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2014

Last May, Jeff Bezos, CEO of e-commerce giant Amazon, told investors the company planned to significantly increase the number of robots it uses to fulfill customer orders by year’s end. At the time, approximately 1,000 robots were reported to be in use in Amazon’s warehouses. Bezos said the company planned to deploy approximately another 9,000 robots.

 

It now seems the company is well on its way toward achieving that goal. Amazon has outfitted several U.S. warehouses with wheeled robots that move stocked shelves to workers, instead of having employees seek items in long aisles of merchandise, according to people familiar with the matter, an article in the Wall Street Journal reports. Last summer, Amazon replaced four floors of fixed shelving with the robots in a 1.2-million-square-foot warehouse in Tracy, Calif., about 60 miles east of San Francisco, the people said.

 

The robots are built by Amazon’s subsidiary Kiva Systems, which it acquired two years ago for $775 million to increase the level of automation in its warehouses. All inventory is stored on “pods,” which are essentially cabinets. When a robot identifies the pod containing an item to be shipped, it swivels under the pod and lifts the pod off of the ground. The practice then calls for the robot to carry the pod through the warehouse to human workers, who will pull the individual items from the pods and pack them for shipment.

 

At the robot-equipped Amazon warehouses, 20 or more shelf-toting robots may be lined up in front of a picker, sources told the Wall Street Journal. Employees remove items from the robot-carried shelves and place them in bins, which are transported via conveyor belts to other workers who box the goods, label the boxes and place them on trucks for delivery.

 

Now, pickers at the facility stand in one place and wait for robots to bring four-foot-by-six-foot shelving units to them, sparing the workers from walking what sometimes amounted to as much as 20 miles a day through the warehouse, the Wall Street Journal article reports. Consequently, employees at some robot-equipped warehouses are now expected to pick and scan at least 300 items an hour, compared with 100 under the old system, current and former workers told the Wall Street Journal.

 

People familiar with the matter said the Kiva robots have been deployed at warehouses in California, Kentucky and Texas, among others, according to the Wall Street Journal. The full list of warehouses using the robots couldn’t be learned.

 

The robots can help Amazon easily cater to demand during the peak holiday season, when its customer traffic is at a high. The holiday season is crucial for Amazon as sales in November and December account for a major part of its annual revenues, a Zacks Equity Research report notes. Furthermore, with Amazon announcing bigger and better-selling holiday deals this year, faster sorting and packaging operations have become essential, the report explains.

 

This isn’t the end of Amazon’s plans for automation either. In an attempt to beef up its delivery system as a means to provide better customer services, the company has plans to develop a drone-based delivery service using airborne robotic drones to deliver packages to consumers in 30 minutes. In July, Amazon had requested the Federal Aviation Administration for permission to fly drones out of their test facility.

 

The FAA, however, is expected next month to propose rules for commercial drones that would mandate operators have pilot licenses and limit drone flights to daytime hours, below 400 feet and within sight of the person at the controls. It would seem those rules would prevent delivery drones being developed by Amazon and Google and others, but that remains to be seen.

 

In the meantime, what are your thoughts on Amazon’s use of robots in warehouses? Will this practice help Amazon continue to meet rising consumer expectations? Does your company have plans to use robots in warehouses?

It has been interesting to read about malware called “NotCompatible” because it particularly targets Android mobile phones. Lookout, a mobile security company that has been tracking the malware for two years, estimates between four million and 4.5 million Americans’ phones have been infected by the malware this year.

 

Attackers first infect legitimate websites with malicious code. Then, when victims visit the site from their mobile phone, they unintentionally download the code in what is commonly called a “drive-by download.”

 

Cyber-security experts say the intention of the attackers is to infect as many smartphones as possible, and then turn them into a so-called botnet which is a network of infected devices the attackers may use remotely for malicious purposes. The business problem is that if employees then use those phones at work, they again unintentionally introduce an opportunity for hackers to gain access to company networks.

 

The rise of NotCompatible and other ploys means that the reality is data breaches are now a matter of when they will occur, not if, writes consultant Adam Epstein of Third Creek Advisors in a recent BusinessWeek article. If Fortune 50 companies with nine-digit annual cyber-security budgets can’t prevent breaches, neither can small or mid-size companies, he writes.

 

Epstein goes on to dispel some other cyber-security myths in the article, including that executives don’t need to worry about cyber-security because the company’s IT department has it under control. Unfortunately, cyber-security is only partially an IT issue because it’s also a matter of corporate culture, employee training and physical security, Epstein writes. The result is executives also need to worry about disgruntled employees and the supply chain, not to mention small companies that have been recently acquired, he explains.

 

Another commonly held belief is that cyber-theft is about credit cards. Cyber-thieves have disparate goals that may include semi-benign mayhem, espionage, misappropriation or terrorism, Epstein writes. Credit card information is certainly a target, but other targets may include personal info, intellectual property, strategy memos, customer lists and other nonpublic information.

 

The situation may even be worse. In the manufacturing industry, cyber-theft targets may include designs, specifications, or research and development information, writes David Barton, managing director of UHY Advisors, in an article that ran on IndustryWeek today.

 

If the question isn’t if a cyberattack will occur but when will it occur, it makes sense then to prepare for such an attack. With that in mind, it’s critical for manufacturing businesses to have a data breach preparedness plan in place, Barton writes.

 

The starting point in planning for cyber-attacks is to implement an incident response plan (IRP) to ensure appropriate action if security is breached, Barton writes. An effective IRP will address preventative controls, timely detection of potential problems and rapid response to data security breaches, he explains.

 

The key components of a well-defined IRP begin with creating an incident response team composed of selected individuals from departments that will be involved when a data security breach occurs, such as executive management, information technology, human resources, public relations, legal, and operations, Barton explains. Data classification—such as “public/non-classified,” “internal use only” and “confidential”—is another critical component because it takes into account the type of data compromised by the breach when the team determines the appropriate response efforts and activities.

 

Another key step is to make sure appropriate training is in place. Incident preparedness training ensures that all company personnel are ready to handle data breaches before they occur, Barton writes. IRT members should be well versed in how to appropriately evaluate, respond and manage security incidents, he explains.

 

What position has your company taken regarding cyber-attacks? Does it have a plan, or team, in place in case such an attack occurs?

The idea of a shipping canal through Nicaragua that connects the Atlantic Ocean and Pacific Ocean has been discussed for more than 100 years. Earlier this summer, the plan was formalized. Now it seems work on the Nicaragua Canal will begin next month.

 

Hong Kong Nicaragua Development (HKND) Group won the contract to build the waterway and now aims to complete the canal within five years, although that may prove to be an ambitious goal. Paul Oquist, a close adviser to Nicaragua’s President Daniel Ortega, said construction of roads and a wharf for the Chinese-run $50 billion project would begin December 21, an article on the Guardian reports.

 

“The Nicaraguan people will get a big Christmas present,” Oquist said in an interview with the Guardian. “It has always been pending and now it can happen.”

 

Panama earns about $1 billion annually from its canal, so it’s easy to understand the appeal. Oquist predicted the canal would double the GDP of Latin America’s second poorest country and allow the Sandinista government to achieve a long-held goal of eradicating extreme poverty.

 

“There is nothing else in Nicaragua that could achieve that within our lifetimes—and it is within grasp,” Oquist says in the article. “It has never been closer than it is now.”

 

The planned 173-mile route across the isthmus between the Atlantic and Pacific is significantly longer than the existing 48-mile Panama Canal, which itself is being renovated. It’s also more ambitious. The Nicaragua Canal project is expected to include two ports, an airport, a resort and an economic zone for electricity and steel companies, with a 2,000-foot bridge that spans the canal. In the first stage of the project, engineers will start construction in of a wharf that can land giant trucks and excavators, which is necessary to begin building the needed infrastructure.

 

Considering how quickly the project is moving forward, it’s no wonder there are concerns the project lacks transparency and is being rushed without completing due diligence regarding its impact on society and the environment. The proposed canal will go through an indigenous reserve and several environmentally sensitive areas including Lake Nicaragua, the largest source of fresh water in Central America.

 

In 2012, Nicaragua passed a canal concession law, which makes HKND responsible for environmental assessment. The group in turn, contracted London-based Environmental Resource Management to conduct studies of the canal’s likely impact on the lake, wetlands and other ecosystems.

 

Oquist said extensive investigations had been carried out by ERM, U.S. consulting firm McKinsey and others, and cited a figure of $900m for the feasibility studies, the Guardian reports. He further explained the start of preparatory building work was just a form of hedging so the project could move forward rapidly once the green light is given.

 

“I think there is a lot of confidence. One reason is that the very same firms did a lot of pre-feasibility work,” Oquist says in the article. “No one makes a $900m bet without information, so you think they must have pretty good information from the pre-feasibility studies that this is going to work out.”

 

There of course has been considerable opposition from farmers and other landowners who believe the Nicaragua Canal will take valuable land from them. Some of the farmers have demonstrated against the canal.

 

However, Oquist predicts this too will be a non-issue—once compensation begins.

 

“This entire issue has a short shelf life. It will expire when compensation kicks in,” Oquist says in the Guardian article. “The criteria is that at the end of the day, everyone’s going to be better off than they were before … The ones who complain will be the ones who miss out.”

 

Environmental concerns aside, what are your thoughts on the Nicaragua Canal? Is there enough shipping business to warrant a canal in addition to the Panama Canal?

Faulty airbags are behind increasing problems for Takata, and in a ripple effect, for a growing number of automotive manufacturers. Earlier in the week, CNN Money reported the U.S. government has asked for a nationwide recall of vehicles equipped with exploding airbags made by Takata. Such a recall would be an expansion of a current recall which covers the potentially faulty airbag inflators in eight million vehicles made by 10 different automakers. Until now, the recall has been limited to vehicles located in warmer states with humid climates, mainly in the southern U.S.

 

The problem is the flawed airbags may inflate with too much force, causing them to explode and send metal shrapnel into the passenger compartment and injure or kill vehicle occupants. The airbags have been linked to at least five deaths and dozens of injuries. The National Highway Traffic Safety Administration (NHTSA) has said prolonged exposure to high humidity can cause the inflator propellant to burn too fast, which causes the metal canister to explode.

 

NHTSA Deputy Administrator David Friedman said earlier this week that Takata could face a fine of up to $35 million if it does not agree to the nationwide recall, CNN Money reported.

 

In the U.S. Senate Commerce Committee hearing today, Hiroshi Shimizu, Takata’s senior vice president of quality, said the Japanese parts supplier is “deeply sorry and anguished” about each instance when its airbag inflators didn’t perform as designed, AP writers Marcy Gordon and Tom Krisher report. He also told the Commerce Committee that Takata believes the regional recall is sufficient, and that Takata’s tests have not revealed any inflator ruptures outside the high-humidity zones, the AP story notes.

 

Honda is Takata’s largest customer and so far has recalled more than five million of its cars for airbag repairs. The company acknowledges that four airbag-related deaths occurred in Honda vehicles.

 

The interesting part of today’s hearing, and possibly an ominous foreshadowing of what is to come, is that Executive Vice President for Honda North America Rick Schostek said during committee questioning that the automaker violated the TREAD Act. The component of the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act at issue here, is the requirement for vehicle manufacturers to report information related to defects, reports of injury or death related to its products, as well as other relevant data to comply with so-called “Early Warning” requirements, to the NHTSA.

 

“I think we acted with urgency, but I do I think we could have moved faster in some respects; I absolutely do,” Schostek said, Gordon and Krisher report. “Have we met our obligations to report TREAD? We have not.”

 

Schostek did say Honda is conducting an internal review and will provide more information to regulators Monday. Nevertheless, his admission that Honda failed to adhere to TREAD reporting likely means the company will face action—including fines—from federal regulators.

 

Some lawmakers implied the airbag problem has been deliberately covered up by Takata. Other lawmakers criticized Honda and Chrysler for entering into confidential legal settlements in airbag lawsuits. As they explained, such confidential settlements keep information from the public.

 

“We’re here because of delay, nondisclosure” and deliberate concealment of the role of airbags in accidents when carmakers privately settled with victims’ families, said Sen. Richard Blumenthal, D-Conn., the AP story reports.

 

“Your company deliberately concealed the facts,” Blumenthal told Schostek.

 

One interesting point to the unfolding story is that Takata cannot produce replacement parts fast enough. However, allegations that Takata executives knew about the defective parts and covered up the information, and now a Honda admission that it failed in its TREAD reporting, introduce new elements. It will be interesting to see what, if any, impact these developments have on the automotive industry.

What do you picture when you think of “manufacturing plant floor?” To follow up, do you think there is a stigma associated with a manufacturing job?

 

Despite high unemployment since the recession, manufacturers still struggle to fill hundreds of thousands of job openings—typically citing a lack of skills among applicants. So one must ask whether enough is being done to recruit potential future workers as well as make manufacturing seem like an appealing career path.

 

A recent USA Today article puts a spotlight on a manufacturing program at a high school in Wheeling, IL. It’s one of a growing number of U.S. high schools that have launched or revived manufacturing programs in recent years to guide students toward good-paying jobs and help fill a critical shortage of skilled machinists, welders and maintenance technicians, the story explains.

 

Manufacturing courses were dropped from vocational education programs as the industry declined over the past three decades and no one tracks how many high schools offer them now. However, that may be changing. Project Lead The Way (PLTW) is a provider of K-12 STEM programs. As a nonprofit organization, it delivers programs to more than 6,500 elementary, middle, and high schools in all 50 states and the District of Columbia. Indeed, the group says the manufacturing class it designed for the Wheeling high school is now offered in about 800 schools—nearly twice as many schools as in 2009.

 

In their efforts to expand talent pools, manufacturers increasingly look to high schools and community colleges to fill current staffing needs and prepare for a continued wave Baby Boomer retirements. On the other hand, educators still struggle to dispel student’s misconceptions about the manufacturing industry, and also to get the students to consider a career in manufacturing before they choose other jobs or head to four-year colleges.

 

When the classes at the Wheeling high school started in 2008, instructors initially faced resistance from parents who are turned off by the manufacturing industry’s outdated image, and also are set on sending their children off to college, the USA Today article notes.

 

“You go up to a parent and you say ‘We have manufacturing classes’, and they walk away,” Wheeling teacher Michael Geist says in the article. “But you say ‘manufacturing-engineering’ and you show them the kinds of things kids are doing in class, and parents become excited.”

 

I do believe targeting high school students and promoting STEM along with manufacturing is a good idea, and one that’s necessary. I’m also interested in following news of President Obama’s Advanced Manufacturing Partnership (AMP), and subsequent news that the Department of Labor will launch a $100 million American Apprenticeships Grant Competition to launch new apprenticeship models in high-growth fields such as advanced manufacturing, align apprenticeships with pathways for further learning and career advancement, and scale apprenticeship models that work.

 

AMP members Dow, Alcoa and Siemens have already launched new apprenticeship pilots and developed a “how-to” guide for other employers interested in using apprenticeship as a proven training strategy. The group plans to release an online manual that provides a road map for schools and employers.

 

Do you think creating high school manufacturing programs and promoting manufacturing in high schools is a critical endeavor? Also, do you think there is still a stigma associated with manufacturing, and that parents try to steer their kids away from that career path? If so, what can be done to further educate parents and fight that type of thinking?

This has been an eventful day for Japanese automotive airbag manufacturer Takata, and by consequence, automotive manufacturers.

 

To begin with, a new death has been linked to Honda vehicles with defective Takata airbags. The Japanese automaker also announced it is expanding its Takata-related recalls since a driver in Malaysia died in an air bag-linked accident earlier this year. Honda spokeswoman Misato Fukushima said the latest death, in July, is believed to have been caused by a faulty Takata bag. That brings the number of deaths possibly caused by faulty Takata bags to five, and hundreds of injuries.

 

The airbags made by Takata have faulty inflators that can explode, hurling shrapnel toward drivers and passengers. Worldwide estimates of cars affected by Takata-related recalls range from 12 million to 17 million, and involve 10 automakers including Toyota, General Motors and Honda. About eight million of the recalls are in the U.S. Honda, which has reported the largest number of recalls related to defective air bags, said it is recalling 70,979 more vehicles outside the U.S.

 

Last week, quoting two former Takata employees, the New York Times reported that Takata—alarmed by a report a decade ago that one of its airbags had ruptured and shot metal debris at a driver in Alabama—secretly conducted tests on 50 airbags it retrieved from scrapyards. The steel inflators in two of the airbags cracked during the tests, a condition that can lead to rupture, the former employees said. The result was so startling that engineers began designing possible fixes in preparation for a recall, the former employees said, according to the New York Times.

 

However, instead of alerting federal safety regulators to the possible danger, Takata executives discounted the results and ordered the lab technicians to delete the testing data from their computers and dispose of the airbag inflators, the former employees say in the New York Times article.

 

Takata today disputed the NYT article. Instead, company officials say the tests were carried out on an airbag part that was unrelated to the inflator mechanism at the center of the growing crisis, explains an Agence-France Presse article running on IndustryWeek.

 

“Our company did not carry out such test [on inflators] in 2004, and we absolutely did not cover-up test results, as reported in the story,” a Takata official said. “This was not a ‘secret’ test...The story is based on an inaccurate understanding of the facts, and it defames our firm and employees,” the article reports.

 

The fallout has been noticeable. Takata’s shares have lost about half their value since an investigation was opened this summer. The ramifications also extend to automakers.

 

In light of the allegations that Takata covered up the fatal defect for years—investigators are now probing Honda over similar allegations, reports another Agence-France Presse article I saw on Japan Today.

 

“Instead of safely deploying airbags to protect vehicle occupants, the defective Takata inflators…explode, sending metal and plastic shrapnel into the vehicle cabin,” says U.S. law firm Hagens Berman, which is involved in a class-action lawsuit against Takata and Honda, the article reports. “Rather than take the issue head-on and immediately do everything in their power to prevent further injury and loss of life, Takata and Honda have engaged in a 10-year pattern of deception and obfuscation.”

 

Finally, in one more news story today, the Associated Press reports that a U.S. Senate committee will hold a hearing next week on recalls of potentially deadly air bags made by Takata. The Commerce Committee hearing will examine Takata’s air bag recalls as well as the government’s recall process.

 

What are your thoughts on the recalls and ramifications for automotive manufacturers?

It being Veterans Day, I was particularly interested to see that Whirlpool Corporation has been named one of the 2015 Top Military Friendly Employers by Victory Media Inc., a veteran owned company and ratings entity. Additional recognition for Whirlpool includes earning the Michigan Veteran’s Affairs Agency’s 2014 Bronze Level Award for commitment to military veteran recruitment, training and retention; and both the 2014 Pro Patria Award and recognition as a top veteran friendly employer among large companies by the Department of Defense’s Employer Support of the Guard and Reserve.

 

Whirlpool, the global manufacturer and marketer of major home appliances, is known for its brands that include Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Brastemp, Consul and Bauknecht. The company explains that it values America’s veterans and believes the skills they receive through military training are critical to our workforce. That’s why its Whirlpool Veterans Association (WVA) advocates veteran recruiting in partnership with Orion International—a provider of best-in-class military talent programs that allow organizations to attract, hire, develop and retain top quality veterans. Together, they have developed a mentorship program to help new hires with military backgrounds.

 

“As more and more veterans return to the workforce, it’s very important that Whirlpool Corporation and other companies with similar values acknowledge the talents veterans have to offer,” says Lynanne Kunkel, vice president of Global Talent Development and Human Resources at Whirlpool. “The skills these men and women learn in quick decision-making, teamwork and leadership are vital to creating a strong and talented workforce representative of the values the United States is founded on.”

 

Through on-boarding support for veterans and their families, Whirlpool helps veterans transition from military service to civilian life, the company explains. As part of Whirlpool’s mentoring program, veterans and mentors help new hires make the transition to new positions and progress to executive leadership. Members support and recognize veteran colleagues, give back through service and support community events.

 

Today, I also have the Get Skills to Work initiative on my mind because it helps service members translate military experience to the specific skills needed in the industry, and train for the skills they do not yet have. Led by the Manufacturing Institute, GE, Boeing, Lockheed Martin, Alcoa and more than 500 other small-, medium- and large-sized manufacturers—along with academic and not-for-profit partners—the coalition strives to train military veterans for advanced manufacturing careers, bolster the talent pipeline and enhance American competitiveness. The goal is to train 100,000 veterans by 2015.

 

There are two main elements to the Get Skills to Work initiative. The first is to match veterans’ skills to civilian job responsibilities to support hiring veterans for manufacturing jobs. The second goal is to accelerate training so veterans can quickly up-skill and be prepared for manufacturing careers. Not only will the initiative present opportunities for veterans returning from active duty, it will also support the skilled workforce needed in today’s advanced manufacturing industry.

 

The initiative continues to gain traction. Earlier this year, Get Skills to Work announced that more than 50 colleges are now part of the coalition helping veterans discover careers in advanced manufacturing.

 

What are your thoughts on training veterans for careers in manufacturing? Does your company have a plan of this sort?

 

Nearly a quarter of the respondents to a recent survey indicated their organization had suffered losses of at least $1.25 million during the previous 12 months (up from 15 percent last year) as a result of supply chain disruptions. What’s more, 13.2 percent of the survey respondents noted their organization suffered a one-off disruption that cost in excess of $1 million (up from 9 percent last year). The report, released earlier this week by the Business Continuity Institute (BCI), also shows that 40 percent of the respondents claim their organization wasn't insured against any of these losses while 20 percent of the companies were only insured against half of the losses.

 

None of that is to imply that supply chain disruptions aren’t widespread. Indeed, according to survey responses, 76 percent of the participating companies had experienced at least one supply chain disruption during the previous twelve months. Interestingly, 28 percent of the respondents also indicated their company still does not have business continuity arrangements in place to deal with such an event.

 

There are a number of other interesting findings as well. For example, 78.6 percent of the respondents say their company doesn’t have full visibility of its supply chains. Only 26.5 percent of the participating organizations coordinate and report supply chain disruption enterprise-wide. Nearly half of the supply chain disruptions cited by the survey respondents originated below the Tier 1 supplier.

 

The primary sources of supply chain disruption, as noted by survey respondents, over the past 12 months were unplanned IT and telecommunications outage (cited by 52.9 percent of the respondents), adverse weather (51.6 percent) and outsourcer service failure (35.8 percent).

 

When it comes to identifying the main consequences of supply chain disruptions within the past 12 months, loss of productivity was cited most frequently (58.5 percent of the responses)—for the sixth year running. It was followed by increased cost of working (cited by 47.5 percent of the respondents) and loss of revenue (noted by 44.7 percent of the respondents).

 

Finally, in a bit of good news, survey respondents report top management commitment to business continuity has risen (up from 21.1 percent to 28.6 percent of the organizations). Nonetheless, that still is a low commitment and, most likely, will coincide with limited investment in this key performance area.

 

“Top level management support is fundamental to driving improvement in supply chain resilience—I have witnessed the significant disruption cost reductions that have been achieved by companies that are proactive in this area,” says Nick Wildgoose, Global Supply Chain Product Leader at Zurich Insurance Group, which sponsored the survey. “This should be regarded as business change program in the context of driving value through Supplier Relationship Management and becoming the customer of choice for your strategic suppliers to improve your business performance.”

 

I suppose the takeaway from the findings is that there is a growing awareness that supply chain disruptions have the potential to be extremely costly. At the same time, budgets for business continuity and ensuring supply chain resilience are often slashed in favor of other priorities. However, considering the growing cost of supply chain disruption worldwide and the potential for considerable damage to a company’s reputation as a result of a failure to have supply chain visibility and business continuity plans in place, one must wonder what it will take for the situation to change.

 

Does your organization have executive support for business continuity?