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2016

A new “report card” on U.S. roads, bridges, airports, power grid and other critical infrastructure gives the current state of national infrastructure a D+ average. The Failure to Act: Closing the Infrastructure Investment Gap for America’s Economic Future 2016 report from the American Society of Civil Engineers explains that over the next decade, it would cost more than $3.3 trillion to keep up with repairs and replacements, but based on current funding levels, the nation will come up more than $1.4 trillion short. When projected to 2040, the report continues, the shortfall is expected to top $5 trillion unless new funds are allocated.

 

Without that investment, Americans can look forward to more highway traffic jams, airport bottlenecks and potential power outages, the report notes. The deterioration of U.S. ports, roads, trains, water and electric facilities will also take an economic toll, the engineers write, cutting payroll growth by 2.5 million jobs and some $4 trillion of gross domestic product in lost sales and higher costs.

 

“America is currently spending more failing to act on its infrastructure gap than it would to close it,” says Greg DiLoreto, the society’s past president and chairman of the Committee for America’s Infrastructure. “Poor infrastructure means more congestion on our roadways, broken water lines and power outages, and an inability to get our goods to market.”

 

The 2016 study builds on models established in the 2011 and 2012 research, updating data and projections for infrastructure in five different sectors: surface transportation, water and wastewater, electricity, airports, and inland waterways and marine ports infrastructure. The analysis shows that in the years since the earlier reports, various state actions along with some federal funding measures have helped stabilize the infrastructure gap, but overall, underinvestment continues to negatively impact the U.S. economy.

 

The most significant gap, according to the report, is in the transportation sector, where an estimated $1 trillion is needed across the network—including roads, bridges and rail—during the next decade. For businesses, if the gap isn’t addressed, it may lead to increased production costs, increased cost of travel and decreased consumer spending. At home, it can lead to fewer jobs, lower incomes and more expensive infrastructure in the form of higher costs for transportation, electricity and water, DiLoreto explains.

 

The problem is certain to be in the national spotlight for at least the next few months. As CNBC reports, the funding gap has caught the attention of the three remaining U.S. presidential candidates. In a rare example of consensus, Republican Donald Trump and Democrats Hillary Clinton and Bernie Sanders all agree that the U.S. needs to make a substantial investment in rebuilding its infrastructure.

 

Sanders has proposed spending $1 trillion to create more than 13 million new jobs to rebuild highways, airports and other public infrastructure, noting that these “are jobs that cannot be shipped offshore or outsourced overseas,” CNBC reports. Meanwhile, Clinton wants to commit $275 billion in public funds over five years, including $25 billion for a national infrastructure bank to generate another $225 billion in direct loans, loan guarantees and other forms of credit. Finally, while Trump hasn’t proposed a specific funding level, he says he’s in favor of major public investment in infrastructure repair and expansion, CNBC reports.

 

What are your thoughts on either the current state of U.S. infrastructure or on the need for improvements? If the infrastructure continues to deteriorate, what impact will it have on your organization’s supply chain efficiency?

Considering that Baby Boomers are retiring by the thousands every day, and that Millennials are projected to make up approximately 75 percent of the workforce in less than 10 years, it makes sense to survey Millennials to learn about their plans for career longevity. According to the results of a new survey, most Millennials plan to work past the age of 65 while taking extended breaks along the way.

 

Indeed, 66 percent of the respondents taking part in a survey conducted by Reputation Leaders on behalf of ManpowerGroup indicated they expect to work past the age of 65. The survey polled an independent sample of 11,000 working Millennials equally balanced across age ranges and genders from 18 countries representing all regions. Also surveyed were more than 8,000 ManpowerGroup Millennial associate employees and 1,500 hiring managers across 25 countries. ManpowerGroup notes that speaking to both groups provides perspective from both employers and employees.

 

I was surprised to read that 32 percent of the respondents said they expect to work past the age of 70, and 12 percent said they will likely work until the day they die. They do, however, expect to take breaks. For example, 76 percent of the surveyed Millennials from the U.S. said they plan to take career breaks longer than four weeks. While women are likely to plan breaks to care for others—including children and older relatives—men and women prioritize leisure-related breaks for themselves equally, according to the survey results.

 

Globally, Millennials are happy to disrupt and be disrupted by new ways of working, the accompanying report notes. While almost three-quarters of working Millennials are in full-time jobs today, more than half say they’re open to new ways of working in the future—freelance, gig work or portfolio careers with multiple jobs.

 

I was also interested to see that 95 percent of the American respondents said they are willing to spend their own time and/or money to pursue additional training. The report explains that the respondents believe being more educated, better prepared for employment and higher paid is directly linked to what they term “learnability,” or the ability and desire to learn.

 

“Employers need to listen up and get creative; they simply cannot afford to not appeal to Millennials,” says Mara Swan, executive vice president, Global Strategy and Talent, ManpowerGroup and Global Brand Lead for Right Management. “Millennials want progression, but that doesn’t have to mean promotion. We need new ways to motivate and engage employees, like facilitating on-the-job learning and helping people move around the organization to gain experience more easily. And what works for Millennials works for the rest of the workforce too.”

 

Reading about Millennials’ expectations also reminds me of the results of Deloitte’s Global Millennials survey earlier this year, which found that as many as 63 percent of the respondents said their leadership skills are not being fully developed. What’s more, 71 percent of the respondents who said they are likely to leave their job within two years cited dissatisfaction with how their leadership skills are being developed as a key factor.

 

It’s noteworthy that Millennials place such a strong emphasis on education/training and developing and using leadership skills. If you are a Millennial, do these survey findings match your expectations? If you aren’t a Millennial, do you see these same attitudes among your colleagues?

If it seems like the number of cyber attacks is growing quickly, it isn’t just your imagination. Nine of ten businesses experienced at least one hacking incident in the past year, according to the results of a survey of business risk managers conducted onsite at the Risk and Insurance Management Society Conference by specialty insurer Hartford Steam Boiler Inspection and Insurance Company (HSB), part of Munich Re.

 

“Hackers are even more relentless,” says Eric Cernak, Cyber Practice Leader for Munich Re. “Sixty-four percent of risk managers say their organization has experienced more than six hacking incidents in the last year—up from 32 percent in 2015. U.S. businesses are under constant assault.”

 

Given the proliferation of electronic devices and connectivity, the Internet of Things (IoT), businesses are increasingly vulnerable, especially when employees use personal devices that connect to the company’s network or use them to access company information. Indeed, risk managers say they are worried about the safety and security of IoT devices and— notably— only 28 percent of them consider IoT devices safe for business use. Despite these concerns, more than half (56 percent) of the survey respondents say their company has implemented or plans to implement such devices.

 

“As businesses use IoT devices to improve productivity and efficiency, executives must think about the security costs,” says Cernak. “Hackers are always looking for ways to access company business systems, and connected devices provide additional infiltration points. It’s important to control security features on these devices and monitor employee use.”

 

HSB conducts the survey annually, so this year’s responses may be compared with those from last year to see how perceptions change. For example, when asked about the risk management services they have deployed to combat cyber risk, risk managers cited encryption (44 percent; up from 25 percent in 2015); intrusion detection/penetration testing (28 percent; down from 32 percent last year) and employee education programs (12 percent; down from 25 percent last year).

 

Considering the increased availability and interest in cyber insurance, one might think that most risk managers would have purchased the coverage for their organizations. That isn’t necessarily the case, however. For additional protection, 50 percent of the respondents said their organization has either purchased cyber insurance for the first time or increased its level of coverage in the last year. Interestingly, 30 percent of the respondents said their business doesn’t have any level of cyber insurance coverage. Primary reasons cited for not adopting such coverage include its perceived complexity (44 percent), lack of a sufficient threat (34 percent) and cost (22 percent).

 

One of the survey responses that I find most interesting is the decreasing emphasis on employee education, especially since employees increasingly use their own smart phones, tablets and laptops, which creates more entry points which are vulnerable to cyber attack. One would think that initiatives to educate employees about the different approaches cyber attackers employ—such as phishing attacks that dupe employees to download malware—and explain how to avoid having systems compromised could play a significant role in preventing cyber attacks, but that doesn’t seem to be the case.

 

What are your thoughts on the rise of cyber attacks? Do you see an increased focus on initiatives to prevent such attacks?

Top U.S. and Japanese automakers are losing out on hundreds of millions of dollars in potential cost savings due to mediocre relationships with their parts suppliers, according to a new report. That’s because four out of the six automakers operating manufacturing plants in North America experienced erosion in their supplier rapport over the past year, the Supplier Working Relations Index notes.

 

The report is based on a survey of automotive suppliers by company-supplier relations research firm Planning Perspectives Inc. (PPI). To measure how Ford, GM, Fiat Chrysler Automobiles (FCA), Nissan, Toyota and Honda stack up on their relationships with suppliers, the firm polled 647 salespeople from 492 Tier 1 suppliers representing 38 of the top 50 North American suppliers. It is the 16th year the company has conducted the survey.

 

Creating a good relationship between automakers and parts suppliers has always been difficult. On the one hand, automakers need cost concessions from key suppliers to help their bottom line, but they also need the latest technologies, which cost more to produce. Meanwhile, suppliers are under pressure to maximize profit so they can then invest back in the business.

 

“Given their financial performance, this is the time when automakers should be investing in building more collaborative relationships with their suppliers, but the major indicators of this year’s study suggest this isn’t happening,” says John Henke, president of PPI. “We have said time and time again, that automakers benefit when they work with suppliers, which is important because a market downturn is going to make it tougher for OEMs who don’t have suppliers on their side.”

 

Toyota and Honda remain the top two automakers on the index, with scores of 332 and 323, respectively. The highest possible score is 500. Ford follows at 267, but Henke calls its 6-point improvement disappointing compared with the 26-point jump for rival GM, which posted a score of 250. Most notable is that Nissan fell 19 points to 225—putting it close to tying the 222 of last-place FCA. Although FCA has improved many of its internal processes, Henke says they still lag behind those of its competitors.

 

GM was the only automaker to record a significant gain. That improvement, Henke says, resulted in suppliers contributing more than $3,000 to the profit GM realized on every vehicle manufactured and sold in North America last year. The figure is based on price concessions and other non-price benefits, such as being first to receive new technology offerings.

 

What’s interesting is the aspect of preparing for a market downturn. That would normally result in more pricing pressure on suppliers, but Henke says it is OEMs with the worst relationship scores that will suffer. The data shows that automakers applying the most pressure on price actually get the least when it comes to cost givebacks, he says.

 

Consider, for example, the case of GM. With its improved performance, GM drew better price concessions from suppliers than it did a year ago, according to the study. At the other end of the spectrum, Nissan, which Henke says threatened to pull business back if a supplier didn’t agree to its demands, actually saw price concessions erode year over year.

 

“Nissan became adversarial…and suppliers…gave them less,” Henke explains in a WardsAuto article.

 

What are your thoughts on supplier relationship management? What benefits do you see from fostering collaborative relationships?

As companies expand their supply chains and add locations, partners and suppliers around the world, their supply chains become more vulnerable to risks such as natural disasters, local corruption and political turmoil—including terrorism. However, by working to identify and mitigate supply chain risks, companies can, in turn, strengthen supply chain resiliency.

 

“Resilient supply chains give businesses a distinct advantage by protecting their operational integrity, revenue stream, market share and shareholder value,” says Bret Ahnell, executive vice president at commercial property insurers FM Global. “A fragile supply chain, on the other hand, often harms the company involved, sometimes for the long term.”

 

One challenge is that supply chain risks and their severity vary widely from country to country. To help executives identify vulnerabilities of businesses in various countries, FM Global has created the 2016 FM Global Resilience Index, a global ranking of countries’ business resilience to supply chain disruption. It ranks 130 countries and territories according to nine factors that may increase vulnerability of a business in those regions. They are: economic productivity, political risk (including terrorism), oil dependency, exposure to natural hazards, quality of natural hazard risk management and fire risk management, control of corruption, quality of infrastructure and strength of local suppliers.

 

Interestingly, Switzerland is ranked in first place due to its extensive and efficient infrastructure, quality of its local suppliers, strong economic productivity and ability to weather oil fluctuation—such as a sudden shortage, disruption or price hike. Norway is ranked second because it achieves particularly high scores for its control of corruption and for its economic productivity.

 

Ireland, which has continued to steadily move up the Global Resilience Index rankings since 2013, is ranked in third place this year. Contributing strongly to Ireland’s position is that its commercial and industrial facilities have the lowest exposure worldwide to natural hazards, as well as a high quality of risk management across both natural hazards and fire risk. Furthermore, Ireland has a very low vulnerability to oil shock since its economy isn’t heavily dependent on oil consumption.

 

Rounding out the top 10 in the index are Germany, Luxembourg, Netherlands, the central United States, Canada, Australia and Denmark. The United States actually is segmented into three regions to reflect disparate natural hazards exposure. While the central U.S. was ranked 7th in the index, U.S. Region 1, including much of the East Coast, is ranked 11 in the index and U.S. Region 2, primarily the Western U.S., is ranked 21.

 

The lowest-ranked country in 2016 is Venezuela (ranked 130) for the second year in a row. Faring slightly better are, in ascending order, the Dominican Republic, Kyrgyz Republic, Nicaragua, Mauritania, Ukraine, Egypt, Algeria, Jamaica and Honduras. Venezuela’s position at the bottom of the FM index reflects its exposure to natural hazards of wind and earthquake, perceptions of lack of control of corruption and poor infrastructure, as well as ill-perceived local supplier quality.

 

“As supply chains become increasingly global, complex and interdependent, their effective management becomes more challenging,” says Dr. Deborah Pretty, principal at analytics and advisory firm Oxford Metrica, which produces the Global Resilience Index for FM Global. Information from the index can help executives “better assess supply chain risk associated with their physical investments around the world, and reach better decisions as they site property or establish new supplier relationships,” she says.

 

What are your thoughts on evaluating countries to gain a better understanding of the potential for partners, suppliers or even your own company’s locations to experience supply chain disruptions? Do you use this type of information to improve supply chain resiliency?

 

As the Panama Canal expansion project nears completion, it casts a light on problems with U.S. ports that need to be addressed. Indeed, although the canal’s locks are nearly finished and the ship to pass through on the inauguration day has been selected, there are still concerns that U.S. ports aren’t deep enough and the infrastructure necessary to accommodate larger, so-called “neo-Panamax” vessels isn’t sufficient. It is increasingly difficult to address those challenges because community groups and local activists are protesting—and filing lawsuits against—port expansion that threatens coastal ecosystems and may potentially lead to dangerously high emissions levels from growing port traffic.

 

The $5.2 billion expansion of the 48-mile Panama Canal is expected to be finished soon. Last month, COSCO Shipping won the Panama Canal Authority’s draw for the first transit through the expanded canal on its inauguration June 26. Its container vessel Andronikos, which has a maximum capacity of 9,400 TEUs, will make the trip. Furthermore, reservations have already been made for more than 100 neo-Panamax ships to make commercial transit through the new locks, beginning June 27.

 

The problem is that although U.S. ports—and those on the Eastern coast in particular—are spending billions of dollars on harbor dredging, bridge raising, new roads and rail lines and other projects so they can accommodate larger ocean vessels, neighboring communities increasingly push back against such efforts. Shippers, railroads, trucking companies and others contend that opposition to such efforts only increases costs and delays the construction of infrastructure needed to handle rising trade volumes and alleviate congestion. On the other hand, community groups and local activists counter that unchecked seaport expansion has damaged coastal ecosystems and brings a threat of dangerously high emissions levels from trucks, trains and ships entering the ports.

 

For example, in March, residents of communities near the Port of Los Angeles won a legal battle against Burlington Northern Santa Fe that halted a new rail-yard project serving the port, an article in the Wall Street Journal reports. The ruling found the railroad hadn’t adequately addressed the impact of emissions, traffic and noise pollution in local neighborhoods. As the article further notes, BNSF executives have since said they’re uncertain whether the project is still feasible.

 

“Until there’s pressure from outside, ports and industry stakeholders will not clean up unilaterally,” Melissa Lin Perrella, a lawyer with the Natural Resources Defense Council, which has filed lawsuits against several port and transportation infrastructure projects citing the dangers to public health, says in the WSJ article. “It usually requires intense community pressure.”

 

Most port officials say stopping development altogether isn’t an option because improvements are necessary to handle the projected growth in cargo volumes. From 2000 to 2015, container trade through the nation’s ports grew 78 percent to 32 million 20-foot equivalent units, according to the U.S. Maritime Administration. What’s more, over the next five years, seaports and their private-sector partners plan to spend $155 billion on port improvements—more than triple what they estimated five years ago, according to the American Association of Port Authorities (AAPA).

 

Adding necessary port capacity while maintaining the health and safety of neighboring communities is “a balancing act,” Michele Grubbs, a lobbyist with the industry group Pacific Merchant Shipping Association, says in the WSJ article. “When you’re dealing with limited space and operating next to a community, you’re always going to have challenges between being a good neighbor and accommodating the future growth of trade.”

 

Given the growth in cargo traffic as well as new, larger ships, most U.S. ports need at least some development. What are your thoughts on balancing port expansion with environmental concerns as well as health of neighboring communities?

 

Volkswagen has admitted that 11 million of its diesel vehicles were equipped with software used to cheat on emissions tests. The company is now contending with the fallout, as are other automakers because various governments and regulatory agencies have begun to increase emissions scrutiny.

 

The software in the Volkswagen vehicles sensed when the car was being tested and then activated equipment that reduced emissions, U.S. officials say. However, the software adjusted the engines during regular driving as well—presumably to save fuel or improve the car’s torque and acceleration—which increased emissions above legal limits.

 

Volkswagen agreed last month to fix or buy back 480,000 Volkswagen and Audi A3 models with 2-liter engines in the U.S., although it remains unclear when the fixes or buybacks will occur and if—and how much—the company will compensate owners. In the meantime, the company’s value has fallen significantly, and it has reported record losses. Volkswagen also faces numerous legal battles, including lawsuits filed by the U.S. Justice Department, the Federal Trade Commission, dealers and vehicle owners.

 

It isn’t just Volkswagen vehicles that are being examined by federal regulators in various countries. For example, last month in France, government fraud investigators raided PSA Group offices as part of broader checks into vehicle emissions. Earlier this year the same authorities had raided offices of Renault SA. Japanese automaker Mitsubishi Motors also recently admitted it manipulated fuel-economy tests to mislead consumers.

 

Daimler also announced it has been asked by the U.S. Department of Justice to investigate the certification process of its cars. The internal probe follows U.S. class-action suits that allege some of Daimler’s cars violated emissions standards. Daimler has said it’s cooperating fully with authorities and that the suits are “baseless,” a Bloomberg article reports.

 

The suits against Daimler allege Mercedes-Benz clean-diesel models contain a device that causes the vehicles to violate U.S. emissions standards when run at cooler temperatures, making them less environmentally friendly than advertised. Specifically, the automaker was accused of using a device in its BlueTec cars to turn off a system meant to reduce nitrogen oxides in its exhaust.

 

Speaking at a recent Chinese auto show, Daimler AG Chief Executive Officer Dieter Zetsche told Bloomberg News that carmakers now need to be clearer about the way they certify their fuel-economy and emission ratings as regulators increase scrutiny over the gap between laboratory results and on-road conditions. “You can only be transparent and if there are any shortfalls anywhere, fix them and move forward,” Zetsche said.

 

Going by the rules that are being proposed, China will be the toughest regulatory regime over the next five years, Ford Motor Co. Chief Executive Officer Mark Fields told Bloomberg at the Chinese auto show. Public health and environmental concerns are driving the scrutiny, and Ford will support China adopting on-road emissions testing measures passed by the European Union, he said.

 

Indeed, China, the world’s largest auto market with more than 24 million vehicles sold last year, has extensive plans to reduce automotive emissions. A major component of the plan calls for improving vehicles’ fuel economy by about a third from 2014 through 2020 to reduce carbon-dioxide emissions.

 

Testing real-world driving emissions through on-road testing, which will begin in the U.S., European Union and China, will provide a more realistic measurement, yet it also introduces another level of complexity to an already complex process because automakers will need to change their own testing processes—and some may need to redesign equipment. As different countries introduce new emissions standards, navigating and meeting the various standards will become another challenge auto makers, their partners and suppliers must work together to address.

There are many benefits to having a global, multi-tiered and lean supply chain. At the same time, their use also makes companies more vulnerable to supply chain disruptions as suppliers and partners experience everything from financial problems to extreme weather or even natural disasters. To better help companies prepare for such risks, some firms offer services that identify and analyze third-party vulnerability.

 

For example, KPMG Spectrum, a division of KPMG, offers a supply chain intelligence service using software known as Third Party Intelligence, which draws on data sources including financials from thousands of third parties in 90 countries, as well as millions of news feeds, websites and blogs from 48 countries. The firm recently added earthquakes, social unrest and other events to the list of monitored conditions. Instead of filtering and presenting data to clients, it instead uses algorithms to pinpoint and project vulnerability trends in individual third parties and the countries in which they operate, KPMG explains. Analysts then assess the risk and notify clients when there may be growing risk.

 

“Many executives try to monitor disruptive events caused by third parties in real-time, minimizing their ability to react quickly enough to contain resultant damage—whether financial, reputational, legal or otherwise,” says Larry Raff, Head of KPMG Spectrum. “In the current environment, real-time is no longer fast enough. Third Party Intelligence allows us to alert clients to vulnerabilities in advance, giving businesses the insight to act ahead of time and potentially avoid disruption altogether.”

 

Noha Tohamy, vice president of research at Gartner, says in a recent Wall Street Journal article that one result of supply chains becoming more distributed and global is that manufacturers now work with much smaller suppliers, which are more difficult to track. Consequently, larger companies see a need to use big data and outside data to better understand risk exposure. They want to combine information they have of their own supplier performance with what’s happening with weather, political unrest and other conditions to devise mitigation strategies, she says.

 

The market for such services is still small, Tohamy says in the WSJ article. Companies want more visibility into their supply chains, but it can be challenging to track distant suppliers. It’s also difficult to make a business case for such investments when other projects, like reducing inventory, solving productivity issues or gaining transportation capacity, compete for the same funds, she says.

 

“The economic impact of day-to-day issues often exceeds the cost of headline-grabbing events like the earthquakes in Japan,” Tohamy says.

 

There’s no dispute that it would be helpful to receive a warning alert that an event such as a port strike near a key supplier, for example, or that socio-economic tension in the region is on the rise. The other side of the coin, however, is that implementing the correct response to such events is even more important.

 

The capability to put the correct response in place carries its own demands. Indeed, the ability to respond effectively to an unanticipated supply chain disruption—or to respond to an anticipated supply chain disruption—by implementing the proper mitigation strategy requires a combination of capabilities which first enable organizations to correctly identify risks, and then  trigger an alert so all personnel who need to respond receive immediate notification. Determining the correct response also requires using “What-if?” modeling of different resolution options to determine their possible impact. In addition to facilitating collaboration and communication among key personnel, the ability to implement the correct response also requires providing clear guidance so key personnel can compare possible resolutions to determine which one best meets organization objectives.

 

Does your organization analyze third-party vulnerabilities? Also, is it ready to respond quickly to supply chain disruptions?