Skip navigation
2013

     You may have seen or heard that the New York Times was a victim of a cyber attack earlier this week. As the Times itself reported, its website was unavailable to readers on Tuesday afternoon after an on-line attack on the company’s domain name registrar. The hacking was just the latest of a major media organization, with The Financial Times and The Washington Post also having their operations disrupted within the last few months.

 

     What can companies do to protect against such threats? A recent Industryweek article notes that companies can take several steps, which should begin with preventing spear-phishing attacks tricking employees into revealing their e-mail passwords. Once hackers have access to employees’ e-mail, they can retrieve log-in credentials for websites.

 

     Consequently, companies should focus on teaching employees to recognize and resist such phishing attacks. That’s important because according to a study cited in the article, when assessing whether an e-mail was malicious or legitimate, 92 percent of study participants incorrectly classified at least some e-mails.

 

     What I found more interesting, however, is that some organizations are becoming more aggressive about preventing physical and financial losses. Indeed, CFO reports today that in some cases, this may involve counterattacks against hackers.

 

     Some organizations are beginning to develop the capability of identifying hackers using intelligence, says Larry Ponemon, chairman and founder of the Ponemon Institute, a research and consulting firm focusing on privacy and data protection, in the CFO article. With that intelligence, companies can even aim malware or launch a denial-of-service attack at the servers of the potential perpetrators. If an attack comes from outside the U.S., companies here can also work with telecommunications companies to deflect the attack, he added.

 

     To be fair, this paradigm shift is in the very early stages. Nonetheless, Ponemon does say he has sat in meetings with organizations that are conducting such actions.

 

     “We know of organizations that are doing it, and other organizations that aren’t actually doing it, but are collaborating with government—the Secret Service, the FBI, even state law enforcement—to help them model an attack,” Ponemon says in the CFO article.

 

     Bob Parisi, network security and privacy practice leader at insurance broker Marsh, says he too has seen companies take a preemptive approach to potential cyber-attacks. He does say in the article, however, that “vigilantism has its drawbacks.”

 

     One problem is that potential hackers can be an extremely elusive target. Parisi likens the attackers to a bit of smoke in that they can be hard to actually locate. He further notes that most attacks don’t come from the attacker’s own computer system.

 

     So it’s possible, for example, that a major retailer which fears an attack would act preemptively only to discover that it targeted a dry-cleaning company in another part of the country, according to Parisi. Obviously then, the practice would open the door for serious liability, he says in the CFO article.

 

     Ponemon also sees potential problems when a U.S.-based company preemptively strikes a potential cyber-criminal in another part of the world. So, the question then becomes: Even if you know with perfect certainty that you’re going to get attacked by a bad guy, do you have the legal right to attack first? he asks.

 

     “If it’s government, you can use the rules of warfare, and the answer might be ‘yes, you can do it,’” Ponemon says in the CFO article. “But when it’s corporation against bad-guy, or corporation against nation-sponsored attack, it’s a little bit complex,” he says.

 

     That’s an interesting idea to think about. If you knew hackers were going to attack your company, do you think it’s ok to attack them first? Secondly, what type of liability issues do you think that creates?

     The manufacturing skills gap is not a serious problem short-term and it won’t prevent a resurgence in U.S. manufacturing over the next few years. That’s the key finding in a report released today, explains an article on IndustryWeek.

 

     The research finds little evidence of a meaningful and persistent skills gap in most parts of the U.S., including in its most important manufacturing zones, says Boston Consulting Group in the report, “The U.S. Skills Gap: Could It Threaten a Manufacturing Renaissance?” The real problem is that companies have become too passive in recruiting and developing skilled workers at a time when the U.S. education system has moved away from a focus on manufacturing skills to put greater emphasis on other capabilities, the authors write.

 

     Harold Sirkin, a senior partner with Boston Consulting Group and a co-author of the report, says there are several reasons for manufacturers’ perceptions about the skills gap. Quite often, the skilled workers are available, just not at a price employers are willing to pay, or companies don’t bother to recruit at community colleges and vocational schools. In other instances, experienced skilled workers with good academic training are available—sometimes in-house—but companies are unwilling to invest the time and money to train these workers to use new technologies or specific machines, he says.

 

     It’s certainly no secret that an aging baby boomer generation has begun to leave the U.S. workforce. While that’s clearly a concern, perhaps the larger issue is what many perceive as a lack of interest by young people in manufacturing as a career. So while older workers are leaving, there aren’t enough younger workers entering the industry to replace them and their knowledge.

 

     Young people aren’t the only ones missing in today’s manufacturing industry. I was interested to see that the Manufacturing Institute is partnering with Deloitte, University of Phoenix, and the Society of Manufacturing Engineers on the STEP Ahead initiative (women in Science, Technology, Engineering and Production) to examine and promote the role of women in the manufacturing industry through recognition, research, and education/leadership.

 

     The groups conducted a study, which found that women represent manufacturing’s largest pool of untapped talent. Women represent nearly half (46.6 percent) of the total U.S. labor force and earn more than half of the associate’s, bachelor’s and master’s degrees in the U.S. However, they only comprise a quarter (24.8 percent) of the durable goods manufacturing workforce.

 

     So there clearly are people who could be recruited. It also seems skills are being taught through initiates such as “The Right Skills Now—Precision Manufacturing Initiative,” led by the Manufacturing Institute, the National Association of Manufacturers (NAM), the National Institute for Metalworking Skills (NIMS), and American College Testing (ACT). Intended to encourage innovation and advanced manufacturing in the U.S., the initiative aims to educate and train—then certify—community college students with skills considered critical to manufacturing operations.

 

     The good news is it seems there is interest in such programs. For instance, when Harper College in Palatine, IL launched its “fast track” advanced manufacturing program—certification in one semester, followed by a paid internship with a partner company—the information session attracted a standing-room-only crowd, the Chicago Tribune reports.

 

     Finally, there’s another initiative I find interesting, called “Get Skills to Work.” The coalition, which will be managed by the Manufacturing Institute and supported through financial and in-kind commitments from GE, Alcoa, Boeing, and Lockheed Martin, will focus on accelerating skills training for U.S. veterans; helping veterans and employers translate military skills to advanced manufacturing jobs; and empowering employers to recruit, onboard and mentor veterans.

 

     So it seems a potential labor pool is available, and that skills are being taught. If companies are recruiting—and willing to pay reasonable wages—there should be sufficient skilled labor.

 

     What do you think? Is there really a manufacturing skills crisis?

     In a recent survey of companies that have a global footprint, only 40 percent of the respondents invest in developing advanced risk reduction enabler capability and are classified as having “mature processes” reports an article in Canadian Underwriter.

 

     The report, “2013 Global Supply Chain and Risk Management Strategy,” from The Massachusetts Institute of Technology (MIT)’s Forum for Supply Chain Innovation was written in collaboration with audit and consulting firm PricewaterhouseCoopers. It was based on a survey of 209 participants from the automotive and industrial products, pharmaceuticals and chemicals, technology and telecommunications, retail and consumer goods, and service industries. As global organizations, these companies are exposed to high-risk scenarios ranging from controllable risks—such as raw material price fluctuations, currency fluctuation, market changes and fuel price volatility—to uncontrollable risks such as natural disasters.

 

     According to the survey results, as many as 60 percent of the companies pay only marginal attention to risk reduction processes. These companies are categorized as having immature risk processes, PwC explains. They mitigate risk by either increasing capacity or strategically positioning additional inventory. This isn’t surprising since the survey also shows that most of these companies focus on maximizing profit, minimizing costs or maintaining service levels.

 

     PwC’s supply chain and risk management capability maturity framework is used to identify where a company stands in relation to its competition and the rest of the industry. Using this framework, the other 40 percent of the survey’s participants were categorized as having “capability maturity” based on the degree to which they invest and apply the most effective enablers of supply chain risk reduction—such as flexibility, risk governance, alignment, integration, information sharing, data, models and analytics, and rationalization—and their associated processes.

 

     According to PwC, the findings validate key principles that companies can use to better manage risks to their supply chains and prepare for future opportunities. They are:

 

  • Companies with mature supply chain and risk management capabilities are more resilient to supply chain disruptions. They are impacted less and recover faster than companies with immature capabilities.
  • Mature companies that invest in supply chain flexibility are more resilient to disruptions than mature companies that don’t.
  • Mature companies investing in risk segmentation are more resilient to disruptions than mature companies that don’t invest in risk segmentation.
  • Companies with mature capabilities in supply chain and risk management do better along all surveyed dimensions of operational and financial performance than immature companies.

 

     “Flexibility is critical to a company’s ability to adapt to change,” says MIT professor David Simchi-Levi, founder of the MIT Forum. “Companies that invest in supply chain flexibility are more resilient to disruption than mature companies that don’t. A greater degree of flexibility in their businesses will allow companies to better respond to demand changes, labor strikes, technology changes, currency volatility, and volatile energy and oil prices.”

 

     When it comes to supply chain risk management, a great deal of attention is paid to natural disasters—and rightly so. But it’s important to note that there also are countless other risks associated with conducting business on a daily basis. If they aren’t properly dealt with, issues such as daily fluctuations in demand and supply, changes in the supply base, and counterfeit or contaminated products can have a significant impact on the operation of the business.

 

     How does your company identify risks of all sizes, and what steps are then taken to mitigate them?

     U.S. manufacturing is overtaking competitors and may gain up to $115 billion more in export business from rivals by 2020, says a new report.

 

    An increasingly productive U.S. factory sector, leveraging cheaper energy and relatively lower wages, will pull production from leading European countries, Japan and China. Within six years, that production will capture $70 billion to $115 billion in annual exports that would have come from those countries. Furthermore, together with “reshored” manufacturing from China, where rising wages are undermining its competitiveness, the manufacturing shift could add from 2.5 million to 5 million jobs in the country, says “Made in America, Again,” from the Boston Consulting Group.

 

     “Over the past 40 years, factory jobs of all kinds have migrated from high-cost to low-cost countries,” says Harold Sirkin, a BCG senior partner, in a recent Fox Business article. “Now, as the economics of global manufacturing changes, the pendulum is finally starting to swing back.”

 

     In their BCG report, Harold L. Sirkin, Michael Zinser and Justin Rose write that the U.S. is steadily becoming one of the lowest-cost countries for manufacturing in the developed world. They estimate that by 2015, average manufacturing costs in the five major advanced export economies that we studied—Germany, Japan, France, Italy and the U.K.—will be eight percent to 18 percent higher than in the U.S. Among the biggest drivers of this advantage will be the lower costs of labor (adjusted for productivity), natural gas, and electricity. As a result, BCG estimates the U.S. could capture up to five percent of total exports from these developed countries by the end of the decade. The shift will be supported by a significant U.S. advantage in shipping costs in important trade routes compared with other major manufacturing economies.

 

     The most profound impact will likely be on industrial groups that account for the bulk of global trade, such as transportation equipment, chemicals, machinery, and computer and electronic products, BCG believes. Production gains will come in several forms. In some cases, for example, companies will increasingly use the U.S. as a low-cost export base for the rest of the world. In other cases, U.S. production will displace imports as both U.S. and foreign companies relocate the manufacturing of goods sold in the U.S. that otherwise would have been made offshore.

 

     The full impact of the shifting cost advantage will take several years to be felt in terms of new production capacity—and the magnitude of the job gains will depend heavily on the degree to which the U.S. can continue to enhance its global competitiveness, according to the BCG study. One of the biggest challenges facing U.S. manufacturers is the supply of skilled labor. The authors say their analysis shows that, in the short term, any U.S. manufacturing skills gap is unlikely to be significant enough to curtail a U.S. manufacturing resurgence. Rather, such shortages are more of a long-term risk if action is not taken soon to train and recruit new skilled workers.

 

     Now, BCG does also explain that companies should continue to maintain diversified manufacturing operations around the world. But at the same time, the firm does believe companies must be aware that the structural changes in production cost structures represent a potential paradigm shift for global manufacturing that warrants immediate attention.

 

     On the other hand, Mexico remains a favored near-shoring location. As a report from AlixPartners explains, Mexico has an established and capable industry to assist companies relocating operations, and its proximity to the North American market means lower inventory costs, easier management coordination, and improved cultural alignment with North American managers. Be that as it may, the U.S. remains the second most-attractive location for near-shoring or re-shoring—and the gap between the U.S. and Mexico has narrowed markedly in recent years.

 

     Does your company plan to relocate any operations—either to the U.S. or a nearby country? If so, what role has total delivered cost played in that decision-making process?

     Reading the news today reminds us just how turbulent parts of the world can be. Today our thoughts are on Egypt.

 

     You may have already seen or heard reports of violence today in Egypt as defiant supporters of deposed President Mohamed Morsy promised a “Friday of anger.”

 

     CNN reports that security forces fired tear gas at a mass of people on a major bridge leading to centrally located Ramses Square. A Reuters witness saw the bodies of 27 people, apparently hit by gunfire and birdshot, wrapped in white sheets in a mosque. A Reuters photographer said security forces opened fire from numerous directions when a police station was attacked. At least 20 people died in clashes elsewhere in Egypt, the new service reports.

 

     The fear is that the skirmishes foreshadow a violent wave similar to one that broke out Wednesday when hundreds were killed in clashes. CNN further notes that the Egyptian military says it will “deal firmly” with anyone who breaches the government-imposed curfew from 7 p.m. to 6 a.m. (1 p.m. to midnight ET), state TV reported.

 

     The violence last Wednesday left at least 580 people dead after security forces broke up huge sit-ins in Cairo, according to the Health Ministry. More than 4,000 were injured. Casualties included civilians, police officers and bystanders.

 

     With the escalating violence in mind, it isn’t surprising then to see that concerns about maritime attacks also continue to rise. Indeed, a maritime attack from Al-Qaeda or other affiliate terrorist groups is now increasingly likely according to maritime security firm Gulf of Aden Group Transits (GoAGT), an article on Maritime Executive now reports.

 

     The resurgence of Al-Qaeda and affiliate organizations is occurring alongside some of the worlds’ most strategically vulnerable and crowded waterways. The largely unforeseen consequence of the Arab Spring is that it has given terrorists groups a new lease of life and the means to do real harm to maritime activity in the Mediterranean, the Suez Canal and at other key strategic choke points, says Gerry Northwood OBE, COO of GoAGT, in the Maritime Executive article.

 

     “The growth of sea traffic has made the maritime industry a target-rich environment and it isn’t just the obvious targets like oil platforms and large cargo ships which are at risk, but the cruise liner industry provides Al-Qaeda with another opportunity to hit targets where the casualty numbers could be in the thousands,” Northwood says in the article.

 

     In particular, the latest developments in Egypt have seen a threat against the Suez Canal that resulted in bridge closures and vehicle searches for those crossing the canal via ferry. Recent arrests of insurgents indicate that they had plans and the capability to carry out attacks on Suez Canal traffic, the Maritime Executive article explains.

 

     It appears the State of Emergency and curfew declared yesterday (August 14) in Egypt is not affecting the Suez Canal transit convoy system. MarineLink notes that 14 of Egypt’s 27 cities, including Cairo, Alexandria, Ismailia and Suez, are covered by the State of Emergency and curfew, but Port Said is currently not among them. For now, operations at all Egyptian ports and in the Canal are running smoothly as normal, without any extra requirements or delays, MarineLink notes.

 

     It has been previously noted that if the Suez Canal were to close, ships traveling from Asia to Europe or vice versa (and from Asia to the U.S. East Coast and vice versa) would be forced to sail around southern Africa—requiring carriers to add additional ships into the Asia-North Europe services, increase the speed of their ships or a combination of both. That’s all possible, of course, but it would add time and extra cost to the supply chain. Nonetheless, some executives are taking steps to mitigate risk and ensure their supply chains are prepared as possible—just in case.

 

     Has turmoil in Egypt—or elsewhere—had an effect on your supply chain? Is there a business continuity plan in case there is trouble with the Suez Canal?

     I’ve been thinking about the importance of sharing data with suppliers to build stronger and more flexible supply chains. This kind of collaboration can improve their forecasting and distribution, boost quality and, ultimately, improve overall supply chain performance.

 

     For instance, in the late ‘80s, Walmart didn’t have the resources to develop focused analyses on a given product because it carried so many products. That changed in the early 1990s, when Walmart formalized its Retail Link system, which provided sales data—by item, store and day—to all of its suppliers, an IndustryWeek article explains. That’s because its suppliers not only had the resources for analysis, they had a significant vested interest in seeing their products’ performances optimized. Ultimately, these analyses and resulting information were used to lower merchandising cost for Walmart, and equally important, saved suppliers time and money in planning their production and distribution.

 

     What’s interesting is that a side benefit to Walmart and its customers has been that each of its suppliers also competed with each other to make Walmart smarter, allowing Walmart to pass on the savings. For example, supplier X might argue that Walmart should dedicate more shelf space to its products due to their high sales volume and profit margin, the IndustryWeek article explains. Supplier Y would then crunch the numbers and argue that reducing shelf space of its brand might not seem so negative, however shoppers of its product also often buy additional products that carry high margins for Walmart.

 

     Consequently, while supplier X and supplier Y jockeyed back and forth, providing greater insight with each analysis, Walmart gained a wealth of understanding about what was going on in its business. Each company brought an alternative approach to forecasting, estimated their own and cross-price elasticity and shelf out-of-stock rates, calculated store and DC fill rates, analyzed assortment decisions, estimated inventory investment and cost analyses, derived return on investment for the shelf space, and illuminated category trends and its drivers.

 

     Another example of a company sharing data with suppliers for mutual benefit is Delphi. As noted in an article on SupplyChainBrain, the Tier 1 manufacturer of a wide variety of automotive parts uses a Supplier Performance and Development Process (SPDP) to monitor 60 discrete processes that affect product quality, the SupplyChainBrain article notes.

 

     Furthermore, Delphi ranks each of its major suppliers against the quality-management system prescribed under the ISO/TS 16949 specification. Aimed at eliminating waste, defects and variation in product, the specification was developed expressly for the automotive industry.

 

     Delphi’s goal is to identify problems that affect downstream customers, as well as the manufacturer’s ability to gain new business, so the company performs hundreds of on-site audits, concentrating on those that pose the greatest risk to the supply chain as a whole, says Jeff Richards, director of global supplier quality and capability, in the SupplyChainBrain article. Each supplier gets a rating based on its volume, application, complexity and history with Delphi—and monthly scorecards detail any instance of non-conformance during that time—so the company can act on the information for continuous improvement.

 

     The program has yielded measurable results that are significant. So far this calendar year, Delphi’s suppliers have performed at the rate of three defective parts per million (DPM), which is better than the Six-Sigma standard. What really stands out for me though is that while 82 percent of suppliers shipped without generating a single defect in 2012, the number has grown so 87 percent of the suppliers have shipped without generating a defect this year. And as the SupplyChainBrain article further notes, considering that Delphi receives 6 billion parts per month, the results are even more noteworthy.

 

     What are your thoughts on sharing data and collaborating with suppliers? Does your company share data and collaborate with suppliers with a clear goal of strengthening relationships and improving supply chain performance?

     The U.S. trucking industry, primarily truckload carriers, grudgingly began to use the new Federal Motor Carrier Safety Administration (FMCSA) required Hours of Service rules last month. However, The American Trucking Association (ATA) filed suit in Federal Appeals court this spring to have the new rules thrown out on the grounds that the changes further restricting drivers’ ability to work and drive would add tremendous cost to the economy and undue burden onto drivers. The ATA brief at the time called the rules “arbitrary and capricious,” while providing minimal possible safety and health benefits, and questioned the validity of the cost-benefit analysis FMCSA had used to evaluate the proposal.

 

     At issue is that truck drivers would have to stick to a schedule that requires taking a 30-minute break in the first eight hours of driving, and see a new maximum workweek of 70 hours—down from 82 hours per week—with a “restart” of those 70 hours after a 34-hour break once a week. FMCSA and consumer groups believe the rules will lead to a reduction in truck-related accidents and deaths. Nevertheless, critics of the new rules note truck safety has already been increasing for years, and they question whether the changes will lead to any real further improvement, while costing the industry and shippers billions of dollars annually.

 

     Last week, in a decision that was not surprising to many, a federal appeals court in Washington D.C. upheld almost all of the new changes to the HOS rules. The only provision in the changes thrown out by the court in its decision was the requirement that even short haul drivers (less than 150 miles) had to take a 30-minute break.

 

     So the question now is, what’s it all mean? A recent Supply Chain Digest article noted that in the annual State of Logistics report she authors, transportation consultant Rosalyn Wilson wrote that carriers were estimating hits to productivity to be between two percent and 10 percent—and that something around five percent seems to be the consensus estimate. Indeed, in FMCSA hearings, Don Osterberg, senior vice president of safety and security at carrier Schneider National, said the tools Schneider has built to model its network showed a likely hit to productivity of about five percent, the article notes.

 

     The flip side of the coin is that the new rules will also impact drivers’ take home pay. Since most drivers are paid on per-mile basis, the new rules will constrain the amount of miles they can drive each week, so the rules will reduce drivers’ weekly take-home pay. The problem here, is that the market is already struggling to attract and retain drivers. According to some estimates, the industry is already short by about 30,000 drivers. Cutting drivers’ pay certainly won’t help attract or retain drivers.

 

     Schneider’s Osterberg said that his company would have to pay drivers an extra $3,000 per year to maintain their current wages. The choice would either be another upward push on rates from such increases, or an acceleration of losses in the driver pool if the carriers fail to act to keep take-home pay even.

 

     That’s where some form of balancing act will have to come in. If carriers must pay drivers more, then they’ll try to pass those costs on to their customers. If capacity is tight and shippers recognize how much they need trucks, carriers may be able to get sizeable increases. If, on the other hand, freight markets stay relatively flat, shippers might not be willing to pay those increases.

 

     Either way, it appears market changes are coming. An article in IndustryWeek notes that as capacity continues to tighten for trucking, manufacturers will continue shifting some of their goods to the railroads. Nonetheless, Wilson says we will experience “less reliable or predictable freight service as volumes rise but capacity will not increase fast enough to fully meet demand,” the IndustryWeek article reports.

 

     What do you think? Is the continued driver shortage having an impact on your company? What effect will the new hours of service have?