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Perspectives by Stephen DeAngelis

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"Most managers know that they should protect their supply chains from serious and costly disruptions," write Sunil Chopra and ManMohan S. Sodhi, "but comparatively few take action." ["Reducing the Risk of Supply Chain Disruptions," MIT Sloan Management Review, 18 March 2014] One of the reasons that so little action is taken is that risk management programs cost money and the return on investment is hard to demonstrate if such programs are really working. Chopra and Sodhi recognize this dilemma and admit, "Solutions to reduce risk mean little unless they are evaluated against their impact on cost efficiency. After all, financial performance is what pays the bills." Such evaluations, however, can be tricky to make — until disaster strikes. A truly catastrophic disruption can put a company out of business. Trying to balance risk and cost efficiency can put so much heat on supply chain professionals that Steve Hall likens the situation to a crucible. ["Supply chain risk: a crucible for tomorrow's CPOs," Procurement Leaders Blog, 25 January 2012] Like Chopra and Sodhi, Hall insists, "Businesses need to do more in tackling risk in the supply chain."

 

Adding to the pressure is the fact that supply chain professionals know there is little relief in sight. That's because the complexity of supply chains continues to increase. Mickey North Rizza, from BravoSolution, insists, "As supply chains have evolved to value chains, so too have the methods for supply chain risk management. Value chain risk management requires a broader integrated strategy, focused on reducing the risk at each point in the value chain, while balancing risk and resiliency." ["The Missing Future Risk Management Elements," SupplyChainBrain, 20 March 2014] Rizza is even more pessimistic about the state of corporate risk management than Chopra, Sodhi, and Hall. He believes that 99 percent of companies still have a ways to go. He writes:

"If your supply chain is like the top 1 percent of companies, you can finally check the supply chain risk management box, because you have reduced your exposure to supply chain risk. You have a mechanism to look at tier-n supplier financials, inventory, logistics, natural catastrophic events, open orders, etc. You know that you are now prepared and ready for almost any event.  Congratulations! Of course the true test will be the first disaster that pushes against the plan and processes. Remember supply chains evolve, ebbing and flowing based on the business needs and requirements. The same is true for supply chain risk management."

Chopra and Sodhi state the obvious when they note that "supply chain efficiency" and "supply chain resiliency" are not the same thing. Resiliency adds costs (e.g., "increasing inventory, adding capacity at different locations and having multiple suppliers") while efficiency activities search for ways to reduce costs. They assert, however, that there is a connection between the two activities.

"Both require dealing with risks, recurrent risks (such as demand fluctuations that managers must deal with in supply chains) require companies to focus on efficiency in improving the way they match supply and demand, while disruptive risks require companies to build resilience despite additional cost. Disruptive risks tend to have a domino effect on the supply chain: An impact in one area — for example, a fire in a supply plant — ripples into other areas. Such a risk can’t be addressed by holding additional parts inventory without a substantial loss in cost efficiency. By contrast, recurrent risks such as demand fluctuations or supply delays tend to be independent. They can normally be covered by good supply chain management practices, such as having the right inventory in the right place."

For the most part, they believe that companies have done a good job addressing recurrent risks. Concerning disruptive risks, they ask, "How should executives lower their supply chain’s exposure to disruptive risks without giving up hard-earned gains in financial performance from improved supply chain cost efficiency?" They admit that this is a tough question to answer because "disruptions are usually well beyond a manager’s control, and dealing with them can affect a supply chain’s cost efficiency." They see two choices: Do nothing or do something? They assume that doing nothing is the worse choice. When considering what to do, they recommend adopting strategies that control "the amount of complexity" in the supply chain. Such strategies can reduce both risks and cost "which is a win-win." They recommend "two strategies for reducing supply chain fragility through containment while simultaneously improving financial performance: (1) segmenting the supply chain or (2) regionalizing the supply chain." They also recommend that companies design business continuity plans since no company is immune to disruption. Concerning the first strategy — segmentation — they write:

"Large companies can segment their supply chains to improve profits and reduce supply chain fragility. For high-volume commodity items with low demand uncertainty, the supply chain should have specialized and decentralized capacity. For its fast-moving basic products (typically, low margin), it may be worthwhile to ... source from multiple low-cost suppliers. ... This reduces cost while also reducing the impact of a disruption at any single location, because other suppliers are producing the same item. For low-volume products with high demand uncertainty (typically, high margin), companies can take a different approach and keep supply chains flexible, with capacity that is centralized to aggregate demand. Even when production is centralized, the supply chain needs to be flexible to avoid concentrating risk in a single plant or production line. ... Practically speaking, this level of segmentation may not be feasible for small companies lacking sufficient scale. ... Supply chains can and should evolve over time in response to product life cycles or experience with a new market. Early, when sales are low and demand uncertainty is high, managers can pool recurrent risk and minimize supply chain costs by centralizing capacity. But, as sales increase and uncertainty declines, capacity can be decentralized to become more responsive to local markets and reduce the risk of disruption. In addition to separating products with different risk characteristics, managers should consider treating the more as well as the less predictable aspects of demand separately. They should view such an approach not only as a way to cut costs but, more importantly, as a way to lessen the risk of disruption. Some utility companies use this approach. They employ low-cost coal-fired power plants to handle predictable base demand, and they then shift to higher-cost gas- and oil-fired power plants to handle uncertain peak demand. Having two or more sources of supply reduces the impact of disruption risk from a single production facility."

The second strategy — regionalization — is probably going to be implemented by a lot of companies. In past posts, I've argued that within the larger context of globalization, regionalization is going to become a growing trend. It simply makes sense to manufacture products in the region in which they are going to be purchased and used. Concerning this topic, Chopra and Sodhi write:

"Containing the impact of a disruption can also mean regionalizing supply chains so that the impact of losing supply from a plant is contained within the region. ... Since rising fuel prices increase transportation costs, regionalizing supply chains provides an opportunity to lower distribution costs while also reducing risks in global supply chains. ... As transportation costs rise, global supply chains may be replaced by regional supply chains. ... With oil prices much higher today, the most cost-effective network is more distributed, with multiple plants even within a single country like China. ... Regionalizing often helps companies reduce costs while also containing the impact of disruptive events such as natural disasters or geopolitical flare-ups to a particular region. In the event that there is a problem, affected markets can be served temporarily by supply chains in neighboring regions. In many product categories, companies are deciding to regionalize their supply chains to serve even developed markets. ... Although companies decide to regionalize supply chains to achieve lower costs, they also consequently 'de-risk' their overall supply chain."

As noted above, no company is immune to supply chain disruptions and Chopra and Sodhi assert that, when they do occur, "researchers have identified three stages of response: (1) detecting the disruption, (2) designing a solution or selecting a predesigned solution and (3) deploying the solution." They continue:

"Given that many companies have invested in a variety of information technology systems for monitoring material flows (such as delivery and sales) and information flows (such as demand forecasts, production schedules, inventory level and information about quality) to ensure performance and manage recurrent risks, another win-win strategy is to leverage these systems to contain the impact of supply chain disruption incidents by ensuring the company can react quickly to such incidents. Such IT systems can be a win-win: They can reduce the impact of risk incidents by enabling a quicker response by screening for possible disruptions. To leverage the benefit further, the time required to design supply chains can be significantly shortened if a company and its partners can develop contingent recovery plans for different types of disruptions in advance. ... Building on the two containment strategies described above, detection, design and deployment become simpler and faster when the supply chain is segmented or regionalized."

Rizza asserts, "Value chains are the new supply chain; smarter, more encompassing and focused on mutually beneficial outcomes." Good risk management strategies will throw a wide net over the entire value chain. "Now [is the time] to move from supply chain risk management to value chain risk management," Rizza concludes. "If done right, this shift will result in greater resiliency for the entire value and supply chain. And individual business will learn how to quickly address the issues by focusing on the entire value chain success vs. only one aspect." It takes constant vigilance to keep a supply chain resilient and efficient. I agree with Chopra and Sodhi that efficiency receives a lot more attention than resiliency and that inattention to resiliency can threaten the whole business. Unfortunately, supply risk management issues seldom rise on corporate priority lists until after a disaster strikes. That's why risk managers often find themselves between a rock and hard place.

I have written about so-called "Black Swan" events in the past (see, for example, a post entitled "Black Swans, Dark Clouds, and Silver Linings"). As I noted in that post, the term "black swan" came into common usage thanks to Nassim Nicholas Taleb, author of the book entitled Black Swan. Russ Banham provides his definition of the term:

"Black swans are, of course, those highly improbable but painfully consequential events that strike from the blue — or from the streets of Cairo, or from an offshore oil rig, or from a poorly designed car part. They can destroy a company's reputation, cripple its financial performance, and perhaps even kill it outright. Because they are rare and almost impossible to predict, black-swan events tend to fall outside the scope of most companies' risk-management programs (assuming a company has such a program at all)." ["Disaster Averted?" CFO Magazine, 1 April 2011]

Black Swans and Big Data

In an even earlier post — entitled "How Important is Supply Chain Forecasting?" — I noted that Ann Grackin, from ChainLink Research, insists that just because some events are rare it doesn't mean that we can't or shouldn't forecast them. Grackin writes, "Creating a resilient enterprise is critical to customer protection and employee welfare, as well as securing the financial viability of the company. Yet many firms think that since rare events are unpredictable, then there is no sense in doing much about them other than 'risk transfer' (purchasing a risk product, if one is available, such as product liability, property and casualty and so on). … Modelers and forecasters look through a faulty lens; they discount these events because they are rare." ["Black Swan? Hardly! Revolutions and Tsunamis Come and Go!" 5 April 2011] Renee Boucher Ferguson asserts that technology has now advanced far enough that assessing the possibility of black swan events should be a part of every company's risk management process. She writes, "New research suggests that by exploiting many types of data, managers can help prevent (or at least contain) the damage related to black swan events and other risky blind spots. The caveat: organizations should rely less on management experience and intuition and rely more on integrated data to point to potential risks." ["The Science of Managing Black Swans," MIT Sloan Management Review, 19 February 2014] Ferguson goes on to describe research conducted by Professor Ron Kenett and reported in a paper entitled Managing Risks with Data. According to Ferguson, "Kenett suggests that the proper exploitation of organizational data can help prevent some of those hugely disruptive, largely unexpected events. In practical terms, that involves acquiring and merging data, as well as building data-driven risk management decision-support systems that complement and reinforce the more traditional methods used today." In his paper, Kenett explains:

"Risk management is traditionally practiced using subjective assessments and scenario based impact analysis. This common approach is based on experts providing their opinions and is relatively easy to implement. … Modern evidence-based management relies, however, on data, and not only opinions, for achieving effectiveness and efficiency. In that context, risk management can exploit information from structured quantitative sources (numerical data) and semantic unstructured sources (e.g., text, voice or video recordings) for driving risk assessment and risk mitigation strategies."

Any time you add unstructured data into the equation, the analysis becomes much more difficult and less straight forward. Yet valuable, real-time information can be gathered from such data — especially in the aftermath of a disaster when communications are likely to breakdown. At that point, any source of news can be analyzed to help provide insights about the extent of the crisis, the potential impact, and how disruptions might be minimized. Ferguson reports that Kenett has developed a five-level "maturity ladder" of risk-management practices. Those levels are:

  1. Intuitive – no formal methods used.
  2. Qualitative – risk assessments are based on expert opinions.
  3. Quantitative – some data is collected and used to derive Key Risk Indicators.
  4. Semantic – unstructured data, like logbooks or blogs reflecting user experience, is analyzed.
  5. Integrated – data from various sources is integrated into a coherent risk management system.

Kenett insists that too many organizations operate at levels 1 or 2. He writes, "Going up the ladder is both a management and technological challenge.” Ferguson adds, "It’s when organizations are able to combine the third and fourth rungs — a combo of quantitative and semantic data — to get the final rung of data integration that unexpected risk is best managed." In order to climb those final three rungs, a company needs to use sophisticated technology like Enterra Solutions'® Cognitive Reasoning Platform™, which combines artificial intelligence and a common sense ontology to address both the quantitative and semantic challenges. Not surprisingly, Kenett concludes that the more complex a company's supply chain is the more critical it becomes for it to integrate internal and external data sources. Ferguson notes, "Kenett is not alone in pushing for more data-driven risk management. Bill Pieroni, global chief operating officer at insurance giant Marsh, contends that the best way to manage risk — even black swans — is to use big data." That's because events traditionally considered to be "once in a lifetime" occurrences are popping up with greater frequency. Ferguson asserts, "This is where data comes into play." She cites an articlewritten by Pieroni in which he concludes, “Analytic competitors who leverage big data will increasingly be able to identify, model, and act to mitigate or potentially exploit these risks." In that article, Pieroni distinguishes between two related, but quite distinct, terms: risk and uncertainty. He writes:

"Uncertainties pose unknowable and hence unmanageable threats. Risks, however, can be explicitly accepted, avoided, or transferred. Organizations that are fully exploiting big data are actively uncovering and converting uncertainty into known risk as well as addressing and exploiting competitive vulnerabilities."

In other words, one of the objectives of conducting Big Data analysis is to change uncertainties into risks. Pieroni concludes, "If data and analytics are not explicitly part of decision-making and outcome feedback, the organization will increasingly be in jeopardy. Unchanging strategies and tactics work, until they don’t, with often disastrous outcomes.” Steve Hall insists that risk management processes must not only be active but proactive lest complacency set in if there is a lengthy period between black swan events. "Speak to any risk expert," he writes, "and they’ll often talk about a proactive approach to risk management." ["Risk Management Is Overlooked As A Value Proposition, Procurement Leaders Blog, 18 March 2014] Because Hall focuses on procurement, he recommends that procurement professionals become much more active in helping develop risk management strategies. He explains:

"What happened between 2008 and 2012 especially was an awakening to the impact that risk can have across the world - though that prompted reactive thinking. What then happened was often a knee-jerk assembling of risk committees and governance strategies that looked at what would be the best course of action when the next volcano erupts. Though this could prove a useful line of thought, the most important development may yet be that procurement got its foot in the door as a solution to the problem of risk; not in a reactive way, but as a proactive developer of resilience. ... The value proposition rests on this: if procurement teams can use the information and expertise they have access to in order to identify, avert, manage and mitigate rising costs, supply disruptions, quality issues and regulatory unwise practices, they’ll have delivered more value to the business than running simple cost-saving exercises."

From Hall's short list of potential risk sources, it's obvious that not only giant transnational corporations must deal with complexity in their supply chains. The more complex their supply chain the higher up Kenett's maturity ladder companies need to climb. Fortunately, as noted above, technologies have finally been developed that can help companies make that climb.

"Tacit knowledge (as opposed to formal, codified or explicit knowledge)," according to Wikipedia, "is the kind of knowledge that is difficult to transfer to another person by means of writing it down or verbalizing it. For example, stating to someone that London is in the United Kingdom is a piece of explicit knowledge that can be written down, transmitted, and understood by a recipient. However, the ability to speak a language, use algebra, or design and use complex equipment requires all sorts of knowledge that is not always known explicitly, even by expert practitioners, and which is difficult or impossible to explicitly transfer to other users. While tacit knowledge appears to be simple, it has far reaching consequences and is not widely understood." Matt Palmquist believes that tacit knowledge, like explicit knowledge, is power. ["(Tacit) Knowledge Is Power," strategy + business, 9 April 2014] Further, he believes that tacit power can be used to address one of the corporate world's most persistent challenges: breaking down silos between business units. To learn more about why silos can prevent a business from achieving its full potential, read my post entitled "The Curse of Silo Thinking."

tacit knowledge clear 02

The term "tacit knowledge" was first seriously discussed by Michael Polanyi (1891-1976), who wrote, "I shall reconsider human knowledge by starting from the fact that we can know more than we can tell." [The Tacit Dimension, University of Chicago Press, 1966]. Polanyi, however, believed that tacit knowledge could be communicated if the right form of communication were discovered. He wrote:

"We know a person's face, and can recognize it among a thousand, indeed among a million. Yet we usually cannot tell how we recognize a face we know. But the police have recently introduced a method by which we can communicate much of this knowledge. They have made a large collection of pictures showing a variety of noses, mouths, and other features. From these the witness selects the particulars of the face he knows, and the pieces can be put together to form a reasonably good likeness of the face. This may suggest that we can communicate, after all, our knowledge of a physiognomy, provided we are given adequate means for expressing ourselves. But the application of the police method does not change the fact that previous to it we did know more than we could tell at the time. Moreover, we can use the police method only by knowing how to match the features we remember with those in the collection, and we cannot tell how we do this. This very act of communication displays a knowledge that we cannot tell."

Palmquist argues that salespeople as a group have tacit knowledge because they occupy a unique position in a business. "They have one foot in their home office and the other in their clients’ conference rooms," he writes. "And in a business-to-consumer model, they play a vital frontline role as customers increasingly demand sophisticated or tailor-made solutions to their needs." From this "rarefied" position, Palmquist argues, they have access to both explicit and tacit knowledge. He then asks, "How can they put this boundary-spanning knowledge to the best use?" Palmquist continues:

"To be sure, explicit data (such as sales figures or consumers’ shopping patterns) can be codified into spreadsheets or databases and therefore easily integrated into a company’s IT setup for further analysis and review. But another type of information that salespeople can glean, dubbed tacit knowledge, can’t simply be written down or quantified. It’s the look on a negotiator’s face, the ability to speak a different language, or the learned experiences gained from working with a partner. And research suggests it can potentially improve firms’ efficiency, value creation, and financial performance."

Like Polanyi's witness, they need to find a way to communicate knowledge they couldn't previously describe. Frankly, some of the knowledge that Palmquist labels as tacit probably isn't tacit at all. It's simply not part of the formalized explicit data structure. It's unstructured and uncaptured knowledge; but, it is data that could be written down, stored, and analyzed in a marketing visit hot wash-up, if appropriate systems were available. For example, Palmquist writes:

"Imagine salespeople who, through conversation and consultation, come to discover more about what certain C-level executives in a client’s organization want in a product or service. Armed with this tacit knowledge, the salespeople could help refine their firm’s marketing message, develop better solutions for the customer, and, in turn, increase their own company’s revenue. But in order for them to do that, management must enable the sales force to transmit such tacit information to headquarters so that the company can use it to gain a competitive advantage."

Palmquist admits that this knowledge could be communicated if the right systems were in place; hence, it's not really tacit it's merely uncaptured knowledge. I'm probably splitting hairs because both tacit and uncaptured knowledge is wasted knowledge as far the organization is concerned. Capturing and analyzing this data can be powerful. Palmquist explains:

"According to a new study that investigates the influence of tacit knowledge on marketing success, hitches occur when firms lack the internal social networks to convey this information. After all, it’s second nature for salespeople to concentrate on forming social networks with customers or clients outside the company; these external bonds are closely tied to their ability to boost sales. But the advantages of forming internal social networks may be less clear to salespeople and their supervisors. The resulting missed network connections represent so-called structural holes that have been shown, in other contexts, to damage companies’ ability to obtain and disseminate knowledge throughout the organization."

Like Palmquist, the studies to which he refers label uncaptured and unshared knowledge as tacit knowledge. The first study's Abstract states, "If this knowledge remains solely with the boundary spanners, it cannot be used effectively to improve firm performance. This study investigates tacit knowledge exchange between sales and marketing and its ability to enhance marketing success." In other words, the researchers aren't arguing that the knowledge can't be described only that it isn't normally captured, analyzed, and shared. If the knowledge were really tacit (i.e., unexplainable), its value would be difficult to uncover. Fortunately, Palmquist is arguing that the knowledge is available and only needs to be shared to reveal its value. He continues:

"The authors of this new study examined the elements that influence tacit knowledge exchange between two departments: sales and marketing. They typically operate separately, but have much to gain from collaboration. Accordingly, researchers surveyed 200 business-to-business salespeople at various companies to explore how their success or failure in transferring their acquired tacit knowledge affected their firm’s overall marketing success. The analysis showed that accurate and comprehensive communication between the two sectors led to improved tacit knowledge flow, and that the more co-workers trusted one another, the more freely they traded tacit information. These two findings highlight the importance of encouraging recurring informal interactions between colleagues, who must necessarily undertake some risks when sharing the implicit knowledge that they alone possess. Getting salespeople and the marketing team in the same room also increased the flow of intangible information. When employees had the chance to interact on a regular basis — whether through training sessions, meetings, or daily encounters — they were more likely to form social ties that provided a platform for the exchange of non-quantifiable data. Finally, when top management emphasized the importance of knowledge sharing, employees complied."

Occasional face-to-face meetings are valuable; but, having persistent access to information is even more valuable. That's where a cognitive computing system that can integrate, analyze, and provide insights from unstructured data can play a significant role. The Enterra® Cognitive Reasoning Platform™ is particularly adept at integrating and analyzing unstructured data because it complements artificial intelligence with the world's largest common sense ontology. Because it can learn as it analyzes, the CRP might actually discover true tacit knowledge as it establishes non-obvious relationships found in shared knowledge. Getting people to use and trust those insights, however, is a cultural issue that must be addressed. Palmquist believes that personal interaction is the best way to do that. He explains:

"How can companies prompt more collaboration and tacit knowledge sharing between the vital marketing and sales wings? They should focus on building a culture of trust among colleagues, encourage social ties between departments, and stress how much they value the informal 'watercooler' discussions that can turn an idea into action."

Although I agree that such sales and marketing collaborations are essential, I also believe that corporate divisions outside of marketing and sales could benefit from the knowledge being shared. That's why I recommend a system that formalizes the collection of "tacit knowledge" so that it can be integrated, analyzed, and shared more broadly throughout the organization.

Earlier this year, Allianz, a global insurer, reported, "Business interruption and supply chain risks remain atop a list of the major hazards drawing companies' attention this year, according to the recently released Allianz Risk Barometer, a survey of some 400 of the firm's corporate insurance experts from more than 30 countries." ["Supply Chain Heads List of Increasingly Connected Corporate Risks," SupplyChainBrain, 14 February 2014] That conclusion is differs dramatically from one reached in the annual Horizon Scan published by the Business Continuity Institute (BCI). According to Malory Davies, that survey reports that supply risks have "dropped out of the top ten – only coming in 16th." ["Relax: supply chain risk recedes," Supply Chain Standard, 11 March 2014] Who's right? Davies is skeptical about the Business Continuity Institute's findings. He writes, "I’ll bet you believe it about as much as I do." He concludes:

Complacency 02.png"The BCI points out that this is despite increasing supply chain complexity featuring within the top five emerging trends, in addition to the recent BCI Supply Chain Resilience Survey, which revealed that 75 per cent of respondents experienced at least one supply chain disruption during the previous year. So does this mean that supply chain risks really are receding? Hardly. Managers might have become more mindful of some other concerns, but I see no evidence of a significant lessening in supply chain risk. In fact, many of the threats identified by business continuity managers could have a significant impact on organisations’ supply chains. Relax? Not just yet."

What the BCI survey really reveals is that too many executives still fail to understand how the supply chain is really at the heart of their business. Gurjit Degun, commenting on the BCI survey, noted, "Three quarters of business continuity managers fear the possibility of an unplanned IT and telecoms outage. It added that 73 per cent worry about the possibility of a cyber attack or data breach. Adverse weather impacts, interruption to utility supply, a fire, a security incident, a health and safety incident and an act of terrorism were also among the top 10 concerns." ["Supply chain disruptions drop out of this year's top 10 business concerns," Supply Management, 9 March 2014] Those business continuity managers should ask executives from the retail giant Target whether their concerns about cyber-attacks involve the supply chain. As I reported in a post entitled "Supply Chain Risk Management: A Company's Weak Link?", Target's infamous data breach began with a minor vendor.

 

If the BCI survey is correct and many executives perceive that supply risks are diminishing, then maybe it's time to take a new approach to risk management. John Bugalla and Kristina Narvaez insist, "As companies develop business relationships around the world into more complex supply chains, protecting these essential links from disruption is becoming harder to manage." ["Five Ways to Manage Supplier Risks," CFO, 25 February 2014] To ensure that supply chain risks remain high on C-level priority lists, they recommend developing an enterprise risk management (ERM) framework and "other holistic risk management approaches to respond to an increasingly uncertain global business environment." Although enterprise risk management plans may look eerily similar to supply chain risk management plans, the name change alone emphasizes that the supply chain can't be siloed from the rest of the business. The more that C-level executives come to appreciate the centrality of the supply chain to their business the more resilient a company is likely to become. This is not a new problem. Almost a decade ago, Lisa Harrington wrote, "While some CEOs understand the value of the supply chain, the majority do not, according to Gene Tyndall, partner, Supply Chain Executive Advisors." ["Logistics at the C-Level. Are We There Yet?" Inbound Logistics, June 2005] Tyndall insisted that one of the reasons for this lack of understanding was that supply chain professionals are "not communicating in C-level terms and language." The enterprise risk management approach can help overcome this communication failure. Bugalla and Narvaez explain:

"Developing ERM programs make it easier for companies to focus on the root causes rather than on the symptoms of disruption in their business operations and thus prevent such disruptions over the long term. Via such approaches, companies can actively anticipate, track, and manage the various types of risks in their supply chain. Given the complexity of managing third-party risks across different business units, many companies are turning to predictive analytics to gain a better and more comprehensive view of long, complex supply chain and distribution networks. There are many challenges in doing business with suppliers in unfamiliar markets, each with its own unique array of threats. Problem areas can include language barriers, unstable local politics, geographical issues and vastly different legal systems."

Bugalla and Narvaez mention predictive analytics, an activity than involves the collection and analysis of Big Data. They go on to make it clear that collecting data is important for more than simply predicting potential problems. They note, "Supplier risks are also becoming more challenging because of the inherent difficulty in achieving supply-chain visibility in a setting where suppliers are arranged in multiple tiers." Some would argue that supply chain visibility remains an achievable but unrealized vision. It's hard to do. It involves numerous kinds of systems, some of them incompatible, and a wide variety of data types. As a result, Bugalla and Narvaez report, "Many companies don’t have the ability or the will to map even their first-tier suppliers. That can leave them blind to risks buried deep in their supply chains and extremely vulnerable to a failure of a tier-two or tier-three supplier." They continue:

"Companies with successful risk management strategies use a variety of tools to manage specific threats to adverse supplier events, and collective action ... can be one of them. In addition, those that use data-driven tools are significantly more likely than those that do not to successfully manage their supplier risks. Of course, it’s important that there’s a process in place for proper aggregation of risk information throughout the organization. And that should be a process in which the use of advanced data tools enhances, rather than displaces, management’s judgment."

I agree with them. In my discussions about the value of cognitive computing systems, I've always reiterated that such advanced tools should be used to enhance human decision-makers' judgment not displace it (see, for example, my post entitled "Cognitive Computing and Human/Computer Interactions." Bugalla and Narvaez conclude:

"Advanced analytics and 'Big Data' are set to play as big a role in risk management as it has in other aspects of business management. The new, sophisticated, data-driven techniques will make ERM more efficient, freeing managers and executives to focus more on the task of rationalizing risk across the company. Data is a supporting element of a high-performance, cross-functional organization, but managers must integrate what the data’s saying into their companies’ workflow and culture for it to be effective. What if your company can’t invest in advanced analytics? Here are some basic risk practices that can be implemented to better control supplier risks in your organization:
"1) Assess the risk landscape. Use tiered risk assessments that establish the likelihood and impact of a risk event from suppliers. Develop risk mitigation strategies for each supplier tier and a risk governance model that establishes roles and responsibilities for executives and employees.
"2) Deploy comprehensive supplier reviews. Periodically review risk control practices of existing suppliers and a verification process to qualify new suppliers.
"3) Deploy risk metrics. Create Key Risk Indicators that you can use to alert your company to problems in the supply chain.
"4) Report on risks internally. Set up a process to monitor risks in your supply chain, collect the information about the risks and report on them.
"5) Improve continuously. Assess your risk monitoring and governance frequently and close gaps in those systems. "Company boards are expecting more proactive efforts in developing a holistic view of supply-chain risks. The presence of effective ERM programs can help assure those directors that disruptions are being kept to the barest minimum."

The bottom line is that risks to the supply chain are not decreasing they are increasing. That's why risk managers cannot afford to let complacency creep into their corporate culture. If it takes a name change, like enterprise risk management instead of supply chain risk management, then make the change. Risk management remains a critical process for businesses; especially, any business whose supply chain crosses one or more borders.

China recently announced that its goal for economic growth for the coming year is 7.5 percent. ["China sets 7.5% growth target," by Lucy Hornby, Tom Mitchell, and Simon Rabinovitch, Financial Times, 5 March 2014] That's a healthy number, but far below the double-digit growth that China experienced before the Great Recession. Hornby, Mitchell, and Rabinovitch indicate that China might be pressed even to meet this more modest number. China is not alone among emerging market countries in this slowdown; but, the slowdown starts with China. Ever since China emerged as an economic powerhouse, investors have been saying, "If China sneezes, the world catches a cold." China sneezes world catches cold


Last summer Joshua Goodman and Matthew Malinowski reported, "For years developing countries have been thrice blessed. First, near-zero interest rates in the U.S. drove investors into bourses from Mumbai to Mexico as they searched for higher returns. Next, China emerged as the trading partner of choice as it gobbled up Indonesian palm oil, Cambodian hardwoods, and Brazilian iron ore. Finally, with the exception of the Middle East, the politics of most emerging-market countries were stable. The blessings have run out." ["Why Emerging Markets Are Getting Crushed," Bloomberg BusinessWeek, 1 August 2013] They note that turmoil has once again returned to places like Egypt, Brazil, and Turkey. They go on to note that "China, India, Russia, Argentina, and Venezuela ... face the risk of civil unrest in the short to medium term. The middle classes spawned in these countries since 2000 are frustrated with corruption." Russian involvement in the unrest in Ukraine is also likely to result in economic consequences. Even so, China's economy is going to have the most significant impact on the global economy. Goodman and Malinowski write, "[The] slowdown in China [is] affecting exports, from coal to copper to potash." As Michael Pettis, a finance professor at Peking University’s Guanghua School of Management and a senior associate at the Carnegie Endowment for International Peace, states, "The potential costs and benefits of rebalancing the world’s second-largest economy are high and will affect industries not only domestically but also around the world." ["Winners and losers in China’s next decade," McKinsey Quarterly, June 2013]


Viktoria Sadlovska, Managing Director at Prameya Research, recently told the SupplyChainBrain staff, "Economic growth has recently slowed in the BRICS countries, causing concern among both global and domestic investors. In many industries, the time for reaping quick rewards from investment has passed. If companies want to continue succeeding in the BRICS markets, they need to increase their focus on creating competitive operational models, with a major emphasis on improving supply chain management." ["The Turning Point for the BRICS Supply Chains," SupplyChainBrain, 6 March 2014] The article explains:

"With the BRICS economic growth rate slowing in the past couple of years, attention has turned to the need for deeper reforms in these countries, which are necessary to ensure future development and prosperity. One of the areas that the BRICS countries need to pay special attention to is revamping their value chain management. First of all, there needs to be a shift from thinking about 'supply chain management', i.e., of how to deliver the right product to the right customer at the right time, to 'value chain management', i.e., how and where to position and use companies’ limited resources to create the most value for the customers. This includes taking a more strategic and all-encompassing look at supply chain management. Improving value chain management is where emerging market firms have an opportunity to differentiate themselves, especially considering tough infrastructure challenges in these countries that hinder their competitiveness."

Transnational corporations operating in emerging markets face the same challenges as local firms (e.g., lack of infrastructure) as well as having to overcome the fact that their products may not be as familiar to natives as local products. The biggest challenge, however, may be finding consumers if the economic slowdown causes the growth of the middle class to stagnate. Companies headquartered in developed nations don't enter the arena unarmed. First, the very fact that they come from a developed country makes them competitive. The Global Competitiveness Report 2013-2014 released last fall by the World Economic Forum reports that all of the ten most competitive countries are developed (Switzerland, Singapore, Finland, Germany, United States, Sweden, Hong Kong SAR, Netherlands, Japan, and United Kingdom). The report notes, "Some of the world’s largest emerging market economies must ... engage business, government and civil society to implement long-overdue reforms. Of the five BRICS, the People’s Republic of China (29th) continues to lead the group, followed by South Africa (53rd), Brazil (56th) India (60th) and Russia (64th). Among the BRICS, only Russia improves its ranking, climbing three places, while Brazil drops eight places."

 

Another advantage that many companies from developed countries enjoy over their emerging market counterparts is access to Big Data analytics. Joey Carnes, CEO of MIQ Logistics, told the SupplyChainBrain staff "that changing demographics, especially the aging of global populations, will have a profound impact on consumer-driven supply chains in the next five to 15 years and needs to be given greater weight in supply chain models." ["Demographics: Not Just for Marketers Anymore," SupplyChainBrain, 12 December 2012] Big Data analytics can provide actionable insights that not only help manufacturers and retailers better target consumers, but let them know what kinds of products are likely to be needed/desired now and in the future. “People in the supply chain spend a lot of sleepless nights on contingency planning for disruptions and disasters that may occur over the next one to two years,” Carnes told the staff. “I think the bigger question is what the consumer will look like in the next five to 10 years. That needs to be figured into supply chain modeling as well.”

 

One consumer segment that is often overlooked is the so-called "bottom of the pyramid" (BoP). This consumer segment includes people who remain firmly in poverty's grasp and aren't likely to move into the global middle class anytime soon. Studies have shown that even though individuals in this group don't have a lot of money, as a segment they represent a reasonably-sized market. Selling to them, however, requires a different skill set, different logistics model, and different products (especially when it comes to product size). This group is predicted to become much more engaged in the global economy in the years ahead as mobile technologies continue to penetrate their ranks and mobile financial services become available to them. Anurag Agrawal, CEO of Intellecap, writes, "Systemic efforts have been made to capture the financial records and credit history of these customers in credit bureaus, and hopefully over time we can use emerging concepts like Big Data, psychometric profiling etc. to analyze and assess their true credit-worthiness. I am hopeful that the next stage of financial innovation will be able to bring the incremental cost of dealing with the poor close to zero so that they are also able to access the full bouquet of financial services at an affordable cost." ["Cost vs. Tech: Will innovation make it affordable to transact with the BoP?" Next Billion, 7 October 2013]

 

There is a lot for companies to think about as they try to establish themselves in emerging market countries. Despite the current economic slowdown, global economic growth depends on the continued rise of a global middle class; and, China's middle class may be the most important group of all.

Over the past several years, the subject of supply chain collaboration has garnered increased attention. Leonie Barrie reports that last fall participants at a supply chain conference heard that issue stressed throughout the event. They were told, "Efforts to increase supply chain transparency should include closer collaboration and partnerships with suppliers." ["Viewpoint: Collaboration key to tackling supply chain issues," just-style, 17 October 2013] Collaboration implies a lot more than simply sharing information; but, that is usually the starting part. The reason that information sharing is the starting point is because the first thing that most companies desire is more transparency and better visibility in their supply chains. Supply chain analyst Lora Cecere insists that visibility should be obtained from a supplier's supplier to a customer's customer; but, sharing information isn't easy. Different proprietary systems are often involved and data can be stored and displayed in different ways. Safely and securely integrating all of this information, then sharing appropriate parts of that information up and down the supply chain, quickly becomes extremely complex. Supply Chain Collaboration

 

Then there is the issue of trust. For a good discussion of collaboration and trust, read Trevor Miles' article entitled "Do you trust yourself to collaborate? The real barrier to collaboration is not technology, but trust." Collaboration, obviously, is a two-way street. That means that information must flow in both directions. When that happens, both parties must feel comfortable that shared information will be handled properly. The issue of trust is made more complex when groups outside of the supply chain (such as NGOs and competitors) are required to collaborate to address a serious issue that is bigger than any one company. For example, Barrie indicates that one of the reasons that collaboration was raised at the conference she covered was the collapse of the Rana Plaza factory building earlier in the year. As a result of that tragedy, more than 1,100 people lost their lives. The factory was making clothing for more than one brand. In other words, there are two kinds of collaboration: the first to improve supply chain efficiency and effectiveness and the second to address larger systemic problems. Each type of collaboration requires a different kind of information to be shared and for different reasons.

 

During an interview with Dustin Mattison, Michael Gunther, founder and managing partner of Collaboration, LLC, addressed the first type of collaboration. He stated, "Collaboration in business has been a buzz word that has come out the last few years. The big push started after the dot.com boom, where many high tech companies realized they didn’t have to be knowledgeable in every area and that they could rely on other people in the supply chain providing other technology. This would help make a better product or to better service their clients. ... In today’s economic times and in this competitive marketplace it is invaluable to be able to collaborate. Collaboration provides innovation, efficiency, and productivity. Organizations that don’t allow for collaboration are not participating and will lose in the long run." ["What it means to collaborate in business," Supply Chain Expert Community, 12 August 2011] Gunther then went on to note that collaboration has moved beyond individual corporate supply chains. He stated:

"That movement has now moved into all areas of business. People realize the benefit of collaborating, even with their competitors. They realize that by bringing competitors in on a piece of a project you are able to service your client better. Sometimes a project may be outside your scope and you know someone in your industry who does it better. Being able to collaborate with someone is a huge thing because the clients will always see you as that resource. Working together and collaborating can be both internal in organizations or external working with various suppliers within the supply chain."

The following video, prepared by Sedex, explains why both types of collaboration can be beneficial for a company, although it does focus more on collaboration to address larger systemic challenges involving supply chain sustainability.

 

 

Sree Hameed, a Vice President at ChainLink Research, insists, "We are moving from siloed enterprises to federations of partnerships and communities of ideas that think and execute in streams – not rigid processes." ["From Silos to Streams – Collaboration & Integration Means Connection," SupplyChainBrain, 27 February 2013] Hameed, however, is talking about technologies "such as video conferencing, enterprise social network, shareware supporting asynchronous communications." These are mostly person-to-person collaborative technologies. The problem gets trickier when machine-to-machine collaboration enters the picture or when certain data needs to be made available to specific people in particular circumstances. Brian Bolam, president and founder of OmPrompt and chairman of ELUPEG, the organisation which focuses on developing logistics collaboration, asserts, "Collaboration can take 25-30 per cent of the cost out of the supply chain in some cases, plus it can boost sustainability which is now a pre-requisite, particularly from a consumer perspective." ["Dangerous to ignore it," by Lucy Tesseras, Supply Chain Standard, 1 October 2011] Tesseras notes, "A fundamental requirement of collaboration is sharing information, and while companies don't necessarily have to be linked on the same system, any system that makes it hard to integrate partners into information systems or networks could cause an obstruction to true collaboration. ... It is this sharing of information that often prohibits companies from investigating collaboration further as many see it as a potential risk, particularly when it comes to collaborating with competitors." That's the rub. To state the obvious, guaranteeing that the right type of information is available only to an authorized user of that information can be a challenge.

 

"There are many obstacles to information sharing in a supply chain," writes Daniel Dumke. "Confidentiality is probably one of the biggest issues, but there are others not so obvious like antitrust regulations, the timeliness and accuracy of the provided information, differing technologies between the supply chain partners or a mismatch in the alignment of incentives. Therefore trust and cooperation become critical ingredients in a supply chain partnership." ["Information Sharing in Supply Chains," Supply Chain Risk Management, 7 March 2011] Whitney Johnson, co-founder of Rose Park Advisors, Clayton Christensen's investment firm, adds, "Most of the really important stuff we want to get done professionally and personally requires we enter into the risky business of collaboration. While barriers to collaboration are manifold, the underlying deterrent is lack of trust." ["Collaboration Is Risky. Now, Get on with It." Harvard Business Review Blog Network, 7 June 2011] To address that challenge, my company Enterra Solutions® offers a secure information sharing (SIS) system that automates rules management capabilities to monitor data source policies, apply automated situational awareness, and offer an attribute-based access control (ABAC) model to coordinate secure data sharing across networks. Because companies remain in complete control of their information (and decide who gets what information and when), trust becomes a much easier challenge with which to deal. We like the ABAC approach because it systemically addresses most of the concerns involving information sharing.

 

Even though collaboration is difficult and risky, most analysts agree that a company is better off when it collaborates. By implementing the right kinds of technologies and policies, a lot of risk can be reduced and trust in the process increased.

Digital path to purchase 05"Growth has slowed. Complexity has increased. At least this is the story for consumer packaged goods (CPG) companies in North America," writes Lora Cecere. "The complexity of changing product portfolios and the increase in demand-shaping programs (price and promotion) have distorted demand signals and made supply chain planning more complex." ["Digital Path to Purchase: An Outside-In Opportunity," Supply Chain Shaman, 12 February 2014] The digital path to purchase has certainly added to the complexity to which Cecere refers. Traditionally, marketers depicted the path to purchase as a funnel into which consumers entered at the top and purchasers emerged from the bottom. With the advent of online and mobile technologies, that funnel now has holes and consumers leak out of it all over the place. In fact, most analysts argue that the funnel is no longer an apt analogy. The "purchase path" has replaced the "purchase funnel." I'm not sure who coined the term "digital path to purchase" but they made the right choice by selecting the word "path" rather than "street" or "highway" or "road." When you hear word "path," it conjures up scenes of lavish gardens garden, thick woodlands, or overgrown jungles. Explorers in such places must meander over the landscape as they advance towards their destination. Some paths are hard to discern and it's easy for travelers to get lost. The same is true with the digital path to purchase. Fortunately, if consumers leave the path or get lost, it's also easy for them to jump back on the path at any point in their journey. The ease with which consumers can "get on" and "get off" the digital path to purchase is one reason that demand signals have become distorted.

 

As messy and complex as the digital path to purchase can be, businesses now recognize that implementing a digital strategy is an imperative for success. Cecere reports, "Today, 63% of consumer manufacturing organizations have a digital path to purchase initiative." McKinsey & Company analysts, Nicolo Galante, Eric Hazan, and Pierre Pont, assert, "Marketers have long recognized that a purchase is far more than a solitary event when the actual financial transaction between shopper and retailer takes place. This is just one point along the very nuanced consumer decision journey (CDJ). Each stage of the journey might be experienced in a matter of moments or could take years to complete." ["The multichannel journey: Profitably shaping the path to purchase," Telecom, Media, & High Tech Extranet, 20 November 2013 (registration required)] They go on to claim that "regardless of the duration, the journey usually spans five phases." Those phases are: consideration, evaluation, purchase, experience, and loyalty. They agree that the digital path to purchase has added significant complexity to the consumer decision journey. "Outside of the retail store," they write, "consumer-brand interaction along the CDJ was once limited to a catalog and an 800 number. Today, multiple channels make up the end-to-end shopping journey." Each of those channels must provide the consumer with a unique and integrated experience if they are to going to stay on the path to purchase. In some way or another, digital technologies are involved in every channel.

 

Hazan and two other McKinsey analysts, Ewan Duncan and Kevin Roche, conclude from their research that there are "six major ongoing consumer trends that are further compelling this shift to digital." ["Digital disruption: Evolving usage and the new value chain," Telecom, Media, & High Tech Extranet, 14 August 2013 (registration required)] They label each of these trends a "shift" and they include: device shift; communications shift; content shift; social shift; video shift; and retail shift. Concerning device shift they write:

"Device shift - from PCs to mobile/touch devices. Smartphones are fast becoming ubiquitous, with penetration of about 60 percent in the US. Just over 30 percent of US Internet-equipped households now have a tablet as well, and the rest of the developed world is close behind. Mobile phones and tablets now account for around 44 percent of all personal computing time, having nearly doubled since 2008. Most device manufacturers and their major retail partners are already experiencing the implications of this shift."

Nearly every article you read about the future of retailing contains something about the importance of mobile technologies. In fact, many (if not most) analysts believe that mobile technology must be at the heart of any digital strategy if retailers expect the strategy to be successful. Concerning the communications shift, Duncan, Hazan, and Roche write:

"Communications shift - from voice to data and video. E-mail and telephonic voice have fallen from over 80 percent to about 60 percent of the telecoms 'communications portfolio,' while time spent on social networks has doubled to take over a quarter of all user communications time. And when consumers do use their phones, only about 20 percent of the time is for talking (down from over 60 percent just five years ago). The majority is used for more data-centric activities such as streaming music, browsing Web sites, and playing games."

These first two shifts — device and communications — highlight what some analysts have called the "Tetherless World." For more on this phenomenon, read by post entitled "Taking Advantage of the Tetherless World." Concerning content shift, the analysts write:

"Content shift - from bundled to fragmented. Thanks primarily to powerful search tools, the 'long tail' of media and content (whether text, video, classifieds, products for sale, etc.) is accessible to anyone. Thus, some of the value in traditional 'bundles' (newspapers, network TV stations, or big-box retailers) has been eroded. The way mobile phones are used illustrates this well. The number of apps installed (typically for a specific, single purpose) has doubled to over 30 per phone from 2008 to 2012. Spending on these apps is, however, highly fragmented, and growth potential remains very uncertain. Challenges abound for both content owners and marketers in reaching and engaging audiences that access such eclectic, fragmented media."

Although Duncan, Hazan, and Roche are talking about "content" on mobile devices (e.g., apps), the fact of the matter is that "content" in the broader sense of that word is becoming even more critical in the mobile age. Ryan Donegan, who is a member of the important consumer demographic known as Millennials, writes, "Don't insult our intelligence. ... We're quite possibly the most informed consumer generation ever to face marketing professionals. You can bet that, before we've made any major purchase, we will have researched it, asked our friends about it on social channels, and searched your reviews online." ["5 Tips for Marketing to Millennials From a Millennial," Huffington Post The Blog, 7 October 2014] The bottom line is: content matters. Concerning social shift, the McKinsey analysts write:

"Social shift - from growth to monetization. Social networking represents almost a quarter of all Internet time (up 10 percentage points since 2008) and reaches over 75 percent of all Internet users. Yet for the first time, we have seen small declines in both total audience and levels of engagement in developed economies. This is a remarkably fast climb to maturity, given that major players like Facebook, LinkedIn, and Twitter have yet to celebrate their tenth birthdays. Facebook and LinkedIn now face the quarterly earning pressures of the public markets as well. At the same time, businesses of all shapes and sizes are actively trying to use social media as part of their marketing efforts. Achieving real and measurable returns on these efforts will be a continuing challenge for players across the TMT spectrum."

Even if social networking sites never challenge Amazon as an online retailer, they remain critical touch points in the consumer digital path to purchase. They are also a good way for manufacturers and retailers to relate in a more personal way with consumers. Manufacturers and retailers that ignore social media do so at their peril. Concerning video shift, the analysts write:

"Video shift - from programmed to user-driven. Traditional live, linear television consumption remains relatively flat on an absolute basis, but has slipped on a relative basis. It now represents just 65 percent of all video viewing for US consumers on their television screens and 52 percent across all screens. Time-shifted DVR content - watching video on PCs and over-the-top Internet video services such as Netflix - makes up much of the balance. The increase in all varieties of time-, place-, and device-shifting video options will continue to pressure traditional advertising-supported business models for distributors, advertisers, and content owners in the value chain."

If you don't think that video matters, you haven't been paying attention. The big challenge for companies is to figure out how to use videos to their advantage — not simply by providing good content but also by learning how to analyze video content provided by consumers. Concerning the final "shift" — the retail shift — the analysts write:

"Retail shift - from channel to experience. Despite its tremendous growth and transformation of the retail landscape, e-commerce only accounts for about 5 percent of all retail sales. As connected mobile devices proliferate, their potential to transform the shopping experience (both in the store and online) is the next opportunity. About half of all smartphone owners now use their devices for retail research - and although only few today, significantly more consumers will soon be using smartphones and tablets to complete their transaction as well. The combination of mobile retail and true multichannel integration will have a transformative effect on the retail experience and ring in the era of Retail 3.0."

Although e-commerce still represents only a small percentage of retail sales, the impact that e-commerce has had on retail has been enormous. For more on that topic, read my post entitled "Retail Stores and the Digital Path to Purchase." The digital path to purchase will only become more important in the years ahead. Manufacturers and retailers that embrace rather than fight this trend will be the ones that survive and thrive.

The data breach involving the giant retailer Target has been all over the news for weeks. There was lots of speculation about how the massive breach occurred, but it was eventually confirmed that "the hackers first entered its network through a vendor, though [Target] hasn't said which one." ["Target Warned of Vulnerabilities Before Data Breach," by Danny Yadron, Paul Ziobro, and Devlin Barrett, Wall Street Journal, 14 February 2014] The Journal reporters indicate that the offending vendor was a Pennsylvania refrigeration contractor named Fazio Mechanical Services. Fazio confirmed that it was breached. The reporters continue:

"Fazio said it had a data connection with Target for electronic billing, contract submission and project management, and that Target was its only customer for which it handled those matters on a remote basis. After entering through that connection, the hackers then moved laterally through Target's system, eventually accessing the system that handled payments at the company's cash registers."

Many companies are finding that business risks are increasingly coming from cyber-attacks against vendors rather than direct attacks on the company itself. But cyber-attacks aren't the only risks that make the supply chain a source of vulnerability. Allianz, a global insurer, reports, "Insurers are starting to pay much more attention to supply chain when underwriting industrial risks." ["Supply Chain Heads List of Increasingly Connected Corporate Risks," SupplyChainBrain, 14 February 2014] The article continues:

Supply Chain Weak Link"Business interruption and supply chain risks remain atop a list of the major hazards drawing companies' attention this year, according to the recently released Allianz Risk Barometer, a survey of some 400 of the firm's corporate insurance experts from more than 30 countries. ... Natural disasters like floods and earthquakes are next on the peril list, followed by fire or explosion and regulatory changes, all of which hold the same rankings they did in 2013, according to the January report. Allianz, however, sees a rise in 'interconnected risks' and calls on companies to bolster internal processes and take a holistic approach to fight potentially systemic effects from an 'evolving risk landscape.' Market stagnation or decline rose to fifth and loss of reputation or brand value climbed to sixth on the risk list, outpacing notable but declining concerns over intensified competition. Two new risks appear on the list — technology failures and cybercrimes and espionage at Number 8, and theft, fraud and corruption at Number 9 — while worries over product defects declined to 10th highest concern. This will be a critical year for companies in dealing with emerging risks, 'with businesses around the world increasingly challenged by a combination of new technological, economic and regulatory related risks. These perils are also often interlinked, potentially creating a systemic threat for risk managers,' the report says."

Steve Durbin notes, "Supply chains are the backbone of today’s global economy. Their complexity and vital role have businesses increasingly concerned about managing major disruptions." ["Risk management: is your supply chain a weak link?" Financial Times, 20 February 2014] James R. Hagerty adds, "Here’s the latest advice for supply-chain managers: Sweat the small stuff." ["Factories Look for Supply-Chain Risks in All the Wrong Places," Wall Street Journal, 18 December 2013] What Hagerty means is that it is not always your biggest supplier or most important vendor that can create the biggest problems. He reports that when MIT Professor David Simchi-Levi, an academic who is well-known by supply chain professionals, analyzed Ford Motor Company's supply chain, he found "that some of the lowest-cost items, from minor suppliers, can cause the biggest and costliest disruptions." Surely Target didn't think that a refrigeration contractor would be the source of major consumer and legal troubles. Hagerty continues:

"Once companies find the tiny suppliers that pose outsize risks, Dr. Simchi-Levi says, they may need to line up alternative suppliers, keep more inventory or redesign products to reduce the risk of disruption. In some cases, he says, the manufacturer may need to give a supplier more business so it can afford to build a second plant in another region, providing a backup plan in case of disaster."

Or, as in the case of Target, they need to find a way to make connected activities more secure. Yadron, Ziobro, and Barrett, report that Target "has since moved to isolate its different platforms and networks to make it harder for a hacker to move between them, a Target executive said." When searching for potential supply chain risks, the net needs to be thrown wide. A report sponsored by the Zurich Insurance Group (Zurich) and conducted by the Business Continuity Institute (BCI) concluded that disruptions caused by outsourcers are on the rise. The report "highlights the lack of visibility businesses have of their supply chain and the potential disruption that could occur as a result." ["Outsourcers as top three cause of supply chain disruption," Zurich News Release, 6 November 2013] In the news release, Lyndon Bird, Technical Director at the BCI, commented: "This lack of visibility demonstrates just why it is important for businesses to start managing their supply chain more effectively. The supply chain can be complex and is only as strong as its weakest link so with more than four tenths of disruptions occurring below the tier one supplier, businesses must ensure that all those down the chain have systems in place to deal with disruptions. Business continuity plans should be used as an incentive for winning/awarding contracts.”

 

Durbin notes that some aspects of risk will always be outside of a company's control. This is especially true when it comes to risks associated with the global supply chain. He writes, "It is one of the most collaborative environments in your organisation, thus it inherently poses greater risks to the confidentiality, integrity and availability of corporate information. Mapping the flow of information and keeping an eye on key access points in order to continuously manage information security risks is an essential part of building a more resilient business." Concerning the kind of breach that affected Target, Durbin concludes:

"Do you know if your suppliers are protecting your company’s sensitive information as diligently as you would protect it yourself? This is one duty you can’t simply outsource – it’s your liability. By considering the nature of your supply chains, determining what information is shared, and assessing the probability and impact of potential breaches, you can balance information risk management efforts across your enterprise. Organisations of all sizes need to think about the consequences of a supplier providing accidental, but harmful, access to their corporate information. Information shared in the supply chain can include intellectual property, customer or employee data, commercial plans or negotiations, and logistics. Caution should not be confined to manufacturing or distribution partners. It should also embrace your professional services suppliers (e.g., lawyers and accountants) all of whom share access, often to your most valuable data assets. To address information risk in the supply chain, organisations should adopt robust, scalable and repeatable processes – obtaining assurance proportionate to the risk faced. Supply chain information risk management should be embedded within existing procurement and vendor management processes, so supply chain information risk management becomes part of regular business operations."

An old adage states, "When the rain starts falling, it's too late to build an ark." Target learned that lesson the hard way. "Even the smallest supplier, or the slightest supply chain hiccup," writes Durbin, "can have dangerous impacts on your business. Brand management and brand reputation are subject to the successful security of your supply chain and thus both are constantly at stake."

 

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"If current growth patterns continue," writes Doug Austin, Senior Vice President of Growth & Innovation, "'extra mouths to feed' will be an understatement in 2053, when our planet’s population is predicted to jump by 2 billion people. That’s going to be a big challenge for the food industry, and everyone from farmers to distributors to restaurant owners are asking the question, 'What does this mean for us?'" ["The Future of Our Food," Progressive Grocer, 14 October 2013] A lot has been written about the coming challenge of how the agricultural sector is going to feed the world. The good news is that many experts believe that we can raise enough food to feed the world. For example, Jeremy Oppenheim, a director of McKinsey & Company, and Tristram Stuart, a British author and campaigner against food waste, assert, "The earth is capable of feeding everyone." ["Food for All," Project Syndicate, 13 November 2013] The bad news is that the food that is raised may not reach the people who need it. Oppenheim and Stuart write, "Failing to address problems affecting supply and demand amounts to grotesque mismanagement." More attention needs to be given to how harvested crops travel from farm to fork. If the food security challenge is going to be met, the food supply chain is going to play a significant role.

 

padlock clear 02.pngKarsten Horn, director of international sales for the inventory and supply chain division of INFORM, writes, "It is expected that 70 percent more food will be needed to feed the world within the next 40 years, as the world’s population continues to increase, purchasing behaviour evolves, and consumers demand a wider range of food products. This rise in consumption will place even more importance on global supply chains." ["Supply chains may go hungry," Business Review Europe, 19 March 2013] Oppenheim and Stuart obviously dispute that "70 percent more" food will be needed. They believe more of the food already grown needs to get to the right people. They note, "An estimated one-third of global food production is wasted." They would agree with Horn, however, that changes in consumption patterns are going to have a major impact on food security in the future. There is a difference between desired and required foods. They probably all agree that changes in the food supply are required if the world is going to be adequately fed. "I believe," writes Horn, "many organisations are not equipped to ensure efficient supply amid the challenges that lie ahead within the food market. For example, the pressure on the supply chain means that some businesses struggle to fulfil their customers' requirements. In these cases a customer is likely to turn to the nearest competitor who can sell them the item immediately. The threat of not being able to meet food demand is therefore a growing concern within the supply chain."

 

Lest you think that pundits are trying to lay the responsibility for food security totally at the feet of supply chain professionals, Oppenheim and Stuart note, "This focus on the supply side misses half the problem." The demand (i.e., consumption) side of the problem constitutes the other half. Ambassador Ertharin Cousin, Jose Graziano da Silva, and Dr. Kanayo F. Nwanze, add, “No single activity on its own is likely to build resilience, yet together and if taken to relevant scale, each can contribute to improved resilience overall.” ["Principles and Practice for Resilience, Food Security and Nutrition," Huffington Post The Blog, 25 January 2013] Back in 2011, Steve Banker related how Fonterra, a leading multinational dairy company owned by 13,000 New Zealand dairy farmers and the world’s largest exporter of dairy products, uses Big Data analytics to help it make product selections and reduce waste. ["The Farm-to-Fork Supply Chain," Logistics Viewpoints, 29 August 2011] He reported:

"This process is complicated because as a cooperative Fonterra is contractually obligated to take all of the milk its farmers produce. The company cannot cut production to balance to demand. Fonterra forecasts how much milk it will produce based on where it rains, using GIS (global information systems) and satellite maps to determine the latter. The more it rains, the more grass will grow, the more milk cows will produce. Once it has forecast the supply, the company turns fresh milk into inventory by figuring out how much cheese and powdered milk it can profitably sell over a multi-year period. Having the supply/demand plans in place allows Fonterra to optimally move the milk to the correct production facilities."

This same kind of analysis would greatly improve the global food supply chain. It would help farmers, distributors, and manufacturers determine which products should shipped fresh and which ones should be processed for longer term use. There are other efficiency efforts that can be made. Gurjit Degun reports, "A report by the WEF, in collaboration with Bain & Company, said that supply chain inefficiency contributes 'significantly' to the 1.3 billion tons of lost food each year." Although food quality remains a major global concern, the report entitled "Enabling Trade: From Valuation to Action," claims that "overly strict product standards" is one reason that perfectly edible food is wasted. Fortunately, there are some positive changes being made in some countries. Oppenheim and Stuart report, "The public is more willing to forgo cosmetic perfection: 'ugly' fruit and vegetables are the fastest-growing sector of the UK’s fresh-produce market, last year [2012] saving 300,000 tons of produce that would otherwise have been wasted for being the wrong shape or size." The WEF report also claims that "poor transportation infrastructure, border delays, and poor business climates are the main supply chain barriers for agriculture." According to Degun, "The report said improvements in the supply chain can increase flexibility and cut losses. It added that better border management can 'dramatically improve' supply chain efficiency." You might recall how a shipment of Chobani yogurt intended for consumption by U.S. athletes at the Sochi Winter Olympic Games never reached them as a result of difficulties with Russian customs officials. If high profile shipments like Chobani's experience difficulty, you can imagine the difficulties faced by normal food shipments.

 

One source of waste in the supply chain that gets little attention is packaging. According to one source, "Excess packaging ... could cause food to expire before it is ever eaten." ["Food packaging costs could impact supply chain," The Strategic Sourceror, 11 January 2013] On the other hand, the article reports that packaging could also contribute to the solution. "The latest trends in flexibles and rigids would be in active and intelligent packaging with sustainability focus," said C.S. Purushothaman, chair professor and director at SIES School of Packaging. "Some of them are in flexible edible films, life extending packs with embedded nano materials, oxygen and ethylene oxide scavengers as packaging components. In rigids there may not be so much push as sustainability is the word of the day. Hence keeping the 3 Rs (Reduce, Reuse, Recycle) in mind, flexibles will be preferred."

 

The challenges faced by the food supply chain vary greatly depending on location. In the developed world, infrastructure isn't generally the biggest problem (unless you are trying to deliver truckloads of food through the narrow streets of a major city). On the other hand, infrastructure is a huge problem in many developing nations. Degun reports, "Almost 95 per cent of food loss and waste stems from supply chain inefficiencies in poorer countries." Those inefficiencies include poor roads, lack of adequate warehousing, and so forth. If those infrastructure shortcomings remain unaddressed, food security in those and neighboring regions is much less tenable. Oppenheim and Stuart contend that "in very poor countries and regions, where people cannot afford to buy food on world markets, the supply side should not be neglected. Boosting yields of locally grown staple foods (rather than cash crops) would increase self-sufficiency and strengthen resilience when international food prices are high." Consuming food locally dramatically reduces spoilage and waste. This is true in both developed and developing countries. Austin reports, "We’re approaching a future where stores like Kroger, Safeway and Walmart might even own their own farms."

 

I agree with Cousin, da Silva, and Nwanze that "no single activity on its own is likely to build resilience." All stakeholders (i.e., farmers, distributors, transporters, manufacturers, retailers, governments, and consumers) have a role to play. Small changes in by each stakeholder will have a synergistic effect in making the food supply chain more resilient.

You don't have to be involved in the retail business to know that online shopping and mobile devices have changed the retail store landscape forever. Shelly Banjo and Drew Fitzgerald report, "E-commerce not only siphons off sales, but changes shopping habits." ["Stores Confront New World of Reduced Shopper Traffic," Wall Street Journal, 16 January 2014] They explain:

Digital path to purchase 02"A long-term change in shopper habits has reduced store traffic — perhaps permanently — and shifted pricing power away from malls and big-box retailers. Consumers' rush to e-commerce is a challenge that brick-and-mortar retailers have wrestled with for years. Across a number of retailers, their defensive strategies don't seem to be panning out. Best Buy, for example, overhauled its store layouts and marketing in the past year, even inviting shoppers to 'showroom' the electronics retailer — co-opting the term for people who try out products in stores and then buy them for less online."

Despite the negative trend, writing the eulogy for brick-and-mortar stores would be premature. As I pointed out in a previous post, "Many consumers use a hybrid approach to shopping (that is, they mix and match online shopping and research with in-store experiences). According to IPSOS MEDIACT and Google research, '44% research online and buy products online'; '51% research online and visit the store to purchase'; and '32% research online, visit the store to view the product, and buy it online.' Each of those journeys is part of the digital path to purchase experience." Jon Thomas believes that the best hope for traditional retailers is to stop fighting the digital path to purchase and learn how to embrace it. "Traditional brick-and-mortars," he writes, "have been too slow to adapt to the changing ways in which consumers shop, providing anxiety-ridden, confusing and often unsatisfying shopping experiences. But I don’t think it signals the end of brick-and-mortar retail. Actually, digital might just be its savior." ["Can Digital Save Retail?" Post Advertising, 17 July 2013] Thomas recommends listening to "Mitch Joel’s 'Six Pixels of Separation' podcast in which he interviews Doug Stephens, founder of Retail Prophet and author of The Retail Revival, about the future of retail. In case you didn’t hear it, take a listen here. It’s fascinating." Thomas continues:

"In the episode Stephens and Joel discussed shopper marketing, how mobile has changed retail, Amazon’s effect on retail, and lot more. But toward the end of the interview, Stephens hit on a point that had me saying 'Yes! Yes!' ... [That point was:] It's not about price! Most of the discussion about why online retailers, led by Amazon, are putting many brick-and-mortars out of business revolves around price. With lower overhead costs, it makes sense that online retailers can always beat a brick-and-mortar on price, and for certain items, that may be true. But that isn’t always the case. A study conducted last summer by Kanar Retail, a London-based research firm, found that on average Amazon’s prices are 20 percent higher than Wal-Mart’s in-store prices. Not only that, but Target is cheaper than Wal-Mart, and Best Buy’s prices are only marginally (about 4 percent) higher on average (though you don’t have to wait for shipping, so often it is a wash). Best Buy has also instituted its 'Low Price Guarantee,' which will match prices both from other brick-and-mortars as well as online retailers, including Amazon.com and Apple.com. Target has done the same as well."

If price isn't the big differentiator between brick-and-mortar and online retailers, what is? Thomas' answer is "information." He writes, "Take note, brick-and-mortars. Consumers are most often going online to make their purchases because that’s where the information is." During his interview with Joel, Stephens asserts that one reason that consumers still like brick-and-mortar stores is that they provide them with context. He believes that as brick-and-mortar stores implement a digital strategy, they should do their best to keep the in-store experience (i.e., the context) part of the virtual experience. Stephens believes that whatever hunter/gatherer DNA remains in our genes almost compels us to go shopping in a physical environment. That's why he believes that brick-and-mortar stores will survive, but not in the format in which they exist today. He believes that the brick-and-mortar stores that survive the current disruption in retail will be better, stronger, and more inviting for consumers. They will either sell something unique (i.e., something that can't be purchased elsewhere) or, if they sell items that can be bought elsewhere, will differentiate themselves so completely that comparisons won't be made. I agree with Thomas that you should listen to the entire podcast.

 

Because implementing a good digital strategy is going to be an imperative for survival in the retail sector, more and more businesses are probably going to hire a Chief Digital Officer. "The Chief Digital Officer will prove to be the most exciting strategic role in the decade ahead," predicts Gartner VP David Willis. "The Chief Digital Officer plays in the place where the enterprise meets the customer, where the revenue is generated, and the mission accomplished. They’re in charge of digital business strategy." ["A CMO, a CIO, and a chief digital officer walk into a bar…," by Scott Brinker, Chief Marketing Technologist Blog, 24 March 2013] As a marketing technologist, Brinker openly wonders what the rise of the CDO is going to mean for the CMO. He wonders if the CMO is going to be demoted to "overseeing the sundowning of traditional marketing channels to a winnowing number of non-digital customers" or "doing branding — not the modern kind of brand-as-experience, but old school logos and taglines validated by focus groups" or "handling 'PR' — not the modern kind of everything-social-is-PR (and pretty much everything is social), but old school news releases and press conferences?" He continues:

"I’m exaggerating to make a point, but in a C-suite that has a strong CDO and a digitally inexperienced CMO, that may not be too far off the mark. The CMO might start to feel like that poor wretch in Office Space who keeps having his desk moved to smaller cubicles in darker corners of the building. Next to go is his stapler. What is marketing's purpose if not to understand and connect with the customer? I fully appreciate that understanding and connecting with modern customers is more complex than ever and requires enormous changes to what we've called 'marketing' in the past. I sympathize with more traditional marketing leaders who have had a veritable tidal wave of changes crash upon them with a velocity that is nothing short of dizzying. This is an epic challenge. But that doesn't change marketing's responsibility. If you carve out all things digital from marketing — in a world that is asymptotically approaching all things being digital — and give it to a CDO who's independent of the CMO, then the CMO has lost that responsibility. And with great responsibility goes great power."

Brinker's comments have larger implications. It's not just the CMO who is going to have to change if he/she is going to survive the entire retail sector is going to have to change. In his interview with Stephens, Joel described how new shopping centers are being built more like circular town centers that encourage people to linger and mingle. Designers of such complexes recognize that humans are fundamentally social creatures and will seek social experiences that fulfill an innate desire to be with others. At the same time, the new complexes are incorporating the latest digital technologies to serve up information along with experiences that will make them more competitive with online retailers.

Segmentation clearBack in 2000, Mel Gibson and Helen Hunt starred in a movie entitled "What Women Want." The movie was about a chauvinistic advertising executive (Mel Gibson) who, following an accident involving a hairdryer and a bathtub, gains the ability to hear what women are really thinking. This new-found ability makes him better equipped to create marketing campaigns for women. In a way, "What Women Want" is a movie about segmentation — in the case of the movie, gender segmentation. If Gibson's character learned one thing, it should have been that no two women are same when it comes to their lifestyles, tastes, or preferences. Gender is normally too large of category to be of much use in targeted marketing. It falls in the "spray and pray" category. What defines appropriate segmentation depends upon the economic sector in which a business operates. For example, Eric Hazan, Pierre Pont, and Kevin Roche indicate that in the telecom sector, "both usage diversity and polarization necessitate a more nuanced approach to understanding mobile users for successful marketing, product development, service operations, and other key business functions." ["Smart segmentation: Rethinking offerings based on better granularity," Telecom, Media, & High Tech Extranet, 17 July 2013 (registration required)] They discuss non-traditional segments like: traditionalists, practicals, entertainers, and omnivores. In the grocery sector, MyWebGrocer and FGI Research claim there are "five distinct shopper types": Reluctant shoppers, traditional grocery enthusiasts; new digital shoppers; passionate planners; and affluent online shoppers. ["Digital Grocery Shoppers Comprised of 5 Distinct Groups," Progressive Grocer, 28 May 2013] You'll notice that neither the telecom nor the grocery segments mentioned anything about traditional categories, like gender, age, income, or location. "Targeted marketing used to be a case of dividing a contact database along generic criteria such as age, gender, job role or location," writes Sylvia Jensen. "With a 'best guess' approach, marketers could bombard their leads with product information that may result in a sale." ["Forget Demographics: How to Target Marketing in 2014," B2C, 27 January 2014] Jensen insists those days are now past. She explains:

"The internet has radically changed the landscape, however, with customers self-educating before reaching out to a brand. This means that marketers now need to reach potential customers during the research phase of the sales process. Most importantly, the information supplied by marketers must be:
  • Relevant to the individual buyer and their needs.
  • Personalised wherever possible.
  • Designed to foster a relationship between the customer and your brand."

Amit Deshpande agrees that marketing is entering a new era and that "segmentation can now unearth greater customer insight." ["Get Insight That's Actionable," Direct Marketing News, 1 March 2013] Jensen proposes five steps to create an effective targeted marketing effort: "Clean your existing contact data set and augment as necessary; carefully analyse your data for new opportunities and insights; map out the customer journey and personas; create content targeted at each of your personas and segments; and implement automation to improve the experience for your customers and the returns on your marketing investment." Concerning the first step — cleaning your data — she writes:

"If your customer database is full of outdated contact information, any campaign it is based on will always fail to recognise its full potential. It is impossible to target leads properly when the information by which you segment them is incorrect. The first step to improving your marketing for the New Year is to:
  • Delete data that is known to be 'dirty' or outdated.
  • Update records that are incomplete.
  • Consider purchasing a targeted mailing list to provide a fresh dataset from which to work."

Jensen's point is a good one if your marketing campaign is aimed at existing customers. Deshpande agrees. He writes, "Historically, in most organizations, segmentation is 'refreshed' only periodically, between monthly to once a year, driven by data refresh schedules and associated process challenges. ... As customer data is being refreshed in a timelier manner than in the past, it's only logical that to benefit from such information, organizations must improve on the segmentation refresh frequency, driving it towards near real time." If you are not marketing to current customers, you'll probably be looking for data rather than cleaning it. Concerning her second step — analyzing your data — Jensen writes:

"Once your contact database has been cleaned, you will already have a number of valuable insights which can be used to segment leads, identify potential opportunities and more. The overall goal of analysis should be to prioritise segments which present the best potential returns to your business. You should also be constantly collecting new data about leads and clients to ensure that you have a detailed picture of their preferences, habits and purchasing interests. This information can then be used to create 'personas' – useful for the content creation process."

To learn more about creating personas, read my post entitled "Creating Useful Personas for Targeted Marketing." In that post, I quote Leslie Ayers, who wrote, "Persona marketing entails creating fictional yet fact-based profiles of your customers so you can market to them more effectively." Concerning the next step — mapping the customer journey — Jensen writes:

"Your new marketing strategy needs to:
  • Become more personalised.
  • Leverage automation to better serve the customer.
To assist with automation, you need to identify the stages of the customer journey and the information you need to supply at each to help move them along the sales funnel. It is imperative to define triggers that are propagated by the client – the information needs to be pulled by, rather than pushed at, the client. Trigger points include customer actions like website visits, document downloads, email enquiries and sales calls. [Gartner research determined,] 'Event-triggered marketing can potentially save 80% of your direct mail budget.'"

In a post entitled "Digital Consumers and Their Path to Purchase," I discuss a study conducted by GroupMNext and Compete that discusses six distinct digital customer segments and their path to purchase. Understanding how consumers reach a purchasing decision (i.e., mapping the customer journey) can provide some interesting insights. On the subject of creating marketing content, Jensen writes:

"With the personas defined and triggers identified, your marketing team now needs to craft the messages that are given to the client. The more detailed your persona definitions and the finer the triggers, the more targeted the text, tweet or video content can become. By being as tuned as possible, the content is of greater value to the lead, helping establish your brand’s expertise and providing the information your lead needs to make a purchasing decision."

The whole point of targeted marketing is to get the right message in front of the right person at the right time. Linda Fox reminds us, however, that there is a continuing "debate around consumer data and how and when they are targeted with relevant advertising." ["Is online marketing getting more sophisticated or just more annoying (and a bit creepy)?" Tnooz, 29 April 2013] In answer to the question posed in her headline — "Is online marketing is getting more sophisticated or just more annoying?" — Jensen concludes, "It's probably both." In other words, companies need to aware of the fine line they are walking once they start down the targeted marketing path. Because targeted marketing campaigns are automated (i.e., triggered once specific criteria have been met), executives might be oblivious to campaigns that cross the line. Nevertheless, Jensen believes that automation is critical to success. She writes:

"With all the groundwork laid, you are now in a position to set the automation marketing machine in action. Your existing CRM system may provide the required functionality, or you may need to investigate a suitable platform that interfaces with your other business intelligence systems. Automating the marketing process ensures that the right information is delivered to each lead at exactly the right time. Your team can then focus on converting the leads coming to you. [Gartner research determined,] 'Companies that automate lead management see a 10% or greater increase in revenue in six to nine months.'"

Clearly, Big Data analytics is having a significant impact in the marketing arena. But, as the above discussion, reveals, analytics and common sense both have a role to play if targeted marketing campaigns are going to be effective and avoid crossing the line into the creepy zone.

If you've ever watched ABC's Shark Tank, you have probably heard one or more the sharks (i.e., angel investors) press entrepreneurs about reducing the per piece cost to make the items they are trying to hawk. Before jumping into a deal, the sharks want to ensure that they can obtain the largest possible profit margins for their investment; which means they are looking for the lowest possible piece price. For decades, China has been the go-to place to find cheap labor. Mark Michaels, chief commercial officer at Damco, claims that is changing. "Many companies are looking beyond China to less developed nations for sourcing," he told the staff at SupplyChainBrain. ["Assessing and Managing Risk in Global Supply Chains." 22 January 2014] The article continues:

Risk and Opportunity"Customers that have been sourcing goods in China increasingly are looking further afield in Southeast Asia and in Africa for new locations, says Michaels. Countries like Myanmar are opening up, but these smaller sourcing locations are less developed and so have a lot more complexities and more risk, he says. 'What might be a lower piece cost could end up costing quite a lot more if companies underestimate the cost of extra transit times and other added complexities,' he says. Non-compliance risks also can be pretty significant in less developed areas, he says. 'If a company runs afoul on compliance issues or doesn't understand the materials content of products, for example, the risk can be quite grave, with major penalties.' Additionally, there is a lot of risk associated with anti-corruption laws. 'In a lot of these newer sourcing markets, local companies may not be aware that what is allowed under one importing country's foreign corruption practices act may not be permitted under a different country's rules,' Michaels says. Anti-corruption laws are a particularly tough issue because laws on the books in a lot of countries are not necessarily followed in practice, noting that as a part of Maersk Group, Damco has a directive to work with governments and to point out to them when laws are not being followed. Additionally, customers need to be very aware when going into new countries that certain local practices may be followed that technically are not allowed under U.S. regulations, he says. 'It is very important for companies to understand these differences when making policy decisions,' he says. Damco fully supports its customers who have a 'zero tolerance' for any deviance from the rules, Michaels says, but they need to be aware that not following locally accepted practices could result in shipment delays."

The kind of complexity described by Michaels is one reason that I believe that cognitive computing systems are going to find a welcoming home in global supply chains. Such systems will be able to ascertain regulatory and policy differences between countries, make judgments concerning transit times, delays, and/or other issues that might arise and then alert the necessary decision maker to the potential problem in time for them to take action before the situation deteriorates into a crisis. Beyond compliance issues, cognitive computing systems can fold in weather, political or labor unrest, sourcing, and any other significant factor that could impact the supply chain. These systems won't eliminate humans from the risk management arena, they will make decision makers better at what they do. And executives should never forget that risk management isn't activity that can be isolated from other business operations. If things get out of hand, the entire company will be affected and not in a good way. The more you know about risks, the better your mitigation efforts will be. For example, Jason Busch asserts, "Procurement teams can dramatically improve the way they manage and mitigate supply risks by understanding the various types of supply risk, assessing the probability and impact, and improving their supply risk management capabilities." ["Supply Risk Management: Tracing Different Risks to Common Drivers," Spend Matters, 16 December 2013]

 

Actionable intelligence (i.e., data made understandable through analysis) is the ultimate objective of performing Big Data analytics. As I've pointed out before, all data is dumb. It just lies there waiting for someone (or something – like a cognitive computing system) to unlock its potential. Fortunately, companies seem to be learning that lesson. Perry Rotella, supply chain group executive at Verisk Analytics, told the staff at SupplyChainBrain that "data-based predictive analysis that helps companies anticipate global catastrophes and model potential supply chain disruptions is playing an increasing role in risk management." ["Using Data to Mitigate Risk and Build Supply Chain Resiliency," 24 January 2014] The article continues:

"In addition, data plays a critical role in building resiliency in the supply chain, [Rotella] says. Basic data essential to risk management includes knowing who your suppliers are – not just tier one suppliers, but also tier two and three – and where their production facilities are located, says Rotella. 'If your supplier's plants are in a hurricane zone or a zone that is prone to flooding, then you can factor in that risk and build resiliency into your network, whether through redundancy or contingencies,' he says. Verisk Analytics has been doing catastrophe models since 1987, Rotella says. 'We model earthquakes, typhoons, hurricanes, tornadoes, floods, fires, pandemics and terrorism in about 100 countries. Using those probabilistic models we can help companies understand potential perils that can impact their supply chains.' Corporations’ awareness of the need to do this type of modeling has been heightened by recent disasters such as floods in Thailand, the tsunami in Japan and Hurricane Sandy in the U.S., he says. 'It is an emerging area but interest is rising. The challenge is in putting a dollar value on the risk.' Verisk also has systems that track other risk elements, such as those associated with global sourcing and extended supply chains. 'We do what we call risk adjusted optimization,' Rotella says. 'It is not good enough to have an offshore component of the supply chain that optimizes costs. You also have to account for the risk elements, and we introduce those as part of the optimization.' These risks include geopolitical events, says Rotella, noting that Verisk focuses on predictive modeling. 'When you get a news feed about an event it is almost too late to react, so we look for data sources that can be correlated to other elements to predict potential unrest or problems before they happen.' These correlations are not necessarily obvious. 'The key is to gather as much data as possible and let data scientists see where there may be correlations.' There are tremendous amounts of data out there and plenty of methods to glean insights from them, says Rotella. 'But it’s critical to put the data in context; that’s when you get really powerful results.'"

I agree with everything Rotella says. Managing the complexities of the global supply chain can be daunting. Fortunately, companies like Verisk are helping make the challenge more manageable. Robert Cowan insists that you really can't separate risk management and supply chain management. ["Supply Chain & Risk Management Go Together Like Peas & Carrots," EBN, 27 January 2014] He writes, "The buzz around supply chain risk management recently is that there is 'lots of talk and little action'." It's a sentiment with which he doesn't agree. He believes that risk management teams are trying hard to do their job right but struggle because of a lack of visibility deep into the supply chain. He writes that is it like "trying to work while wearing a blindfold." He continues:

"What happens when our attempts for optimization exceed our risk tolerance, and we inevitably fall off the razor's edge? Or what happens when a natural disaster takes part of our supply chain out of action? This is where a vital part of risk management comes in – continuity management. We can be very good at optimizing at the tactical supply chain level based on our appetite for risk, but if we don't recognize the importance of implementing and practicing strategically focused supply chain resilience and recovery processes, we are missing a big part of the opportunity. ... The cost of not having such recovery processes set up can put your organization out of business, and the opportunity for the supply chain that recovers the quickest can make your supply chain the market leader."

I agree that "opportunity" and "risk" are often different sides of the same coin. If your company isn't prepared to deal with the situation, regardless of whether heads or tails turns up, it's not likely to flourish in the long run. Done correctly, risk management costs money. But the investment is worth it. Lack of investment or failure to exercise risk management plans can end up costing a company everything.

Stephen DeAngelis

3D Printed Food

Posted by Stephen DeAngelis Feb 21, 2014

Printed foodIn a post I wrote last year entitled "Trekkies Rejoice! Food Replicators are Coming Soon," I discussed how culinary schools, restaurants, and NASA are experimenting with 3D printers that use edible materials, like chocolate, as their medium. Unless you are just returning from a multi-year expedition in the jungle where you were cut off from all contact with the outside world, you know that 3D printing (or additive manufacturing) is poised to make a significant impact in our lives. To learn more about additive manufacturing, read my post entitled "The Disruptive Nature of 3-D Printing." Researchers are experimenting with all sorts of materials that can be used as feedstock to manufacture products, including all sorts of different foods.

 

Prices for 3D printers for home use are also coming down; however, 3D printers are unlikely to penetrate deeply into the home market for years. Their usefulness is simply too limited. Regardless, there are a number of companies now offering 3D printers for the home and office. As I noted in the post mentioned above, nearly 30 vendors showed up at this year's Consumer Electronics Show (CES) in Las Vegas. One of those vendors, 3D Systems, unveiled "the first food-safe 3D printer capable of printing sweets." ["CES: First 3D printer to make food revealed," The Telegraph, 9 January 2014] Obviously, the 3D Systems' printer is not the first device to print food (as the post above notes, food printers have been in use for over three years). 3D Systems claims, however, that its device is the first one to be certified safe for use in the home. The video at the following link provides a fuller explanation. As you will see, some of the shapes the printer can make are very elaborate.

 

The 3D Systems' printer will come in two versions — the ChefJet, for "the casual confectioner" and the ChefJet Pro, for "the seasoned pro." One company that took notice of the 3D Systems device was the Hershey Company. Following the CES, 3D Systems announced that "it will partner with the Hershey Company to develop 'innovative opportunities' in 3D-printed food. The multi-year agreement will have 3D Systems working with Hershey to come up with new ways of delivering 3D-printed food to consumers. Hershey is the first big food company to jump on the 3D-printed confection bandwagon." ["Hershey and 3D Systems team up to make 3D-printed chocolate candy," by Valentina Palladino, The Verge, 16 January 2014] Michaeleen Doucleff reports, "The ChefJet isn't the only 3-D food printer in development." ["Spinach Dinosaurs To Sugar Diamonds: 3-D Printers Hit The Kitchen," NPR, 14 January 2014] She explains:

"The pasta giant Barilla is said to be working with a Dutch company to put a new twist on fusilli and rigatoni: 'Barilla aims to offer customers cartridges of dough that they can insert into a 3-D printer to create their own pasta designs,' The Guardian reported last week. 'But the company declined to give further details, dismissing the claims as "speculation."' Meanwhile, a team in Barcelona is probably the closest to getting printed pasta boiling on your stove. They have developed an appliance, called The Foodini, that automatically prints items like ravioli, gnocchi, pizza and quiches on a baking pan. And then you pop them in the oven to cook."

As I noted above, researchers are experimenting with all kinds of edible ingredients for future use in food printers. Chocolate seems to be one of the favorites. But there are others. Below is a brief overview.

 

Chocolate

 

In addition to 3D Systems, "U.K.-based Choc Edge offers a printer for £2,888 ($4783) and a pack of syringes and chocolate for £15 that create what are essentially chocolate illustrations." ["A Guide to All the Food That's Fit to 3D Print (So Far)," by Venessa Wong, Bloomberg BusinessWeek, 28 January 2014] Another entrant is the field is the Chocabyte. Costing around $100, "the Chocabyte will print custom designs or downloadable designs up to 2 x 2 x 1” and work with chocolate cartridges priced at around the $5 mark." ["Think Chocolate, Print Chocolate, Eat Chocolate — Without Taking Out a 2nd Mortgage," by Rachel Part, 3D Printing Industry, 9 January 2014] Pizza In my earlier post, I noted that NASA had teamed up with a company called Systems & Materials Research to develop a food printer for space travel. Wong reports that Systems & Materials Research has used NASA's grant "to develop a pizza printer. The prototype uses shelf-stable powdered food and oils, offering nutrition while minimizing garbage on board a space vehicle. It first prints a layer of dough onto a heated plate that bakes the dough and then lays down a tomato base that has been stored in powdered form and mixed with water and oil. Last comes a printed 'protein layer.'" Doucleff noted that The Foodini can also print pizzas.

 

Pasta

 

The Foodini also prints pasta using a pasta base as its feedstrock; but, it's not the only printer that uses that material. As noted above, Barilla is also working on a pasta printer. Michael Molithc-Hou reports, "Barilla has announced plans to put a 3D pasta printer in every restaurant over the course of the next several years. The company has been working for two years with Dutch research organization, TNO, to develop a 3D pasta printer for custom noodle fabrication." ["Print Pasta Fazul Right on Your Plate," 3D Printing Industry, 9 January 2014]


Vegetables

 

Wong reports that, in addition to pasta, The Foodini can also print "vegetarian nuggets made of chickpeas, bread crumbs, garlic, spices, olive oil, and salt." She also reports that Cornell Creative Machines Lab has "built a printer that can create a swirly, flower-shaped corn chip, using masa dough." Meat The printer developed by the Cornell Creative Machines Lab, "can also make hamburger patties with layers of ketchup and mustard." Another meat printer is the BotBQ Extruder. "The BotBQ Extruder was created by Jason Ray to bridge the gap between 3D Printing and BBQ – and it is open-source, reports so anyone pining for their own 3D Printed Burger" can download instructions on how to it. ["BotBQ New Nozzle Testing – 3D Printed Food," 3D Printing Industry, 30 December 2013] Printing meat, however, is not just for the weekend barbeque scene. "Modern Meadow ... is the company developing 3D bioprint technology to produce meat and leather products, previously reported on TIME, Scientific American and at 3DPI here and here." ["Update: Andreas Forgacs on 3D Printed Meat," by Eetu Kuneinin, 3D Printing Industry, 7 March 2013]


Miscellaneous Foods

 

Among the more interesting miscellaneous items that have been printed are Jell-o shots. "For those uninitiated with the common party beverage," writes Evan Chavez, "a jell-o shot is jell-o combined with alcohol in small to medium containers, usually cups, for fiestas and jovial gatherings." ["3D Printed Jell-O Shots! Take Notes and Pass the Glass Around," 3D Printing Industry, 22 January 2014] He reports that a homemade 3D printer was assembled "to put creative designs into jell-o shots." There have also been prototype printers developed to create fanciful pancakes. ["3D Printing Pancakes," 3D Printing Industry, 6 October 2013] And, if you love Mexican food, the "Burritob0t can 3D print edible extrusion of Mexican food using the latest knowledge from digital fabrication technology and molecular gastronomy." ["3D Printed food: Burritob0t," 3D Printing Industry, 18 May 2012]

 

Although 3D printing food may sound like a novel idea unlikely to go mainstream, I'm not so sure that is true. As the world's population grows to over 9 billion people, feeding them will become a global challenge. Figuring out how to affordably print tasty dishes could provide part of the solution. "Almost 95 per cent of food loss and waste stems from supply chain inefficiencies in poorer countries, according to the World Economic Forum (WEF)." ["Supply chain inefficiency to blame for majority of wasted food," by Gurjit Degun, Supply Management, 27 January 2014] I'm betting that researchers will be able to create edible materials that can be stored, transported, flavored, printed, and consumed with little to no wastage or loss. After all, even though it wasn't 3D printed, the Army has just developed a pizza that can last up to three years without spoiling. ["Pizza that could last for 3 years? It's for soldiers in the field," by Jenn Harris, Los Angeles Times, 17 February 2014] Anything that helps reduce spoilage and waste would be a real boon for global food security.

At the end of a previous post entitled "Resilience in the Food Supply Chain," I indicated that I would write a follow-on article discussing current risk management efforts in the food supply chain focused on mitigating the impact of climate change and providing manufacturers with upstream visibility into their food supply chains. An article published on The Dairy Site states, "Traditional pressures on the food and agri industry (supply and demand dynamics, a burgeoning population and rising agri commodity prices) are being compounded by a new set of external influences." ["Transforming Food and Agri Supply Chain," 18 February 2013] The article goes on to list a few of those external influences:

"The direct use of agri commodities for biofuel production and an increased awareness of the energy intensity of food production, for example, have embroiled food and agri companies in an ongoing food vs. fuel debate. Similarly, speculation in agri commodity markets and the regulatory responses this has triggered from governments worldwide, has added to the complexity of the environment in which the sector operates."

Projected_impact_of_climate_change_on_agricultural_yields_by_the_2080s,_compared_to_2003_levels_(Cline,_2007)To that list you can add water usage in agriculture and changing climate patterns. Eric Lamphier asserts that the food supply chain "comes with layer upon layer of complexity." ["Guest Commentary: Achieving Agility in the Food Supply Chain," Logistics Viewpoints, 24 January 2013] All of those external influences and complexities bring with them risks that make the food supply chain vulnerable to disruption. The attached map shows the projected impact of climate change on agricultural yields (click to enlarge). Additionally, Ambassador Ertharin Cousin, Jose Graziano da Silva, and Dr. Kanayo F. Nwanze, insist, "We are at a tipping point in the fight against hunger and malnutrition. The world is becoming a less predictable and more threatening place for the poorest and most vulnerable." ["Principles and Practice for Resilience, Food Security and Nutrition," Huffington Post The Blog, 25 January 2013] If there is one sector in which the world needs more predictability, it's the agricultural sector. Predictability is the essence of food security. In the abstract for an article published in the journal Science, Tim Wheeler and Joachim von Braun, write, "Climate change could potentially interrupt progress toward a world without hunger. A robust and coherent global pattern is discernible of the impacts of climate change on crop productivity that could have consequences for food availability." ["Climate Change Impacts on Global Food Security," 2 August 2013] The abstract continues:

"The stability of whole food systems may be at risk under climate change because of short-term variability in supply. However, the potential impact is less clear at regional scales, but it is likely that climate variability and change will exacerbate food insecurity in areas currently vulnerable to hunger and undernutrition. Likewise, it can be anticipated that food access and utilization will be affected indirectly via collateral effects on household and individual incomes, and food utilization could be impaired by loss of access to drinking water and damage to health. The evidence supports the need for considerable investment in adaptation and mitigation actions toward a 'climate-smart food system' that is more resilient to climate change influences on food security."

The term "climate-smart food system" implies that Big Data is going to play a significant role in helping to manage agricultural production. Most "smart" systems discussed today are smart because they draw insights from Big Data analytics. Jim Langcuster writes, "If you haven’t yet heard [the term Big Data] dropped in casual conversation with other farmers, you likely will — soon." ["'Big data' will change the way you farm," Southeast Farm Press, 28 August 2013] Langcuster reports that two Auburn University researchers, John P. Fulton, a professor of biosystems engineering, and Simerjeet Virk, a biosystems research engineer, along with Andrew Williamson, a British cereal crops producer and Nuffield Farming Scholar, are promoters of Big Data in agriculture. They "contend that data compiled in real time are already providing producers with a clearer, more comprehensive picture of all facets of farming, whether this happens to be soil science, seed rates, fertilizer optimization or weed and pest control. They predict that this growing body of data will ultimately free producers of much of the day-to-day guesswork associated with farming." In other words, Big Data analytics should help provide some of the desired predictability required to make the food supply chain more secure. Langcuster notes that the three scholars "have identified seven major lessons farmers should draw from this Big Data revolution." The first lesson is that Big Data helps farmers see the big picture.

"Big data will secure a considerably clearer farming picture. Virk says that the kind of refined farming pictures ... farmers around the world are compiling on the basis of farming data are destined to become even clearer in the future — not only clearer but better integrated. 'The next step will be a cloud-based system that integrates all facets of farming on behalf of producers,' he says."

Although food security will ultimately be obtained farm by farm, it is important for agricultural professionals to understand the big picture, see trends, gain insights, and implement appropriate strategies in response. The second lesson concerns diversity.

"Along with clarity comes diversity. 'The farming picture will not only become more refined but also more diverse,' says Fulton, who draws a comparison with the different ways individual homeowners manage their landscapes."

As I noted in the post discussed at the beginning of this article, corn, wheat, and rice now supply most of humanity’s calories. That lack of the diversity has a number of analysts concerned. As farmers learn what kinds of crops grow best in their given circumstances, they may come to appreciate the value of crop diversity. The next lesson deals with data storage.

"Big data should be viewed as stored knowledge for lean times. As Williamson sees it, his job as a farmer is to 'convert energy generated by the sun into profitable crops.' In a sense, a farming data stream should be viewed much the same way: As stored knowledge that can provide farmers with a clear, comprehensive picture of their farming operations — an especially valuable asset during down cycles, he says."

Albert Einstein has been credited with defining insanity as "doing the same thing over and over again and expecting different results." A farmer who continues to plant the same crops, even when conditions change, may not be insane; but, he's also not very smart. By having a trove of stored knowledge, farmers will be able to do something different during difficult times thereby achieving better results. The next lesson has to do with intuition.

"Big data is no substitute for farmer’s intuition. Despite the promise of Big Data, Fulton stresses that the 'number 1 data set will always be a farmer's intuition.' 'There is no data more valuable than the insights a farmer has gained over 10, 20 or 30 years of experience,' he says. 'The promise of big data will come from overlaying it with all the insights a farmer has gained through years of experience. Virk shares this view. In the end, farmers will always know more about their farming operations’ strengths and weaknesses than any software or machine, he says."

In the past, I have stressed that the objective of Big Data analytics is help decision makers reach better decisions. Big Data analytics systems are not intended to replace decision makers altogether. The fact that some farmers have been doing things the same way for decades does require a shift in their thinking when they digitize their operation. That is exactly what the next lesson states.

"Big data requires a mindset change. Farmers are creatures of habit, Williamson says. Most think that time spent in the field is more valuable than time invested peering into a computer screen. Experience has taught him that time invested analyzing his farm data is just as important as time spent in the field. Indeed, producers who opt to manage their own data rather than pay an analyst to do it should develop a new daily routine, he says. 'If you’re going to do it yourself, you had better be comfortable with spending more time on the computer,' he says."

The next lesson discusses the important role that Big Data analytics will play in feeding the world.

"Big Data will play a critical role in feeding the world. Big data is gaining traction at an especially critical time in history as farmers gear up to feed an estimated 9 billion people by midcentury. 'This will require farmers to secure higher levels of production efficiency, and this can only be attained with more mechanization and other forms of technological adoption,' Fulton says. Big data will fill much of this void by providing producers with a clearer understanding of how to match varieties to soil and climatic conditions along with strategies for reducing fertilizer, pesticide and herbicide applications, all with the aim of securing the highest levels of farming efficiency, he says."

Even small subsistence farmers, many of whom do or will own smartphones, will have access to data that will help them become more productive — even if they can't afford many of the technologies that will drive large agricultural enterprises. Molly E. Brown and Christopher C. Funk note, "The very low agriculture productivity of food-insecure countries presents a great opportunity. Transform these agricultural systems through improved seed, fertilizer, land use, and governance, and food security may be attained by all." ["Food Security Under Climate Change," NASA Publications, 1 February 2008] The final involves the inevitably of Big Data analytics in agriculture.

"Like it or not, big data is the new reality in farming. While farmers will have some choices about how to participate in the coming big data revolution, they cannot afford the luxury of not participating, Fulton says. 'We're already seeing new partnerships growing out of these changes at a steadily accelerating pace, and to be successful, farmers will need to be engaged with these emerging partnerships,' he says. 'But it's important that they ask the right questions before joining these partnerships and only partner with people and organizations that they trust.'"

As a concluding note, analysts remind us that the agricultural sector is not only affected by climate change but that agricultural activities affect the environment. Big Data has a role to play here as well. Suzy Friedman writes, "By gathering and using more data about the nutrient needs of their own fields, for example, farmers can become much more efficient in applying fertilizer, reducing what is lost to water or air and saving themselves money. This benefits all of us, because nutrients that are not taken up by crops can lead to water pollution and greenhouse gas emissions. In addition, once they have detailed information about how water moves across and through the agricultural landscape, farmers and watershed managers can be much smarter about where to put filters such as buffers and wetlands that capture nutrients that run off fields. This, in turn, improves water quality in the streams, rivers and lakes that the nutrients otherwise would wash into." ["Farmers embrace Big Data to reduce pollution," Greenbiz.com, 4 October 2013] Given all of the evidence, it's hard to disagree with Fulton's, Virk's, and Williamson's final conclusion that "like it or not, big data is the new reality in farming."

3D products clearAt this year's Consumer Electronics Show (CES), wearable devices appeared to capture the most attention (see my post entitled Wearable Devices and the Quantified Self). However, Peter Svensson, a technology writer for the Associated Press, reports that another group was also garnering a lot of attention. "Last year," he writes, "there were only a handful of 3-D printing companies at the gadget show. This year, there were thirty, and the organizers had to turn others away because they couldn't fit them in. The 3-D printing area of the show floor drew dense crowds that gawked at the printers and their creations, which ranged from toys to tea cups to iPhone cases." ["3-D Printing Set To Break Out Of Niche," Manufacturing.net, 13 January 2014] Shawn Dubravac, an analyst for the Consumer Electronics Association, the organization that puts on the CES, told Svensson, "With 3-D printing, we're moving to a world of mass customization." Mass customization is one reason that many analysts believe that 3D printing (or, as it is also known, additive manufacturing) is ushering in a new industrial revolution. Chris Fox, Managing Editor of Product, Design & Development (PD&D), hasn't jumped all the way on the additive manufacturing bandwagon; nevertheless, he still believes that it has become a major market disruptor and that last year may have been a turning point. ["3D Printing: 2013’s Biggest Market Disruptor," Manufacturing.net, 23 January 2014] He writes:

"Being a technology that has been around for some 25 to 30 years, additive manufacturing (3D printing) was bound to make some intriguing changes and advances, as is expected every year. So why on Earth is 3D printing the biggest market disruptor of 2013? Back in October of last year, 3D Hubs began collecting data on how people were using 3D printers. The results from November provided some insight. Nearly 75% of all 3D printers were being used for 'prototypes' and 'gadgets'. ... As somebody who is neck deep in the industry that birthed the need for this technology, this loose data tells me two things.
  • Professionals or prosumers are still the majority users of 3D printing technology.
  • Everybody else is making junk.
I mean junk in the most playful sense possible, considering my desk is filled with various toys and models that were 3D printed on my Afinia from Saelig. The other 25% (or so) is the reason 3D printing is the biggest market disruptor this year. Phone add-ons, toys, models, fashion… these are almost certainly consumers utilizing their desktop 3D printer purchase. ... In the engineering industry we are painfully familiar with the capabilities and technology surrounding additive manufacturing, but only recently has the greater populace become aware of even the most rudimentary 3D printing capabilities. Why the masses (and popular media) suddenly decided to take notice in 2013 is an elusive question, but if anything has rocked the world of home appliances, it’s the new emergence of this old technology. One can only hope that the popularity will help advance the technology rather than provide us with a million different versions of the same technology à la cell phone cases or mobile amplification."

At the same time that Fox is labeling 3-D printing "old technology," Megan Haynes is calling it "a relatively young technology." ["3D printing goes mainstream," Strategy, 1 April 2013] Although they sound like they disagree, I'm not sure that is the case. What Haynes describes in her article is the relatively new adoption of the technology by mainstream companies to do the things described above — particularly customizing products. Max Valiquette, the managing director of strategy for PR firm Bensimon Byrne’, told Haynes that "there is a huge opportunity for companies to create personalized experiences in stores, creating customized add-ons for products." If there is really going to be a new industrial revolution associated with additive manufacturing, the revolution is only at its beginning. But there are reasons to believe that change is coming. In a survey conducted by IDC Manufacturing Insights last year, "more than 43 percent of survey respondents declared they have a formal process in place to design future production plants." ["More Than 43 Percent of Manufacturers Report They Are Designing 'Factories of the Future'," SupplyChainBrain, 6 June 2013] These factories will be more heavily automated than factories in the past and may, in fact, involve some additive manufacturing processes. The article reports:

"Manufacturers ... are going back to basics and putting a renewed premium on production knowledge driven by the need to protect and enhance their technology. They realize now that the direct involvement in production operations fosters innovation and improves customer service. All these factors combined with the growth of transportation costs consequent of oil price developments and the need to produce closer to clients for better flexibility and service are favoring manufacturing insourcing initiatives in several developed economies, including the U.S. and U.K. 'The manufacturing industry is back onstage in developed countries worldwide. Governments, media, manufacturers themselves, and their people are all changing their mindset with a stronger focus on production,' said Pierfrancesco Manenti, Head of IDC Manufacturing Insights, EMEA, and Practice Director, Operations Technology Strategies. 'We are about to witness a new generation of manufacturing enterprises where operational processes on the plant floor — at the very heart of the enterprise — are considered the centerpiece of this transformation.'"

James Robbins and Sunny Webb insist, "As prospects grow for 3D printing technology, ... manufacturers should start thinking now about how best to apply it to specific situations." ["Rethinking Industrial Manufacturing Through 3D Printing," Automation World, 9 July 2013] They continue:

"There is a shift to the digitalization of manufacturing with Industry 4.0, the fourth industrial revolution, to drive greater efficiencies and value through the engineering supply chain. This makes 3D printing very interesting in terms of its potential as a competitive tool, and will require that companies start thinking now about how best to apply it to their specific situations. ... Historically, 3D printing — or additive manufacturing, as it also is known — has been an additive process of slowly building a physical model out of a polymer material layer by layer. But today, hardware and software advances have enhanced 3D printer performance, enabling more accurate and precise prototyping through 3D software, and making it possible for multiple materials to be fused together in one print. For manufacturers, this could have broad business implications and drive substantial cost savings in areas like product development, testing and production, while also improving supply chain performance."

You might be surprised at the range of manufacturers that are using or considering the use of additive manufacturing. One of the more intriguing applications could be in the housing sector. Stephen Murgatroyd reports, "Two companies — one in London and one in Amsterdam — are racing to be the first to perfect a process for the printing of 3D houses. Giant 3D printers can build a 2,500-square-foot house in as little as 20 hours." ["3D printing set to disrupt the housing industry," Troy Media, 30 November 2013] Murgatroyd indicates that the printers can do everything including "the electrical work, plumbing, tiling, finishing work and painting." If you're interested you can watch the following video on the subject..

Booz & Company analysts Tim Laseter and Jeremy Hutchison-Krupat believe that there is still a lot of hype associated with 3D printing. "For business executives," they write, "separating true technological breakthroughs from wishful thinking is inherently challenging." ["A Skeptic’s Guide to 3D Printing," strategy + business, 26 November 2013] They continue:

"Perhaps the best example today of an innovation whose surrounding hype may be obscuring its substance is 3D printing. It thus provides an ideal case study on the importance of applying time-tested forecasting tools before getting too caught up in new-technology excitement. ... There's no question that 3D printing offers a new manufacturing model. It eliminates the need for expensive, customized tooling. And as an additive manufacturing approach rather than a subtractive one, it uses less material. The cost of digital printers continues to decline; startups are now offering hobbyist versions for less than US$250. But as our technology forecasting analysis will show, 3D printing isn't poised to take the place of factory production anytime soon. ... Assessing the predictions of structural changes to the manufacturing industry, such as those prompted by the current hype around 3D printing, requires the application of two ... well-tested concepts: economies of scale and total landed cost. When considering how and where products will be manufactured, size matters, but so do location and the cost of transportation around the globe. ... That said, ... our forecast for 3D printing does not suggest a seismic shift in the fundamental paradigms of manufacturing. [Nevertheless,] it can still have a profound effect on the production location and business models for certain artifacts. ... Perhaps the most promising near-term industrial application for 3D printing involves the production and inventorying of spare parts. ... Even though the 3D printer won’t alter the fundamental structure of global manufacturing, perhaps it can help bridge the digital divide and create new opportunities for manufacturing. Paralleling the opening of communications to remote and financially distressed areas, a shared low-cost 3D printer could allow village residents to print tools, replacement parts, or even simple medical apparatuses. ... We may eventually live in a world where factories that mass-produce goods become obsolete, because we’re producing them ourselves in the comfort of our own homes. But we wouldn't bet on that happening anytime soon."

Robbins and Webb agree that the hype needs to be ignored and realities about additive manufacturing realistically assessed. Still, they conclude, "The rapid drop in costs means that industrial product manufacturers should consider exploring its potential manufacturing benefits today to be prepared to take advantage of them as part of a digital, high-performance tomorrow."

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