Enterra Insights

Supply Chain Resiliency: A Vague Concept?

"Supply-chain resiliency is something companies in the high-tech sector and other industries have been talking about for years," writes Jennifer Baljko. "Even with all the talk, it still remains a relatively vague concept mentioned in the same dreamy way people discuss supply-chain flexibility and agility." ["Rethinking Supply Chain Resiliency," EBN, 21 February 2013] For many companies, actual supply chain resiliency may remain elusive; but, I'm not so sure that the concept remains vague. The remainder of Baljko's article leads me to believe that she has a pretty good concept of what supply chain resiliency is as well. She even defines it:

"As elusive and ever-changing as resilience may be (mostly because changing world circumstances require companies to stay flexible in how they construct and reconstruct resilient supply-chain practices), it certainly remains top of mind for many executives globally, according to a recent report from the World Economic Forum. In the most basic sense of the word, according to dictionary definitions, resilience is the ability to spring back into shape; it's elasticity, and a capacity to recover quickly from difficulties. The aptitude and skill needed to rapidly bounce back is more frequently being tested as companies confront many more complex risks and supply-chain disruptions."

I do agree with her that defining a problem and solving it are two very different things. With all of the supply chain disruptions that have occurred over the past several years, supply chain risk management (SCRM) has certainly crept up the priority list for a lot of organizations. They recognize the problem, know they need to do something about it, but, either through ignorance or procrastination, haven't acted. When I talk about companies being ignorant, I don't mean that their leadership is stupid. I mean that they don't have enough information about their supply chains to make decisions intelligently. Last year Bill McBeath wrote, "Firms' knowledge of their suppliers and the environments they operate in is often limited and out-of-date, crippling their ability to successfully manage the dynamics of their supply base." ["Supplier Risk and Compliance Management in Practice: Part One," ChainLink Research, 1 May 2012] One of the reasons that companies don't know as much as they should about their supply chains and the risks they face is that there is so much to know. McBeath included the following graphic in his article to give readers and idea about how complex this subject can be.

McBeath argues that "managing supplier risk and compliance is very important, but unfortunately that importance is often under-recognized." He explained:

"When a marketing executive or engineer does a great job, everyone sees the increase in sales or a great new hit product launched with a big bang ... and with those successes, the bonuses and praise flow. When a supplier risk and compliance manager does a great job, then what happens is ... nothing goes wrong. Everything goes smoothly. And most of the time, nobody notices. Of course if they mess up, all hell breaks loose."

One of the reasons that "all hell breaks loose" when something does go wrong is that company valuations are dramatically affected following a disruptive event. McBeath indicated research conducted by his company "found that the stock price fell on average about 25% as the result of each single disruption" and that "the effect persisted and the stock price barely moved for a full year after the event." Baljko reports that more recent research indicates that stock price drops aren't quite that steep (currently about 7% on average), but that is still a big enough drop for stockholders to be upset (see my post entitled Risk Management Concerns Continue to Draw Attention). Of course, not just company valuation is affected. "The average cost [of a supply disruption] is £200,000 [approximately $300,000], according to a new study by Zurich Insurance which surveyed 500 businesses with annual revenues of between £5 million and £300 million across manufacturing, technology, food and beverage, sport leisure and entertainment and wholesale businesses." ["What is supply chain disruption costing your company?" by Malory Davies, Supply Chain Standard, 3 July 2012] That may sound like a relatively small number, but that is for all kinds of disruptions not just those associated with major natural disasters. That same report "found that nine out of ten organisations had experienced significant disruptions to their supply chains" and that "the top three common causes of disruption were product quality incidents (57 per cent), adverse weather (45 per cent) and unplanned outage of IT (39 per cent). The average length of disruption was five weeks." Baljko concludes, "Given these issues and the fact that supply-chain volatility isn't likely to lessen anytime soon, maybe it's time to rethink resiliency and put a more common framework around it."

She suggests that a good starting point for building a framework can be found in a report issued earlier this year by the World Economic Forum (WEF) entitled "Building Resilience in Supply Chains." She writes:

"Under its Supply Chain Risk Initiative, the WEF aims to bring together leading cross-industry experts 'to explore the most critical threats facing supply chain networks, and to apply new risk response tools that can promote efficient risk management, security and resiliency in the complex global trading environment.' Ultimately, it wants to do noble things like 'strengthen the framework for global risk assessment' and 'improve collaboration and transparency across supply chain actors.'"

Baljko hopes that the WEF initiative isn't all talk and no action. She believes it offers some "good starting points to get more companies involved in the conversation and [it] could provide a framework for companies trying to make clearer sense of all this." She continues:

"While the report outlines common challenges, it emphasizes three 'must-have' requirements to develop a resilience framework:

• The need for a common risk vocabulary;
• Improved data and information flow across supply-chain actors; and
• Building greater agility and flexibility into the supply chain.

"More specifically, the top five measures the WEF named as the roll-up-your-sleeves-and-dive-in focus areas for creating a more comprehensive resiliency blueprint are:

1. Improved information sharing between governments and businesses
2. Harmonized legislative and regulatory standards
3. Building a culture of risk management across suppliers
4. Common risk assessment frameworks
5. Improved alert/warning systems

"These topics ... are big issues, and it's about time that companies step out of their individual silos ... to address the broad impact resiliency, flexibility, and agility has on the entire industry. The supply chain is, in fact, only as strong as its weakest link, and while moving the global conversation from chatter to action may be a monumental task causing its own kind of disruption, it has to happen sooner or later."

Robert J. Bowman, managing editor of SupplyChainBrain, agrees that the sooner companies start addressing this challenge the better. He notes, "Economies might rise and fall, but there's never a slowdown of disasters that impact global business. All that matters in the end is a company's ability to respond quickly. As [Sheryl] Toby puts it: 'Those that move the fastest to gain visibility are going to win in the competition game.'" ["Are You Ready for the Next Supply-Chain Disaster?" 11 June 2012] Brian W. Hagen, managing director of the Decision Empowerment Institute, told the SupplyChainBrain staff that SCRM specialists still are receiving enough respect from the top echelons of corporate leadership. "Anyone who is a practitioner of risk management feels like they're a second-class function in a company," he says. He agrees with McBeath that one reason is that "risk management can't deliver measurable results, in terms of value versus investment." That's a challenge that SCRM professionals will always face.

Given all of the factors that can adversely affect a supply chain, it should come as no surprise that mastering supply chain risk management has proven elusive. Nevertheless, I'm satisfied that the concept of supply chain resiliency is pretty clear in most professionals' minds.

Big Trouble for Big Data, Part 2

In previous posts about big data and targeted marketing, I have repeatedly pointed out that the elephant in the room is not Hadoop but issues involving privacy and access to consumer information. Results from a recent Consumer Insights Survey conducted by Ovum "reveals that 68% of the Internet population across 11 countries would select a 'do-not-track' (DNT) feature if it was easily available, suggesting that a data black hole could soon open up under the Internet economy." ["Ovum predicts turbulence for the Internet economy, as more than two-thirds of consumers say ‘no’ to Internet tracking," Ovum, February 2013] As you might imagine, these findings have created a flurry of articles on the subject. As the article explains, "This hardening of consumer attitudes, coupled with tightening regulation, could diminish personal data supply lines and have a considerable impact on targeted advertising, CRM, big data analytics, and other digital industries. In many ways, the very companies that created the Internet economy and depend on it to survive are the culprits that poisoned the well from which they drink (for more on that subject see Part 1 of this series). Mark Little, principal analyst at Ovum, stated, "Unfortunately, in the gold rush that is big data, taking the supply of 'little data' – personal data – for granted seems to be an accident waiting to happen. However, consumers are being empowered with new tools and services to monitor, control, and secure their personal data as never before, and it seems they increasingly have the motivation to use them."

This is exactly what Doc Searls from Harvard University's Project VRM predicted would happen. To learn more about where he sees the Vendor Relationship Management movement heading, read my post entitled Vendor Relationship Management: Making the Customer King. A litany of scandals involving privacy abuses has only accelerated this movement. Ovum reports:

"Recent data privacy scandals such as WhatsApp’s use of address books, and the continuing issues over privacy and data use policies on Facebook and Google websites have fueled consumers’ concerns over the protection of their personal data. Ovum's survey found that only 14% of respondents believe that Internet companies are honest about their use of consumers' personal data, suggesting it will be a challenge for online companies to change consumers' perceptions. Ovum believes that Internet companies should introduce new privacy tools and messaging campaigns designed to convince consumers that they can be trusted. Improving the transparency of data collection and use will help to build trust, a commodity that will increasingly become a sustainable competitive advantage."

Hopefully it's not too late to build that trust; but, trust is difficult to regain once it has been lost. "Internet companies need a new set of messages to change consumers' attitudes," Little states. "These messages must be based on positive direct relationships, engagement with consumers, and the provision of genuine and trustworthy privacy controls. Most importantly, data controllers need a better feel for the approaching disruption to their supply lines, and must invest in tools that help them understand the profile of today's negatively-minded users – tomorrow's invisible consumers." The prospect of "invisible consumers" should send shudders down the spine of anyone associated with targeted marketing. You can't target what you can't see.

Fortunately, people like MIT's Professor Alex "Sandy" Pentland believe that companies can establish mutually beneficial relationships with consumers so that they willingly provide access to important marketing data. For more on his views, see my post entitled Big Data Dilemmas. If companies don't act quickly, however, just the opposite could happen. Mike Wheatley writes, "Companies are increasingly taking their data for granted, treating it as some kind of free commodity, but this is a foolish assumption to make. Thanks to the growing availability and awareness of free tools, consumers now have the power to block companies from gathering data about them. At present, very few consumers use them, but if ‘anti-tracking’ tools were to catch on then the resulting 'Big Data Black Hole' would have a massive impact on big data analytics, targeted advertising, CRM and other digital industries." ["Big Data Black Hole Looms As Consumers Say 'No' To Tracking," SilconANGLE, 6 February 2013] He agrees with Little that "greater openness is the only way to win back consumer’s trust, and those that do so first will gain a serious competitive advantage over those that are slower to act."

Grant Gross also believes that "Internet advertising networks and other companies that depend on the collection of personal data online should prepare for a 'rebalancing' of the relationship between themselves and web users." ["Big Data privacy concerns will impact on internet economy," CIO, 7 February 2013] Jeffrey Chester, executive director of the Center for Digital Democracy, told Gross, "'Big Data is both a boon and a curse for users. Tens of thousands of data sources on individuals can be compiled in milliseconds.' The profiles allow marketers, politicians and businesses to predict consumers' futures, he said, 'whether we will be a big and low-wage lifetime earner, how we may respond to medical concerns and whom we can be persuaded to vote for.'" Mark Little told Gross that he believed there are ways that companies can change from the current "data fracking" model to one that is more collaborative with consumers. Gross writes:

"Little ... sees potential for a new business model in which consumers create personal data vaults that they control, giving consumers a choice about which companies they share their personal information with. A company called Personal is one company that has begun offering personal data vaults, he said. A move toward more consumer control of personal data won't be all bad for internet companies, however, Little said. Personal data vaults will contain more accurate and forward-looking information than the current data collection methods can gather, he said. The change in relationship between consumer and data collectors will change slowly, and internet businesses shouldn't change their data collection practices immediately, Little said. Internet companies should 'keep on riding the margins of regulation and consumer acceptance in order to maximize your data set, because that is just good business,' he said. 'But prepare for changes where consumers start to want more of a relationship with their own data and the people who are collecting it.'"

Saikat Sengupta believes that the big data sector may be in turmoil for the next few years while it gets things sorted out, but believes big data analytics and targeted marketing will eventually prevail. ["Do-not-track Tools Might Take A Toll On Digital Marketing Agencies," WAT Blog, 7 February 2013] He concludes:

"From PPC remarketing to new age video advertisement, user data holds an important role in digital marketing. If Do Not Track Technology becomes stronger and stricter laws are introduced to honor consumers’ choices, then there will be a huge gap to fill up. After Google’s algorithm changes, digital advertising is struggling a lot to figure out the new strategies that will work. If DNT becomes more effective there will be another turmoil – but, as always, the industry will definitely figure out new ways to survive."

I agree with Mark Little and Doc Searls that a tectonic shift is underway that will place more control over personal data in the hands of consumers. That makes it imperative for companies that want to benefit from big data analytics to figure out a way to strengthen their relationships with consumers and offer them some value added for access to their personal data. If the personal data vault concept catches on, it would provide a framework for a more collaborative quid pro quo relationship. The only caveat to such a framework is that the data in such vaults will only be valuable if millions of individuals opt to create one and deposit the right kind of personal information. The analytic value derived from data depends in large measure on the size of the sample. For most use cases, data sets need to be big.

Even in the Era of Big Data, Document Accuracy Matters

"Documentation accuracy isn't exactly the most goose bump-inducing topic," writes Eric Johnson. "But it may well be one of the more critical aspects of a shipment." ["Document Drudgery," American Shipper, August 2012] Johnson notes that "incorrect bills of lading or other documentation can lead to over- or under-billing, customs holds, surcharges, and payment delays. Any of those can force a shipper to have to increase inventory to account for stock that's held up." Obviously, none of those are outcomes that a business wants to experience.

In this age of electronic documents, one would imagine that technology could help organizations ensure that their documents are more accurate -- and one would be correct. We've all filled out online registration forms, for example, that only allow you to input the number of characters that a particular format requires (like a telephone number, Zip Code, serial number, or product key). Such aids, however, don't always guarantee that the correct information will entered even if it's in the correct format. But as Johnson notes, "Getting the cargo data entered correctly the first time is the surest way for the shipper, freight forwarder and carrier to cut costs. Liner carriers are increasingly looking at things like documentation accuracy as ways to reduce unneeded expense in an environment where rates are barely covering the costs of operations."

Johnson discusses the efforts of MOL (America) to increase its document accuracy rate from 98.5 percent to 99.5 percent. The fact that a company would make a concerted extra effort to gain a slight improvement in a metric that already enjoys measurable success says a lot about the importance MOL places on document accuracy. Does your company come anywhere near that standard? Johnson writes, "The errors MOL encounters typically come down to something as simple as typos during the data-entry process, whether it's from the shipper, forwarder, or carrier side." Johnson notes that MOL isn't the only company that works hard to ensure document accuracy. He writes:

"Another liner carrier, OOCL, said typical errors revolve around cargo weight, piece count, consignee or notify party addresses, ocean freight payment party (i.e., prepaid or collect), and which party is responsible for the charges. 'Close to 50 percent of our bills of lading have some change or amendment due to either shipping instruction error or changes made by the shipper,' OOCL spokesman Frankie Lau said. 'But OOCL bill of lading accuracy is 99.9 percent as an end product released to the customer.' Both MOL and OOCL tackle the issue of accuracy through data audits."

Stephen Ryan, vice president of customer service in North America for MOL, told Johnson, "Shipping instructions come in lot of different formats, so we do a lot of cutting and pasting so there's no deviation from what shippers have entered. There are some systems limitations, so if we have to retype some things, there will be some typing errors. It could be something as simple as spacing." Undoubtedly, technologies will be developed in the future that will automatically cut and paste data from one document into another to avoid typing errors; but, even that kind of technology cannot guarantee that the copied information was entered correctly in the first place.

Johnson's article focuses on the maritime shipping industry; but, it is not the only transportation sector that has documentation challenges. In another American Shipper article, Eric Kulisch and Chris Gillis note, "The average [airfreight] shipment generates up to 30 different paper documents, according to industry experts." ["E-freight's slow assent," 8 April 2011] Electronic exchange of those documents would dramatically improve accuracy, but they report, "the air cargo industry has been slow to move towards automated documentation exchanges between air carriers, customers, ground-handling agents, truckers and customs authorities." When documents are exchanged electronically, the benefits are significant. They explain:

"When documents arrive ahead of the cargo, customs clearance and airline processing time can be cut by an average of 24 hours. Delays associated with lost documents are eliminated and accuracy is improved because there is no need to rekey data into various information technology systems along the way."

Nathan Tableman, Vice President of Technology for UBM Global Trade, claims that "the primary source of this divergent data are Bills of Lading (BOL), the formal documents that contain the routing, parties involved and contents of all maritime shipments that enter and exit different nations." ["Is Your Supply Chain Intelligent Enough?" Supply & Demand Chain Executive, 4 September 2012] But he goes on to point out that divergent BOL data is only one of the challenges that organizations face when it comes to dealing with documents. He continues:

"With these divergent data sets, a variety of national languages and variations in things as simple as the spelling of a port or name of a supplier, combining this information to create intelligence can be very time consuming and costly. Raw data is like any raw material in that the quality varies over time. This also presents a large scale challenge: 'How do you clean up the data to a level that is perfect without having to read through every one of millions of data points a day?' To conquer this challenge requires innovative ways to clean, structure and map data points. Without such technology—and at times manual input—data would be unusable."

I agree completely with Tableman's point that without technology cleaning big data to make it useable would be impossible. Even the best technology, however, can't provide perfect results. H. S. Baird, T. M. Breuel, K. Popat, P. Sarkar; and D. P. Lopresti, researchers at Xerox's PARC, state, "No existing document-image understanding technology, whether experimental or commercially available, can guarantee high accuracy across the full range of documents." ["Assuring high-accuracy document understanding: retargeting, scaling up, and adapting," Symposium on Document Image Understanding Technology (SDIUT '03); 9-11 April 2003] They go on to describe how their research uses artificial intelligence to train systems to recognize inputs so that accuracy can be increased. They write:

"Research at PARC has focused for more than ten years on relieving this critical bottleneck to automatic analysis of the contents of paper-based documents, FAXes, etc. PARC has made significant progress -- documented in dozens of publications and patents, and embodied in experimental software tools -- towards this goal: we possess 'document image decoding' (DID) technology that achieves high accuracy on images of documents printed in a potentially wide variety of writing systems and typefaces, unusual page layout styles, and severely degraded image quality. Our principal method of attack has been 'retargeting': that is, our technology is designed to be trainable, i.e., customized to the characteristics of individual documents or sets of similar documents. In recent years we have reduced the effort of manual DID training significantly. ... We propose 'scaling up' the DID methodology by massively parallel recognition using ensembles of automatically pre-trained DID decoders: this promises to reduce further the need for document-specific training. We have also made recent progress towards 'adapting', in which recognizers, without any manual training, adjust their models to fit the document at hand: this offers hope that manual training can someday be reduced to zero."

Clearly, systems that use artificial intelligence will play a much larger role in helping ensure document accuracy in the years ahead. Efforts like those going on at PARC will go a long way towards addressing the many challenges identified by Johnson, Kulisch, Gillis, and Tableman. Another thing that would help to reduce errors, even without expensive artificial intelligence systems, would be standardization. Johnson reports:

"Brian Conrad, executive administrator of the Westbound Transpacific Stabilization Agreement, said his organization is working with its shipper advisory council to explore possible documentation and EDI standards among various ocean carrier booking portal providers, to help reduce booking and documentation errors. He said 70 percent of WTSA carrier documents (which cover U.S. export shipments to Asia) are still being produced manually."

In the electronic age, generating 70 percent of shipping documents manually sounds unimaginably high. Conrad contributes this fact to "a lack of standardization." Johnson reports that "trade software developer GT Nexus told American Shipper that data entry is the most common root cause of errors, but that missing data from smaller ports and facilities is also significant. For data flowing through its system, the errors tend to come from shipper partners, not from the shippers themselves." Charles Babbage, the inventor of the first programmable computing device design, once wrote, "On two occasions I have been asked, 'Pray, Mr. Babbage, if you put into the machine wrong figures, will the right answers come out?' ... I am not able rightly to apprehend the kind of confusion of ideas that could provoke such a question." If supply chain professionals want to get the right answers from their automated logistics systems, getting the right data into the system is the most important thing they can do.

Update on Conflict Minerals and the Supply Chain

Back in December 2010, I wrote: "The general public has not paid a lot of attention to the portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act that deals with 'Transparency for [the] Extraction Industry.' There is growing concern, however, among retailers and manufacturers about its potential effects." ["Conflict Minerals" and the Supply Chain] Shortly after the Dodd-Franks Act was passed in July 2010, Jean Eaglesham and Jeremy Lemer wrote:

"The links between electronic devices such as smartphones and the bloody conflict in the Congo may to date have been largely invisible to most consumers. But a combination of increasing public pressure and a far-reaching new regulation in the US could well change this. A fresh law, buried in section 1,502 of the Wall Street reforms passed [in July 2010], will force many manufacturers to overhaul checks on their supply chain in an attempt to identify any 'conflict minerals' that can be traced back to the Democratic Republic of the Congo or adjoining countries. Thousands of companies will be affected by the law." ["US law to squeeze ‘conflict minerals’," Financial Times, 17 August 2010]

Eaglesham and Lemer went on to note, "That task of due diligence is not an easy one, given that the minerals pass through several stages – including a smelter process – between the mines and the assembly plant." I concluded my previous post by stating, "Consumers are going to be tested as to whether their ethics or their pocketbooks mean the most to them. Supply chain traceability and reporting doesn't come cheap and those costs are likely to be passed along to the consumers." In fact, Jessica Holzer reports the SEC now estimates it will "cost companies a total of $3 billion to $4 billion upfront, plus more than $200 million a year" to comply with the transparency regulations. ["Wal-Mart, Target Avoid Mining Rule," Wall Street Journal, 22 August 2012]

Efforts by manufacturers and resource extraction companies to gain relief from the transparency requirements of the Dodd-Frank Act have been largely unsuccessful. Shahien Nasiripour and Tom Burgis report:

"Oil and mining groups with US listings will be forced to disclose details of their payments to foreign governments after US regulators rejected most of the industry's efforts to water down new transparency rules. The rules, intended to combat corruption and help make rulers of resource-rich nations more accountable to their people, will affect companies such as ExxonMobil, BP and Rio Tinto. They will also oblige manufacturers such as Apple to verify whether they use so-called conflict minerals from war-torn central Africa in their products." ["Disclosure of government payments mandated," Financial Times, 22 August 2012]

In an accompanying editorial, the staff at the Financial Times wrote:

"It has taken the SEC two years – much longer than Congress gave it – to finalise the rules, in no small part because of oil industry lobbying. Still, its final product, while not perfect, is much better than some had feared. On both rules, the SEC has resisted pressure for large loopholes. While one may be sceptical about whether monitoring will really prevent the use of conflict minerals, the transparency rule will make a real difference." ["Sunshine rules," 22 August 2012]

Bolaji Ojo, Editor in Chief of EBN, isn't as optimistic as the folks at the Financial Times. He writes, "Perfect, clean, and 100 percent legally mined mineral materials from the Democratic Republic of Congo? That would be the day." ["Illusions of 'Conflict-Free' Minerals," 16 August 2012] Still, Tutu Alicante, an activist from Equatorial Guinea, told Nasiripour and Burgis, "This represents a milestone for the millions of impoverished people who live in resource-rich countries."

There is a real concern on the part of oil, gas, and mining companies, however, that disclosing details of payments to foreign governments for drilling and mining rights is "like 'giving [out] the formula for Coca-Cola' and would leave US-listed groups at a disadvantage." Nasiripour and Burgis report that "oil, gas and mining companies with US listings now face an awkward balancing act between the demands of regulators in Washington and those of governments that jealously guard the terms of their resource deals." The Financial Times' editorial staff, however, isn't buying any of it. It writes:

"There is little evidence for this fear. Payment structures are well known in the industry. Transparency only removes the competitive advantage provided by the ability to bribe; one that US-listed companies should in any case not deploy. Despite the grumbling, most companies will benefit from a cleaner industry."

Simon Taylor, director of Global Witness, an anti-corruption group, told Nasiripour and Burgis "that if companies had 'a concern about being disadvantaged then they should be joining us in trying to make a serious, meaningful global standard'." The Financial Times' editorial staff applauded the fact that the SEC didn't grant exceptions for secretive countries, like Qatar and Angola, stating, "Anything but a most comprehensive application of the rule creates incentives to bend the law that frustrate its purpose and cause an enforcement problem."

Retailers fared better in their efforts to gain relief from the transparency requirements of the Dodd-Frank Act. Holzer reports, "Big retailers including Target Corp. and Wal-Mart Stores Inc. may largely escape a costly new rule that requires U.S.-listed companies to disclose whether their goods contain so-called conflict minerals that are blamed for fueling violence in central Africa." She continues:

"Retailers lobbied to be exempted from the requirement, which will affect manufacturers of a range of products, including smartphones, light bulbs and footwear. The Securities and Exchange Commission had proposed an earlier version of the rule that would have applied to retailers carrying products sold under their own brand names, but which are typically produced by outside contractors. On Wednesday, however, the SEC voted 3-2 to adopt a final rule that would exempt companies that don't exert direct control over the manufacture of such products."

To the dismay of some groups, the new rules won't go into effect immediately. Holzer reports, "Nonprofit groups wanted companies to take immediate steps to comply with the rule, rather than take advantage of a two-year transition period during which they could categorize certain products as 'DRC conflict undeterminable.' Corinna Gilfillan, head of the U.S. office of Global Witness, a human-rights group, said she was disappointed the SEC approved a two-year phase-in period for the rule, accusing the agency of caving to pressure from businesses."

Another non-profit group, Enough Project, believes that progress is being made. Earlier this month the group "released 'Taking Conflict Out of Consumer Gadgets: Company Rankings on Conflict Minerals 2012,' its second report ranking company progress toward responsible and conflict-free supply chains." ["Progress Being Made In Eliminating Conflict From Minerals Supply Chains," by Amol Mehra and Katie Shay, Forbes, 16 August 2012] Mehra and Shay continue:

"The report shows that the majority of companies surveyed have made great strides in eliminating conflict minerals from their supply chains since first being evaluated in 2010. ... Some of the significant successes include:

• Intel, HP, and GE cofounded a smelter incentive program, which pays for smelter audits.
• Intel was the first company to publicly commit to producing a fully conflict-free product – a microprocessing chip that will be produced by 2013.
• HP has actively engaged to help Congo develop a clean minerals trade, as has Motorola Solutions.
• Apple was the first to identify the number of smelters in its supply chain (175); since doing so, several companies have followed suit.
• SanDisk published the names of each of its smelters and has begun auditing its suppliers.
• Toshiba, Apple, HP, and Nokia implemented policies to require their suppliers to use only audited, conflict-free smelters, once enough are available.
• Nokia, Panasonic, Philips, AMD, HP, and Microsoft have piloted internationally agreed-upon due diligence guidance on conflict minerals in line with the Organization for Economic Co-operation and Development due diligence model.

"These companies should be applauded for their efforts. Not only is this good for the people of the Congo, but it also evidences clear leadership in corporate social responsibility. With the coming release of final rules, stragglers in implementation will soon be forced to catch up. The efforts of these leaders have paved the way for them to do so."

Bolaji Ojo isn't quite as sanguine about the work being done by Enough Project. He calls the organization's work "a farce." He explains:

"The report issued today by the Enough Project makes it clear that, while 'leading electronic companies are making progress in eliminating conflict minerals from their supply chains [they] still cannot label their products as being conflict free.' Yet, the Enough Project gave at least four companies -- Intel Corp., Motorola Solutions Inc, Hewlett-Packard Co., and Apple Inc. -- high marks for being 'pioneers of progress' and said these companies 'have moved forward to develop solutions despite delays in the legislative rule-making process by the US Securities and Exchange Commission.' It also identified electronics manufacturers described as 'laggards' that are 'standing out due to lack of progress and communication.' Before you tar and feather the companies proclaimed 'laggards' by the Enough Project, understand this: You are most likely yourself an unwitting accomplice in whatever crimes are being committed in the Congo that propelled the US Congress to pass a law on the mining of the minerals. Furthermore, you may be as limited in what you can do to effect change as the companies that have been criticized sharply by everyone. You may be a laggard, yourself. The conflict minerals are in our phones, tablet PCs, computers, and much other high-tech equipment. They haven't disappeared and won't, simply because Congress passed one law or a thousand laws."

Ojo is skeptical that any external effort will improve conditions inside the Congo because life there is complicated and corrupt. He notes that "minerals produced in known conflict zones don't stay in the conflict zone; they can't be used there." If they can't be sold to western firms, he says "they are simply shipped to China, where they get certified, losing their trace to the conflict zone." He states that potential whistleblowers are beaten or killed. He doesn't fault those who want to do something rather than nothing, but he fears such efforts might make life worse for those who "the law was meant to protect." Although he doesn't propose a solution to the dilemma, Ojo clearly believes that bringing the conflict in the Congo to an end and eliminating the warlords is the only way out of the nightmare. In the meantime, affected companies are going have to comply with Dodd-Frank.

Artificial Intelligence and the Supply Chain

The human race has progressed in fits and starts. Great leaps forward can always be traced to advances in technology. That doesn't mean that everyone is happy with such progress. MIT business school researchers Erik Brynjolfsson and Andrew McAfee, for example, conclude that job creation isn't keeping pace technological advances resulting in increased unemployment. ["When Machines Do Your Job," by Antonio Regalado, Technology Review, 11 July 2012] On the other hand, McAfee, told Regalado, "There is a closely related phenomenon, which is the massive increases in productivity brought on by digital technology."

Despite the effect that technology has on jobs, technological progress is not going to stop. In fact, it is probably going to increase as machines begin learn and assist technologists in making the next-generation of machines even better and more productive. As the global population ages and the global birth rate slows, humankind will eventually welcome the productivity that technology generates. Today, however, McAfee insists "that if you are a 'routine cognitive worker' following instructions or doing a structured mental task," your job is probably a good target for a technological takeover.

The real problem, of course, is not the technology but the fact that our educational and training systems are not keeping pace. Jeff Owens, the chief executive of Advanced Technology Services, a manufacturing equipment maintenance company in Peoria, Illinois, told the Financial Times, "People coming out of high school just don't have the skills necessary to work in this industry." ["US industrial groups partner for training," 21 August 2012] As a result, Owens helped establish a training program that works with community colleges to create workers skilled enough to tackle tomorrow's jobs. Owen's went to state, "They have to have skills around hydraulics, electronics, computers, software. Community colleges were not training to the level we needed for our world – machine maintenance. They were training for welders, for machine operators. Our focus is on the guys who service and repair the machines."

McAfee says that the good news is that if train people to work with machines "in a very, very automated and digitally productive economy you don't need to work as much, as hard, with as many people, to get the fruits of the economy. So the optimistic version is that we finally have more hours in our week freed up from toil and drudgery." Technology has always had a focus on helping relieve humans of mundane work. Because it is drudgery, mundane work often results in mistakes that result from boredom. Machines don't get bored so they make fewer mistakes. When Regalado asked McAfee, "Which is further advanced, the automation of intellectual work or of physical tasks?" McAfee responded, "The automation of knowledge work is way, way farther along. ... But it feels to me as if we are starting to turn a corner." Commenting on McAfee's interview with Regalado, Karen Hanna, concludes "that artificial intelligence can and will be used to automate mundane tasks that knowledge workers now do, thus freeing up their time to do more high-value or more interesting tasks--a belief shared by most AI researchers today." ["Will Artificial Intelligence and Technology Automation Kill Jobs?" Midsize Insider, 18 July 2012]

McAfee told Regalado, "The data available to help a robot is big data, and it's exploding. The sensors have been progressing along a Moore's Law trajectory. And the physical pieces of a robot, the actuators and so on, have gotten a lot better too. So it seems the ingredients are all in place for the robots to start getting into the economy." Tam Harbert, a freelance journalist, agrees that "big-data is about to have a big effect on a lot of industries." ["Big-Data, Big Problem," EBN, 21 August 2012] Harbert goes on to note that "the supply chain seems to be choking on the data it already has. It's hardly ready to digest even more data in many different forms." When big data collides with mundane tasks, a perfect scenario for artificial intelligence systems emerge. Harbert cites an article written by Lora Cecere in which she writes:

"Today's supply chains are more complex than before. While the structured data and the systems that use them will not go away, new forms of data offer new opportunities for companies to solve previously unanswered problems. These new data types—from mapping and GPS sensors, to voice, images and video—do not fit into traditional applications or data models. That's the bad news. The good news, as we learned in a survey of 53 IT and supply chain managers, is that companies are beginning to recognize that they have a problem and that they need to respond. While there is a general lack of understanding of big data terms and technologies, there is an awareness that supply chain best practices are moving from insights into supplies to leveraging insights into demand."

Harbert goes on to write, "As a journalist, I'm covering big-data stories in all sorts of industries, but I haven't heard of any big-data projects in the supply chain." Hopefully, that is about to change. In the latest newsletter published by Cecere's new company, Supply Chain Insights, Cecere writes:

"Often the best supply chain solutions come from the foxholes of wartime. This is the case of Enterra Solutions. While we have talked about applying artificial intelligence to the supply chain for many years, Enterra Solutions is the first company that we have seen that is making it work. We first saw this at Conair where Enterra used rules-based ontologies to automate shipping compliance and the management of supply chain visibility in the long, and ever-changing, supply chain. Early adopters are now starting to use the Enterra Solution to mine demand insights data and to power supply chain visualization. We think supply chain learning systems are just around the corner."

You can find that comment in the "Search of Cool" section of the newsletter. Concerning this section, Cecere writes:

"In Search of Cool highlights the supply chain technologies that we think are cool. This section of our website is not pay-for-play. Instead, we comb the world looking for new technologies. The postings are purely based on our beliefs that these technology vendors are meeting three criteria:

• A new technology approach to solving a supply chain problem
• A bright idea that is validated by customer references
• Unique solution for a business problem

However, the list should not be seen as an endorsement. New technologies and implementations carry risks, and these solution providers are pushing the edges."

As President/CEO of Enterra Solutions, I'm obviously grateful to have the company receive recognition from an analyst as well-respected as Cecere. I'm also grateful that despite of any perceived risks that Conair might have seen, it was willing to implement a solution that is "pushing the edges." As Cecere noted, the kind of solutions Enterra works on often combines artificial intelligence and big data analytics. We obviously believe these kinds of solutions will be implemented more frequently as companies understand how they can relieve management personnel from having to focus on mundane tasks so that they can concentrate on more productive activities.

Regardless of where technology takes us in the future, goods will have to be produced and distributed. As Cecere noted above, supply chains continue to get more complicated and complex. To deal with that complexity, supply chain professionals will require Sense, Think/Learn, Act™ systems that can help them respond to emerging challenges in a timely manner.

Infographic about Supply Chain Traceability

In a post entitle Supply Chain Traceability is Important but Confidence is Lacking, I discussed results from a RedPrairie survey that indicated that business executives are concerned about their ability to track, trace, and recall products in their supply chains. Commerce in Motion (which is sponsored by RedPrairie) published a great infographic about the survey -- noting that the survey was commissioned "to gauge the current state of our ability to effectively track, trace, and recall products, both inside the enterprise and up and down the supply chain." ["On the Trail to Traceability"] [Click to enlarge]

Browse more Business infographics.

In another post [Tainted Products and Traceability in the Supply Chain], I discussed more about the concerns surrounding traceability in the supply chain (specifically in the food and pharmaceutical industries). With so much on the line (i.e., money losses, reputation, injury, and death), supply chain traceability is going to remain an important issue.

Supply Chain Traceability is Important but Confidence is Lacking

RedPrairie recently published the results of a survey drawn from interviews with "supply chain and operations executives from 130 consumer product goods, life sciences, and food and beverage companies to identify their confidence and capabilities in effectively tracking, tracing and recalling products up and down their global supply chains." ["Executives Not Confident of Ability to Track and Recall Products, Study Finds," SupplyChainBrain, 13 June 2012] Among the findings reported, "More than half of executives are concerned about their ability to isolate items with their own supply chain." That is not good news for businesses or consumers. Other findings from the survey included:

"• Coordinating recall issues with suppliers and distributors is a real concern for almost 70 percent of executives surveyed.

"• Only 51 percent of organizations are able to execute a product recall within hours.

"• Less than 20 percent have deployed traceability technology solutions to help fully-automated trace and recall processes.

"• Forty-six percent say their companies are struggling to stay compliant with regulations.

"• Almost one-third of executives were most concerned that their ineffective ability to trace items would have a negative financial impact on their company. Almost 25 percent of them also cited negative brand reputation as a pressing concern.

'• Eighty-six percent are worried about their financial liability if something goes wrong with a product recall process."

RedPrairie points out that executives have every reason to be worried about their company's financial liability when a recall is necessary. "Costing on average $10m, product recalls are understandably any company's worst nightmare," said Simon Ellis, practice director, Supply Chain Strategies for IDC Manufacturing Insights. "New legislation adds increasing complexity to the challenge of successfully executing traceability programs. Technology solutions that help to isolate products, proactively issue alerts and handle inventory reconciliation will be key to avoiding the negative outcomes of a poorly executed recall."

Perhaps the two sectors that worry most about tainted products and recalls are agriculture and pharmaceuticals. Susan Zucker, supply chain director at Agri-Mark, told the editorial staff at SupplyChainBrain that technology solutions are certainly important; but, when Agri-Mark started looking at how they were going to assure compliance with new laws relating to milk distribution, the company discovered that processes were just as important as technology. "What we thought would mostly be an IT solution turned out to be more about our business processes," Zucker told the SCB staff. "There certainly are some IT solutions we needed to consider, but we also needed to change how we manage some things." Whenever change is required, people, processes, and technology must always be considered. Rarely does concentrating on just one of those factors generate the optimum solution to a challenge. On the technology side, Zucker indicated that data integration was critical.

"One long-term project that has tremendous potential for improving traceability is data synchronization, she says. 'We see end-to-end traceability as the next level of data synchronization because it really is just adding location attributes to other attributes that an item collects from the time it is produced.' Industry as a whole is still trying to figure out what all those attributes should be, how to store them and, most importantly, how to share them with partners, she says. 'It is a very challenging problem, because you want to do more than be able to recall products from a particular plant. You need to be able to identify everywhere this material has been within the supply chain.' The technology is available 'and might be the easier part of this challenge,' says Zucker. 'The question is how do we apply the technology. We need to really think through the key pieces of data we want to collect, where we will collect them and how we will report off that data. Reporting is a big challenge because it has to be quick, accurate and across all plants. We don’t need to wait for a holistic system that gives us soup to nuts,' she says. 'We just need to pick a place to start and build on that."

Tom Kozenski, Vice President of Product Marketing for RedPrairie, writes, "The complexity of our food supply chain has increased exponentially over the past decade as evidenced by the enactment of the Food Safety Modernization Act (FSMA) in early 2011 and a list of recent food recalls." ["Is Your Traceability Solution Sophisticated Enough for Today’s Complex Food Supply Chains?" Logistics Viewpoints, 22 May 2012] He continues:

"As you know, a tremendous amount of the foods we eat are like sub-prime mortgages—they've been sliced, diced, mixed, processed and re-portioned with ingredients that come from multiple suppliers and countries of origin, each with varying levels of quality assurance and local regulations. So in a jar of spaghetti sauce, you may have tomatoes from two (or more) different sources, oil from somewhere else—and don't even get started on the spices! What ties all this together is that the FSMA pushes the FDA to focus more on prevention rather than treatment and containment of food safety issues after the fact. And that change puts additional responsibility on food companies to be accountable for the 48 million people in the U.S. affected by foodborne illness each year."

The only way to deal with that level of complexity, Kozenski insists, is to use sophisticated technology. He asks, "Is your company capable of adequately shouldering that responsibility?" His answer, "Unfortunately, it's very likely that you aren't." He continues:

"To effectively ensure food safety in such a complex environment, you need to be able to track all ingredients from the moment they enter the supply chain until items reach consumers' hands. But that's just the beginning. A company's traceability capabilities must cover transport and distribution in order to monitor key details such as temperature control for heat- and cold-sensitive items, and it must extend to and be accessible to suppliers and business partners. Otherwise, all you can track is what goes on within your own operation, and that's not enough. In other words, if you can provide a real-time, end-to-end record of the chain of custody, that's great, but it needs to go further than that. You also need to be able to connect to partners' solutions to incorporate their data and provide 360-degree visibility to everyone in your network as you move forward, monitoring quality assurance, or backward in the event of a recall."

Like other analysts Kozenski notes that "the consequences of falling short in your traceability capabilities are obvious ... and the damage to your brand and overall reputation may be incalculable." Although the challenge is immense, Kozenski believes that companies can rise to it. He concludes:

"Let's close on a happier note. The FSMA puts more responsibility on food companies, and that should help push the great number of companies lacking adequate traceability to get state-of-the-art systems and procedures in place to protect both their businesses and their customers. And for one final positive example, consider seafood company John West. Based in the UK, its traceability begins on the high seas, recording the exact location and boat that catches its tuna. But the company goes beyond traceability as a safety and operational issue. It even offers a “Fish Finder” application to customers. By entering a code found on the lid of the can, consumers can tap into point-of-origin information to address concerns about sustainability and responsible sourcing of depleted tuna stocks. So this company shows how sophisticated traceability is not just good for business when it comes to food safety. From a public relations perspective, it can also be very, very good for business."

John DiPalo, Chief Technology Officer for Acsis, Inc., notes, "We are in an age when consumers are too savvy to rely on brand loyalty anymore. People want more than just reassurances that their medicine and food products are safe. They want to know where their food originated and are demanding a safer drug supply chain. Companies who fail to answer this call will ultimately get left behind as consumers turn toward those can give them access to this precise type of data." ["Without a trace: Lack of traceability makes product integrity -- and profits -- disappear," Acsis, Inc. Press Release, Wall Street Journal MarketWatch, 11 May 2012] Steve Banker reports, "In several industries, pending regulations call for more robust product traceability." ["Traceability Benefits Can Extend Far Beyond Better Recall Capabilities," Logistics Viewpoints, 11 June 2012] He continues:

"Many manufacturers view traceability as a necessary cost, rather than something that brings benefits. However, under no regulatory requirement to do so, Bayer CropScience recently implemented an end-to-end product tracking system solely for the benefits it could provide, particularly to customers at the end of the value chain — in this case, farmers. ... Bayer CropScience, with revenues approaching seven billion euros, is a key supplier of seed treatment active ingredients to local seed treatment companies. The company already had the ability to trace all the raw materials used in the company's production lots backwards from the factory. However, Bayer CropScience wanted the ability to provide complete stewardship — as well as end-to-end traceability — for the farmers at the end of the value chain."

Banker reports that one of most important benefits of Bayer CropScience's end-to-end traceability initiative "was improved yields." Banker concludes, "Clearly, traceability projects don't have to be driven by compliance requirements. They can deliver real benefits to both manufacturers and all key participants across an extended supply chain." I suspect, however, that most traceability efforts will be driven by compliance requirements. Failing to implement traceability and recall processes could prove costly. The damage to your brand and overall reputation may be incalculable. Kozenski writes, "Remember Peanut Corporation of America? Although that episode in 2008 may have involved intentional misconduct, the company went bankrupt, was connected to hundreds of cases of salmonella and prompted the recall of more than 2,000 other items that contained PCA products." For more on that topic see my post entitled Traceable Supply Chains and Food Safety. The lesson should be clear, ignore traceability at your own peril.

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.

Tainted Products and Traceability in the Supply Chain

Bob Ferrari reports that "the Taiwan High Court sentenced the owner of a food additive manufacturing firm to a jail term of 13 years for adding toxic plasticizers to clouding agents and selling these products to food and beverage producers. His spouse was also sentenced on the same charges." ["Taiwan Court Sentences Executive for Toxic Food Contamination," Supply Chain Matters, 28 March 2012] More disturbing is the fact that this couple was able to pull off their nefarious activities over "a period of almost six years." In the United States, the most recent scandal that has created headlines is the discovery of a fake cancer drug that made its way into the U.S. supply chain. According to Benoît Faucon and Jeanne Whalen, the "doses of counterfeit Avastin, like a batch that surfaced in the U.S. in February, traveled through wholesalers in the U.K. and Turkey." ["Fake Avastin Took Murky Path to U.S.," Wall Street Journal, 5 April 2012] The Organic Monitor reports, "Since February 2011, the USDA has reported 12 incidents of fake organic certificates; the origins of these fake certificates - Asia, Africa, Middle-East, Caribbean and Europe - demonstrate how international food fraud has become. ... The Food and Environment Research Agency (FERA) of the UK estimates that fraud could be affecting up to 10% of all foods bought by consumers." ["Food Authentication Techniques and Sustainable Supply Chains," 24 April 2012] Incidents like these are why regulation, inspection, and traceability are so important in the supply chain; especially, when food or pharmaceuticals are involved.

Ferrari points out that governments alone can't be trusted to detect and prevent tainted products from getting into the supply chains -- the private sector must get actively involved as well. He concludes:

"Sourcing and procurement teams need to insure that proper quality measures always exist up and down the supply chain. In this Taiwan incident, the existence of non-conforming product existed far too long without detection or investigation of consumer feedback. In the case of globally extended supply, producers, distributors and retailers must further have a keen eye to specific oversight and regulatory measures."

In the fake cancer drug case, Christopher Weaver, Jeanne Whalen, and Benoît Faucon report that experts are concerned "about the weakly regulated gray market in foreign drugs aimed at U.S. patients." ["Drug Distributor Is Tied to Imports of Fake Avastin," Wall Street Journal, 7 March 2012] Weaver and his colleagues report:

"Discovery of the fake Avastin has lent new urgency to a broader U.S. probe of foreign-drug importation that was already under way when the counterfeit cancer drug appeared. Regulators have long struggled to curb the trade in foreign-sourced, discounted drugs over the Internet, which is popular with U.S. consumers and difficult to police. It is a violation of U.S. drug safety laws to ship pharmaceuticals to the U.S. via international mail or courier, the U.S. Food and Drug Administration says. Only drugs approved by the FDA and manufactured at FDA-inspected facilities may be imported by their manufacturers. Third parties typically can't legally import drugs into the U.S. ... It is also illegal for consumers to buy non-FDA approved drugs over the Internet or otherwise but regulators generally haven't cracked down on individual use because of the logistical difficulties as well as the popularity of the purchases."

Bryan Liang, vice president of the Partnership for Safe Medicines and a law professor at California Western School of Law, told Weaver and company that "this problem is getting worse, not better." In another post, Bob Ferrari notes that he has long "questioned whether regulatory agencies were ill equipped to keep up with the pace of global outsourcing of pharmaceutical compounds and specifically getting a handle on the increasing occurrence of counterfeit or non-conforming products." ["Redux- Can Regulatory Agencies Be Expected to Solely Police Global Supply Chains for Tainted Products," Supply Chain Matters, 2 March 2012] He concludes:

"Is it really possible for regulated industries such as drugs and medicines to continue their current pace of global-based outsourcing without significant investments in counterfeit and non-conforming materials protection? Supply Chain Matters is of the point of view that evidence of the current pace of mitigation efforts related to detecting counterfeit materials seems inadequate. ... Investments in global based product pedigree, track and traceability and centralized supplier intelligence could have long been implemented with an investment cost far below the current costs of liability and damaged brand identities."

Simon Ellis, practice director of Supply Chain Strategies at IDC Manufacturing Insights, agrees with Ferrari that a lack of good traceability can impact brand reputation and consumer safety. ["Food & Beverage Traceability Impacts Brand, Consumer Safety," SupplyChainBrain, 9 March 2012] While Ferrari's comments are primarily directed at the pharmaceutical industry, Ellis' comments are directed at the food industry. He writes:

"IDC Manufacturing Insights places food and beverage manufacturers into its Brand-Oriented Value Chain (BOVC) – those companies that serve consumer markets (also including footwear/apparel, healthcare/beauty). BOVC manufacturers, and specifically those in the food & beverage category, grapple with many of the same concerns as other manufacturers – supply chain visibility, demand planning, and product quality. However, they also have to deal with unique issues, such as an increasingly global supplier network, brand and image retention, and compliance challenges."

Although footwear/apparel and beauty may be in the same category as food and beverage manufacturers, the consequences of tainted products in those areas pale in comparison to the potential for harm that is associated with food and beverages. That makes traceability in the food and beverage sector much more critical. In fact, Ellis asserts that "traceability in food & beverage [is] probably one of the most important business processes for a food and beverage manufacturer. He continues:

"A product recall of any size can cause huge implications throughout the supply chain and on the overall brand of the company. For companies in the BOVC the generally accepted definition of traceability is: The process and/or systems that provide the ability to identify all relevant data (and their relationship) for the materials used during production and distribution of finished products. Not an easy task – especially since it involves many facets, including people, processes, systems and technology. Currently, there are no universal standards for what organizations have to do in terms of traceability – particularly in regards to consumer safety or transparency."

I suspect that one reason that Ferrari believes that the private sector has to be proactive in assuring that counterfeit and tainted products don't make it into the supply chain is because there are no universal standards. From Ellis' description of the challenge, it's clear that technology has a critical role to play. Only a Sense, Think/Learn, Act™ system, like the one around which most Enterra Solutions products are built, that can identify all relevant data and their relationship and provide meaningful insights is up the task. It simply can't be done manually or through blind trust. Dennis Brandl, founder and chief consultant for BR&L Consulting, makes this point clear. Back in the winter of 2009/2010, he wrote, "Traceability in food and pharmaceutical products is an important issue. In fact it is a life critical issue." ["Cross Enterprise Tracking and Tracing," ISA, Food & Pharmaceutical Industries Division Newsletter] He continued:

"Traceability means that producers must keep track of where they obtained their raw materials and where they shipped their product. This is complicated because of the splitting and combining of lots that commonly occurs during production. For example, the end product on a store shelf will probably have come from several different raw material lots from several different sources. A single container of mixed-berry yogurt may have fruit from two sources, milk from a third source, and culture from a fourth source. A packaged meal may have meat from one source and vegetables and fruit from multiple sources. The vegetables and fruits may have been combined by the supplier from other different suppliers. Even the municipal water used in production needs to be identified by a lot number associated with the day or even shift of use. Complete traceability may require that multiple companies’ traceability information can be combined and that lot numbers are shared across the entire supply chain. Within a plant the main issue of traceability is to determine exactly which lots went into the final product. While lots may be assigned in drug manufacturing, in food and beverage production schedules do not specify which raw material lots are to be used and it is at the discretion of operators to pick the appropriate material lot for each batch. In-plant traceability requires identification of ingredients as they are added and identification of final products at lot boundaries. The problem of traceability does not stop at the plant door, in order to meet the real requirements for traceability and recall control, some method is required for cross-enterprise traceability. Cross-enterprise traceability requires that globally unique IDs can be assigned to individual lots, similar to globally unique IDs assigned to phone numbers, internet address, and vehicle identification numbers. Current standardized ID methods deal with identifying the product, not the specific lots."

Clearly, technology is essential if individual lots are going to be traced because of the complexity involved. Ellis continues:

"The government is involved at some level – the FDA, for example, will intervene when it comes to removing contaminated food product from our general food supply. However, they too have to rely on internal controls set up (or in some cases, not) by the manufacturers themselves. This could result in massive product recalls and dollars lost due to a lack of internal controls. One step forward in this area was the signing of the FDA Food Safety Modernization Act by President Obama back in January 2011. The potential for this law is to modernize the current food safety system to better respond to outbreaks and prevent food-borne illnesses in the first place."

Ellis reports that since the FDA Food Safety Modernization Act was signed "there has been some progress." He points out two efforts:

• A consumer-friendly search engine to look for food product recalls (April 2011) (Source: fda.gov)

• The FDA and the United States Department of Agriculture entered into an agreement to establish a competitive grant program for food safety training (July 2011) (Source: fda.gov)

Neither of those efforts really improves product traceability. Ellis concludes:

"The transparency in today's marketplace that the consumer now demands is not going away. Traceability in food & beverage helps to allow for this transparency and will be key to ensuring both consumer safety and brand protection. Legislation, and whether it moves forward or not in 2012, will be a primary driver of whether or not food and beverage manufacturers make changes internally as well."

It's a bit depressing for Ellis to conclude that legislation is required to motivate food and beverage manufacturers to improve. The editorial staff at SupplyChainBrain asserts, "Although the Food Safety and Modernization Act of 2010 was passed, ... and food and beverage companies have had a significant period of time to calculate and understand its impact, and implement traceability solutions, there are still many issues and processes to be resolved or implemented before food and beverage enterprises can be considered 100-percent compliant." ["Report Focuses on Food Safety, Traceability and Government Legislation," 15 March 2012] Brandl, whose report was cited from earlier, concluded:

"Our food supply chain is large, complex, and diverse. Some food products may have few components and a fairly simple flow from field to table, but still change many hands and come from faraway places. Other products have a complex processing route with numerous component ingredients. Current government regulations do not ensure that the links through the supply chain can be quickly traversed making the task of determining source issues in the event of a contamination concern extremely time consuming. Some vertical tracking systems are starting to emerge within 7 segments of the industry, but once cross segment components are mixed, like putting strawberries in yogurt or eggs in cookies, the links can once again become time consuming to trace. Without accurate information regarding which products might be impacted in a contamination concern, recalls fall on the side of caution and safety, often severely impacting entire product types which are later found to be unrelated to the actual issue. We need to do better for both the public’s safety and for the health of the food industry. An over-arching, global food traceability solution is needed that can link all food products and provide results in seconds."

What he concludes about the food industry applies equally to the pharmaceutical industry. Traceability in these two industries is particularly important because they are global and will remain so. All the technology that may be needed to ensure increased supply chain safety may not yet be available, but new breakthroughs are being made all the time. I believe we are on the verge of being able to finally get a handle on the complex challenges associated with food, beverage, and pharmaceutical supply chains.

Supplier Codes of Conduct and the Middle Class

"Pardon me for sounding like a Marxist – which I decidedly am not," writes Robert J. Bowman, managing editor of SupplyChainBrain, "but doesn’t it seem as though a thriving middle class in the Western world depends on the existence of workers making pennies an hour in some distant, underdeveloped country?" ["Tomorrow’s Global Consumer: Smack Dab in the Middle," 16 January 2012] A quick answer to that question is: No. Bowman's argument would be true if global wealth were a fixed sum and those trying to obtain it were involved in a zero sum game. Fortunately, neither of those things is true.

A thriving Western middle class depends on wages rising with productivity. The middle class in the West has suffered because productive has increased and wages have remained flat. Better wages means that the middle class could afford products produced in plants where fair wages were paid and working conditions were good. As better wages are offered overseas, the competitive landscape becomes more level. But I'll let Bowman argue his point. He writes:

"According to Ernst & Young, the global middle class is set to burgeon from its current level of 1.8 billion to nearly 5 billion by the year 2030. With so many people in the 'middle,' where will retailers and manufacturers find the cheap labor that's needed to supply them?"

There are, of course, places in the world where cheap labor can be found. But cheap labor isn't all that attracts manufacturers -- otherwise, Haiti would be a manufacturing powerhouse. African and Middle Eastern countries would also love to see manufacturers set up shop and provide jobs for their burgeoning youth bulges. But the point I made earlier is the most important point. Wealth is not a fixed amount. It can be created and shared. Bowman, in fact, goes on to provide a perfect example of that in China. He writes:

"Center stage for this stunning debut will, of course, be China, where even now wages are rapidly rising by as much as 30 percent. The Chinese government is encouraging the trend, much to the chagrin of low-cost manufacturers like Foxconn. The goal is to create a powerful middle class that generates local demand and transforms China from an economy dependent on cheap exports to one that makes a variety of quality products for its own people. But it's more than a China story. The new Ernst & Young report, based on a survey of 547 executives around the world, also locates what it calls 'the next three billion' members of the middle class in India, Brazil, Indonesia, Turkey, Eastern Europe and even parts of Africa. One key driver is the high percentage of young people in those developing countries, says Maria Pinelli, global vice-chair of strategic growth markets for Ernst & Young. As they enter consumption age, these citizens will be demanding good, steady paychecks, which will translate into disposable income."

The most important thing that Pinelli said is that young workers want "good" as well as steady paychecks. It is the "good" wage that provides disposable income. Bowman continues:

"Ernst & Young predicts that the increase in middle-income consumers will boost global demand from $21tr to $56tr by 2030. Asia, the report says, will account for 40 percent of middle-class spending, versus its current share of 10 percent. So where will manufacturers go to find cheap labor?"

Although it may sound like Bowman is persistently pushing a flawed argument, he finally admits that Ernst & Young concludes that asking where the cheap labor is to be found is the wrong question. He explains:

"Its study suggests that the traditional model of global production – make it cheap there, sell it at a hefty profit here – is on the way out. In years to come, suppliers won't be able to compete entirely on the basis of low overhead. The focus will be on what they make, and where it's sold. Forget about a global multinational coming in and automatically dominating a newly emerging market, says Pinelli. 'That [scenario] couldn't be further from the truth.' It’s local production, with an intimate knowledge of consumer needs, that will have the upper hand."

In the end, Bowman admits that exploiting sweat shop workers is not a necessary and essential foundation to keep the middle class happy and consuming. In fact, he admits, "Anything that lessens the possibility of work environments that appear to drive employees to suicide is welcome. Maybe there’s room in the middle for everybody after all." The fact is that what has been called "corporate social sustainability" is likely to be more important in the future than it has been in the past. Lorcan Sheenan reports, for example, "On January 1st, a new law took effect in California. The California Transparency in Supply Chains Act of 2010 requires any retailer or manufacturer doing business in California and with greater than $100 Million in annual revenue to train employees and publish their approach to eliminating forced labor and human trafficking in their supply chains." ["California Transparency in Supply Chains Act, ModusLink’s Value Unchained, 16 January 2012] He continues:

"The effective date of this legislation comes at a time of increased interest in the social implications of how products are made and distributed. And the interest extends well beyond the industry; I have begun to see people raise this topic on social networking sites like Facebook and Twitter. The increased focus on socially responsible supply chains is clearly a good thing. Any improvements made in this area – whether as a result of legislation, corporate action, or consumer attention – are unarguably positive. That said, I believe that many of the people outside the supply chain industry who have recently begun to take an interest in social responsibility in the supply chain would be pleased to learn what companies are doing in this area."

The California law may have had something to do with the fact that Apple recently asserted that it is "committed to driving the highest standards for social responsibility throughout [its] supply base," and that its suppliers must "provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made." ["Apple's Groundbreaking Moves to Audit its Extended Supply Chain for Compliance to its Supplier Code of Conduct," Supply Chain Digest, 25 January 2012] On the other hand, Apple's report may have been released in response to "a two-part series in the New York Times that in part says that working conditions at many of Apple's sub-contractors is often abysmal and often dangerous, even if Apple is making progress. ... The Times articles were published just a few days after Apple released its report. The Times says it let Apple know the articles were coming some time ago, when it had asked Apple to comment on its findings; Apple declined to address the allegations." ["Under a Microscope, Apple's Supply Chain Shows both Progress and Problems with Regard to Working Conditions in Asia - and the Challenges for Western Manufacturing," Supply Chain Digest, 2 February 2012] Regardless of the reason, Apple's actions are welcomed and should support the emerging global middle class. The January Supply Chain Digest article reports that adhering to Apple’s Supplier Code of Conduct is "a condition of doing business with the company." It continues:

"To ensure compliance, Apple says it conducts 'rigorous audits,' with the help of independent experts, of both end assemblers and component manufacturers, and that if it finds any of these suppliers do not meet Apple's standards, 'we stop working with them.' ... Interestingly, Apple says its programs include training workings at its suppliers about its standards and local laws and regulations, and that 'there are more than one million people who know their rights because they went to work for an Apple supplier.' How well the suppliers react to that education is not clear."

Technology should be able to help maintain audit trails and ensure better compliance to corporate standards of conduct. I assume that suppliers would prefer a set of accepted international standards so that they don't have to try and keep up with potentially hundreds or thousands of different codes. That may be one reason that Apple "became the first technology company accepted by the Fair Labor Association (FLA), and that it will open its supply chain to the FLA’s independent auditing team, who will measure Apple's suppliers’ performance against the FLA’s Workplace Code of Conduct." The article continues:

"Apple says it is also spending money to provide free training to employees of its contracted final assembly operations. The Supplier Employee Education and Development (SEED) program offers free classes on a range of subjects including finance, computer skills, and English. Apple says that 'More than 60,000 workers have taken one or more of these professional development courses. The curriculum continues to expand, and we have partnered with local universities to offer courses that employees can apply toward an associate degree.' This one really surprised us: Apple says it monitors the process of workers who move from their home country to work in its suppliers' factories in another country, saying there are often abuses in this process, especially around fees charged to these workers to get the jobs. Stepping up efforts in this area in Singapore and Malaysia, it forced suppliers there to reimbursed $3.3 million in excess foreign contract worker fees last year, bringing the total that has been repaid to workers since 2008 to $6.7 million."

The article goes on to report that "Apple is especially sensitive to what it calls 'core violations.' Those include underage or involuntary labor, falsification of audit materials, worker endangerment, intimidation or retaliation against workers participating in an audit, and significant threats to the environment." The article continues:

"The report notes, for example, that Apple's Code sets a maximum of 60 work hours per week and requires at least one day of rest per seven days of work, while allowing exceptions in unusual or emergency circumstances. ... Apple also found a number of violations relative to worker pay. For example, 67 facilities used deductions from wages as a disciplinary measure. Although this is legal in some countries where the factories are located, it is not permissible under Apple's Code. Another 108 suppliers were not paying appropriate overtime wages. ... There is a lot more in the full report, including environmental reviews, but this seems to us a seminal sort of shift in how offshored suppliers may need to be managed in the future."

The staff at Supply Chain Digest isn't sure what impact corporate social sustainability will have on supply chain and production costs. It calls that, "The real million dollar question." Will costs increase? Very likely. But the benefits of adhering to fair labor practices far outweigh any increased costs. If they aren't addressed, the future will likely be filled with protests, violence, and supply chain disruptions that cost a lot more than being fair in the first place.