have on your organization?'"

That's a great question. The importance of supply chain risk management will only grow in the years ahead. There is no time like the present to start preparing for the future -- a future that will surely include supply chain disruptions.

May 14, 2012

Supply Chain Visibility: The Search Continues

Dan Gilmore, editor-in-chief of Supply Chain Digest, asserts, "Almost like the search for the Holy Grail, the quest for greater visibility has similarly been driving supply chains across the globe for the past decade." ["The Visible Supply Chain," 5 April 2012] In fact, Gilmore goes further and claims that the quest for supply chain visibility "started in the late 1990s, when Art Mesher, then an analyst at Gartner and now CEO of Descartes Systems, wrote a series of research notes on 'The Three V's of Supply Chain,' which were velocity, variability, --- and visibility." He continues:

"From that point on, visibility has been at the forefront of supply chain issues, and improving the level of visibility has moved in the last 7-10 years to the top of the corporate supply chain priority list for the majority of companies. Ah but what is it, really? Can a company ever really achieve a satisfactory level of visibility? What are the keys to success?"

If you are a small- to medium-size company and don't believe that visibility is a challenge for you, the editorial staff at SupplyChainBrain writes, "The idea that visibility only impacts the most complex supply chains is untrue – even the most 'simple' chains often source globally and are instantly impacted by any logistical hiccup." ["Eliminating Supply Chain Silos Is Crucial to Improved Visibility and Success," 22 March 2012] The article goes on to describe some of the benefits of increased supply chain visibility:

"Some of the benefits of supply chain visibility can be realized in the following ways:

Improved inventory policies. Without visibility, inventory managers are left to base their policies around heuristics, which often lead to inventory bloat and inappropriate levels of safety stock. Visibility allows inventory managers the ability to analyze how subtle changes (e.g., changing days' worth of supply for specific products) will affect inventory levels and profits.

Improved procurement and sourcing analysis. Visibility impacts downstream facets of the supply chain as well. Spend analysis is more accurate with improved supply chain visibility, and purchasing managers can successfully analyze areas that require improved supplier performance. Additionally, impact spend analysis findings can be shared with other departments, such as risk assessment to help mitigate supplier risk.

Improved communication between manufacturing and transportation. Information from manufacturing, distribution and logistics operations can be further integrated to increase the entire supply chain's reaction time. The entire process becomes much smoother and able to quickly adapt to disaster or rapidly developing change.

"The benefits of end-to-end supply chain visibility impact the entire supply chain, from planning and forecasting to sourcing and procurement to logistics. By investing in visibility improvement, business leaders can move beyond thinking about the supply chain as a cost-reductive business initiative. Rather, proper visibility can lead to operational excellence and the supply chain becoming a powerful, strategic arm of the business."

Gilmore continues his discussion about supply chain visibility by noting that it "is very much like the proverbial onion: it has many layers that must be peeled back over time to reveal more and more data and insight to a company's managers and executives." That is a point I have made in past posts, visibility is increased over time as companies come to understand what information is most important and work with vendors to develop strategies to obtain and analyze it. The challenge with this incremental approach is avoiding the temptation to implement systems that end up siloing rather than integrating data. Gilmore continues:

"When progress is made, it at first appears that this new level of visibility has solved many existing problems. But over time, that level of visibility seems not nearly sufficient, and the company must look to peel away another layer of the onion to address another set of challenges or opportunities."

As Lora Cecere frequently points out, real visibility isn't achieved unless it reaches your supplier's supplier and your customer's customer. Gilmore continues:

"There are no longer any real technical barriers to achieving near perfect visibility, and it is coming soon to a supply chain near you. Auto ID/RFID, GPS, video, mobile, wireless, sensors, the Cloud, etc. – these are largely very mature technologies. The costs for most keep going down. To really get where we can go with this, we’ll need to see RFID adoption pick up some more, as in some applications bar coding provides challenges, but really RFID technology is moving along nicely, regardless of the initial Walmart RFID mandate debacle."

I'm not sure that most analysts would call all of the technologies associated with supply chain visibility "largely very mature." In fact, many analysts believe that we may just be in the infancy with regards to some technologies; but, those technologies are maturing fast. As I noted above, many companies fall into the trap of implementing niche visibility solutions for specific departments. The result is sequestered (or siloed) data that adds little value to entire supply chain visibility challenge. The SupplyChainBrain article reports:

"Software Advice finds that many supply chain leaders have difficulty moving past 'silo-based' approaches – or relying on spreadsheet programs or non-communicative software solutions to manage various supply chain functions. By adopting software solutions that can provide accurate and up-to-date inventory data, supply chain managers gain a more realistic portrayal of their entire value chain. One way this can be done is through the deployment of integrated supply chain solutions in a supply chain hub. This hub uses a centralized access point and automated inventory collection methods to improve inventory accuracy. In doing so, human error is reduced and inventory data is visible to anyone within the organization with access."

Even though Gilmore insists that "the technology is there," Michael J. Stolarczyk, president of Kontane Logistics, in his book, Logical Logistics: A Common Sense Primer for Your Supply Chain, writes:

"The globalization of commerce has made sophisticated logistics technology a necessity for companies large and small. The need for advanced solutions may seem obvious, but a surprising number of companies still have a long way to go when it comes to global supply chain technology sophistication. Many Fortune 500 companies report their global supply chain technology is inadequate to provide timely information required for budget and cash flow planning. Indeed, the global supply chain has been relatively ignored because it was traditionally a small part of a organization's business mindset."

Gilmore insists that regardless of what technology you put in place "it just takes companies time to mature and evolve." He continues:

"That said, some [companies] are clearly evolving lot faster than others. ... Visibility is a complex thing, touching nearly every aspect of the supply chain. The initial thinking was primarily a logistics-oriented one – 'where’s my stuff?' That is still a very important question, especially with both Lean and global supply chains trying to exist simultaneously), but visibility thinking and action has gone way beyond that today, embracing demand and supply visibility, risk visibility, and more."

To demonstrate the complexity described by Gilmore, the staff at Supply Chain Digest "developed a new Supply Chain Visibility framework that encompasses eight 'vectors' of visibility information and insight." Gilmore explains that this framework (depicted below) "incorporates concepts related to performance management and analytics that are also components of visibility."

Visibility_Framework

Gilmore writes, "We may never get there, but the ultimate end game would be the creation of a central portal that would contain integrated visibility information across all the eight sectors." It's certainly a goal worth pursuing. I was pleased that the SCD framework prominently highlights predictive analytics, event management, and dashboards -- all areas in which my company, Enterra Solutions, is involved. Decision makers don't really want to see everything all the time. What they want to see are anomalies that could bite them or emerging opportunities that could enhance their company's market share. That is why user-friendly dashboards are so important. Gilmore concludes that we are still some distance from creating the ideal Supply Chain Visibility Hub, "though so-called 'Control Towers' in the logistics arena provide a type of model for it." To read more about Control Towers, see my post entitled Have You Heard about Supply Chain Control Towers? Gilmore concludes:

"Are vendors working on somewhat analogous concepts for even wider supply chain data beyond logistics? Absolutely. What I think many don't appreciate are the changes that this level of 'turbo visibility' is going to bring eventually. It will drive rethinking about our existing supply chain organizations, especially as operational planning and execution start to blur into one thing. ... One of my all-time favorite quotes relative to visibility comes from Nick LaHowchic and the late Dr. Don Bowersox from their excellent book 'Start Pulling Your Chain' from a few years ago. They wrote: 'If information was shared fluidly between participating firms in a channel, then a great deal of "anticipation" would be replaced with facts. In a collaborative environment, it would not be necessary to forecast what others are planning to do or what they are planning to buy. You would see it.' Not only is this simply a concise but powerful vision of where we are headed, but again shows how visibility has moved well beyond just 'where’s my stuff?'"

The staff at SupplyChainBrain concludes, "Visibility was a top priority for executives in 2011. Look for this initiative to increase in 2012 as more executives are concerned about supply chain risk in light of recent natural and supplier disasters. Additionally, look for more executives to focus on improving inventory accuracy and accessibility to obtain greater insight into the entire value chain." I suspect that we are going to continue to read more and more about the importance of supply chain visibility. Fortunately, such discussions are going to be taking place just as new technologies are being introduced that will help companies achieve (or come very to achieving) the kind of visibility that Gilmore envisions.

May 11, 2012

Reverse Innovation Continues to Garner Attention

I have been discussing the topic of reverse innovation (i.e., innovation coming out of less developed countries into more developed countries) since 2009 (see Innovation, Development, and India). That's when I first heard of an Indian innovation process called "jugaad," an improvisational style of innovation that was developed primarily because Indian inventors wanted to address the pressing needs of those around them but had few resources upon which to draw. Jugaad basically means, "Somehow, get it done." Some of the "good enough" innovations developed in places like India have indeed been good enough to make their way into the marketplace in developed countries. I broached the topic of reverse innovation again a few months later in a post entitled Innovation in (and from) BRIC Countries.

In an article in the Financial Times, Stefan Wagstyl wrote, "Not only do China, India, Brazil and other countries offer companies fast growth prospects; they also generate opportunities for developing new products, services, manufacturing techniques and business processes." ["Innovation: Replicators no more," 5 January 2011] He continued:

"These innovations do not yet involve transformational technological shifts – such inventions remain the preserve of the developed world with its long-established universities and commercial laboratories. But the emerging world is spawning product improvements with commercial implications that are game-changing. They do not win Nobel prizes but they do make money. Multinationals that dismiss such innovation as localisation do so at their peril. The advantages competitors gain in emerging markets will be deployed in the rich world too."

Christoph Nettesheim of Boston Consulting Group, told Wagstyl, "The danger for many [multinationals] is that they don't see the emerging market innovations coming because they are not yet coming direct into their home markets. But they will." Wagstyl noted that "emerging market innovation is not new." He reports that more than two decades ago "Hindustan Lever, the Indian consumer product affiliate of the Anglo-Dutch Unilever, pioneered mini-sachets as a way of taking its soaps to poorer consumers." If that sounds oddly familiar, it's probably because Procter & Gamble has put on a media blitz touting its new Tide Pods laundry detergent. "What is new," wrote Wagstyl, "is the growing volume of such innovations" coming out of emerging market countries. He continued:

"Sceptics dismiss many emerging market innovations as incremental improvements. But for business, that is beside the point, when such improvements lead to better products, services and processes. Peter Williamson, international management professor at Cambridge university, says: 'The innovations may be incremental. The effects are not.' Leading multinationals agree. Engineers at Siemens’ Indian affiliate developed a low-cost x-ray scanner camera that is so good it will be used in developed-world equipment. ... Scores of multinationals do the same. GE sells Indian-developed electrocardiograms and Chinese-devised ultrasound scanners around the world. Nokia uses Indian and Chinese software skills to develop smart handsets. Vodafone launched a mobile money transfer system called M-Pesa on Safaricom, its Kenyan affiliate. Similar schemes aimed at the unbanked have been introduced elsewhere in Africa and now India."

Alan Murray calls this "Trickle-Up Development" in a review of Vijay Govindarajan and Chris Trimble's book entitled Reverse Innovation. [Wall Street Journal, 11 April 2012] Murray writes that the book "offers provocative insights into the quickly changing dynamics of the global economy." He continues:

"Messrs. Govindarajan and Trimble ... say that, increasingly, business success is coming from companies that use their knowledge and resources to create innovative new products for developing countries and then adapt those products to satisfy demands in the developed world. The traditional flow of innovation—from rich to poor nations—is moving in reverse. The book is rich with examples of the phenomena. An early case dates from the 1960s, when Western doctors who went to Bangladesh to help address a cholera outbreak. The doctors discovered that the locals were using a drink made of carrot juice, rice water, bananas and carob flour—a mix of carbohydrates and sugar—to rehydrate those suffering severe diarrhea. A doctor at the University of Florida read about the traditional treatment and concluded that something similar might help dehydrated football players. The result: Gatorade."

Murray also writes about the GE example mentioned earlier. He is aware, however, that skeptics could argue that a few anecdotes don't make a business case. The authors of the book argue "that these anecdotes aren't isolated examples but rather part of a trend that is gathering steam." Murray continues:

"If growth is going to be driven by developing markets, they say, then innovation almost certainly will be, as well. For big companies, the obstacles that stand in the way of such 'reverse innovation' are the same that block disruptive innovations of all stripes. Companies are understandably wedded to the successful, high-margin products that they sell in the developed world. Executives are reluctant to devote resources to what seem like relatively small opportunities in the developing world, particularly when the effort risks cannibalizing lucrative existing products."

If the vast majority of economic analysts are correct and emerging markets represent the best opportunities for growth, then companies are going to have to deep six old strategies and learn how to operate in this new environment. Murray reports that "the book advocates the creation of 'local growth teams' — small, cross-functional, entrepreneurial groups located in the emerging markets with both the authority and resources to create products and services for those markets. The key is to create a hybrid organization that can maintain the approach and mind-set of local entrepreneurs while also calling on the technology, production and marketing resources of the multinational firm." He continues:

"Refreshingly for a business book, Messrs. Govindarajan and Trimble do not present their ideas as sure-fire elixirs. 'We have offered a theory of gaps and trends that might explain why innovations can defy gravity and flow uphill,' they write. 'Our arguments and hypotheses need to be tested rigorously to determine the contingencies. Are they industry-specific? Product-specific?' The authors call for more research into 'organization mechanisms and incentive structures that can facilitate the trickle-up process.' One of the book's most interesting themes is how the trickle-up process could help the developed world address some of its most intractable problems. Consider the high cost of health care: The authors relate the story of Narayana Hrudayalaya hospital in India, where the cost of open-heart surgery has been brought down to about $2,000—in the U.S., the surgery costs 10 times as much—yet 'the NH hospital's net profit margin is slightly higher than the U.S. average,' the authors write. The key has been process innovation of the sort used in manufacturing to help ensure heavier use of costly equipment and more frequent operations by each surgeon. If that sounds like a prescription for broken-down equipment being used by exhausted doctors, consider this: 'The mortality rate within thirty days of bypass surgery is 1.4 percent at NH hospital,' compared with 'the U.S. average of 1.9 percent.' Such solutions to rising health-care costs, originating on the front lines instead of in a bureaucrat's office, make reverse innovation sound like a step in the right direction."

James Crabtree also wrote a review of the book for the Financial Times. He notes that reverse innovation is an idea that book's authors "have been championing for years and which has become increasingly fashionable." ["The new markets for profitable ideas," 11 April 2012] He continues:

"Also known as frugal innovation, the argument is that companies can develop such products in and for developing economies at a much lower cost and then bring them back to their domestic markets. The pair are seen as the originators of the idea, having penned a 2009 article for the Harvard Business Review with Jeff Immelt, chief executive of General Electric. In it, they described how the company had developed a low-cost handheld heart scanner for the Indian market, which ultimately also went on sale in the US. Another example in the book is how Logitech, the computer peripherals maker, was undercut by Rapoo, a Chinese electronics outfit offering an ultra-low-cost mouse that was just about as good as Logitech’s more expensive versions."

Crabtree concludes, "There is much to commend this approach." But he also believes "there are problems with the thesis of this book." He explains:

"The authors pick some unfortunate case studies, such as Tata’s Nano. The $2,000 car launched with much fanfare, but few sales, in 2009. In the long term, the Nano’s frugal form may take off in India, and perhaps even in Europe and the US. But it shows few signs of doing so yet. The authors also make heroic assumptions about progress in emerging markets. For instance, they paint a rosy picture of India’s plans to build modern roads and plentiful renewable energy. This might be China’s future. But in India, where infrastructure is crumbling and the government shows little signs of doing much about it, it sounds almost delusional. A more important failing is one of balance. Yes, developed markets can learn much from new, scrappy competitors. But Indian and Chinese companies still need to import plenty of technology from the west. ... Their advantage in frugal innovation is important, but it is unlikely to be enough on its own to meet their ultimate ambitions."

Another review of the book was published in The Economist along with a review of book entitled Jugaad Innovation by Navi Radjou, Jaideep Prabhu and Simone Ahuja. ["Asian innovation," 24 March 2012] The review states:

"The books show that frugal innovation is flourishing across the emerging world, despite the gurus’ failure to agree on a term to describe it. They also argue convincingly that it will change rich countries, too. Multinationals are beginning to take ideas developed in (and for) the emerging world and deploy them in the West. ... This trend will surely accelerate. The West is doomed to a long period of austerity, as the middle class is squeezed and governments curb spending. Some 50m Americans lack medical insurance; 60m lack regular bank accounts. Such people are crying out for new ways to save money."

The article argues that "globalisation is forcing Western firms to provide more value for money." It explains:

"Logitech, an American firm, had to create a top-class wireless mouse for bottom-of-the-range prices when it took on Rapoo, a Chinese company, in China. John Deere had to do the same with its small tractors when it took on Mahindra in India. At the same time, globalisation gives Western firms more tools. Some are building innovation centres in the emerging world. PepsiCo, for example, established one in India in 2010. Some Western firms routinely fish in a global brain pool. Renault-Nissan asked its engineers in France, India and Japan to compete to come up with ideas for cutting costs. The Indians won. The Tata Nano may not have changed the world, but frugal innovation will."

Consumers should be happy with that conclusion. With wages in the U.S. having remained stagnant for decades, squeezing value out of every dollar is important. There is an old adage that states, "Better is the enemy of good enough." There is every possibility that we are entering an age of good enough.

May 10, 2012

The Social Supply Chain

During an interview with Dustin Mattison, George Ellis, a global supply chain executive at Tyco International, defined the social supply chain as "the application of social media technology across the entire breadth of the typical supply chain, all the way from supplier's suppliers to customer's customers. It also includes the integration of social media technologies or social media-like collaboration technologies within organizations to connect and empower the people across the entire spectrum of the supply chain." ["Views on Social Supply Chain," Dustin Mattison's Blog, 24 April 2012] Lorcan Sheehan discusses socializing the supply chain rather than creating a social supply chain. ["Socializing the supply chain (Part 1)" and "Socializing the supply chain (Part 2)," ModusLink’s Value Unchained, 3 and 16 April 2012] In the end, I believe Ellis and Sheehan are talking about the same thing. Sheehan writes:

"Like it or not, social media is an extraordinary phenomenon. With the exception of a few obscure chat rooms, the concept of social media did not exist 10 years ago. Yet, it is now estimated to involve and connect over 1.2 billion people on the planet, or more than 80 percent of the Internet population. Facebook, YouTube and Twitter are undoubtedly the leading forces behind the social era. However, a number of other networks are also making a remarkable 'social' contribution for supply chain professionals."

During his interview with Mattison, Ellis admitted that the customer facing side of the social supply chain has received most of the attention. He said:

"We are seeing quite a bit on the customer facing side of organizations today. Customers are leveraging social media to connect with their customers from a marketing standpoint to promote and advertise their services and capabilities. Social media is also playing a significant role in customer service. Consumers are able to communicate with the customer service departments of a growing list of organizations through Twitter and Facebook. These are examples of applications on the customer facing side of the supply chain."

Ellis notes that, although the supplier facing side of the supply chain has been slower to adopt social media technology, part of the reason has been that "applications [are] just now becoming visible and promoted, such as Volerro which is developing a social media type application for managing suppliers." He went on to say:

"I believe we will start to see social media-like capabilities being developed any place in the supply chain where there is a need to drive a more holistic, broader and deeper level of collaboration between players. What is interesting is that we are seeing the development of commercial or B2B solutions, versus the consumer driven social media solutions out there today. The consumer-oriented applications don't have the robust security, search and information management capabilities that a robust commercial collaboration platform would need to have. That is why new tools that incorporate these requirements are being developed today."

Sheehan agrees with Ellis that tools are rapidly being developed to help companies collaborate better with their suppliers. He writes:

"Supply chain professionals have had access to specialized procurement platforms for decades. But what the Internet has brought is a faster way to access this information with a wider reach. Now brands like Salesforce are incorporating social media to create Enterprise social networks like Salesforce Chatter. Enterprise social networks like Chatter are cheaper and more informal ways of inquiring about solutions, prices or any other type of information that can help streamline sourcing, pre-qualification or even risk-management. This is also becoming an effective way of disseminating information (be it new policies or else) to your supply base and keeping an eye on what is happening with them. Finally, embedded survey tools or more sophisticated RFP (request for proposal) solutions can also help a great deal in making their administration more efficient, and this is also valid for the supplier selection process."

Ellis next turns his thoughts to internal corporate communication. He begins by talking about Twitter. When Twitter was first introduced, who would have predicted that a business leader, several years down the road, would be extolling its virtues? Not me. Now I find myself tweeting (@EnterraSolution and @EnterraCEO). Ellis says, "I have found that Twitter is one of the most effective channels for learning about what is going on in supply chain and learning broadly and deeply. Twitter is emerging as a wonderful learning platform." I'm learning that there is a real art to getting a salient point across in 140 characters. Admittedly Twitter can be a waste of time, but Ellis reports that "there are all types of courses at all levels, science programs for school classrooms for example, being developed on Twitter feeds. In the future we are going to see Twitter-like or other social media applications provide much greater focus and more solutions for learning within organizations." He went on to say:

"I can tell you that both my current and previous employers have internal social media networks within the companies, with firewalls. Companies are going to have to allow their employees to link up with external social media networks as well. These well defined silos, and the barriers between internal and external, over time will erode."

I am only one of many pundits who have insisted for years that corporate silos need to be broken down so that a company can get better aligned and take advantage of information sharing opportunities that have emerged in the era of Big Data. Obviously Ellis agrees. He is also a big fan of LinkedIn, where he started a Social Supply Chain Networking Group.

"I am very excited about it. It has grown very rapidly. Within 3 weeks we ... had 220 members join the group. These are mostly people who were in my network but we have also attracted members from the broader LinkedIn community all over the world. The vision is that we will have an opportunity to engage with some of the solutions providers. As we move forward we will also have an opportunity to see some of the jobs offered by those players, and jobs within companies that want to leverage social media across their supply chain organizations."

Sheehan agrees with Ellis that professional networking plays an important role in the social supply chain. He writes:

"Sales representatives were the first people to safeguard and organize their Rolodex through online solutions such as Plaxo. However, these address book alternatives have been outpaced by professional networking sites such as LinkedIn. Professional social networking sites offer value-added tools that allow you to make targeted connections, leverage your extended network to a level never seen before, or just 'keep in touch' with more direct contacts than could have been manageable a few years ago. Industry groups and forums on LinkedIn are also becoming a meaningful way of identifying opportunities and gathering intelligence on your market as well as your competition."

Ellis concludes, "There is a lot of interest in social media and how it is going to be integrated across supply chain and logistics operations down the road." Ellis didn't dwell too much on the customer facing side of the social supply chain, but it has obviously had tremendous impact over the last few years. Sheehan writes:

"It is probably fair to assume that a large portion of your customers are active social media contributors. In the last few years, a number of companies have seen that it only takes one influential and dissatisfied customer to damage your brand reputation online. However, this is a risk that can be mitigated. Dell, which relies heavily on its own e-commerce site to sell its merchandise, has recently taken an active step in monitoring what is said about the company via social media. The company is using a social media monitoring platform called Radian6 in its Social Media Listening Command Center to listen to and analyze more than 20,000 daily posts - and act where necessary to convert negative comments into satisfied customers. Before social media, satisfied or dissatisfied customers would share thoughts with a handful of their friends. However now in the social era, one unhappy person's thoughts could be shared with a network of 'friends' averaging over 100 people. The good news is that this also creates an opportunity for positive messaging which Dell well understood."

If you want to read a fascinating account of how social media can bring a company to its knees, read Bryan Gruley's and Elizabeth Campbell's account of how social media contributed to the dramatic downturn of Beef Products Inc. ["The Sliming of Pink Slime's Creator," Bloomberg BusinessWeek, 12 April 2012] By referring to BPI's "lean finely textured beef" as "pink slime," social media pundits created a toxic environment that resulted in BPI having to close three of its plants and let go of almost 700 workers. BPI's story should be a cautionary tale for any business. Sheehan concluded his two-part series this way:

"I believe we are still in the early days of social media in the workplace and various elements will need to be addressed such as privacy, confidentiality, legitimacy, piracy to name a few. No doubt that it will shake-up a large number of policies - perhaps much further than the emergence of 'e-mails' triggered in its early days. One thing is fairly clear - if you intend on keeping the lines of communication open with your customers, staff and other stakeholders, you will need to connect with them on the social platforms where they are congregating. Go on, give it a go, you could even save costs in the process!"

I still believe that what Ellis and Sheehan describe is better referred to as a demand driven supply chain than a social supply chain; however, whatever you call it, the objectives remain the same -- better supply chain visibility and information sharing.

May 09, 2012

Customs and Other Cross-Border Cloud Computing Challenges

Bill Mongelluzzo, writing in the The Journal of Commerce Sailings, reported, "With dozens of federal agencies having some degree of involvement in the cargo clearance process, importers are crying out for a single government portal at the border." ["Single Border Portal Tops Importers' Wish List," 6 March 2012] He continues:

"Customs and Border Protection, the lead government agency at the border, agrees that importers have a legitimate gripe when it comes to the cargo clearance delays and the economic burden they face from redundant or conflicting regulations. 'If CBP does not support a strong economy, we're not doing our job,' [said] Brenda Brockman Smith, executive director, trade policy and programs. ... Customs actually began to develop a 'single window' for import documentation in the mid-1990s. The International Trade Data System is part of the umbrella automation effort known as the Automated Commercial Environment. Like ACE, however, development of the ITDS has been delayed by inadequate funding, politics and the terrorist attacks of September 11."

Unfortunately, funding problems, politics, and concerns about terrorist attacks are not likely to go away anytime soon. Mongelluzzo reports that George J. Weise, customs commissioner from 1993 to 1997, laments the fact that Congress took the ACE and ITDS programs "out of Customs' hands in 2001 and put it out to bid in the private sector." As a result, the program has languished. "Customs staff was proud of the predecessor automation effort it created, the Automated Commercial System, which Customs still uses to some degree today. Customs staff soon labeled ACE an information technology project and disengaged from its development, Weise said." Mongelluzzo continues:

"Customs is working on various initiatives designed to provide more uniformity in the filing and processing of import documentation. Smith cited the nine Centers of Excellence and Expertise the agency plans to develop. Each center will expand Customs expertise by focusing on a specific commodity. Smith said centers in Los Angeles and New York are already providing more uniform treatment of electronics and pharmaceutical imports. Other agencies are building upon programs developed by Customs to provide uniformity in the cargo clearance process and to expedite clearance of low-risk shipments, said Domenic Veneziano, director of the division of import operations and policy at the Food and Drug Administration. For example, the FDA may consider an importer certified under the Customs-Trade Partnership Against Terrorism to be a trusted partner. While participation in programs such as C-TPAT requires an investment of time and resources, the benefits in terms of expedited cargo clearance are worth the effort, said Ted Sherman, director of global trade services at Target Corp."

Su Ross, an attorney with the Los Angeles firm of Mitchell, Silberberg & Knupp, told Mongelluzzo that "Congress continues to make the job of the agencies more difficult by thrusting upon them additional security requirements. Mongelluzzo explains:

"The laws often come with no funding for the agencies, and Congress may have only the vaguest idea of the impact the requirements will have on the competitiveness of U.S. companies, [Ross] said. The burdens placed upon small and midsize companies can be heavy. 'If you're a smaller company, you're stuck,' Ross said."

The U.S. is not the only country that has customs challenges. Geoff Whiting reports, "When it comes to monitoring inbound trade, many developing countries' customs administrations still rely on inefficient paper-based processes, often resulting in significant cargo clearance delays at the border and worse -- a potential for corruption." ["Cross-border cloud computing," American Shipper, 29 March 2012] Fortunately, Whiting reports, "Microsoft ... has created a platform to help customs administrations with minimal information technology to leapfrog into the 21st century and start bringing their cross-border controls in line with those of industrialized countries." Whiting continues:

"To accomplish this, Microsoft and about a half-dozen partners have developed customs systems that use cloud technology, or the ability to more cheaply access information from the Internet via servers no matter the user's location. More specifically, cloud technology lets Microsoft offer scalability but with a very flexible nature because of its size and the fact that many partners already use Microsoft software."

Whiting notes that Microsoft isn't developing this program out the kindness of its corporate heart. "Large IT companies like Microsoft, IBM, Oracle, and SAP generate considerable revenue from government contracts," he writes. "Once these modernization practices and programs are in place, these firms are often able to establish long-term, lucrative relationships." He continues:

"According to the World Trade Organization, international trade grew 13.5 percent in 2010 which makes the customs market a great business opportunity with solid revenue potential for Microsoft. ... Luco De Bock, Microsoft's corporate senior director for global strategic accounts in Brussels, said, 'national competitiveness, an important priority for many of our public sector partners, is also supported through our efforts to make trade faster and helping them achieve greater economic growth.' ... 'As with all multi-national businesses, reducing the need to resubmit trade data multiple times has been one of the driving forces behind the need for developing standard trade data elements and interoperable customs systems,' said Frank Callewaert, global technology strategist for Microsoft. 'Each customs authority has developed its own set of processes, procedures and levels of automation.' Callewaert said these were strong reasons for Microsoft to pursue this market."

No one has ever accused Microsoft of lacking ambition and its plans for customs systems are certainly ambitious. Whiting reports, "Microsoft is looking beyond national and regional customs projects to develop a global system." He continues:

"The company is currently working with the World Customs Organization to create a Globally Networked Customs initiative. Callewaert said the initiative "will rationalize, harmonize, and standardize the secure and efficient exchange of information between customs-to-customs and trade-to-customs transactions.' It will also put Microsoft in a position to be part of every customs organization and exporter around the globe, potentially a mountain of revenue to pursue."

As Bill Mongelluzzo confirmed, companies are longing for a system that can help them simplify customs challenges. Whiting reports that cloud computing is likely to be an essential part of any customs solution. He writes:

"Today, nearly every country has a customs declaration system in place, but they struggle to connect with each other. This lack of connectivity causes cargo flows to slow at the border. Microsoft saw cloud technology as the means to connect these systems without the need to change the existing IT infrastructure of any individual country and thus allowing them to efficiently share non-classified trade information. In Microsoft's view, developing countries stand to benefit the most from globalization and customs enhancements in the next five to 10 years, because many are experiencing boosts in both imports and exports. However, many of these countries' customs systems aren't keeping pace."

In terms of both initial infrastructure and life-cycle/upgrade costs, cloud computing is the perfect platform for state-of-the-art customs systems. Whiting explains:

"Emerging market customs administrations with cloud-based systems also stand to benefit from the ability to efficiently respond to transportation modes and route changes during shipment. Customs applications based in the cloud give officers the ability to run reports and track shipments in real-time, and share it with other agencies in the government. ... These same forces can play a positive role in developed countries as well. Customs agencies can benefit from the streamlined approach of cloud systems and the ease of use they provide for importers and exporters."

As you recall, Su Ross was complaining about the difficulty small- and medium-sized businesses have dealing with customs regulations. Whiting reports, "As these processes get easier, more small- and mid-sized companies can move their goods to more markets." He continues:

"The technology exists and can be used by small enterprises to find international buyers and to navigate the field of imports all from mobile phones. As customs systems add in cloud support, more reach can be given to those companies with less resources and internal infrastructure."

Whiting concludes that "developed nations can also benefit from this type of cloud interface through a 'community systems' approach, which can link government and private sector reporting, further reducing the amount of data and documentation carriers send out per shipment." He discusses a number of examples of companies that are providing cloud-based customs support to countries and the impact that such systems are having. John Treadway noted that "constraints imposed by governments on where data and processes can reside," could have an impact on the future of cloud-based systems, including customs systems. ["Cross-Border Constraints on Cloud Computing," CloudBzz, 18 May 2009] He reported:

"For example, Canadian government data cannot reside in the U.S. due to the Patriot Act. Similarly, the French government will not use Blackberry devices because at some point all emails route through the U.S. and also become visible to the Department of Homeland Security. And it’s not just other countries. Even in the U.S. there are different constraints on NPPI (non-public personal information) at the state level. How can enterprises use cloud services where they have no control on the physical location of their data and processes in this patchwork of conflicting laws and regulations. Can a CIO risk regulatory or even criminal liability against their company in order to get the benefits of cloud computing? It is possible that over time these constraints may seriously retard the growth of cloud computing on a global basis. At that point, is it possible that we may see a global treaty effort on cross-border privacy and infrastructure computing?"

The bottom line is that the picture is mixed concerning cross-border issues surrounding cloud computing. Dealing with non-sensitive/unclassified data is easier than dealing with sensitive/classified data, but we are still some way from having a single portal system that facilitates the movement of goods across borders.

May 08, 2012

Supply Chain Visibility

In an article published by SupplyChainBrain, analysts from IDC Manufacturing Insights ask an interesting question, "Is Visibility a Grand Aspiration or Grounded in Reality?" [22 March 2012] Considering all that is being written about the importance of supply chain visibility, one has to wonder why they would ask such a question. They explain:

"Supply chain visibility in the past has often fallen into the category of 'aspirational.' Yes, companies need it; no, they don’t know how to go about implementing it. This is due to the fact that supply chains are increasingly complex, global entities – nearly their own piece of the business. If one looks at the supply chain as a whole it becomes overwhelming to have complete visibility across every aspect of it."

Supply chain visibility relies on obtaining the right information and making sure that information is provided to the right decision maker at the right time. Yes, the supply chain is complex. But is it really necessary to have all the data generated throughout the supply chain available all the time? After all, that is an enormous amount of data to gather, store, and analyze. Satinder Singh, an artificial intelligence expert from the University of Michigan, asks a different question, "Are large volumes of data going to be the source of building a flexibly competent intelligence?" ["Artificial Intelligence Could Be on Brink of Passing Turing Test," Brandon Keim, Wired, 12 April 2012] His answer, "Maybe they will be." The field of Big Data analytics is aimed at making life simpler for decision makers by taking complex data gathered across the supply chain and from it providing only the information that is essential for making better and faster decisions. Singh points out that there are "all kinds of questions that haven’t been studied" but are becoming "much [more ...] important at this point. What is useful to remember? What is useful to predict?" Scientists and technologists are on the cusp of providing answers to these questions. That is why the IDC Manufacturing Insights question remains a good one. The SCB article continues:

"In two separate surveys conducted across nearly 400 manufacturers the concept of supply chain visibility is key:

• In the IDC Manufacturing Insights’ Supply Chain Profitable Proximity Survey of 2010, 200 manufacturers found that the ability to provide visibility into the supply chain – the ability to know operational status, including the location of inventory and deliveries – was a key factor contributing to regional or global sourcing decisions;

• Further, more than 400 manufacturers in the IDC Manufacturing Insights’ 2010 Supply Chain Survey listed increasing supply chain intelligence to monitor and drive improved supply chain performance in the top four of over a dozen supply chain initiatives.

"Interestingly, in the same supply chain survey noted above, visibility into the supply chain was one of the two biggest gaps in terms of capability between IT and supply chain professionals – IT felt the capabilities were on par, supply chain found there was a lot left to be desired."

The difference in viewpoint is probably the result of knowing what is available (IT's viewpoint) and what is desired (supply chain professionals' viewpoint). The IT people know they are doing the best they can with available technology while supply chain professionals are looking for new tools to provide exponentially better visibility. The article continues:

"IDC Manufacturing Insights has found that organizations need to look at visibility across the supply chain in terms of cost and benefits – as related to specific use cases. Much like collaboration or business intelligence – organizations can't just 'do' collaboration or BI. One takes a common business case and applies the technology to either improve efficiencies or save money. Similarly, break down the supply chain and apply visibility where it makes the most sense."

In other words, companies need to answer questions like those posed by Singh (i.e., What is useful to remember? What is useful to predict?). The SCB article continues:

"This allows for both IT and the supply chain professionals to understand:

• Where they are most lacking visibility in the supply chain – perhaps certain suppliers, or factories in emerging countries

• What is the cost to implement visibility in this particular piece of the supply chain

• How will the data be used to improve upon existing business operations

"Implementing supply chain visibility for a specific use case will allow companies to have a clear picture of the overall costs and the resulting benefits from the improved visibility."

When my company, Enterra Solutions, is working with a client, that is the approach that we take. We look for pieces of information that clients believe will help them make better decisions and then figure out how to obtain and analyze it for the best results. We know that a business case must be made for our solutions so that clients understand they are getting a good return on investment. The SCB article concludes:

"As the applications progress and a company begins to implement multiple instances of visibility across its supply chain it may have redundant or overlapping data. At IDC Manufacturing Insights we feel it is better to start somewhere, in terms of visibility, than not start at all – if it makes business sense. ... We predict that supply chain visibility will remain a top initiative for manufacturers. This is particularly true for those organizations that analyze the supply chain and understand where it is lacking visibility; and determine the best application for a true ROI. Manufacturers started down the right path in 2011 and will continue to do so in 2012 – looking not for grand aspirations, but a practical review of each use case to improve visibility."

In a separate article about supply chain visibility, the staff at SupplyChainBrain, references a study by the Aberdeen Group ("Supply Chain Visibility Excellence: Mastering Complexity and Landed Costs"), and concludes, "The increased complexity of global supply chains has led to longer lead times, more pipeline inventory, and the need to control downstream and upstream logistics." ["Growing Complexity Demands Greater Visibility to Control Inventory, Landed Costs," 22 March 2012] The article continues:

"In its most recent visibility survey, Aberdeen found that growing supply chain complexity was the top business pressure (44 percent) for many executives. This, in turn, has contributed to increased supply chain management costs. It is not surprising that in a period of global expansion and business turmoil that visibility is taking center stage. But before a company can reduce inventory or landed costs, it needs visibility into them. Only then can it apply tools to agilely adapt to the information it collects. Best-in-Class companies, compared to Laggards, have a 23-percent higher complete and on-time delivery rate to customers and an 11-percent greater advantage in year-over-year unit landed costs. Aberdeen's research is based on interviews with representatives at 128 companies."

Anytime a company enjoys a double-digit advantage over its competition it is undoubtedly getting a good return on investment from the systems that are providing it with that advantage. Last November the staff at SupplyChainBrain published an article aimed at helping companies get a start on gaining better supply chain visibility. ["How to Enable Supply-Chain Visibility," 2 November 2011] The article states:

"Visibility and customer satisfaction are two of the biggest challenges confronting supply-chain managers today, according to Garland W. Duvall, Jr., chief executive officer of Datatrac Corp. On the customer side, suppliers must know precisely where their shipments are, whether they arrived on time and undamaged, and whether the move got the best possible rate. Over the last several years, Duvall says, shippers have been laboring to obtain that level of visibility from the 'first to last mile.' Technology can help, he says, but it's no 'silver bullet.'"

I probably would have stated that differently. I would have said, "Technology is essential, even if a single silver bullet approach is not available." In the era of Big Data, you simply can't gain supply chain visibility without technology. Duvall explains his position this way:

"Shippers looking for software to solve their problems face two pitfalls: either they attempt to buy multiple, disparate systems that create silos of information, or they acquire a single system that purports to encompass everything, yet often falls short of that goal."

I've written a lot about the downside of siloed information and thinking and I agree with Duvall that any system that actually establishes siloed information within in a company is moving in the wrong direction. As for Duvall's second point, every CIO has been confronted by vendors who over-promise and under-deliver. Duvall suggests that there are some things that shippers can do to help themselves. The article explains:

"What shippers need is a vendor that will make an effort to understand their particular problems, then find the right mix of products to address them. Unfortunately, says Duvall, 'most shippers don't have the data that allows them to get the visibility they're looking for. They buy the tools, and the tools don't have anything to look at.' Coming up with usable data, then, is the logical starting point for achieving end-to-end visibility of a global supply chain. To make that happen, shippers must reach out to service providers, then amass the data within a central collection point from which they can begin to make sense of their operations."

I would suggest that shippers look for a vendor who is willing to help them identify what data is needed and then work with them to obtain that data. Gathering "usable data" may not be as easy as Duvall makes it appear if a company doesn't have the technical expertise to make that happen. That's where a good vendor partner is invaluable. The article concludes:

"Duvall says the effort can be a lengthy one, depending on how much the buyer relies on each supplier. His company has seen rollouts that take from a few months to several years. The most difficult segments are those that have only recently been added to the visibility picture – the first and last miles of a shipment. Typically, says Duvall, that’s where a shipper is using the greatest number of providers with the lowest level of technology."

From the question posed at the beginning of this post, it should be clear that we remain in the infancy of obtaining better supply chain visibility -- but we are growing up fast. I'm glad that Duvall noted that obtaining good visibility may take a little time; after all, it requires collaboration between numerous stakeholders. Most analysts conclude, however, that the time and effort are going to be worth it.

May 07, 2012

The Theory of Constraints and the Supply Chain

A white paper published by the AGI- Goldratt Institute reports, "The core constraint of virtually every organization AGI - Goldratt Institute has worked with over the past 20+ years is that organizations are structured, measured, and managed in parts, rather than as a whole." ["The Theory of Constraints and its Thinking Processes: A Brief Introduction to TOC," 2009] For years, I have been writing about the pitfalls of traditional business silos and how they create barriers to better information sharing and corporate alignment. The AGI- Goldratt Institute white paper details a few of the challenges that result from corporate silos:

"The results of this are lower than expected overall performance results, difficulties securing or maintaining a strategic advantage in the marketplace, financial hardships, seemingly constant firefighting, customer service expectations being rarely met, the constraint constantly shifting from one place to another, and chronic conflicts between people representing different parts of the organization, to name a few."

The theory of constraints, which is the main focus of the white paper, takes a holistic (or system of systems) approach to managing an organization. The underlying assumption of the theory is that a system can be no stronger than its weakest parts -- they represent constraints to the organization as a whole. Wikipedia defines "constraints" in this theory as follows:

"A constraint is anything that prevents the system from achieving more of its goal. There are many ways that constraints can show up, but a core principle within TOC is that there are not tens or hundreds of constraints. There is at least one and at most a few in any given system. Constraints can be internal or external to the system. An internal constraint is in evidence when the market demands more from the system than it can deliver. If this is the case, then the focus of the organization should be on discovering that constraint and following the five focusing steps to open it up (and potentially remove it). An external constraint exists when the system can produce more than the market will bear. If this is the case, then the organization should focus on mechanisms to create more demand for its products or services. ... The concept of the constraint in Theory of Constraints differs from the constraint that shows up in mathematical optimization. In TOC, the constraint is used as a focusing mechanism for management of the system. In optimization, the constraint is written into the mathematical expressions to limit the scope of the solution (X can be no greater than 5)."

The five focusing steps mentioned in that explanation (as provided by the AGI- Goldratt Institute white paper) are:

1. Identify the constraint.

2. Decide how to exploit the constraint.

3. Subordinate and synchronize everything else to the above decisions.

To improve the performance of that same value-chain, continue:

4. Elevate the performance of the constraint.

5. If in any of the above steps the constraint has shifted, go back to Step 1.

Proponents of a strong sales and operations planning (S&OP) process, whether they know it or not, are also proponents of the theory of constraints. A good S&OP process helps break down silos and improves information sharing and corporate alignment -- which are also goals that emerge from the theory of constraints. The AGI- Goldratt Institute white paper likens the theory of constraints to the diagnostic and treatment program used in medicine. Before you begin treating the patient, you have to diagnose what's wrong with them, design a plan for treating the ailment, and then execute that plan. According to the white paper, TOC is used to improve the health of an organization.

In many ways, the theory of constraint parallels the Enterprise Resilience Management Methodology™ (ERMM) pioneered by Enterra Solutions a number of years ago in collaboration with Carnegie Mellon University's Software Engineering Institute. ERMM helps organizations identify their critical assets (that is, those assets that if lost would cripple the business), assess how well those assets are currently being protected, and develop a course of action to cover any shortfalls. Just as ERMM tries to establish reality in an organization, the AGI- Goldratt Institute white paper notes TOC begins by building "a Current Reality Tree" that identifies organizational constraints that holding a company back. Once those constraints are identified, an action plan for overcoming those constraints can be developed and then implemented. But the white paper also discusses an interim step, constructing "a Future Reality Tree" that established objectives that can guide planners in designing the right course of action. After all, as the old adage goes, if you don't know where you are going, any road will take you there.

The Wikipedia article on TOC identifies a few types of (internal) constraints, including:

  • Equipment: The way equipment is currently used limits the ability of the system to produce more salable goods/services.
  • People: Lack of skilled people limits the system. Mental models held by people can cause behavior that becomes a constraint.
  • Policy: A written or unwritten policy prevents the system from making more.

Normally, one thinks in terms of people, processes, and technology (which together fully cover the above types of constraints). The AGI- Goldratt Institute white paper concludes:

"Once the barriers that block [disparate parts of an organization] from working together as an integrated system are removed, significant and sustainable improvement in each and every problem [area] is the result. What blocks organizations from tearing down these barriers? Organizations are often so consumed by the pressures to achieve their shortterm performance targets, that taking the time to plan for the future is a luxury they can’t afford. Or, they have plans for the future, but are faced with the difficulties of balancing the risks of change with the opportunities they create – 'if it ain’t broke, don’t fix it!'"

Change management is always difficult. To read more about the difficulties associated with change management, read my post entitled Change Management: On the Cusp of a Revolution? Dale Houle, chief technology officer at AGI-Goldratt Institute, told the staff at SupplyChainBrain that "misalignments in the many linkages of the supply chain lead to variability in delivery performance or in demand" but that "the theory of constraints can help nullify the effects of that variability." ["Plan, Source, Make & Deliver Using the Theory of Constraints," 5 April 2012] The article continues:

"The theory of constraints, or TOC, looks at organizations as systems and addresses them as such. Similarly, it looks at activities or processes the same way. Accordingly, a supply chain is a 'system of systems' governed by cause and effect, says Houle. Under the TOC lens, plan, source, make and deliver are not viewed as independent actions but as interdependent processes that must be integrated into the overall planning process. However, for the desired results of that plan to materialize, execution in supporting areas needs to be managed to maintain alignment with the overall plan."

As I noted above, that kind of talk should sound familiar to anyone involved in a company's S&OP process. As those involved in S&OP know, it's easier said than done. The article continues:

"Practically speaking, what does all that mean? Houle says you must clarify your objective first. That means being responsive to the needs of the customer, considering lead time, delivery availability and price while lowering overall costs and improving return on investment. 'This is demand-driven performance.' When considering integration and alignment, often it helps to go back to basics, says Houle. 'The supply chain is best analogized to the physical chain, in that it has links and linkages. The links would represent businesses, organizations, functions, industries, manufacturing, suppliers, 3PLs, planning, transportation, etc. The linkages are much more governed by policies that link the measures they use and what basis they use for information exchange. Then the resulting linkages themselves will enable either greater or lesser degrees of organizational alignment. The more misalignments there are organizationally, the greater the variability in the performance of the links in the supply chain.'"

Although the linkages that Houle describes are better analogized to a network than a chain, his main points remain valid. You can't achieve the type of alignment he is suggesting without being able to securely share information (i.e., have good supply chain visibility) and then work together to achieve complementary objectives (i.e., collaborate). The article continues:

"However, it isn't necessary to correct all misalignments before there can be significant supply chain improvement. The most important impact on supply chain performance is in variability, whether in delivery performance or in demand. Variability causes expediting, out-of-stocks, poor fill rates, overstocks, longer lead times, late deliveries, lost sales, more overtime and other negative effects on business. What to do? You can focus either on addressing variability or on nullifying its effects, Houle says. 'Given that it's very unlikely you will totally eliminate variability, organizations often are better off starting by nullifying the effects and then using that information to then identify and address subsequent causes. In this way, the supply chain actually gets the best improvements in performance.'"

Most analysts agree that in order to reduce supply chain variability much better supply chain visibility is required. As Lora Cecere often points out, you must be able to have visibility from your supplier's supplier to your customer's customer (if you are a manufacturer). One of the reasons that many businesses are excited about Big Data is that they believe that the insights and actionable intelligence they can obtain by analyzing it will help reduce variability and headaches that come with it (i.e., things like the bullwhip effect). If the theory of constraints can help get businesses on the road to a true demand-driven supply chain, then it may be worth taking a look at.

May 04, 2012

Paths to Innovation: Recreation, Collaboration, Imitation, Frustration, and Miscalculation

Anyone who has ever studied creativity understands that ideas can be generated in any number of ways. Hence, there is not a single path to creativity, invention, and innovation there are many. Barbara Haislip, for example, recommends that you relax. "Take a break," she writes. "It'll be good for business. Getting away from work can recharge your batteries. But it can also bring insights and inspiration." ["Relax. Have Fun. Get Inspired." Wall Street Journal, 21 August 2011] Haislip's advice is on the mark if you are looking for what Jonah Lehrer, author of the book, Imagine: How Creativity Works, calls "a classic moment of insight." You might also call it an "Ah ha" or "Eureka" moment. Lehrer insists that moments of insight come when our minds are not actively thinking about a problem at hand. For more on Lehrer's book, read my post entitled Becoming More Creative. Haislip provides a good example of how relaxation or recreation can stimulate innovation. She reports:

"Robert Jensen of Montvale, N.J., ... was looking to start a venture and 'needed time to clear my head,' he says. 'Coincidentally, an annual ski trip with a number of my friends was coming up. I decided that I would put everything aside and go on this trip and just relax and enjoy.' But his mind kept returning to an idea that had fizzled. Years ago, he had patented a pipe component that would make it cheaper and easier to install geothermal heat pumps—an eco-friendly technology that uses the temperature of the ground to heat and cool buildings. But the idea didn't go anywhere. Then, while sitting on a chairlift in Aspen, 'I noticed the cable that was transporting the line of chairs up the mountain,' he says. 'The steel cable consisted of a number of smaller cables wound around each other to look almost like a Twizzler candy.' He realized that same configuration could work for heat pumps, allowing more pipes to go into the ground and making the transfer of heat much easier. It made his old patent 'seem cumbersome and inefficient by comparison,' Mr. Jensen says. Over the next few months, he wrote two new patent applications and incorporated a new business, Agreenability. Now, two years later, he says he has completed research and development and is getting ready to launch his product."

Moving from recreation to collaboration, Chris Thoen, a former managing director of the global open innovation office for Procter & Gamble and now a senior vice president/global head for science and technology at Givaudan Flavors Corporation in Cincinnati, insists that "the future of competition is not going to be how well organizations create innovation on their own." ["Collaborative Innovation Is the Key to Survival – Not Going It Alone," SupplyChainBrain, 28 September 2011] A number of creativity gurus insist that the myth of the lone genius persists because there is generally a "face," like Thomas Edison, that represents what is really a team effort. Thoen believes that go-it-alone creative companies also represent a bit of a myth. He believes that "few companies can go it alone and remain viable." The article explains:

"In today's marketplace, innovation is the cornerstone of competitive survival. ... However, fostering innovation with suppliers through collaborative support and trusted relationships is no easy task. Innovation for any company represents potential revenue and leverage over competitors. It's time to dismantle the barriers to collaborative innovation and consider the value proposition and return on investment that is attainable. It's going to require giving and taking from both sides. However, the results may transform how the supply chain collaborates, and bring solutions to the marketplace. ... Those that win in the future will be good at finding innovation, no matter where it is happening — internally and externally. 'You must be good at creating a comfort zone so that external partners will want to work with you as a company, on an ongoing basis,' says Thoen. 'It's about establishing those sustainable relationships where you can create new innovations over and over again with those partners.'"

To learn more about collaborative innovation, read my post entitled Collaborative Innovation in the Supply Chain. From collaboration we move to imitation. Lucy Kellaway insists that "Copying, the mother of the best inventions." Financial Times, 6 November 2011] She came to this conclusion while reading a book entitled, I’ll Have What She’s Having: Mapping Social Behaviour, written by three academics who argue that almost all of our decisions are based on copying." She continues:

"The book argues that as life gets more complicated, with more people and more choices, everyone does more copying. Now that I think of it, everything I do is copied. Columnists are meant to have original ideas, but I never do. The idea for this column – on copying – has been copied from this book, and its authors copied their ideas from assorted academics and social scientists. When I write a column, I take an existing idea and give it a tweak of my own. It’s roughly like buying a hat in the high street, and wearing it at a jaunty angle. There is nothing to be ashamed of in this. It is good to copy – we would have died out as a race if we didn’t do it. Copying gives me access to an infinitely richer and more varied menu of ideas than if I had to limit myself to my own meagre store."

As I have pointed out in several past posts, scientists are developing increasingly effective products by learning from and copying nature. After all, why not learn from what nature has determined to be the best ideas developed over millions of years. Kellaway continues:

"Companies that copy do very well. Microsoft has built up a business worth $200bn or so on the basis of it. Even Apple, which is always held up as an example of a company that does things its own way, built some of its most important technology after Steve Jobs first saw it at Xerox. ... Equally it's vital for leaders. I used to have a boss who would come back from lunch having copied the views of whichever important person he'd just met. At the time I thought this was a weakness and wondered why he didn't have any views of his own. I now see it is as a strength. By constantly copying, he was keeping fresh and flexible. Despite its undisputed value, copying has a shockingly poor image. The word makes one think of the dodgy end of the practice: cheating in exams and plagiarising – though the latter just might be undergoing a minor rehabilitation. ... While disparaging copying, we idolise creativity and innovation. On Amazon there are 2,732 management books with the word 'innovation' in the title. Every business school teaches courses in it. Every company frets over how to be better at generating ideas. Yet there are only a handful of titles containing the word 'imitation' or 'copying' – and they turn out to be manuals telling you how to operate a photocopier. No one, it seems, is interested in teaching us how to get better at copying, which is a pretty big oversight when this, more than anything, is the difference between success and failure."

Imitation doesn't suffer from a completely unsavory reputation. After all, the old adage insists that imitation is the highest form of flattery. From imitation we move to frustration. By frustration, I mean getting emotionally worked up because the things we want to accomplish aren't easy. Luke Johnson agrees that a lot of innovation is achieved only after a lot of frustration has been experienced. ["Trial and error drives innovation," Financial Times, 6 September 2011] He writes:

"One of the best short books of the year is The Great Stagnation by Tyler Cowen. He argues that the west has reached a technological plateau: we have eaten all the low-hanging economic fruit, so growth is stunted and progress will be much harder from here. ... The author's core concept – that innovative breakthroughs are much scarcer than before – implies that we must become better at industrial invention if we are to recover our living standards and tackle unemployment. ... So how on earth do society and industry become more innovative? There are hundreds of books, business school papers and conference speakers that provide possible solutions. One of the better recent works is Little Bets by Peter Sims. His basic insight is that original thinkers use many small, experimental prototypes to test and evolve ideas that are achievable and affordable. As ever, it is about making mistakes – but making sure they are inexpensive – and learning from the error."

Mistakes can certainly prove frustrating; but, if mistakes are viewed as lessons learned, the frustration can be reduced. Mistakes are also at the heart of the final topic: miscalculation. Some of the greatest innovations in history are the result of mistakes. Deborah Gage reports, "Inventors from Archimedes to Thomas Edison and Jonas Salk have made mistakes that caused their discoveries to develop in surprisingly helpful directions." ["Wharton Tries to Define ‘Brilliant Mistakes’," Wall Street Journal, 15 February 2012]. Gage continues:

"Now the University of Pennsylvania’s Wharton School is trying to capture mistakes like this, with the idea that making mistakes on purpose is something that all of us could be taught. ... The business school named the winners of its first Brilliant Mistakes Contest, which awarded prizes (including Southwest Airlines tickets, free courses and conference tickets, and lunch with a contest judge) to people whose mistakes were the most productive. The winners are Dr. Stephen Salzman of Olive View-UCLA Medical Center, who proved that his hypothesis on why athletes have low heart rates was completely wrong; Annie Banannie aka Laura Caldwell of Acme Balloon Company, a story teller who was forced to ad-lib her show in front of 200 children at a library in Colorado and decided that ad-libbing was 'the best show idea ever;' and Matthew Lynch of Palmetto GBA, who changed the way his company analyzed Medicare claims and payments and stumbled on startling new methods of fraud."

Paul Schoemaker, the author of Brilliant Mistakes: Finding Success On The Far Side Of Failure and a contest judge, told Gage, "Executives would say, I learn from my mistakes, and I'd say since mistakes are random, why not make a few more? People don't have a good answer—it seems like a totally silly idea to make mistakes on purpose–but what's the chance that you or I have encountered the optimal number of challenges to our beliefs?" There is a good answer to why people don't like making mistakes in business, they generally end up costing you money and that's not good for the bottom line. The only real tragic mistake, however, is the one from which you learn nothing.

The point of this post is that no matter what you are doing today, you will be presented with an opportunity to be more creative. You might get a brilliant insight while getting a massage. You might get a great idea while working with a friend. You might find a creative way to use slug slime to make a new product. Or you might learn some interesting things while making a mistake. Seeing with open eyes and thinking with an open mind, you'll be amazed how creative you really can be.