Perspectives on Various Issues of Interest

The Smiling Dog

Sustainability & Innovation

1. In 2003, America’s power generation industry spent less on R&D as a proportion of turnover than the country’s pet food industry. With a changed perspective on environmental issues in the last few years this proportion is going to change.
2. Currently Europe puts a price on carbon, through its Emissions-Trading System. The chances of such initiatives in U.S. are increasing with every passing day. For corporations, technology will play an important role in managing this economic effect if and when it comes into play.
3. There are some interesting inter-industry dynamics that are expected from forays into renewable technologies. Technological change may allow some part of the energy and transport business to invade each other’s turf. The power utilities hope to gain from the enthusiasm for plug-in electric cars, which could spell trouble for oil companies. Biofuels are also a major threat to oil companies since every farmer and forester may build a cellulosic ethanol plant in his backyard.
   
4. Companies such as DuPont might be better poised to make the fuel in the future. The      technological competence needed by these companies to undertake development of alternative fuels sources presents an opportunity.
5. Wind and solar power present high growth renewable energy sources. According to the U.S. Department of Energy, America could supply its entire energy needs by covering a mere 1.6% of its land area with solar      cells. Wind and solar energy already play an important part in few      countries. Around 20% of Denmark’s electricity comes from wind and about 80% of China’s hot water from solar energy. In recent times, solar photovoltaic power has grown by an average of 41% a year over the past three years; wind has grown by 18% a year. There is tremendous scope for the solar energy source to grow in U.S. Technology will play an important role in its growth. In the case of solar photovoltaic cells the efficiency with which they convert sunlight to electricity      has increased from 6% when they were first developed to 15% now. Their cost has dropped from around $20 per watt of production capacity in the 1970s to $2.70 in 2004. The silicon storage has pushed the price somewhat since 2004. Innovation can play a role in improving the efficiency and reducing the cost.
6. During the wind boom of the 1970s turbine blades were around 5-10 meters long, and turbines produced no more than 200-300 kw of energy each. The energy they produced cost around $2 per kwh. Now the blades are up to 40 meters long and turbines produce up to 2.5 MW each at a cost of 5.8 cents per kwh depending on the location (Note: Coal fired electricity, depending on the      plant, costs 2-4 cents per kwh). There is an opportunity for innovation to make wind energy highly competitive as against coal fired electricity. Already, there are 5 MW prototypes in existence, with 62 meter blades. GE’s head of renewable energy research recons that wind power is heading      towards 3-4 kwh. To achieve this, the length of the turbine blades needs to be increased to 90 meters. Currently, the constraint is in terms of the weight of the central cell, positioned between the blades. At the moment, it weighs 300 tons. Research to make the central cell lighter is in      progress and presents an opportunity. Incidentally, the size of GE’s wind energy business is approaching its gas and steam turbine business. So far GE was using wind turbines made from different technologies interweaved together, such as propulsion equipment developed for ships and standard      variable-speed drives used in pumps and conveyor belts. Today, with the      growth in this business GE has plans to design equipments specifically for wind. Innovation is expected to play a major role.
7. There has been an accelerated investment in thin film technologies to counter the shortage in silicon. Silicon Valley has taken some major initiatives towards these technologies.
8. Technological advances in sustainable transport also present an opportunity. At this year’s Detroit motor show GM unveiled the Chevrolet Volt, which has both a battery and a combustion engine. The commercial scale production has yet to commence but the technology received good reviews. Some disruptive technologies are also gaining prominence. For example, Elon Musk (the entrepreneur behind PayPal) unveiled an electric sports car – Tesla – that plugs into the wall      and stores energy in lithium-ion battery. Cost is still a concern and technological advances will play a role in commercial success of these ideas.

Source: The Economist, October 13th 2007.

Supply Chain Disaster Management

1. In compiling preliminary data for its Supply Chain Visibility and Performance Study, Boston-based Aberdeen Group found that 82 percent of companies claim to be concerned about supply chain resiliency to disruptions, but only 11 percent are actively taking steps to manage the risks.This comes at a time when those same companies have reported at least 10 significant supply chain disruptions in the last five years, and 27 percent of them have had more than 20 disruptions.
2. Firms that do experience disruptions, 40 percent never properly recover and end up shutting their doors for good within five years of a major disaster.
3. Some potential supply chain vulnerabilities:
a) A lack of redundancies, in terms of data and information, at the supplier, manufacturer and distributor levels
b) Single sourcing for some raw materials with no back-up;
c) Companies are not capable of rerouting shipping if a facility goes out;
d) A critical shortage of drivers and transportation capacity.
3. Communication Capability Is Critical: In New Orleans, the point of entry for a large portion of all the coffee that is consumed in the United   States, as much as 1.6 million bags of green coffee beans were presumed damaged or destroyed in warehouses near the port. Coffee roaster and distributor Just Coffee, based in Madison WI, for example, had $800,000 worth of raw beans sitting in a warehouse near Lake Ponchartrain. and company officials suspected that they were ruined, but, because the area was without any form of communications, no one could tell for sure. A back-up system that automatically re-routes communications through another solutions provider if the main telecommunications infrastructure is knocked out is key. Further, creation of toll-free hotline and dedicated Web site where employees, customers and suppliers can check on the status of operations will be useful. Protecting e-mail data with tools such as NearPoint Disaster Recovery solutions is important.
4. Getting Freight To Roll Again:
a) The port facilities of Chiquita Brands International in Gulfport, MS were completely damaged. The company put together a complete contingency plan, including secondary distribution centers and alternate routes, modified customer assignment tables within its order entry system, and shifted inventory away from distribution centers in the areas that were hit, all in about 12 hours. Now the company uses the SAILS 21 supply chain planning solution from Insight to help it determine what to do in the event of another major storm.
b) Wal-Mart Stores, Bentonville, AR, had two distribution centers affected by the storm, but its many other distribution centers in the area picked up the slack and spared the world's largest retailer any major disruptions.
c) Procter & Gamble, which suffered losses at four Louisiana facilities for its Folgers coffee operations, worked with its suppliers to identify in-transit goods and redirect them. It also shifted materials and warehouses and brought on new suppliers to keep things running, and quickly notified retail partners of potential supply delays and restrictions. When packaging supplies became unavailable, it quickly went back lo an old can producer who put out special cans.
d) When Flowers Foods, Thomasville, GA, lost a good deal of its production capacity after a few facilities in New Orleans were damaged, it moved quickly to reopen a closed bakery in Houston and ramped up operations at other facilities to compensate.
5. Supply chain audit should be conducted to answer the following:
a) Can the business operate after a disaster? If not, what must we do to get back into operation as quickly as possible?
b) Can orders, inventory and transportation modes be secured?
c) Are physical plants and warehouse facilities secure and structurally sound? If not, are there alternative plants, warehouses or other locations that can be used?
d) Will power be available? If not, what alternative energy sources do we have available?
e) What can be done in the event of computer, equipment or telecommunications failures?
f) What happens if key staff is lost to an epidemic, medical emergency, bomb threat, toxic gas spill or release, hostage situation or labor strike?
g) How can the corporate assets protected and preserved?
h) How can the safety of our employees and drivers be ensured?
i) If there are transportation problems, how can the products be delivered? What happens if the roads are closed, and what alternative routes or transportation can be used?
j) What alternatives do the supplier have?
k) Does the corporate insurance policy cover disasters?

Source: Klie, Leonard. “Disaster Proofing the Supply Chain.” Food Logistics 15 September 2007

 

Supply Chain Innovations for Chemical Sector

Below are the answers given by Alex Royez (Vice President, Executive Director of Global Supply Chains at Dow Corning, the supplier of silicon-based products, technologies and solutions) and Greg Mekjian (Executive Vice President, North American Operations at Bristlecone Inc., provider of supply chain and business process solutions) to some important questions:

Framing the supply chain issue---where should a company define the boundaries when considering its supply chain and where should its concerns stop?

Alex Royez (AR): One size does not fit all. There are no textbook rules or mathematical equations that help a company define the boundaries of a supply chain. It is important to take a "voice of the customer" and "voice of the business" approach, and balance those two perspectives and needs. Customers need to be able to identify where they fit within the defined supply chain, and employees must have a clear line of sight to customers and know how they fit into the supply chain. The key is ensuring balance and harmony within the internal enterprise and externally--and then employing good change management and communication skills.

Greg Mekjian (GM): Any issue that impacts customer fulfillment is a company's supply chain responsibility, whether the company owns the physical elements of the supply chain, only a portion of the supply chain, or none at all. The challenge is to identify the critical components of the supply chain, internal or external, that need to be planned, monitored and acted upon. This is not easy, because the critical components of the supply chain morph on an on-going basis.

How do you ensure the customer's voice is integrated into your supply chain strategy so there is a common understanding of what the customer wants and not a series of interpretations of what the customer wants?

AR: Getting the information closest to the source that will act on the information is critical. In some cases, a customer's manufacturing schedule might trigger an electronic replenishment signal, eliminating the information passing through the hands of purchasing, sales, and customer service. In other cases, it's a self-service model that best facilitates this requirement and allows customers to choose "exactly" the solution that meets their needs. For example, our Xiameter[R] business is a self-service model with clearly defined business rules, so everyone is working with the same information. Any deviation from the business rules triggers an exception handling process, Still in other cases, it's establishing trusting relationships in which customer operations staff talk to supplier operations staff.

At Dow Corning, we work directly with our customers to help them with their internal process needs, working side-by-side with them to develop new opportunities, so we hear first-hand the voice of the customer and can match that with our total solution offering.

GM: The concept of the extended supply chain takes into consideration product development/design, strategic sourcing, customer requirements, and their expectations about service. When devising strategies for supply chains that are heavily customer centric (discrete manufacturing), specific attention must be given to how customers channel their requirements into the entry funnel of an adaptive supply chain. Users of advanced technologies can make this transparent to the customer and to the serving enterprise.

Has the increasing globalization of trade placed more strain on the supply chain system, and, if so, what is the best way to respond to these issues?

AR: With soaring global demand for raw materials, information about price, demand, supply, transportation, and labor rates needs to be available at the fingertips of key decision makers, My company is responding to this significant increase in global demand by optimizing production wherever possible through supply chain improvements, productivity enhancements, and investments in additional manufacturing capacity. For example, in the first half of 2004, we increased volumes over 15 percent, compared to the same period in 2003.

We may not have mastered turning an ocean freighter on a dime, but we can ensure we have the right material on that ocean freighter and that the freighter is routed via an optimal channel, so it can deliver the material to the customer on-time at the most competitive price. That translates into market share, long-term relationships and limitless future opportunities.

GM: Globalization of trade and trade restrictions has definitely complicated the extended supply chain requirements. This has necessitated investment in ERP, including the capability to support global trade and trade restrictions and demand and supply planning solutions. While these implementations started out being country-specific, the trend is more to regional and global implementation, as Dow Corning has done This move supports the requirement for one "truth" without significant effort spent in consolidation and reconciliation of operational and financial data. To a large extent, this has been made possible by advances in information technology, including the internet.

To what extent should a company enable the supply chain around its technical abilities, and how much information should it share with its business partners?

AR: To address this question thoroughly, a company must understand its business model and strategy. Perhaps there is a segment of the business that is seeking a long-term, trusted advisor, joint partner relationship--in other words, where supply chain boundaries become blurred, where it's no longer possible to see where one company starts and another ends. We once thought information translated to power, but, today, the power is in the sharing of information which, in this context, provides an opportunity to reduce costs that can be shared by all the constituents within the supply chain. Of course, in other business models, where you want your customers to be self-sufficient, you will want to share the information necessary for them to sustain that self-sufficiency. This requires sharing credit history and status, order status, history, profile information, pricing, and market pricing. It's about managing your own destination, being responsible and accountable for performance and success.

GM: The technology is not really a constraint when it comes to supply chain management. The real challenge is the ability and willingness to collaborate between supply chain trading partners' Multi-level supply chain visibility and planning is the next frontier. There are definite benefits to this in terms of cost savings, however, the cultural change and distrust factors have to be overcome. With the advent of the internet, we have a low-cost way for trading partners to see demand and supply which was previously not available to them. I am seeing a higher degree of comfort with more information-sharing than ever before.

How key are behavioral aspects? Do you need to change the behavior of people in the supply chain or adjust the system to reflect the people in it?

AR: Chemistry, technology and advanced algorithms are simple in comparison to changing behaviors within an organization. However, with good change management models, it is possible to spark the momentum and enthusiasm that will develop into ownership, empowerment and an effective supply chain culture. It's not about adjusting the system to accommodate the people, nor is it really about changing the people--rather it's about providing the information, tools, desire and vision that allows the supply chain incumbents to own the vision, live the vision, and be empowered to achieve the vision.

GM: Many organizations have not yet addressed the issue of increasing supply chain complexity. Change management and training initiatives can help improve operational effectiveness, but there is a bottleneck if the technical and business sophistication required by the new tools/technologies isn't present within the organization. The system is only the enabling tool to personify the core competency of the people.

Source: Royez, Alex; Mekjian, Greg. “Supply chain innovations key to global strategy: interview” Chemical Market Reporter 01 November 2007.

Proactive Management of Supply Chain Risk

The following is the summary of an article titled, "Impact and Ubiquity: Two reasons to proactively manage risk" by Patrick M. Bryne.

Minimizing supply chain risk is the most important issue in global business today. This is shown by a 2006 Accenture study that states 73% of companies have experienced disruptions in their supply chain. One third of these companies took one month to recover from the disruption and almost all said that it hurt their bottom line.

Some companies have not even taken into account the risks involved in a global supply chain; some even say that there global strategy increases their supply chain risks. As a result, many companies are vulnerable to supply chain disruptions and have no plans in place to mitigate the risks. This is the case even though hundreds of companies have seen significant disruptions in their supply chain that resulted in drops of their stock price.

The largest disruptions seem to be natural disasters, supply chain partners, and raw materials (see graph below).

With companies that do have a supply chain strategy to mitigate risks, they are prepared to do the following:

- Manufacture locally as well as globally (62 percent)
- Source contingent suppliers and/ or logistics providers (61 percent)
- Increase inventories and safety stock (53 percent)
- Establish a more geographically distributed supply base (50 percent).
- Build a Normal supply chain risk management program (49 percent).
- Implement more/better forwarding and hedging strategies (42 percent).
- Increase the level of insourcing, i.e., returning to home country manufacturing (38 percent)

Source: Byrne, Patrick. “Impact and Ubiquity: Two Reasons to Proactively Manage Risk.” Logistics Management April 2007.

Is Just-in-Time Justifiable?

Users of Just in Time logistics sometimes jump ship too early when there is a problem. Many manufacturers use JIT approach but as soon as there is a disruption in the supply chain they believe that the JIT favors do not outweigh the risks. A look at Industry Week's best plant finalists indicate that in 2003 the number of manufacturers in the finals using JIT was 77%. The numbers dropped to 58%, 50% and 49% during 2004, 2005 and 2006 respectively. 

Source: Katz, Jonathon “Just in Time Remains Justifiable.” Industry Week June 2007.