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2015

 

As progress continues on the Panama Canal expansion project, work also moves forward at various U.S. ports. Other efforts may begin soon to deepen part of the lower Mississippi River so it too may accommodate larger post-Panamax sized vessels.

 

The Panama Canal project includes the construction of a new set of locks, which will create a new lane of traffic along the Canal and double the waterway’s capacity. The existing locks allow the passage of vessels that can carry up to 5,000 TEUs. After the expansion, larger, so-called post-Panamax vessels capable of carrying up to 13,000 TEUs will be able to move through the Panama Canal. The problem is those larger ships will require considerably deeper ports, which is why numerous U.S. ports have expansion and dredging projects underway.

 

Other port officials are evaluating options. For example, Jacksonville, FL officials recently announced the city is considering a $766 million project to deepen its St. Johns River shipping channel from 40 to 47 feet to accommodate those ships.

 

The U.S. Army Corps of Engineers has also announced plans to draft a supplemental environmental impact report looking into expanding an area of the Mississippi River Ship Canal between Baton Rouge and the Gulf of Mexico. The plan would deepen the section of the river from 45 feet up to a maximum of 50 feet to accommodate larger vessels destined for the Panama Canal.

 

This isn’t the first time the idea has been discussed. The plan to deepen that portion of the Mississippi River has been under consideration since the 1980s, when an environmental impact study originally recommended deepening the navigational channel between Baton Rouge and the Gulf of Mexico to a depth 55 feet. However, with the completion of the Panama Canal set for next year, the U.S. government is again working to ensure Mississippi River ports can accommodate the larger vessels.

 

The Army Corp expressed interest in the project, stating, “there may be economic justification in expanding port projects to accommodate post-Panamax vessels,” the New Orleans Times-Picayune reports. The Corps will study the environmental impacts of the project, as well as its price tag—which could reach $300 million—to determine whether the project’s cost is justified by the expected benefits, the article explains.

 

Then again, it isn’t just U.S. ports that are working on expansion projects. A recent Latin America Herald Tribune article reports that, according to official media, Cuba plans to transform the northwestern port of Mariel into the country’s largest port and also a regional trading hub. The port has already been dredged to a depth of 60 feet to accommodate post-Panamax vessels. The containers terminal being built at Mariel, 28 miles west of Havana, will be an important entry and departure point for merchandise and the heart of the Special Development Zone at the port complex, state television said in a report.

 

A Cuban construction firm and Brazilian engineering firm Odebrecht are in charge of the expansion plan, which is said to have a cost of $900 million, including a $640 million Brazilian loan. Projects being carried out at Mariel’s Special Development Zone include a 6,550-foot dock capable of accommodating deep-draft vessels and a terminal with the capacity to receive three million containers a year, the Latin America Herald Tribune article reports. Port Mariel also will have a road and rail network that connects with existing highways to guarantee efficient handling of the additional traffic generated by the port expansion.

 

How do you think the expanded Panama Canal will affect your company’s supply chain? Secondly, are you also watching U.S. ports to evaluate their capabilities?

 

I somewhat expected the results of a survey to show slightly more than one-quarter of professionals said their organizations experienced supply chain fraud, waste or abuse during the past 12 months. I was surprised, however, to also see that 26 percent of the respondents said their companies have no program in place to prevent and detect those risks, according to a report from Deloitte Financial Advisory Services about a poll conducted earlier this year.

 

“When we ask executives overseeing supply chains why fraud risk management isn’t more top of mind, they consistently say compliance resource constraints are to blame,” says Larry Kivett, partner, Deloitte Financial Advisory Services LLP. “With reputational, litigation and regulatory repercussions hanging in the balance, companies can’t afford to dismiss supply chain fraud prevention and detection. Schemes constantly evolve and come from every direction, making vigilance crucial.”

 

Financial fraud may take many shapes. For instance, employees may forge entries on expense accounts or other allocated charges, or a vendor may falsify labor charges. At the other end of the spectrum, there may be collusion between a company employee—usually in a procurement role—and an outside party. In some cases, the buyer may receive kickbacks or other financial incentives in exchange for using the vendor’s services.

 

Indeed, 22 percent of the respondents to the Deloitte survey said employees were the top identified source of supply chain fraud risk. Vendors and other third parties, which would include subcontractors and their vendors, were also frequently cited by the survey respondents as top supply chain fraud risks.

 

“Don’t fall into the ‘it can’t happen at my company’ trap,” says Mark Pearson, principal, Deloitte Financial Advisory Services.  “Forces outside your company aren’t always to blame. Employees often leverage transactions involving vendors and third parties to their own benefit via supply chain fraud. When collusion is involved, detection and prevention is quite difficult.”

 

The good news is that almost two-thirds of the respondents reported their company conducts at least some due diligence on their third parties. Furthermore, nearly a third of the respondents say their company evaluates supply chain fraud risks that third parties present on an annual or more frequent basis.

 

When checking for supply chain fraud, waste and abuse, there are several warning signs to look for, according to Deloitte. They may include:

•Bidding/procurement processes which aren’t robust or independent;

•Lack of sufficient clarity in third-party invoice details;

•Poor or strained relationships with certain third parties;

•Infrequent or non-existent “right-to-audit” assessments of suppliers and licensees’ practices;

•Little-to-no oversight into proper administration of agreements with third parties; and,

•Use of third-party agreements that are sole-sourced without a clear explanation or are constructed as cost-plus agreements without clear definitions of cost and other relevant terms.

 

“Since every supply chain’s unique risk profile stems from a mix of cultures, geographies, industries and subcontractors, developing an effective supply chain forensics program is often more art than science,” says Pearson.  “But, if you know where to look, red flags and other faint signals can help you focus limited resources to drive supply chain transparency and efficiency while reducing fraud, waste and abuse risks.”

 

What are your thoughts on supply chain fraud? Does your company have a fraud risk management program in place?

As the scope of the Takata airbag recall expands, it now seems its impact is broader and deeper than expected. Some automotive experts now predict it will take at least two years, and as many as five, to replace potentially defective Takata airbags.

 

Earlier this week, airbag manufacturer Takata agreed to declare 33.8 million of its inflator mechanisms defective, which doubles the number of vehicles that have been recalled in the U.S. so far. The defective Takata airbags may inflate with too much force, blowing apart a metal canister and spraying metal shrapnel into the passenger compartment. The airbags are responsible for six deaths worldwide and more than 100 injuries. The recalls affect vehicles from Honda, Nissan, Fiat Chrysler Automobiles NV, Toyota, BMW, Mazda, Ford, General Motors and others.

 

One of the problems is that demand for replacement airbags far exceeds Takata’s capacity. Takata says it has so far made just under four million of the replacement airbags, most of which have been installed. The manufacturer is currently building 500,000 replacement airbags a month, and expects to double that capacity by September.

 

In the meantime, Swedish parts maker Autoliv, the world’s largest airbag manufacturer, is also rushing to fill the demand, a CNN Money article reports. The company plans to build 25 million replacement airbags by the end of next year.

 

However, locating all the owners of the 34 million cars affected in the U.S. and getting them to take the cars in to dealers also presents a significant challenge. Plus it will be challenging for dealers to repair so many vehicles.

 

Compounding matters, approximately 25 percent to 30 percent of the cars will never be repaired, says Kevin Pollack, vice president for Stericycle ExpertSolutions, in the CNN Money article. That would leave about 10 million cars on the road with defective airbags. Some of the cars are nearly 15 years old and have had multiple owners, which makes identifying the current owners difficult, he says. Furthermore, given that the recall covers so many brands and roughly 60 different models, even car owners who have heard about the recall might not know if their car is affected.

 

What’s unusual is that since this is the largest recall in U.S. history, U.S. safety regulators want to take steps to manage the recall so cars may be fixed faster. Indeed, the National Highway Traffic Safety Administration now says the recall involving 11 manufacturers has created a patchwork of solutions that may not fix the problem quickly enough, an AP article reports. Considering the sheer complexity of the recall, the agency has, for the first time, started the legal process asking for input on how it can control production, delivery and installation of replacement airbag inflators.

 

“The number of impacted vehicles and manufacturers in combination with the supply issues related to these airbag recalls adds a previously unprecedented level of complexity to this recall,” NHTSA Administrator Mark Rosekind wrote in papers posted Thursday in the Federal Register, the AP article reports.

 

To accelerate the recall process, NHTSA wants input from manufacturers on how it should order production of replacement parts from manufacturers other than Takata, how it should prioritize where the new parts should be sent first and whether the agency should schedule another recall of cars that have received replacements, according to the article. That’s because some of the replacement inflators are among those that Takata declared defective earlier this week.

 

Perhaps the largest issue is the question of what consumers think. Will the particular nature of the airbag recall prompt consumers to be more proactive in trying to get their vehicles fixed? Will the way dealers handle the recall have any lasting effect on consumer confidence?

 

What are your thoughts?

Automotive airbag maker Takata Corp. has agreed today to declare 33.8 million of its inflator mechanisms defective. The announcement basically doubles the number of cars and trucks that have been recalled in the U.S. so far.

 

The problem with the defective Takata airbags is that they may inflate with too much force, blowing apart a metal canister and spraying metal shrapnel into the passenger compartment with enough force to injure or kill vehicle occupants. The airbags are responsible for six deaths worldwide and more than 100 injuries.

 

The announcement was made by the National Highway Traffic Safety Administration (NHTSA), which reached an agreement with Takata after scuffling with the company for the past year over the size of the recalls and the root cause of the problem with millions of airbags. It will be the largest recall in the agency’s history.

 

In the meantime, all the automakers with cars that have Takata airbag inflators began their own national recalls. Takata’s affected customers in the U.S. market include Honda, Nissan, Fiat Chrysler Automobiles NV, Toyota, Bayerische Motoren Werke AG, Mazda, Ford and General Motors. Together, they have—so far—recalled 17 million vehicles in the U.S. and more than 36 million worldwide because of the problem.

 

Interestingly, just last week, Honda, Toyota and Nissan recalled more than 11.5 million cars worldwide. First Toyota and Nissan recalled 6.5 million vehicles worldwide. The next day, Honda recalled close to 5 million vehicles fitted with potentially faulty Takata airbag inflators.

 

At this point, two elements really stand out. The first is that the agreement may speed the process of resolving the global airbag inflator crisis. Takata, its automaker customers and U.S. regulators have had trouble getting to the root cause of the problem, and millions of customers are still unable to get their cars fixed due to a shortage of replacement parts.

 

Recall repairs have been slow since Takata has been unable to meet demand for replacement inflators. As of last month, Honda said it had fixed 19 percent of the recalled inflators—even though some of the recalls date to 2013. Last week, Honda announced it would use replacement parts supplied by Takata competitors Autoliv and Daicel, as well as by Takata itself.

 

Secondly, there remains quite a bit of animosity over the way Takada officials have handled the whole situation. For example, NHTSA in February began fining Takata $14,000 a day for not completely answering questions about airbag inflator production and company efforts to investigate the explosions. The fines are reported to have reached about $1 million. Takata has denied it wasn’t cooperating fully with the investigation.

 

“Takata should have been much more aggressive before now in protecting passengers through a national recall,” says Senator Richard Blumenthal, a Connecticut Democrat, a recent BloombergBusiness article reports. “In the meantime the Department of Justice should be taking appropriate action to investigate and impose penalties.”

 

Then again, Takata also faces multiple class-action lawsuits in the U.S. and Canada. An article last fall in Japan Today even reports one lawyer involved in a class-action lawsuit has said “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.”

 

The biggest challenge may well be one of supply and demand. If Takata has struggled producing replacement parts so far, it surely will have production issues now that the number of effected vehicles will double. What impact do you see this having on the automotive supply chain?

 

Last week driverless 18-wheel trucks made news, now it’s time for driverless cars to be in the spotlight. Google announced today in a blog post that several of its self-driving cars are leaving the corporate campus, and will begin driving around Mountain View, Calif.

 

California law requires self-driving vehicles to also have manual controls during testing, so while the prototype vehicles are designed without a steering wheel or foot pedals, the test vehicles will have removable versions of those manual systems. Human “safety drivers” will have access to a steering wheel, and gas and brake pedals, and they can take over driving if needed. Google is capping the vehicle speeds at 25 miles an hour.

 

The announcement comes days after Google disclosed accident data to show that its self-driving cars are safe. The company admits its cars had been involved in 11 “minor” accidents over a six-year period. None of the accidents were the fault of Google’s cars, the company posts, and there were no injuries.

 

There is a clear need for this type of vehicle, which may lead to a “revolution for personal transportation,” according to Google. “Vehicles that can take anyone from point A to point B at the push of a button could transform mobility for millions of people, whether by reducing the 94 percent of accidents caused by human error, reclaiming the billions of hours wasted in traffic, or bringing everyday destinations and new opportunities within reach of those who might otherwise be excluded by their inability to drive a car,” the company wrote in the blog post today.

 

This isn’t the first time Google has put driverless cars on public roads. It previously tested modified Lexus sport-utility vehicles. But this is the first time Google is using its fleet of small cars. Chris Urmson, who directs the project, says Google is looking forward to learning how the community perceives and interacts with the vehicles, and to recognizing challenges which are unique to a fully self-driving vehicle—such as where the vehicle should stop if it can’t stop at its exact destination due to construction or congestion.

 

As would be expected, Google isn’t the only company interested in self-driving cars. Earlier this year, The New York Times reported that Uber is working to open a research and development center in Pittsburgh to study the field of autonomous cars. Uber’s new institute, called the Uber Advanced Technologies Center, will be a joint initiative with Carnegie Mellon University. It will also pair Uber with researchers from the National Robotics Engineering Center.

 

Uber is positioning the research center as a long-term bet. Aside from its private car service, Uber has experimented with food delivery, cargo transportation and courier services, among other offerings. So as the Times article reported, an autonomous car service could broaden Uber’s service, even if it is years away from becoming reality.

 

Furthermore, Swiss telephone firm Swisscom has also announced it is testing a driverless car on the roads of Zurich. The Volkswagen Passat has been equipped with sensors, computers and special software, company official Christian Petit told reporters, an Agence France-Presse article notes. The computer drives, steers and brakes the car, and uses laser scanners, radar and video cameras to detect nearby vehicles, pedestrians and road users.

 

Swisscom isn’t turning into a car manufacturer, however future innovations in the automotive industry will center on networking with the environment, Petit says in the article. The driverless car is a prime example of digitization, and therefore is of great interest to Swisscom, Petit says.

 

What are your thoughts on driverless cars? Obviously the increased use of electronics and software—along with radar and sensors—will add complexity to automotive design as well as supplier offerings. What other potential impact do you see for the supply chain?

 

 

I was interested to see that UI Labs’ new Digital Manufacturing and Design Innovation Institute opened earlier this week on Chicago’s Goose Island. Also known as DMDII, the institute is the first in the nation to unite university and industry partners, and enable them to collaborate side-by-side so they may, as UI spokespeople put it, “work to reinvent U.S. manufacturing for the 21st century with the goal of speeding industrial innovation.”

 

The key is that the institute will be home to university researchers and teams of corporate engineers and software developers working to help embed digital innovations into the U.S. manufacturing infrastructure. UI Labs was awarded $70 million from the government to fund the DMDII, which will leverage $250 million in commitments from leading industry partners including Council members General Electric, John Deere, Procter & Gamble and Lockheed Martin, as well as other academia, government and community partners to form a $320 million institute.

 

The facility may be looked at as equal parts high-tech industrial research lab, showcase for companies looking to build their digital manufacturing and maker of cutting-edge, specialized industrial products. It features a 24,000-square-foot manufacturing floor filled with the digital manufacturing equipment, including a large 3D printer, as well as work space and conference facilities.

 

What’s perhaps most critical, is the institute will bring together large corporate partners with small and mid-level manufacturers, including startups, explains UI Labs executive director Caralynn Nowinski. Consequently, the institute will bring the “best and the brightest” together to solve the world’s toughest challenges, she says in a Chicago Tribune article.

 

Indeed, Nowinski says project teams, which will be funded both by government grants and corporate matching funds, must include representatives from large and small companies, as well as university partners.

 

“We need to bring all these different institutions together,” Nowinski says in the Tribune article. “That’s what creates powerful partnerships.”

 

Big and small companies alike realize the need for such an institute, although it mainly strikes a chord with large companies. Jason Harris, UI Labs director of corporate marketing and communications, says big companies in particular are realizing the benefits of collaborating with their competitors to speed innovation and cut costs.

 

“The lone ranger approach is being replaced by the collaborative approach,” Harris says in a second Chicago Tribune article.

 

One case in point is Rolls-Royce. Dan Hartman oversees the construction of the manufacturing floor at DMDII, but actually works for DMDII top-tier partner Rolls-Royce in Indianapolis, where he oversees engine manufacturing. By agreement with DMDII, he now spends 40 percent of his time working for Rolls-Royce and the rest working in Chicago. Hartman says the institute in Chicago will help transform American manufacturing and ultimately spur long-term U.S. economic growth and job creation. To do that, the institute must bring in smaller companies because they make up essential links in the industrial supply chain for bigger players, he says.

 

“One of the biggest impacts we’ll have is the digital integration into the supply chain,” Hartman says. “That will have a huge ROI impact for us.”

 

What are your thoughts on the institute? Secondly, what do you consider to be the largest potential benefit of having small, mid-size and large companies collaborate along with researchers?

 

You may have seen news last week that Daimler Trucks North America became the first company to license a self-driving 18-wheel truck. Other companies, however, also are developing similar trucks.

 

The Freightliner Inspiration is equipped with Daimler’s Highway Pilot technology, which includes radar and a stereo camera, in addition to steering and cruise control systems available in other Daimler vehicles. When the driver selects the Highway Pilot feature, the truck will adapt to the speed of nearby vehicles and maintain a regular distance from the car in front. It’s important to note that—for now, anyway—a driver is always behind the wheel, ready to take over. Although the truck won’t be able to change lanes while the automated pilot is activated, it can steer itself in case of a bend in the road.

 

The truck’s human driver will still be able to perform many normal tasks, such as exiting the highway, driving on smaller roads and taking control of the rig in case of bad weather or an emergency. However, Daimler does say that in 10 or 15 years, it may be possible for trucks to drive themselves without a human driver in the vehicle.

 

That news reminded me of last fall, when Peter Sondergaard, Gartner research director, said the firm predicts one in three jobs will be converted to software, robots and smart machines by 2025. Furthermore, John Santagate, research manager, supply chain, IDC, recently wrote that IDC Manufacturing Insights predicts that by 2017, “80 percent of manufacturers will be re-evaluating the applicability of robotics and logistics automation technology within their warehousing networks.”

 

One main reason for exploring the use of robotics and other automation equipment is that the cost of human labor in the manufacturing environment continues to climb. At the same time, the cost of implementing robotics continues to become more affordable for many companies. Consequently, organizations will replace human labor when the cost of implementing robotics either becomes more cost effective, or when the productivity increase of robotics outweighs any cost increase, Santagate writes.

 

While some people may argue the increased use of robotics in the manufacturing supply chain will replace human labor, there are others who point out such a transition will actually create new jobs necessary to manage the robotics-enabled environment. For example, although robots will complete labor-intensive tasks, skilled workers will increasingly be needed to operate, maintain and program the fleet of robots.

 

This process then of eliminating old jobs but creating new ones with different skillsets may actually result in a net-zero effect. Indeed, a recent Business Insider article reports that some experts have even taken to calling this movement the “Second Machine Age,” because it is comparable to what happened when the invention of the steam engine ushered in the Machine Age.

 

Aside from operating and maintaining robots, it would seem humans are still needed for the types of jobs that require judgment, creative thinking and human interaction. For a long time, artificial intelligence has been better than humans at highly structured, bounded tasks, says Ryan Calo, professor at University of Washington School of Law with an expertise in robotics, in the Business Insider article. What it has not been good at, and likely won’t be good at any time soon, are the more unstructured tasks, he says.

 

What are your thoughts on the use of robotics in the supply chain? Is your company investigating the use of robotics—or more robotics?

How confident are you about employees’ capabilities at your organization? I ask because I've been thinking about the results of Deloitte’s “2015 Supply Chain Survey.”

 

According to the survey results, only 45 percent of supply chain and 40 percent of procurement executives at U.S.-based global companies say they are extremely or very confident that their supply chain organizations have the necessary competencies. Deloitte commissioned Bayer Consulting to conduct the online survey of 400 executives from U.S. companies last fall. Participating companies were required to have global operations, with one or more of the following entities located outside the U.S.: customers, operations or third-party service providers.

 

What I found more interesting is that the survey results show profound disparities between these supply chain executives and top company leadership when it comes to assessing their supply chain’s talent. For example, in contrast with the supply chain and procurement executives, slightly more than three-fourths (77 percent) of CEOs and presidents say they are extremely or very confident their supply chain organizations have the required competencies. Furthermore, although just over half (54 percent) of the CEOs and presidents say their supply chain organizations receive excellent or very good support from their human resources department, that belief is only shared by 24 percent of other executives.

 

“Today’s global economy demands a networked and efficient supply chain,” says Kelly Marchese, principal, Deloitte Consulting LLP, and supply chain strategy leader. “The disparities in viewpoints that exist between company leaders and supply chain professionals could materialize into actual barriers to success, particularly as companies try to evolve their supply chains through new technologies and operating model changes. Approaches to talent management must evolve with supply chains to ensure today’s workers can meet tomorrow’s challenges. That can only occur if executives at every level are informed and in agreement when it comes to their talent needs.”

 

One area perhaps stands out more than others in the report. Only 45 percent of all executives rate their employees as excellent or very good on leadership and professional competencies, such as strategic thinking and problem solving, the ability to manage global or virtual teams, and the ability to effectively persuade and communicate. What’s troubling, is that at the same time, nearly two-thirds of executives say these competencies will become more important to their supply chain during the next five years, which could create a talent gap that may pose serious implications for companies and their customers.

 

“Companies increasingly must extend their supply chain’s talent base beyond technical skills to bring more leadership and professional skills into more levels,” Marchese says. “This has the potential to empower and inspire employees at all levels to support constant innovation in fast-moving industries, and to generate new forms of leadership that can help create more engaged and effective supply chains.”

 

Finally, the survey results indicate recruiting new talent is seen as a greater challenge than retaining existing talent. That’s especially at higher levels, which suggests building skills internally continues to become important. For instance, about two-thirds of the participating executives say recruiting senior leadership for the director and senior director level is difficult, while less than half of them believe retention is difficult.

 

Do the Deloitte survey findings mirror what you see? If so, how does your company address the need for employees to develop key competencies such as critical thinking and the ability to manage global or virtual teams?