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2017

Cargo security is the type of thing most people take for granted, and yet someone in the U.S. reports inventory has been stolen roughly twice each day, according to “2016 IIS U.S. & Canada Annual Report,” from Transported Asset Protection Association (TAPA). Furthermore, some commodities, such as pharmaceuticals and electronics, are often targeted while in-transit or wherever they can be found in large quantities.

 

“It’s a known fact that high-value shipments are targeted well in advance by organized theft rings,” says Thomas Neumann, security manager at UPS Capital, in a recent paid-content article from UPS on the Wall Street Journal. “They typically have a buyer in place to fence the stolen merchandise, which makes recovery even more difficult.”

 

For instance, although it’s one of the most protected product categories, electronics accounts for nearly one in six cargo thefts in the U.S. and a growing share worldwide—second only to “Food & Drinks” as the most stolen product type. The average loss is worth more than $370,000, making electronics the category with the highest average loss value in 2016, the article notes. TVs, computers, mobile phones and other personal devices are often targets of choice because a stolen device can easily be resold for up to half its retail value in cash.

 

The challenge is that businesses must protect their vulnerable high-value products all through the supply chain, even when the products are sitting “securely” inside a warehouse. Compounding the situation, many executives describe their organization’s effectiveness at managing supply chain risk as “low” or “don’t know,” according to UPS.

 

“Many high-value cargo thefts are carried out by organized criminal gangs, whose tactics are constantly evolving,” Scott Brown, Industrial Sectors and Multinational Lead—Client Risk Solutions, Industry Services Group, AIG Client Risk Solutions, says in the article.

 

The gangs may use portable 3D printers to create counterfeit security seals, jamming devices to foil the signal emitted by cargo tracking devices, a “cube” to defeat motion sensors and enter warehouses undetected, even fake drivers or phony trucking companies to fraudulently pick up high-value loads.

 

“Shippers and carriers stand a good chance of becoming just another statistic in the loss column if they don’t manage their risk of cargo theft effectively,” Brown says.

 

As the authors point out, mitigating the risk of this type of loss upfront can pay for itself many times over. To mitigate the risk of loss for high-value goods, many professionals recommend a “layered” approach which minimizes gaps in security with several layers of defense, the article continues. That way, a lapse or weakness in one layer does not easily permit a threat to become a loss.

 

The authors explain that layers should include:

  • Quality and prescreened carriers—who have experience moving commodity-specific, high-value products
  • Security partnerships with logistics partners, suppliers and experts, including law enforcement and insurance partners
  • Visibility and tracking systems
  • Physical security, such as advanced seals, immobilization devices and armed guards
  • A defined cargo handover process to prevent fraudulent pickups
  • Contingency planning for security alerts or unforeseen incidents

 

The last line of protection should be some type of insurance to mitigate the financial impact in the event of a loss, the article continues. Executives at many companies believe the company is covered by standard carrier liability, but reimbursement can be considerably less than the sale price of the goods. Other executives may think their business owner’s policy covers losses, but they may be shocked to find there are limitations or the company is dropped after multiple claims. The best approach, the authors write, is to take out a cargo insurance policy designed specifically for the business, based on risk tolerance and supply chain characteristics.

 

What are your thoughts on cargo security? Do you think goods move through your company’s supply chain securely?

As a year comes to a close, it’s always interesting to look at past trends and make predictions for the coming year. For instance, it seems 2018 will be a year of transition for the supply chain, as digital transformation continues to gain ground.

 

“The supply chain is undergoing almost unparalleled levels of change. The older measures—productivity, quality and service—still apply of course, but we now see the specter of digital transformation poised to change everything,” says Simon Ellis, program vice president, Global Supply Chain Strategies, IDC. “Whether it’s the way manufacturers and retailers plan, procure or fulfil, digital transformation is both opening up new opportunities, and presenting new challenges. Business leaders who recognize the real impact of digital technologies on their industry, customers, partners, suppliers, functions and business practices stand to gain substantial advantage over their competitors.”

 

Indeed, in a recent report Ellis and Victoria Brown, Research Manager, global supply chain execution at IDC, explain that digital transformation is the key overriding theme in their worldwide supply chain top 10 predictions for 2018—including the impact for supply chain planning, supply chain execution/fulfillment, procurement and supply chain security. Although their predictions largely focus on the near term to midterm (2018–2020), the impact of many of these predictions will be felt for years to come. Furthermore, most of the predictions refer to a continuum of change within the wider ecosystem of the supply chain industry and global economy.

 

So, for example, Ellis and Brown write that by 2020, they expect 60 percent of G2000 manufacturers will rely on digital platforms which enhance their investments in ecosystems and experiences, and support as much as 30 percent of overall revenue.

 

In the shorter term, I was interested to read Ellis and Brown expect that by the end of 2018, half of all manufacturers will be using analytics, IoT and social collaboration tools to extend the integrated planning process across the entire enterprise, in real time. What’s more, by 2021, they expect 60 percent of manufacturers will leverage an advanced analytics-driven data aggregation platform for supply chain operational data to improve the speed and accuracy of the fulfillment process.

 

Ellis and Brown make several other predictions as well. Some of them include:

  • By 2019, 80 percent of supply chain interactions will happen across cloud-based commerce networks, dramatically improving resiliency and reducing the impact of supply disruptions by up to one-third.
  • By the end of 2018, the use of industry clouds, blockchain and cognitive will have dramatically enhanced the understanding of supplier capacities for one-third of manufacturers, enabling the iterative rebalancing of critical supply based on capabilities, rather than units and quantity.
  • By 2019, robots will be used in 50 percent of fulfillment centers, resulting in productivity gains of up 30 percent—helping reduce the cost of operations and offsetting an increasing shortage of labor.
  • Finally, by the end of 2019, Ellis and Brown expect cybersecurity will have surpassed physical security as a top concern for one-half of all manufacturers, and it will become a top investment priority as companies make the transition to digitally enabled, cognitive supply chains.

 

What do you think of Ellis and Brown’s predictions? Do you agree with them? Do you have other predictions for the coming year?

Jim Fulcher

Not so easy riding

Posted by Jim Fulcher Dec 22, 2017

A group of two dozen concerned motorcycle industry veterans met last month and ticked off a list of factors challenging the ailing industry. That list includes: sales are flat or falling; Baby Boomer buyers are aging out of riding; failure to attract women, minorities and Millennials as new riders; the dealership experience must be improved; and the arrival of autonomous vehicles may push motorcycles off the road entirely. While identifying problems is easy, coming up with solutions to the challenges is vexing.

 

“The message is, ‘We’re in trouble, and there’s no silver bullet,’” says industry insider Robert Pandya, a motorcycling advocate known for his tenure as External Relations Manager for the Indian and Victory brands, who formed the Give A Shift industry group last fall, chaired the recent Give a Shift roundtable and was behind a report resulting from a survey of 300 participants about industry challenges. It’s important to note that the roundtable participants were not representing companies they have worked for, or currently are employed by.

 

Among the key findings in the report are that the motorcycle industry doesn’t need better product, but its marketing and advertising methods fail to attract new riders in part because they are too focused on selling bigger, faster, more expensive machines to veteran riders. There has never been a more compelling and interesting time in motorcycling, the report explains. Nonetheless, it further notes that access to more models at lower prices will be key to increasing consumer interest.

 

“There is a pattern where OEM’s, media and sales floor staff get exuberant about the highest performance (and often priced) models, and lose sight of the importance of more approachable products that are less intimidating and will increase ridership,” the report continues. “However, even with a strong variety of dual-sport, street-sport, scooters and cruiser models being introduced by OEMs, it’s clear that the bigger issue is the lack of general interest.”

 

The industry also has failed to appreciate the importance of the female rider, losing sight of the concept that mothers who ride tend to produce children who ride. Instead, manufacturers focus too tightly on the more typical male consumer and, when it comes to women, rely on the careworn “shrink it and pink it” approach to apparel and gear manufacturing, the report continues.

 

“There is clearly a path to attract female ridership that does not come from traditional motorcycle marketing and must be explored,” the report notes. “The increase in female ridership will have a huge influence on young riders’ access to motorcycling.”

 

Another key concern is whether motorcycles will continue to have a place as the use of autonomous vehicles increases. As this technology grows, contemporary motorcycles will be even further elevated into higher risk categories in the eyes of traffic systems technologies, insurance companies, city planners and autonomous vehicle manufacturers who currently own and direct the conversation, according to the report. What’s more, there is a very real risk of motorcycles being completely cut out of the conversation for future vehicle infrastructure systems and squeezed out of local and national transportation planning all together, according to the report.

 

While the report, and consensus among roundtable attendees, is somewhat bleak, industry veterans do have ideas for how the industry can slow the erosion in sales and enthusiasm. Primarily, there is a need for the power sports industry collectively, and riders individually, to self-correct, self-police and work together to improve motorcycling’s image. Manufacturers, roundtable attendees note, must “promote motorcycling as an activity for everyone,” “tell a compelling story about the benefits and joys of motorcycling” and “affect acceptance of the positive aspects of motorcycling.” For their part, riders, in turn, must be better ambassadors for the sport and better share the message.

 

“If just 20 percent of existing riders were able to bring a new rider into the mix every year, the shift would be dramatic not only in sales but in camaraderie,” the report notes. “Motorcycling can no longer be our secret.”

 

What are your thoughts on challenges for the motorcycle industry as a whole?

New research studying the impact of advances in artificial intelligence (AI) on world economies identifies three possible scenarios. What’s interesting, is the difference between them.

 

The Economist Intelligence Unit’s research, sponsored by Google, covers five countries—the U.S., UK, Japan, South Korea and Australia—and the countries of Developing Asia as a group. The resulting report, “Risk and Rewards: Scenarios around the economic impact of machine learning,” explains that the first scenario assumes a higher degree of complementary skills between humans and AI than that of the baseline because governments will invest more in upskilling than current trends suggest, so the scenario models greater human productivity through upskilling. In this scenario, every analyzed country and group received benefits, but some more so than others.

 

The second scenario assumes investment in access to open source data, tax credits to spur private sector adoption of machine learning, and advances in computing efficiency drive hardware costs down. This scenario yields the most encouraging results for economic growth. Each of the five countries, as well as Developing Asia as a group, experience higher levels of growth relative to the group’s baseline forecast, but all of the countries covered see GDP rise by at least one percent above the baseline between now and 2030.

 

The final scenario, and the only negative one, assumes a lack of any upskilling or data sharing, and results in AI taking the jobs of humans. The modeled losses in this scenario are considerable: Both Britain and Australia’s economies actually shrink in U.S. dollar terms—with the UK’s economy becoming $420 billion smaller and Australia’s losing $50 billion. The U.S. and Asian economies continued to grow but significantly below expectations, the report explains.

 

Based on the research, the report’s authors note that the near-term effect of AI would be “neither utopian nor dystopian,” and that managing expectations will be critical. They also caution that a lack of communication between developers, businesses and governments could worsen the consequences.

 

“There are many understanding gaps when it comes to AI, but one of the most important to bridge is that between developers and businesses and government institutions. The former are often only dimly aware of what the latter two really need, and the latter, in turn, are often only dimly aware of the potential solutions the former could provide,” the authors write. “A more robust and frequent exchange of information, capabilities and needs would help to remedy this [situation].”

 

The authors add that educating the public and increasing investments in research and development will be vital to alleviate any economic damage. Furthermore, they explain, there is a pressing need for increased investments in skills and training.

 

“That there is going to be churn in labor markets as a result of AI is widely accepted. Vocational education, now lacking in most countries, will need to become more prevalent,” the report continues. “The growing focus on STEM education is important, as well, but the expected rise in demand for ‘soft skills’ such as team building, cooperation and critical thinking means that liberal arts should not be neglected. The right mix of these three, and others, will require constant monitoring and close cooperation between industry, educators and policymakers.”

 

What are your thoughts on the possible economic impact of AI? What challenges do you think need to be addressed so the use of AI can compliment human skills to improve productivity?

While the threat of supply chain disruption caused by factors such as cyber breaches, natural disasters and geopolitical instability in Asia and the Middle East continues to grow, chief among the key concerns for boards of directors and executives at companies around the world are the rapid pace of technological developments and disruptive innovations, along with organizational resistance to change, according to the results of a new survey.

 

The report, “Executive Perspectives on Top Risks for 2018,” from consulting firm Protiviti and the Enterprise Risk Management (ERM) Initiative in the North Carolina State University Poole College of Management, is based on the responses from 728 board members and executives at U.S.-based and non-U.S.-based organizations across public and private sectors. The results indicate that growing concerns around disruptive innovation significantly outpace fears of economic uncertainty and regulatory scrutiny, which have consistently been the top risk issues of board members and executives over the past several years. Threats related to cybersecurity are a key concern for business leaders as well, particularly in light of recent cyberattacks such as WannaCry, along with those affecting major organizations like Equifax, the report explains. Interestingly, board members across all industries perceive a much riskier environment in 2018 relative to 2017.

 

“Disruption and digital transformation are taking place across all industries and threatening core business models,” says Pat Scott, an executive vice president with Protiviti. “It’s clear from our latest survey that there has been a major shift in the top concerns for organizations. Digitalization-related risks have supplanted overall economic conditions and regulatory scrutiny atop the list of risk issues for board members and executives who are worried that new technologies and their impact on established business models could outpace their organizations’ ability to keep up and remain competitive.”

 

The top 10 risks for 2018, according to the respondents, are:

 

  • Rapid speed of disruptive innovations and/or new technologies may outpace the organization’s ability to compete and/or manage the risk appropriately—without making significant changes to the business model.
  • Resistance to change may restrict the organization from making necessary adjustments to the business model and core operations.
  • The organization may not be sufficiently prepared to manage cyber threats.
  • Regulatory changes and regulatory scrutiny may increase.
  • The organization’s culture may not sufficiently encourage the timely identification and escalation of risk issues.
  • The organization’s succession challenges and ability to attract and retain top talent may limit its ability to achieve operational targets.
  • Ensuring privacy/identity management and information security/system protection may require significant resources.
  • Economic conditions in the organization’s target markets may significantly restrict growth opportunities.
  • An inability to utilize data analytics and big data to achieve market intelligence and increase productivity and efficiency may significantly affect the ability to manage core operations and strategic plans.
  • Existing operations may not be able to meet performance expectations related to quality, time to market, cost and innovation, as well as competitors—especially new competitors which are “born digital” and have a low-cost base for their operations.

 

“In light of the shifting risk landscape, it’s particularly interesting to observe an increasing concern among survey respondents that their organization’s culture may not sufficiently encourage the timely identification and escalation of risk issues to senior management and the board,” says Dr. Mark Beasley, Deloitte Professor of Enterprise Risk Management and director of NC State’s ERM Initiative. “As boards of directors and senior executives seek to improve their understanding of emerging risk issues, they may need to re-evaluate how their organization’s culture might be impacting the robustness and transparency of their risk identification and risk reporting efforts.”

 

While I too was interested to read that “the organization’s culture may not sufficiently encourage the timely identification and escalation of risk issues” was cited as the fifth leading risk concern, I am more intrigued that “Resistance to change may restrict the organization from making necessary adjustments to the business model and core operations” is the second top concern. Do you think that is a key risk in your organization or among key suppliers? How do you think companies can work to change that resistance among employees?

Mass production of plastics has accelerated so rapidly that it has created 8.3 billion metric tons of plastics, of which 6.3 billion metric tons has become plastic waste, according to research. Only nine percent of it has been recycled, and 79 percent of the plastic waste is accumulating in landfills or sloughing off in the natural environment as litter, a National Geographic article notes. At some point, much of it consequently ends up in the ocean.

 

“We all knew there was a rapid and extreme increase in plastic production from 1950 until now, but actually quantifying the cumulative number for all plastic ever made was quite shocking,” Jenna Jambeck, associate professor, Center for Circular Materials Management, New Materials Institute, University of Georgia, says in the article. “This kind of increase would ‘break’ any system that was not prepared for it, and this is why we have seen leakage from global waste systems into the oceans.”

 

The research led by Jambeck, an environmental engineer who specializes in studying plastic waste in the oceans, two years ago found that an estimated eight million tons of plastic waste entered the ocean in 2010, and if trends do not change, more than 150 million tons of plastic waste will have entered the ocean by 2025, National Geographic reports. This poses not only a threat to vital ocean ecosystems, including critical fish nurseries and coral reefs, but it also adversely affects the health and longevity of marine species and humans.

 

With that research in mind, I was interested to learn that Dell, General Motors, Trek Bicycle, Interface, Van de Sant, Humanscale, Bureo and Herman Miller are collaborating to form a consortium called NextWave to develop a global, scalable and operational supply chain that reduces the amount of plastic entering ocean. Additionally, each company agrees to test integration of ocean-bound plastic into products or packaging and reduce source plastic across their operations and supply chain. Additional supporting members of the group include UN Environment, 5Gyres Institute, Zoological Society of London and New Materials Institute.

 

NextWave says its members will share responsibility in development of a sustainable model that reduces ocean-bound plastic pollution at scale, while creating an economic and social benefit for multiple stakeholders. In addition, the group will ensure that the resulting supply chain has the infrastructure and support necessary to meet demand as well as align with globally approved social and environmental standards. Finally, the initiative will confirm the integrity of the supply chain and resulting product integration through chain-of-custody compliance and external, third-party verification of impact. NextWave anticipates that together, the companies will divert more than three million pounds of plastics from entering the ocean within five years—the equivalent to keeping 66 million water bottles from washing out to sea.

 

“I’m excited to see the private sector step up and take an active role in addressing the challenges of marine debris,” Jambeck said at a NextWave event. “By changing the way we think about waste, valuing the management of it and establishing groups such as [NextWave] that create an economically viable and scalable model, we can catalyze the development of infrastructure including new jobs and opportunities for economic innovation while improving the living conditions and health for millions of people around the world.”

 

Marine litter, and plastic, specifically, is on the rise. What are your thoughts on how a consortium such as NextWave can help address the problem?

For the first time, women and people of color were picked for a majority of open S&P 500 board seats this year, due, in part, to increasing pressure from investors to improve gender and racial disparities. Indeed, S&P 500 boards appointed 397 new independent directors in the 2017 proxy year, and just over half of the new directors were women and/or minorities, according to a new study by Spencer Stuart, an executive search and leadership advisory firm.

 

As the firm’s “2017 Spencer Stuart U.S. Board Index” details, of 397 independent director slots open in the 2017 proxy season, 36 percent went to women and 20 percent to minorities. Although the tally includes most board seats, it leaves out executives who are also directors of their companies. Consequently, combined, women and minorities made up 50.1 percent of the new board members, compared with 42 percent last year.

 

“It’s a step in the right direction, for sure, and it’s the first time we’ve gone over 50 percent,” Julie Hembrock Daum, who leads Spencer Stuart’s North American Board Practice, says in a Bloomberg article. “Boards are looking for people who are younger and with different skill sets, and that does open the boardroom for more women and minorities.”

 

Spencer Stuart’s research found that female representation among new S&P 500 directors rose to 36 percent (142 directors), the highest since Spencer Stuart began tracking this data in 1998. Meanwhile, minority males (defined as African-American, Hispanic/Latino or Asian) made up 14 percent (57) of the new independent directors. Six percent (25) of the new directors were women and minorities.

 

The flip side of the coin is that despite the number of new women directors, the percentage of women on S&P 500 boards increased only incrementally to 22 percent of all directors, up from 21 percent in 2016 and 17 percent in 2012. This is due, in part, to modest director turnover. Forty-eight percent of boards did not appoint a new director in the 2017 proxy year.

 

“There’s still just very little turnover, so even though the percentage of new directors that are younger and that are diverse has gone up, it’s off a low base,” Daum says. “There’s a high degree of interest in diversity, but it’s still very slow change.”

 

One reason directors may be reluctant to leave is because they’re well paid. Average director compensation rose one percent to $288,909 this year, the Bloomberg article explains. Also, for the first time, more than half of boards with a mandatory retirement age have set the limit at older than 73 on average, giving directors more time to serve.

 

Nonetheless, board composition is an important governance issue for many institutional investors, and many are demanding a younger presence in the boardroom to ensure the board has the digital skill sets and perspective necessary for emerging areas of board oversight—including e-commerce, digital marketing and cybersecurity. There also is growing investor interest in whether boards are composed of a diverse mix of skills, qualifications, perspectives and backgrounds that align with the company’s current and future strategic objectives and risks, Daum says.

 

“Boards can continue to make progress on this front by committing to regularly reviewing and refreshing the board and by casting a wide net to include first-time director candidates,” Daum says.

 

What are your thoughts on gender and racial diversity on boards of directors? How do you think different perspectives will impact the board's governance?

The number of applications for 3D printing, or additive manufacturing, continue to grow. The appeal for the technology is it has the potential to change manufacturers’ business models and supply chains themselves because it may be used to quickly produce parts rather than face potentially long lead times for certain products. Not only is there a subsequent time savings, the practice may also eliminate the need to store some physical inventory in warehouses.

 

For instance, Daimler Trucks North America (DTNA) announced this week it will begin making plastic parts produced for customers using 3D printing technologies as part of a pilot program. The company sees 3D printing as an opportunity to better serve customers, particularly those in need of parts which have been difficult to provide through traditional supply chain models—such as parts for older trucks or parts with very low or intermittent demand, a spokesperson explains. During this pilot phase, DTNA will release a controlled quantity of 3D printed parts and will seek feedback from customers and technicians receiving the parts. As part of the pilot, the company will also collect data on the parts performance as well as assess potential future demand for 3D printed parts.

 

To print the parts, DTNA partnered with 3D printing service bureau Technology House. The companies have already made the first parts available to customers using Selective Laser Sintering, a process which layers powder in a print chamber and then “selectively” melts a pattern with lasers before adding the next layer. The 3D printed parts have been validated to meet durability requirements and many will appear no different than standard parts to the untrained eye, according to DTNA. During the pilot phase, parts to be printed include nameplates, map pockets and plastic covers.

 

Furthermore, parts that are eligible for 3D printing are also stored in DTNA’s digital warehouse, which allows a part to be printed on-demand, further reducing lead times. Without the need to maintain tooling, these parts will remain available to customers when needed.

 

On-demand 3D printing also removes the need for holding physical inventory, says Jay Johnson, general manager, aftermarket supply chain, DTNA. Currently, the order process takes two to four weeks, but once the program is fully launched, parts will be able to be shipped in a few days. This capability has the potential to increase uptime for customers who may otherwise experience long wait times for a hard-to-find part, he says.

 

“Over the past five years, DTNA has made significant financial and intellectual investments in the supply chain network to deliver parts to our customers faster,” says Johnson. “We realize we must continue to innovate and we will invest in new processes including 3D printing. …so we can deliver parts to customers even quicker.”

 

The current increase in use of 3D printing isn't surprising, particularly as the cost of the technology comes down and it becomes more readily available. Possible applications though, span a wide range. For instance, automakers Volkswagen, BMW and others have used 3D printing for years in the process of rapid prototyping. What’s more, durability isn’t an issue for the parts, as shown by Russian cosmonauts at the International Space Station using the technology to create nanosatellites, and the U.S. Coast Guard using 3D printers to create spare parts on-board ships at sea. It will be interesting, however, to follow DTNA’s pilot and see how it may have an impact on the company’s aftermarket supply chain.

 

What are your thoughts on the use of 3D printing? Which applications do you think will see the most benefit?