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2015

 

I was interested to read last week that—after months of delays and cost overruns—the expanded Panama Canal is expected to be complete in April 2016.

 

Grupo Unidos Por el Canal (GUPC) is carrying out the extensive upgrade to the canal’s system of locks, which will allow the waterway to accommodate ships carrying up to 14,000 containers of freight. The group plans to begin final testing on 16 new locks in June, and finishing touches on the construction work would be complete by January next year, says Canal Administrator Jorge Quijano in an Agence France-Presse article.

 

Although the expansion project was initially projected to cost $5.25 billion, earlier this year it was reported that the project has incurred an extra $2.39 billion in overruns.

 

Earlier this month, I also saw more about the Suez Canal expansion project. Crews are working 24 hours per day to expand the waterway for two-way traffic. The military is directing the work, which involves digging a new waterway running for 35 kilometers (22 miles) parallel to the canal to end in the Red Sea—while deepening and expanding existing bypasses.

 

President Abdel-Fattah el-Sissi has said the project will play a critical role in efforts to revive the country’s damaged economy. The canal is one of Egypt’s biggest draws for foreign currency, pulling in a record $5.5 billion in 2014. With the expansion, the canal authority projects it can double the number of ships traveling the waterway daily to 97 by 2023, boosting toll incomes to $13.2 billion that year.

 

The government’s goal of more than doubling annual canal revenues in less than a decade may prove to be overly ambitious. The problem is that although more vessels may be drawn to the Suez Canal because there will be almost no wait time, any major increase in traffic also depends on a significant increase in European demand for increased shipping from Asia. Then again, shippers will also need to factor fuel prices and the canal’s fee structure into the equation to determine if it’s worth taking the Suez Canal or the long route around Africa.

 

Nonetheless, with global shipping trends moving toward the use of ever larger, slow-sailing container ships, the canal stands to maintain an advantage for years to come with the container trade. The expansion of the Panama Canal could draw some traffic between Asia and the U.S. East Coast. However, “the biggest, massive container ships will never be able to pass there as it can’t accommodate them, so that’s a natural advantage for the Suez Canal,” says Greg Knowler, a Hong Kong-based shipping expert from U.S. analysts JOC, in an Associated Press article.

 

The Suez Canal expansion does have the attention of shippers, even if they don’t have plans to ramp up operations immediately. Denmark-based Maersk, the largest single customer of the canal, says it wholeheartedly supports the project, calling it a “historic effort to enable more global trade and boost prosperity overall,” AP reports. What’s more, Keith Svendsen, vice president of operations at Maersk, says in the article that the Suez Canal is the company’s preference because it’s a shorter route, better for emissions, and the company has good cooperation with the canal authorities.

 

Will the expanded Panama Canal have an impact on your supply chain? What about the Suez Canal? Will it—as the Egyptian government hopes—draw more business to the region?

 

Toyota announced today it will boost the fuel efficiency of its vehicles’ powertrains—the engine and transmission. What’s perhaps more interesting, is, in a break from its traditional practice, the company will build more new models on common platforms to make use of shared parts on different vehicle models.

 

Toyota also aims to reduce the amount of capital investment required to prepare a production line for a new model by approximately 50 percent compared to 2008 levels.

 

“Through these combined projects, Toyota aims to shift to plants that are always competitive, rather than plants that depend on volume,” the company announced.

 

“Sudden and drastic changes in the business environment mean that conventional ways of thinking and doing business can no longer help us grow sustainably,” says Toyota President Akio Toyoda. “We are at a crossroads where we must now build a new business model.”

 

An integrated development approach for powertrain components and vehicle platforms will greatly improve core vehicle performance and product appeal, Toyota explains. Development of vehicles is also being grouped to promote strategic sharing of parts and powertrain components with the goal of reducing resources required for development by 20 percent or more, the company explains. What’s more, by working even closer with suppliers, Toyota intends to further reduce costs and reinvest the resulting resources into developing advanced technologies and strengthening product appeal.

 

Since 2013, Toyota has been increasing the versatility of its production lines, linking production of same-model vehicles across multiple plants and steadily increasing operational availability to make thorough use of capacity surpluses at each plant. Subsequently, the company explains, it has increased its total global load factor (line utilization rate) to more than 90 percent from approximately 70 percent in 2009.

 

Although rolling out new platforms and powertrain components will temporarily require increased production line investment, investment requirements are still expected to result in lower investment levels than those required in 2008. And, because Toyota’s strategic sharing of parts and components will allow multiple platforms and powertrain components to be added to a line for mixed production, the company predicts it will be able to respond flexibly to changes in demand and achieve significant reductions in overall production line investment.

 

There are, of course, many possible consequences. For example, the strategy, including use of more common parts, is quite efficient and has become a global automotive trend, Shigeru Matsumura, analyst at SMBC Friend Research Center says in an Agence France-Presse article. But Matsumura also says the approach could result in huge recalls if the same defective part was found across a company’s vehicle models.

 

“This strategy... can be a double-edged sword,” Matsumura says in the AFP article. “Toyota and other companies with the same practice are likely to boost their investment in improving quality control.”

 

It also remains to be seen what the fallout will be for Toyota’s suppliers. Historically, Toyota’s suppliers needed to design parts to meet specifications that were optimal for individual car models—even where other automakers employed globally compatible standards. Toyota’s plans will change that approach because the company will use global standards for certain parts. That, in turn, may force weaker suppliers out of the supply chain while presenting a growth opportunity for larger suppliers.

 

What impact do you think Toyota’s new strategies will have on its competitiveness? Secondly, how do you think its suppliers will react?

While executives at many companies are concerned about supply chain disruptions, slightly more than a third (35 percent) of manufacturing executives report they are “extremely concerned” about potential supply chain disruptions, according to new research.

 

Executives at more than three quarters of manufacturing firms (77 percent) believe increasing supply chain complexity is the fastest growing risk in business continuity, and suppliers operating in riskier countries are the fastest growing business continuity risk, according to the results of a survey conducted by business standards group BSI and the Business Continuity Institute (BCI). Malicious attacks via the Internet (cited by 68 percent of the respondents) and increased regulatory scrutiny (cited by 58 percent of the respondents) rounded out the top three business continuity risks.

 

As would be expected, risk exposure varies by industry. For example, the proportion of supply chains exposed to elevated, high or severe risk of natural disaster is highest for the apparel industry (85.6 percent), followed by automotive (53 percent), then aerospace (51 percent) sectors, according to the survey results. Each of these industries relies on a high proportion of manufacturing and raw material sourcing based in politically and geologically unstable regions.

 

Although the relative risks differ, the key lesson for organizations to consider is their planning for potential disruption. The automotive industry, for instance, suffered from the 2011 Japanese tsunami due to a global reliance on a single manufacturer of a particular pigment essential for metallic paint finishes. As a result of the disruption, production in the Japanese factory was halted for three months before normal operations resumed, which caused long-lasting delays across the automotive marketplace.

 

“Our data shows an alarming percentage of suppliers in a variety of industries are based in areas with significant risk of natural disaster or man-made disruption,” says Shereen Abuzobaa, commercial director at BSI Supply Chain Solutions. “Our experience shows that while companies are aware of and test for internal risks, they fail to map or assess risk effectively across their supply chain. More often than not, only the first tier of suppliers is considered with no thought given to those further down the supply chain. Testing and assessing every supplier across every tier is prohibitively time consuming for businesses. But by concentrating on higher risk suppliers, companies can be more effective and confident in mitigating risks.”

 

BSI offers a number of tips for business continuity planning, and the first one is to identify critical business functions. As the firm notes, once critical business functions have been identified, it’s possible to apply a methodical approach to threats to those functions, and to implement the most effective plans.

It’s also vital to understand and track past incidents with suppliers. To gain more insight, BSI recommends obtaining country-level intelligence to better understand what factors may cause a supply chain disruption—such as working conditions, natural disasters or political unrest.

 

Another key challenge is to assess and understand vulnerabilities and weak points, BCI explains. Given the complexities of supply chains, companies must conduct risk assessments to evaluate supplier capabilities to ensure their business continuity plans fit with your company’s objectives and are defined within the contract.

 

Finally, creating continuity plans is imperative, but they must be updated regularly to ensure they reflect current requirements. That means organizations engaged in business continuity management need to actively learning from their internal audits, tests, management reviews and even from incidents themselves on a continuing basis.

 

How much effort does your company put into business continuity planning? Secondly, how far—if at all—does the assessment extend past primary suppliers?

There is good news and bad news when it comes to cargo theft. The good news is that in 2014, the total number of incidents of cargo theft in the U.S. was down 12 percent from 2013, according to research from FreightWatch International. The bad news is that the average loss value per incident rose 36 percent in 2014.

 

FreightWatch tracks supply chain information and cargo thefts around the world. The firm recently released its 2014 report on cargo theft activity in the U.S.

 

There are several interesting points in the report. For instance, while violent cargo hijackings take place in other parts of the world, including areas of Europe, they are almost unheard of in the U.S. Instead, FreightWatch’s research shows that in the U.S., 90 percent of all cargo thefts in 2014 took place when trucks were stationary and unattended in unsecured parking areas. The most frequently targeted unsecured parking areas were truck stops (42 percent of the cargo theft), public parking (where 23 percent of the thefts took place) and roadsides (where 15 percent of the thefts took place).

 

“The reported severity of this is evident when compared to other similar western countries (such as in the UK or Germany) where a comparative number would be 20 percent,” FreightWatch notes. “U.S. criminals haven’t had to resort to escalating their tactics as a target-rich environment of unsecured opportunities continues to be present.”

 

Also of note, according to the report, 2014 saw a “refocus” on major urban areas, particularly those with major transportation networks. FreightWatch also forecasts that cargo theft in the U.S. is likely to increase in 2015.

 

“This is due, in part, to the continued increase in the level of organization and sophistication of criminal groups focusing on cargo, and the relatively minor penalties often associated with cargo crime,” the report explains. “In addition, the unsuccessful use of GPS and cellular jamming equipment has been observed in relation to cargo theft for the first time, illustrating the lengths that cargo thieves are willing to go to obtain their targeted merchandise.”

 

Finally, FreightWatch’s 2014 data shows that U.S. cargo thieves increasingly targeted shipments of electronics. Indeed, high-value electronics theft incidents tripled from 2013 to 2014, with the category seeing a 43 percent surge in the total average loss value of all electronics thefts, at $568,664. The report also notes that certain types or subtypes of products have “very strong state-specific trends,” such as automobiles and auto parts in Texas—where nearly one-quarter of all such verified product thefts occurred.

 

As the report notes, there is a growing need for companies to strengthen their supply chains by identifying and ensuring that drivers use secured parking whenever possible. What’s perhaps more troubling though, is that organized criminals now conduct surveillance on intended targets. Secondly, although thieves have not been successful using signal interference devices (jammers) to disable tracking technology used to protect against potential theft, it does present a new threat which must be addressed.

 

What are your thoughts on cargo theft? Does your supply chain have plans to address any of the emerging threats?

President Obama is in Cleveland, Ohio, today planning to talk about his plan to strengthen U.S. manufacturing by investing in new technology.

 

For starters, President Obama is expected to announce that the Department of Defense is launching a competition for leading manufacturers, universities and non-profits to form a new manufacturing hub focused on research and building prototypes of revolutionary fibers and textiles with what the White House calls “extraordinary properties.” The $75 million federal investment will be matched by more than $75 million of private sector resources.

 

The competition will be nationwide, but Obama is expected to note that the concept of such a research center—an expansion of the National Network for Manufacturing Innovation—started in nearby Youngstown, Ohio. Called “America Makes,” the Youngstown center started in 2012, bringing together researchers from industry, academia and government.

 

The President is also expected to explain a $320 million competition to strengthen small manufacturers. Non-profits in 12 states will compete for $158 million in Federal funds matched by $158 million or more in private investment over five years to provide technology and engineering expertise to small manufacturers through the latest round of competitions to strengthen the Manufacturing Extension Partnership (MEP)’s network of centers in these states.

 

A new White House and U.S. Commerce Department report titled, “Supply Chain Innovation: Strengthening America’s Small Manufacturers,” describes what it calls a dense network of small manufacturers that make up the backbone of America’s supply chains. These manufacturers play an increasingly important role in U.S. supply chains and the manufacturing sector overall because they employ 42 percent of all U.S. manufacturing workers.

 

Dense networks of these small manufacturers are vital to the process of taking a product from concept to market, and the exchange of manufacturing know-how across suppliers is essential for the diffusion of the new product ideas and innovative processes that give U.S. manufacturing its cutting edge, the report explains. However, small manufacturers face steep barriers to innovation—from invention, to commercialization, to the diffusion of new technology. For example, small manufacturers contribute less than one-third of all manufacturing R&D, despite making up 98 percent of manufacturing firms, and as a general rule, small firms are one-seventh as likely as large firms to conduct R&D, according to the report.

 

As a result, small manufacturers are often in the positon of having to adopt technologies invented by others. They also face unique barriers in accessing the capital and expertise to take on the risk of new technologies. One of the results of the challenges they face in adopting new technologies and processes, is that small manufacturers are only 60 percent as productive as large manufacturers, according to the report.

 

The White House Supply Chain Innovation Initiative will focus on public-private partnerships and new federal efforts to strengthen U.S. manufacturing overall by addressing the challenges small manufacturers face because, as the report notes, strengthening America’s supply chains and the small manufacturers at their core is essential to the long-term competitiveness of U.S. manufacturers both large and small. Manufacturers spend on average 60 percent of the price of their final product on purchased inputs, the report explains, so differences in the quality and nimbleness of their supply chains can make or break a manufacturer’s ability to compete.

 

What are your thoughts on initiatives to strengthen small manufacturers, and therefore manufacturing supply chains overall? Secondly, what impact would such initiatives have on your supply chain?

Automotive suppliers face growing pressure to simultaneously meet two conflicting customer demands: to cut costs and to open more factories in fast-growing emerging markets to be closer to their customers’ production plants. Achieving the right balance between cost and proximity in global manufacturing networks will be one of the industry’s greatest challenges, according to a new report by The Boston Consulting Group (BCG), conducted in partnership with the Fraunhofer Institute for Manufacturing Engineering and Automation IPA.

 

A recent BCG survey of auto suppliers found that most of the respondents—86 percent—are under increasing cost pressure from their automotive customers. These suppliers will bear the brunt of deeper-than-usual cost reductions mandated by large automakers, some of which plan to cut annual spending by four to six percent, according to the report, “The Proximity Paradox: Balancing Auto Suppliers’ Manufacturing Networks.”

 

At the same time, suppliers are also under intense pressure from their customers to localize production. Suppliers surveyed for the report note that they expect to increase their number of global manufacturing sites by an average of nine percent over the next five years.

 

Meeting these cost targets will be especially difficult because auto suppliers’ production networks have been growing more globally dispersed and complex. For example, in 2009, the suppliers that the report’s authors interviewed had 66 percent of their manufacturing sites in the “triad economies” of Western Europe, the U.S., and Japan. That share is now down to 58 percent—and is expected to decline to 47 percent in 2019.

 

The study also found that more suppliers based in triad economies are becoming truly global players. Indeed, the number of companies in the study with lead plants, the sites of core manufacturing operations, in China is expected to double in five to 10 years. The BCG researchers found that the number of lead plants is also expected to increase 29 percent in Mexico, by 50 percent in Eastern Europe, and by 50 percent in the rest of developing Asia—a region that includes India and the Southeast Asian nations.

 

To address what the authors call the “proximity paradox,” they recommend that suppliers adopt a more comprehensive approach to adjusting their manufacturing networks. This approach should balance the necessity to have certain production close to customers with a cost analysis that goes beyond direct factors such as labor rates, materials and shipping. A manufacturing-network-optimization program should encompass improvements to the global supply chain, organization structure and manufacturing processes, the authors write.

 

“To be really successful, these programs must be on-going so suppliers have the flexibility to adjust their manufacturing footprints in response to shifts in global cost, market demand and technology trends,” says Frank Lesmeister, a BCG associate director and one of the report’s coauthors. “For many suppliers, this will require at least some transformation of their organizations.”

 

Suppliers should begin by gaining a full understanding of the strengths and weaknesses of their current manufacturing network and their ability to make adjustments. The authors recommend that suppliers conduct a thorough “health check” of their optimization programs that assesses the past performance of the network and whether current capacity in a region can meet projected demand. The health check, the authors explain, should also evaluate capabilities and managerial responsibilities across the network, examine the tools and methods used to identify and quantify improvement opportunities, and determine whether the capabilities and processes are in place to implement the strategy and adjust the network.

 

If you work for an automotive supplier, do you agree with the industry assessment stated in the report? If your company is under pressure to cut costs and also move production closer to customers, whether you are in the automotive industry or not, what do you think of the authors’ assessment?

As organizations continue to outsource, form partnerships and share data with a growing number of third parties, they become vulnerable to security risks that lie beyond their internal networks. Indeed, high profile breaches over the past year show that network vulnerabilities of seemingly low-risk vendors may lead to data breaches at large corporations. Surprisingly, although IT decision makers have significant interest in tracking third-party security, only a few organizations do so with necessary frequency, according to the findings of a new survey.

 

The study, “Continuous Third-Party Security Monitoring Powers Business Objectives and Vendor Accountability,” is based on surveys of IT security and risk-management decision makers in the U.S., U.K., France and Germany. Conducted by Forrester Consulting on behalf of BitSight Technologies, the study’s findings show that third-party security is a top business concern for executives. However, while there is a growing realization of the need to monitor third-party security, there also is a significant disconnect in resources available to adequately and objectively manage, according to the report.

 

“Across the nine types of third-party information we surveyed IT security decision-makers about, an average of 59 percent of the respondents indicated a desire to track and monitor,” according to the Forrester authors. “Yet across those same nine information types, an average of only 22 percent of the companies track with monthly or greater frequency.”

 

For instance, Forrester researchers found that when it comes to tracking third-party risk, critical data loss or exposure (cited by 63 percent of the respondents) and the threat of cyber-attacks (cited by 62 percent of the respondents) ranked as the top concerns. Interestingly, those concerns seem more pressing to IT decision makers than standard business issues, including whether the supplier could deliver the quality and timely service as contracted (cited by 55 percent of the respondents). On the other hand, despite the need for more robust insight into third-party security practices, only 37 percent of the survey respondents reported tracking any of these metrics on a monthly basis, the report notes.

 

Another key finding is that most of the respondents believe that continuous third-party monitoring would lead to a major improvement in their security effectiveness in key areas, such as event identification time (cited by 76 percent of respondents), event remediation time (72 percent of responses) and response times to high-profile events (71 percent of responses). I was also interested to see that 63 percent of the respondents believe continuous third-party monitoring would improve their ability to screen vendors based on potential risk.

 

“The supply chain has become a cyber-security minefield for companies, as we’ve seen with breaches caused by third-party vendors at Target, Neiman Marcus, Goodwill, Home Depot and many more,” says Stephen Boyer, CTO and co-founder of BitSight Technologies. “Continuous, data-driven monitoring of third-party security vulnerabilities and threats has become essential for effective vendor risk management.”

 

I’d like to know your thoughts on potential risk from third-party partners, vendors and suppliers. Is your company like many of those surveyed for the report in that although there is interest in tracking third-party security, it isn’t done frequently?

When high school students are motivated and also have supportive teachers and administration, they can accomplish a great deal. Such is the case with Claire Wild and Shay Kiker, who are interested in all things STEM (science, technology, engineering and math). In 2013, they co-founded a club at Glenbard West High School in Glen Ellyn, Illinois, to provide an outlet for like-minded students to share and develop their STEM interests.

 

“Science isn’t just someone in a lab coat,” Kiker says in a U.S. News & World Report article, recognizing early that there are plenty of misconceptions about what it means to work in science or engineering. Wild also realizes there are aspects of STEM in almost every career field.

 

Wild and Kiker also want to make sure that 13- and 14-year-old students at their alma mater, Hadley Junior High School, understand this as well. Toward that end, the young women took it upon themselves to fill the information gap, rebrand science and technology as not only fun, but practical, and erase whatever “uncool” or derogatory connotations remain, U.S. News reports.

 

“Our goal is to educate eighth graders right before they enter high school [when] they’re about to make decisions about coursework,” Wild says in the article. “Because maybe they’re interested in [science or math], but they don’t really know a lot yet.”

 

To do that, in February 2014, the Glenbard West STEM Club sponsored its first-ever Project Innovation (Project I) conference, bringing together dozens of top players in STEM fields including Google, Fermilab, BP Oil, Northwestern School of Medicine, University of Chicago Biomedical Research and the Adler Planetarium. They are currently about to kick off their second Project I conference.

 

At the conference in 2014, representatives spoke with 420 Hadley students—about one-third of the junior high’s population—during a series of breakout sessions at the half-day conference, giving the students a quick introduction to a variety of fields and a chance to hear from real scientists and real engineers.

 

“At the end of the day, what Project I is trying to do is help students understand the diversity of careers that are available to them,” says Dr. James Elliott, an assistant professor at Northwestern University’s Feinberg School of Medicine, in the U.S. News article. “It opens up their minds to what’s available, and helps them see at an early age what day-to-day life looks like for one of these individuals—and how did they get there, and how did they actually navigate this pathway through high school, through college and then the steps that they took to become successful today.”

 

Another avenue to reach teens and explain and demonstrate the importance of STEM is for companies to create their own STEM initiative. A recent Forbes article offered some tips on how to promote STEM by forming partnerships with local high schools and colleges. Some of the other advice in the article includes develop mentorship programs; create a scholarship in the company’s name for students in the STEM field at a college or university near your headquarter’s location; recruit employees from various departments to visit schools to speak about their jobs and conduct classroom demonstrations to help create enthusiasm; and encourage field trips to your facilities, especially when the projects are visually appealing or exciting.

 

What are your thoughts on promoting STEM in middle and high schools? Does your company have a partnership with any local schools?