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2015

 

Hackers and cyber-terrorists present an evolving threat to airlines, and, consequently, experts must constantly test for new vulnerabilities. To address the growing challenges, some advocates now call for an industrywide cybersecurity initiative.

 

One concern stems from recent events in the automotive industry. Most automobiles now contain sophisticated electronic control units to collect vehicle data and improve performance, and nearly all also have wireless entry points that could act as a gateway for hackers. Indeed, in a 60 Minutes story last February, Dan Kaufman, who heads the Information Innovation Office for the U.S. military’s Defense Advanced Research Projects Agency (DARPA) demonstrated such vulnerabilities.

 

In a demonstration, Kaufman and his colleagues used a laptop computer to hack into a car being driven by reporter Lesley Stahl. To her surprise, they were able to take control of many of the car’s functions, including the braking and acceleration.

 

Are such actions possible with an airplane? It’s generally agreed that hacking a plane would be a near-impossible feat. On the other hand, some professional hackers have claimed airline computer systems have numerous weaknesses that could allow someone to break in—perhaps even through the in-flight entertainment system.

 

U.S. computer security expert Chris Roberts recently claimed to have hacked into a plane’s controls through the entertainment console and to have issued a “climb” command. However, speaking at the Paris Air Show earlier this month, cybersecurity expert Alain Robic, from Deloitte Consulting, said the claims weren’t credible, reports an Agence France-Presse article. Robic was working for Airbus in 2005 when a hacker showed them how he could penetrate the flight controls from a passenger seat while they were designing the new A380.

 

“The bosses were shocked,” Robic says in the article. “It was a revolutionary moment. They re-engineered everything to separate the systems so it could never happen again.”

 

While the larger safety concern is preventing a hacker from taking control of an airplane in-flight, companies face a much more immediate and frequent threat from hackers trying to steal their commercial secrets. These hacks, which could come from disgruntled employees or employees who have been bribed, could cost tens of millions of dollars to repair and could even potentially be used to extort money by planting threats.

 

That’s why Robic now believes it’s time for the aerospace industry to create a joint cybersecurity organization to combine efforts. There is a whole eco-system of staff that needs to be secured, Robic says in the article. There are a great many actors from development to maintenance, which exposes airlines to cyber risks. What companies are doing at the moment isn’t sufficient, he says.

 

Faye Francy, a security expert from Boeing’s Aviation Information Sharing and Analysis Center (AISAC), shares similar thoughts in a Supply Chain Management Review article, explaining that cybersecurity should be proactive and not just an afterthought. An even better course of action is to gain “collective awareness” by banding together with other companies—even competitors—and setting up information-sharing committees, Francy says. For anyone concerned about sharing sensitive data, she says it’s possible to “anonymize” the data and either share with private-sector partners or give it to the government to disseminate.

 

What are your thoughts on cybersecurity in the aerospace industry? Considering supply chain complexity and the sheer number of involved organizations, do you think it’s time to create a joint cybersecurity organization to combine efforts?

 

 

Amazon reportedly is considering a plan in which it will launch an Uber-like courier service using crowd-sourced drivers to pick up packages and deliver them to customers.

 

The Wall Street Journal reported earlier this month that the service, tentatively known as “On My Way,” would hire brick-and-mortar retailers in urban areas to store the Amazon packages for some form of fee. Then, a pool of drivers with their own vehicles would be alerted to the delivery needs so drivers could pick-up one or more packages and deliver them to customer residences.

 

It is unknown when Amazon might pilot such a program. However, if Amazon does use the service, it could enable the company to significantly cut costs and delivery times. Amazon had over $1 billion in net shipping losses in each of the last two quarters, so this is an issue for them, Colin Gillis, a senior technology analyst with BGC Financial, says in a USA Today article.

 

“You see all these Ubers driving around, people going from point A to point B, and you say to yourself, “‘Couldn’t I stick a package in their trunk?’” Gillis says in the article. “So it makes sense for Amazon to be looking at this.”

 

Amazon isn’t the only company with executives thinking about new approaches to delivery. There are multiple players in the delivery space, though most focus on relatively small areas, such as tech-smart urban centers like San Francisco and New York, a USA Today article notes. Some of the larger include GrubHub, in which restaurants make the food, but GrubHub provides both the ordering website and drivers to deliver food while it’s still hot, and Instacart, in which the service conducts customers’ grocery shopping then delivers to them, using an Uber-like army of part-time workers and their cars, the USA Today article notes.

 

For now, anyway, there appear to be plenty of challenges. Amazon would need, for instance, to implement accountability safeguards to prevent theft, damage or carelessness. Company officials also would need to determine how to assign blame and penalties in the event that a package is lost or damaged. Furthermore, it remains to be seen whether or not consumers would even be comfortable having their packages delivered by their neighbors or even friends.

 

Then there’s the issue of basic economics. The current cost advantage of UPS and FedEx in terms of delivery “density” will be hard for any company to match, even in urban environments, an article on SC Digest points out. UPS’ marginal cost to deliver the next package can be as low as just $1.50, for example, and it’s hard to picture Amazon, Uber or anyone coming close to matching that. Perhaps Uber could greatly increase its density by leveraging off taxi riders, combining that service with parcel delivery—but even then, reaching UPS and FedEx’s cost scale seems unlikely, the article notes.

 

Be all of that as it may, Amazon’s plan would open a new pool of potential drivers, which is needed today. There’s a large community of individuals who don’t feel comfortable with having strangers in their car, but they’d be completely comfortable having a package in their trunk, Brendan Witcher, an analyst with Forrester Research, says in the USA Today article. So it would seem, that Amazon wouldn’t encounter a shortage of potential drivers.

 

What are your thoughts on Amazon’s potential new courier service? Secondly, what potential challenges do you see for such a service?

 

 

Democratic presidential candidate Hillary Clinton is expected to call for tax credits for businesses that hire and train apprentices as a means to both raise wages and boost youth employment. Her proposal, which calls for a $1,500 tax credit per apprentice, is expected during a forum at Trident Technical College, a two-year community college in the Charleston area, according to campaign aides.

 

Clinton’s campaign, in a background policy document, says Clinton considers the apprenticeship proposal to be a “win-win” mechanism for businesses that need skilled employees and workers in need of well-paying jobs. The campaign cites a 2012 study cited by the Department of Labor, which found workers who had completed apprenticeships typically earn an average of $6,595 more annually than other workers.

 

Interestingly, Clinton’s proposal would build off a bipartisan bill introduced in the U.S. Senate last year that proposed granting businesses a $1,500 tax credit for hiring an apprentice under the age of 25, and a $1,000 tax credit for hiring an apprentice 25 or older, her campaign aides say. The Leveraging and Energizing America’s Apprenticeship Programs Act, introduced last year by Senators Cory Booker, (D-NJ) and Tim Scott (R-SC), was an effort to encourage companies to take on younger apprentices. Backers of the Senate bill, which did not pass, have said it would create about 400,000 positions and help meet a demand for skilled U.S. labor.

 

“Many employers explain the reason for their unfilled jobs as a lack of available trained workers,” a release from Scott and Booker in 2014 explained, CNN reports. “Apprenticeships are a proven way to help people develop in-demand skills and to meet the needs of employers, yet they compose just 0.2 percent of the nation’s workforce.”

 

Although the national unemployment rate has fallen from 10 percent to 5.5 percent since the country entered recession in 2008, youth unemployment has remained high. Indeed, according to the Bureau of Labor Statistics, the unemployment rate for adults age 34 or younger was 7.8 percent in May 2015. Among young African-American adults, the unemployment rate is 14.6 percent. Furthermore, millennials—people between the ages of 18 and 34—will become the nation’s largest living generation this year, according to research from Pew Research.

 

Clinton’s proposal reminds me of other apprenticeship initiatives. For example, last fall, the Department of Labor kicked off 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. Advanced Manufacturing Partnership members Dow, Alcoa and Siemens have already begun new apprenticeship pilots of their own, and also developed a “how-to” guide for other employers looking to use apprenticeship as a proven training strategy, a White House statement explained.

 

Jim Wall, executive director of the National Institute for Metalworking Skills, said in a U.S. News & World Report article at the time that reinvestment in apprenticeship programs, which were much more common for manufacturers decades ago, is particularly exciting for the industry.

 

“With an apprenticeship program that’s done right there through the company, that’s where the rubber meets the road … people are employed, they’re working through that company,” Wall said in the article. “It’s not like what I call in higher education the ‘pay-and-pray’ model, where you pay your tuition and pray you get a job at the other end. With an apprenticeship program, there’s a guaranteed return.”

 

Considering both high unemployment among young people and a manufacturing skills gap, it would seem apprenticeships could go a long way toward solving two key issues. But what are your thoughts? Do you think tax credits for businesses hiring apprentices will make the practice more appealing?

 

 

Consumers increasingly demand improved safety, driver assistance and infotainment features in their new vehicles. On the other hand, bringing connected cars, light trucks and SUVs to market is no small feat for automotive companies. To deliver connected cars, automakers must partner with high-tech consumer electronics companies, and that presents numerous challenges.

 

To design for safety and profitability, automakers must address some key imperatives, write Evan Hirsh, a partner with Strategy& and who leads the firm’s North American automotive practice, Marian H. Mueller, a partner with Strategy&’s automotive practice, and Kumar Krishnamurthy, a partner with Strategy&’s digital business technology practice, in strategy + business.

 

The first of those imperatives is to treat vehicle connectivity as an integral element of the automotive value proposition, Hirsh, Mueller and Krishnamurthy write. To protect and build their brands, automakers must focus on determining which kinds of digitally connected functionality will integrate into their vehicles and how to achieve that integration.

 

For instance, automakers shouldn’t try to fully control the design process for infotainment features because consumer device makers and app developers have the scale, product development speed, technical know-how and innovation ecosystems in place to quickly develop the features, the authors explain. However, vehicle manufacturers must always have the final word on what goes into their vehicles, according to Hirsh, Mueller and Krishnamurthy. That means they must govern and dictate how a driver interacts with the machine, and they should design and own driver-assist and safety features.

 

Next, automakers must follow the dictates of safety in driving for every aspect of the connected vehicle. Although consumers might like the idea of using more entertainment apps in their cars, and some high-tech companies might want to simply plug their infotainment systems into vehicles, vehicle manufacturers cannot compromise on safety, Hirsh, Mueller and Krishnamurthy write. Vehicle makers should therefore prioritize safety in their infotainment investment by creating features that are fun to use without distracting the driver.

 

Automakers must also build the capabilities to ensure cybersecurity to defend connected vehicles against cyberattacks. Unfortunately, vehicle manufacturers are lagging behind in this regard. It is necessary for them to build backups for critical systems, as well as multiple firewalls that separate a car’s subsystems from one another, Hirsh, Mueller and Krishnamurthy write. That way, if one subsystem fails or is hacked, the others will stay functional and protected.

 

Another key imperative is for automakers to revamp the traditional product development cycle. The typical automotive product development cycle is currently three to five years, with a mid-cycle facelift that changes features such as electronics or exterior design elements, Hirsh, Mueller and Krishnamurthy write. Instead, automakers will need to build a more modular electronics system—rather than one that’s vehicle-specific—and virtual updates will be needed to deliver electronics and software content more quickly, along with updated cybersecurity, the authors note.

 

Finally, automakers must adapt the vehicle manufacturing operating model to accommodate connected vehicles, Hirsh, Mueller and Krishnamurthy write. Over the years, automotive manufacturers have developed a complex and highly specialized operating model in which functional silos coordinate with one another. These firms, consequently, will need to integrate connected vehicle activities into their existing structures. They should start by prioritizing connectivity initiatives, building a truly cross-functional connected vehicle team, clearly stating who has governance and decision-making rights, and identifying and establishing the new capabilities that connected vehicles will require, Hirsh, Mueller and Krishnamurthy write. Eventually, connected vehicle activities must be as established and structurally integrated as other groups—such as those that design powertrains—are today, explain the authors.

 

What are your thoughts on the increasing connectedness of cars? Secondly, what do you see as key issues for automakers as they incorporate more consumer electronics in vehicles?

 

 

As supply chains grow in complexity and reach around the world, it becomes more challenging to understand the impact on operations from an unexpected disruption at one supplier’s site. To address this issue, David Simchi-Levi ( a professor of civil and environmental engineering and engineering systems at the Massachusetts Institute of Technology and the founder of LogicTools, a provider of software for optimizing supply chains that is now part of IBM) writes in Harvard Business Review that he and his colleagues William Schmidt of Cornell and Yehua Wei of Duke developed a method to help prioritize the financial or operational impact of risk so companies may focus their mitigation efforts on key suppliers and risk.

 

The model, a mathematical description of the supply chain that can be computerized, focuses on the impact of potential failures at points along the supply chain, rather than the cause of the disruption. Using the model, companies can quantify what the financial and operational impact would be if a critical supplier’s facility were out of commission for, say, two weeks—regardless of the cause, Simchi-Levi explains. The method was implemented successfully at Ford Motor Company.

 

A central feature of the original model was time to recovery (TTR), or the time it would take for a particular node—a supplier facility, a distribution center or transportation hub—to be restored to full functionality after a disruption. By combining suppliers’ TTR information with the details of Ford’s supply chain, product bill-of-material, volume, and profit margins by product line and pipeline inventory, the method identifies the risk exposure associated with a disruption in each site of Ford’s network, Simchi-Levi writes in the article. This is done by simulating the firm’s response to a disruption at a specific site for the duration of TTR.

 

The TTR values are determined by combining historical experience and the results of surveying the firm’s buyers or suppliers. The problem, however, is suppliers tend to be overly optimistic about their TTR because they realize a long TTR won’t be accepted by the manufacturer. That prompted Simchi-Levi and his colleagues to realize the need for a way to identify bottleneck suppliers for which it’s critical to obtain accurate TTR information and distinguish them from other suppliers where even plus or minus 30 percent error in TTR information will have very little impact on the supply chain.

 

Simchi-Levi and his colleagues then developed a metric they call “time to survive” (TTS), which is the maximum duration the supply chain can match supply with demand after a node disruption. To determine TTS associated with a specific node, the node is removed from the supply chain and a calculation is used to determine how long—using inventory in the pipeline and other available supply sources—the supply chain can continue to meet demand without that node. If the TTS of a specific site is greater than its TTR, this site doesn’t expose the firm to any risk since during the time the site is recovering from a disruption, the firm can still match supply with demand, Simchi-Levi writes in the article. On the other hand, if the TTS of a specific facility is smaller than its TTR, its disruption will expose the firm to financial and operational problems.

 

The new metric then drove the development of a model to assess the level of strategic inventory: inventory used to respond to a disruption anywhere in the supply chain. That is, TTS and TTR metrics can be combined to determine how much strategic inventory the organization needs, as well as where to position this inventory so each site’s TTS is greater than its TTR, Simchi-Levi writes. This leads to a robust supply chain because a disrupted node will always recover before it exceeds its ability to apply the mitigation strategies the firm has in place.

 

This also presents an opportunity to cut costs since a long TTS is often achieved by adding a great deal of strategic inventory. Cutting inventory for these suppliers by 50 percent, for example, will have very little impact on the ability to respond to a disruption, Simchi-Levi writes.

 

What are your thoughts on time to recover and time to survive? Do you know how long your supply chain can continue to meet demand if various nodes experience a disruption of two weeks or more?

 

 

News concerning two major automotive recalls shows not only the changing financial and legal ramifications of recalls, but also how recalls may unexpectedly grow in complexity.

 

First, the U.S. Justice Department is said to be considering charging General Motors with criminal wire fraud stemming from the auto maker’s failure to recall millions of vehicles equipped with a defective ignition switch, according to a Wall Street Journal article today. Federal prosecutors in New York are focusing on the charge after determining GM likely made misleading statements and concealed information about the faulty switch, now linked to more than 100 deaths, say people familiar with the case, the WSJ article reports. Prosecutors also could explore other kinds of possible criminal wrongdoing in the GM case, the people familiar with the matter said.

 

GM CEO Mary Barra confirmed today that she has been interviewed by the Justice Department in its criminal probe of how the company handled the deadly ignition switch problem. However, Barra told reporters the interview happened last year and she doesn’t know when the U.S. attorney’s office in Manhattan would release the results of its probe.

 

Wire fraud is among the statutes being considered by federal investigators because GM used electronic communications to interact with the government’s National Highway Traffic Safety Administration. Automakers must notify NHTSA within five days of finding out about a safety defect, so investigators are focused on whether GM failed to notify the agency of the switch problems and potentially tried to hide them.

 

Last year the same U.S. Attorney’s office forced Toyota to pay a $1.2 billion civil penalty for delays and cover-ups in unintended acceleration cases. Toyota settled the case but acknowledged hiding information about defects. The department also filed a wire fraud charge against Toyota that will be dismissed in 2017 if the company complies with the terms of the settlement.

 

Federal prosecutors view their case against GM as similar to the one they brought against Toyota, the people familiar with the matter say, the WSJ article notes. The size of any possible financial penalty against GM is far from finalized, though it most likely would exceed $1 billion, the sources say.

 

News also continues to get worse in another high-profile auto recall: that of faulty airbags manufactured by Japanese parts supplier Takata. Counterfeit airbags have been proliferating for years, but there is evidence that the pace has now accelerated. Indeed, the Seattlepi on-line paper reports that in response to the sudden spike in demand for airbags, counterfeits are now “flooding the market.” What’s even more disturbing, is that the counterfeit airbags may be just as deadly as those being recalled.

 

Most of the counterfeit airbags are built in China and look genuine, complete with phony certification labeling. The airbags are then sold on eBay, Craigslist and specialty sites to mechanics and car owners, who may believe they are buying a legitimate airbag salvaged at a junkyard, Seattlepi reports. However testing by the NHTSA shows consistent non-deployment, and shrapnel-producing explosions.

 

“Auto repair shops are buying and installing these counterfeit airbags into vehicles they repair in an effort to avoid the costs of genuine airbags,” a Homeland Security agent told the court in a case last month in Seattle against two men who were arrested for selling counterfeit airbags, the Seattlepi article reports. “Counterfeit airbags produce a range of results, from the airbag not deploying at all to catastrophic failures where the airbag produces a fireball and forcefully expels metal shrapnel.”

 

Both cases raise interesting implications. If the U.S. Justice Department does charge GM with wire fraud, do you think it will have an impact on how automotive companies react to possible future recalls?

 

As for Takata, what can be done to prevent the influx of counterfeit products during an enormous recall?

 

 

From the factory floor to homes, there’s no doubt the Internet of Things (IoT) is growing quickly. While devices’ use can currently be seen for everything from improving machine up-time on the plant floor to controlling air conditioning in residential homes, the implications of IoT strategic use in the supply chain is beginning to be seen.

 

Five years ago, it was cost prohibitive to manufacture the necessary parts for the connected devices that exist today. However, the rise of smartphones and tablets that use similar components drove an increase in the production of components, which led to a rise in the number of manufacturers and an array of price points for varying specifications or quality of product, explains Mark Spates, president, Internet of Things Consortium. Consequently, it became feasible for companies to purchase radios, sensors, cameras and other materials at a reasonable price. Innovation then began once cost was no longer prohibitive, Spates says.

 

The market is growing quickly. Recent research from IDC forecasts the IoT market in manufacturing operations will grow from $42.2 billion in 2013 to $98.8 billion in 2018, with growth mainly driven by ongoing efforts to increase efficiency and link islands of automation. The hottest U.S. market, according to the IDC forecast, is connected vehicles, with 34.8 percent year-over-year growth anticipated in 2015.

 

The outcome is that smart connected products have the potential to radically shake up business models, says Bill McBeath, chief research officer, ChainLink Research. For manufacturers, there is a natural progression from selling things, to selling things + services—such as maintenance and repair)—and even to selling outcomes (product-as-a-service model). Building intelligence and connectivity into products is a key enabler of these shifts, but ultimately, business will also need to develop new types of payment and subscription pricing models, support structures, service level agreements, and service organizations and partnerships, says McBeath.

 

Much of the allure is due to the technology’s significant potential. For instance, IoT can enable companies to achieve better predictability of demand through real-time visibility of demand and service signals, write Maha Muzumdar, vice president, supply chain, Products Business Group, Oracle, and Margie Steele, principal consultant, Oracle, in an IndustryWeek article. With better predictability, planning & execution tools, companies can adjust pricing and promotions strategies to shape demand, move additional product quickly, drive revenue growth, and further expand margins for a high-demand product with limited market supply, they explain.

 

The output of planning tools can enable dynamic shelving in retail and consumer goods industries and can adjust truck destinations, routes and truck types when shipping in response to this more accurate and timely information, Muzumdar and Steele write. For example, if the demand for a product is high, the supply chain needs to adjust to purchase the additional raw materials, plan the capacity to meet this additional demand, and deliver the product to the retailer to take advantage of the new IoT signal.

 

To improve alignment and collaboration, IoT can enhance the S&OP process by providing real-time visibility to all the key dimensions for success—demand, supply, inventory, product, risk, and performance—across the organization and throughout the extended supply chain. As Muzumdar and Steele note, such real-time visibility of performance and collaboration can enable companies to improve alignment across the enterprise to achieve the right balance of supply and demand, aligned with strategic business goals.

 

What are your thoughts on IoT and the impact it may ultimately have on supply chain operations? Does your company have a strategy for using the IoT to improve supply chain performance?

 

 

As supply chain complexity continues to grow, it correspondingly makes hiring the right people to build and manage those operations more difficult. Company leaders recognize the need for employees with both an understanding of technology and an ability to work in a global environment, which means managers are tasked with hiring people with a mix of these specialized skills—and that is challenging.

 

"The supply chain industry is undergoing one of the most massive talent shifts we have ever seen,” Cisco Systems Senior Vice President of Supply Chain Operations John Kern said at a recent conference for supply chain executives, a Wall Street Journal article reports.

 

Supply chain operations in the past were often a collection of jobs under logistics and procurement functions. Today, companies are consolidating these functions within high-level leadership, pushing the positions up the executive ladder while also looking for wide-ranging skills to construct global and complex supply chains, says Peter L. O’Brien, head of the global supply chain practice of executive search firm Russell Reynolds Associates, in the WSJ article. He says the most prominent example is Apple CEO Tim Cook, who oversaw the company’s suppliers as chief operating officer before taking the top position.

 

Another example is Kimberly-Clark, which makes Huggies diapers and Kleenex tissue. The company recently named its first chief supply chain officer, who reports directly to the chief executive, Tom Falk.

 

Kimberly-Clark in the past tended to look at the cost of raw materials and the cost of purchasing freight transportation service “independently,” Falk says in the WSJ article. Several supply chain managers at the company reported to different people in different departments, and none reported directly to Falk—so he decided to hire someone to unite those functions.

 

“This is an opportunity to link those things together and see if we can figure out a way to get more value out of that combined cost structure,” he says.

 

It took Falk about six months to find and hire Sandra MacQuillan, formerly global vice president of supply chain for Mars Inc.’s pet care division. Falk says in the WSJ article that he hopes to now see “an aggressive change agenda” for the company.

 

Executives at many companies also recognize the need for such top-tier employees. For instance, in a recent survey of executives of multinational companies by Deloitte Consulting LLP, 65 percent of the executives said 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 will become more important to their supply chain during the next five years. However, only 45 percent of the executives currently rate their employees as excellent or very good at such leadership and professional competencies, which may create a talent gap leading to serious implications for companies and their customers in the near future.

 

“Companies must extend their supply chain’s talent base beyond technical skills to bring more leadership and professional skills into more levels,” says Kelly Marchese, principal, Deloitte Consulting LLP, and supply chain strategy leader.

 

Companies that don’t invest in hiring or cultivating talent now “will get caught flat-footed two to three years down the road,” Cisco’s Kern bluntly says in the WSJ article.

 

“At any given month, particularly across markets like North America and Europe, we have a couple of dozen of these sorts of discussions,” Kern says. “They recognize the need to up-scale the skill and bring in new capabilities, new skills, and new blood. The biggest challenge today is, there is no superman or superwoman who is able to cover all aspects of the supply chain.”

 

What are your thoughts on necessary supply chain management skills? Does your company have a strategy for hiring—and retaining—employees with competencies such as critical thinking and the ability to manage global or virtual teams?