Value Chain Embedded & Distributed Engineering

There is growing pressure on a company’s engineering function to address issues which span far and wide in value chain. Hence engineering needs to leave the confines of its dept. New legal regulations, sustainability related expectations, cut-throat competition require product and process re-engineering throughout the value chain. The optimal and sustainable way of doing so is to embed the business transactions of value chain partners with engineering and engage them in co-creation on continuous basis. And one can do so effectively by leveraging existing IT infrastructure, reinforcing it with latest information technologies and backing it with a governance model and performance measures. Lets examine in detail the challenges which engineering function faces and how to address them.

Challenge 1: Growing Expectations from Engineering Dept.

Earlier companies were more Engineering-driven. The engineering dept. alone used to decide on new product and process changes. As the business world became more competitive, companies started becoming more Market-driven. As a result, today engineering depts. have become more tuned to customer and other stakeholders’ needs and incorporate their feedback in both product and process design. However, still both product and process engineering are confined to respective departments and a company’s lab is the epicenter of all engineering activities. 

The arrangement has served well in developing in-house R&D expertise to outpace the competition. However, going forward, this arrangement is not sufficient to impart competitive edge in increasingly fast-paced and interconnected business world. The demands being put on engineering dept. have literally exploded in recent times. The list below, though not exhaustive, is a good indicator of huge expectations that product and process engineering will have to meet in future.

Meet customers’ and compliance requirements

- Meet customers’ both explicit and implicit needs

- Compliant with legal standards (Conflict Minerals, RoHS, REACH etc.)

- Compliant with various product labeling requirements

Reduce product development, production cost & distribution cost

- Design for Manufacturability

- Design for Maintainability

- Optimized packaging with high cube utilization  

Faster Time to market

- Reduce physical prototype iterations

- Share knowledge and enable design reuse

- Concurrent engineering and virtual validation

Technology Leader

- Stay ahead in product technology curve

- Stay ahead in process technology curve

Sustainability

- Safe and environment friendly during customer use. Low carbon footprint during usage.

- Safe and low carbon footprint during production (starting from a Tier 3/4 supplier)

- Easy to dispose/recycle with low carbon footprint

- Design for Environment (Using Bio-mimicry, Green Chemistry, Closed Loop Manufacturing etc.)

- Support corporate ‘Green’ or ‘Ethical’ Branding with right product and process design

Reduce enterprise risks

- Mitigates supply chain risks and insulate from supply chain disruptions

- Mitigates legal risks associated with production and product failure

- Avoid risks to reputation stemming from actions/practices of supply chain partners

Challenge 2: Increasing Dependency on Value Chain Partners

The value chain of a company today constitutes of a complex web of interdependent relationships with external agencies.

• The corporate strategies adopted by companies in present times are focused on developing core competencies, the side-effect of which is heavy reliance on other value chain partners for other business functions. 
• Suppliers not only produce parts but also do the research and development work for the same. 
• ‘Extended Producer Responsibility’ (OECD, 2006) principle has stretched the responsibility of a producer and calls for greater collaboration with value chain partners. 
• Regulations like ‘Conflict Minerals’ (SEC, US, 2010) cannot be met by a company alone and would require the company to engage its downstream value chain partners.

Hence changes in both market and non-market environment are impacting the whole value chain and hence deserves a united response from all value chain partners.

The Way Forward: Paradigm Shift in Engineering Function

In such a scenario, meeting the growing expectations on engineering becomes far more challenging. The response warrants a paradigm change where engineering moves out of the confines of its departmental silo and seamlessly integrates into the value chain. For instance, engineering collaboration can be embedded in routine supplier interactions. Supplier metrics can be enhanced to reflect engineering related KPIs. 

As shown in the illustration above, engineering function is plugged into all value chain interactions from supplier to customer. By doing so, the whole value chain can be leveraged for a superior product and process design to respond effectively to changes in external environment. 

Illustrative Impact Areas/Examples

• A good example is ‘Food safety’ related legislation (FDA, US, 2011) which impacts product and processes at every step of journey from farm to fork. The responsibility of compliance lies with leading food companies who in turn need to engage their value chain partners to redesign processes to ensure safer food and traceability.
• Another example is the dynamic Hi-tech industry which is divided into specialized players. A Fabless firm to remain competitive has to sync its engineering activities with the developments in manufacturing processes. A firm can do that on continuous and sustainable basis only if it has strong engineering channels with Foundry suppliers along with routine transactional interactions.
• A logistics provider can help with their experience on efficient packaging design, labeling, use of right packaging material to comply with regulations on ‘Toxics in Packaging’ (Northeast Recycling Council (NERC), 2009) and similar others.
• Involving customers during design and development can benefit engineering focused companies like medical diagnostics equipment, industrial machine tools and others. For instance, production personnel in a factory that has been using a machine tool for 5 years knows more about that machine’s behavior compared to the manufacturer himself. Why not engage the customer’s production team to be part of machine tool design? 
• Embedding engineering channels in value chain drives innovation both ways. The channels can bring innovative insights and ideas from value chain partners. The same channels can be used to drive product and process innovation throughout the value chain. This makes a company more demand-driven rather than engineering-driven.
• Established communication channels with customers provide opportunity for Demand Shaping. For instance, internet retail companies leverage their customer touch-points to influence product choice and shape demand. 

Implementation: Leveraging Existing Infrastructure & Cloud

After going through the merits, the next obvious question is how one makes it work. One necessarily need not build entirely new infrastructure for the purpose. Existing infrastructure can be enhanced or cloud computing can be leveraged to integrate a specialized function like engineering with usual transactional interactions in value chain. 

To illustrate with an example:

A company has an intranet portal for its suppliers to log in. The functionality of the portal can range from providing order information to monitoring supplier performance metrics or even CPFR (Collaborative Planning, Forecasting and Replenishment). 

The same platform can have an extra portal for engineering where a supplier can be provided with relevant engineering master data. In addition, the portal allows sharing of relevant drawings, engineering software tools (using SaaS model), comments, reports, templates, best practices etc. The extra portal would not cost much but allow engineering collaboration with suppliers on wide range of areas like Value Engineering, Design for Environment, legal compliance etc. 

A governance model with proper security and permissions would ensure that the supplier access is controlled and company’s confidential information does not leak through the supplier. 

Existing supplier performance metrics can be appended to reflect product and process engineering performance. Some examples of performance metrics could be ‘# of Design Suggestions Received’, ‘% of Suggestions Implemented’, ‘Component Cost Reduction’, ‘Sustainability Action Points completed’, ‘Legal Compliance Status’ etc. 

Similar to above, engineering function can tap into other value chain interactions with logistic providers, dealers, customers, experts etc. For instance, engineering interactions can be embedded in warranty process, spare parts ordering process, reverse supply chain and customer service process to improve component and product design. The overall benefits could be traced to enterprise level performance measures like ‘Time to Market’, ‘Product Success Rate’, ‘Product Cost’ and others.

Following are key pieces that need to be put together for effective implementation:

• IT: Information Technologies are now capable of providing a common platform for business transactions as well as sharing design data and collaborating on it. Cloud based computing further enhances cross-functional and service based interactions by:
• Giving access to design & engineering software tools using SaaS (Software as a Service) & IaaS (Infrastructure as a Service) to the value chain partners who cannot afford the high hardware infrastructure and license costs. 
• Moving the product development process and workflows to cloud and hence making the geographical and organizational boundaries irrelevant between a company and its partners.
• Governance: A governance model ensures controlled access and distribution of content.
• KPIs: Metrics monitor the system performance and ensure that desired value is being derived. 

Closing Remark

The demands on engineering function are only going to increase and span far and wide in value chain. Optimal way of dealing with it is to engage with value chain partners in co-creation along with business transactions. And one can do so effectively by leveraging existing IT infrastructure, reinforcing it with latest information technologies and backing it with a governance model and a set of performance measures.

Partnership Development: A Cornerstone for Business Strategy & Excellence

Last year, in one of my blog post http://frontiers2explore.blogspot.com/2010/06/competing-networks-holistic-approach-to.html, I emphasized that companies do not compete alone, their networks compete with other networks. In my other blogpost http://frontiers2explore.blogspot.com/2011/01/collaboration-new-wave-of-business.html, I dwelled upon various areas of collaboration including external collaboration. Both posts indicate that ability of a company to develop and manage partnerships is important to sustain a competitive advantage. In this post, various business scenarios that warrant partnership development are discussed which emphasize the direct linkage between 'partnership development' and 'business strategy & excellence'.  

Business Ecosystem: The concept of business ecosystem is two decades old but its relevance has been only growing with time. Today its adoption has gone beyond high-tech community. Any company irrespective of the industry is a part of a larger business ecosystem. 

For instance, the business ecosystem for a company making energy saving building materials will include green building design, building automation, life safety system, utility services, fire safety systems, hybrid energy systems, HVAC, lighting systems and other providers. All of these providers share something in common and i.e. 'Green Buildings'. Collective success of them will expand the market of 'Green Buildings' and hence the market for each provider.

Agri-business is another good case to understand business ecosystem. Agri-ecosystem consists of input providers like seed, farm equipments, fertlisers, pesticides etc, food processors, retailers, farmers and customers. Also the ecosystem includes advisory providers, regulators, logistics providers and others. Now consider a seed company. What can the company do to increase its sales more than its competitor when there is not much scope of product differentiation in seed business. The conventional business approach would focus on sales and marketing. But some companies have gone a step further to take a stake in success of their customer 'the farmer'. The success of the farmer benefits the company in two ways: First, it increases farm productivity and hence increases the demand of the seeds. Second, it builds the market reputation of the seed provider. But the success of the farmer depends on various other factors apart from seeds like, nutrient management, weed and pest management, irrigation, market prices he gets for his produce etc. Hence, the seed provider needs to engage the players in agri-ecosystem. Some seed companies are beginning to do so.

Business ecosystems are dynamic and new ones emerge over time. For instance, rise of mega cities and urban congestion is creating an Urban Mobility ecosystem comprising of transport providers, automotive OEMs, payment gateways, insurance, utility providers, location based service providers and others. Automotive dealers and OEM need to be cognizant of this development and ensure that they can sell their vehicles in this ecosystem. Some automotive OEMs are taking lead in creating such ecosystems and positioning their vehicles for on-demand use.

The be successful, one needs to identify the relevant ecosystem, partner with its constituents and then sell to the ecosystem. Doing so no only grows the whole pie but also increase your share in the pie.

Knowledge Intensive R&D: In knowledge intensive industries like Pharma, high-tech, software industries, R&D generates intellectual property (IP). IP becomes a source of competitive advantage and companies file patents to protect them. At the same time, companies have to take care not to infringe on others' IP because patent litigation can be very expensive and risky. Product development not only requires working with in-house IP but also that of competitors. Competitors can also act as Complementors. Hence it makes sense to partner with your competitors for mutual gain. Companies sign non-exclusive cross-license agreement where parties get 'freedom to operate' in each other's IP. 

Product complexity is increasing and products now combine the best of research in different fields. A company cannot expect to specialize in every field. Hence a company needs to co-create with companies specializing in other fields. One can see such partnerships in high-tech industry where a fabless manufacturer has to collaborate with manufacturers, EDA vendors and IP providers in product development phase.

Shifts in Value Chains: Roles of players in an industry's value chain change over time. For instance, one would normally see companies moving up the value chain. OEMs taking up a system integrator role and offering solutions rather than products. 1st Tier Suppliers increasing their participation in product development and assembling modules for final product. Consolidation may happen among upstream commodity suppliers to achieve economies of scale and increase their supplier power. New players like remanufacturers, recyclers, 3rd party logistics may gain importance in value chain. 

A company which focuses on its core competence needs to develop strong relations with other value chain players to adapt to changing business environment. For instance, an Automotive OEM will keep its core-competence in Power Train technology in-house and outsource other design works to capable suppliers. This would free up the resources for OEM to concentrate on next-gen technologies like electric cars, hybrids, mobility solutions etc. With growing pressure on environmental friendly handling of reverse supply chain, an OEM, rather than building the capabilities in-house, can partner with a reverse logistics provider. 

Industry Standards: Acceptance of an industry standard is always preceded by competing standards.  Betamax vs VHS and Blueray vs HD are typical examples of competing standards in past. The key success factor to win an industry standard war is the supporting network of companies from different stakeholder groups. For instance, to develop industry standard for infotainment, several OEMs, hardware and software services providers have come together to form GENIVI alliance. Currently we are seeing the standard war in 3D between LG & Samsung and strengths of their respective networks will decide the winner.

Sustainability for survival: Several companies have discovered that sweet spot where sustainability serves their business needs and hence enter mutually beneficial partnerships with communities/NGOs/Government/Companies. For instance, Microsoft is partnering with community colleges to improve education standards and hence also address its business need of skilled manpower. Starbucks partners with CI (Conservation International) to reach out to coffee growers who are important to their business. 

Above scenarios prove that partnerships is emerging as key strategic asset to stay ahead and respond to the dynamic and evolving business environment. Today ability to develop and sustain partnerships is a competitive capability but tomorrow it would become another survival skill.

Proactive Enterprise & Brand Image Risk Management

"How an Organization can Manage the Risks posed by Viral Media to its Image and Brand "

This was the subject of my paper which I had the opportunity to present at CIBMP Conference on Innovations in Management at London. http://www.cibmp.org/library/global-conference-on-innovations-in-management-2011/

Below is the abstract of the paper. 

In today’s connected world, bad news travel fast and enterprises are frequently caught at the receiving end immaterial of whether there is any truth in bad news or not. By the time an enterprise gains back its senses, comes out of denial and responds; irreversible damage is already done to the public perception of its product, brand and company. Also there is detrimental effect on morale of employees of the company.

At the same time, the viral nature of today’s online world also provides companies the opportunity to proactively trace negative vibes and mitigate them. Also it allows companies to proactively spread good truths in public sphere to keep negative opinions at bay.

A proactive approach enabled with leading information technologies helps enterprises to leverage viral media to protect and enhance its image in public domain. The key aspects of such an approach is the extraction of information from various media sources including social media, analysis of information and devising action plan with both soft and hard action points.

A presentation on the paper can be downloaded from http://www.box.net/shared/h5i6m21jyize6ch4hofx 
The online link of paper is at http://www.cibmp.org/Papers/Paper%20632.pdf 

Principle of 'Inclusion' & Obligations of Business

The word 'Inclusion' here stands for a principle which implies 'The disadvantaged, marginalized or under-privileged is not left behind'. The principle has gained steady importance with growing multi-cultural society, activism in all facets of society and gap between have & have-nots. 

Lets explore various dimensions of this principle, how it can be promoted and imperatives for  a business.

Responsibility of Government

Governments have long realized that exclusion, i.e. alienation within a section of society harms the whole. Riots, terror and protests then become the means to vent the feelings. Governments frame policies/laws to ensure that all members of society feel valued, have equal access to resources, opportunities and feel a part of mainstream society. Political, Social and Economic inclusion are the three dimensions which governments focus on.

Economic Inclusion:

Economic exclusion occurs when a certain section of society do not have access to education, employment opportunities, banking, loan facilities etc. 

For instance, the poor villagers in south asia do not have access to bank loans and pay high interest rates to moneylenders. Microfinance, more rural banks, electronic id are some initiative towards financial inclusion. 

Poverty leads to exclusion from education and hence governments offers subsides, free education, mid-day meals and several other schemes to give equal opportunities to education and hence improve their employment potential. 

Political Inclusion:

Under-representation in political space and not having a political voice can lead to exclusion. The identity on which a group alienates himself can be anything - religion, caste, region, colour, tribe,  gender, language etc. The trouble starts when a group of people believe that they are being discriminated against and being left out of political space. Going forward, the group becomes fixated on that identity and separates itself from mainstream society. Governments hence sometime mandate a minimum number of representatives from such groups to give them a political voice and hence counter the alienation. 

Whether this approach is right or gives rise to identity politics is entirely an another debate altogether.

Social Inclusion:

Social exclusion occurs when members of mainstream society discriminates against a section of society. Again, divide can be created along many lines - religion, caste, region, colour, tribe,  gender, language, rich/poor, natives/migrants, age etc. The long term solution is to educate the society to live in a multi-cultural environment and not only accept but celebrate the differences. The training of which needs to start from school-days itself. Rights, freedom, fairness, justice, law and order are key enablers of maintaining social harmony. 

Government plays a key role by promoting community building and reconciliation exercises. Laws are also resorted to drive social inclusion. Non-Governmental Organisations (NGOs) have a major footprint in social inclusion initiatives.

Social inclusion issues cover a wide range. From the divide between natives and migrants to inclusion of mentally and physically challenged in education and sports.

These three dimensions (Political, Social & Economic) of inclusion overlap with each other and any exclusion issues in them feed into each other. All the three dimensions are to be addressed together to achieve inclusion. 

Obligations of Business

With growing focus towards inclusion, its natural that business world is expected to contribute in their own way. Companies can generally do their bit by following: 

Supplier Diversity:

It encourages businesses to source goods and services from vulnerable supplier base like that owned by  minority section, women, disabled etc. This initiative helps in economic upliftment of weaker section and hence contributes to their inclusion. For instance, agri-business companies are expected to include small-holders (farmers with small land holdings) in supply chain.

Equal Opportunity Employment:

The businesses are expected not to discriminate candidates based on gender, race, religion, colour, origin, disability etc., when considering them for hiring, firing, promotion, benefits, training and other workplace situations. Building an inclusive work culture in a diverse workforce is always a challenge but also provide tangible benefits if organisation is able to leverage diversity in perspectives and insights.

A caveat here. All inclusion measures discussed above does not mean to compromise meritocracy and fairness. Because then it would again mean wrong-ful exclusion.

Products & Services:

Businesses that provide essential products and services have an obligation towards inclusion by ensuring that no section of society is excluded from access to their products and services.

For instance, educational institutions are expected to keep their doors open for students from modest background and hence run scholarship schemes. They are also expected to extend the education to students with disability and hence have reserved seats and special facilities for them.

Healthcare is another area where companies like healthcare providers, pharma cos, insurers are obliged to support inclusion. Pharma companies have an obligation to ensure that their medicines are not out of reach for cash strapped members of society. Though one would argue that Pharma companies invest heavily in R&D and have right to profit-making. However, any profit-making by denying the needy puts them on the wrong side of the debate. 

Companies in food sector are expected to contribute towards food inclusion (provide access to sufficient, safe and nutritious food to meet the dietary needs in socially acceptable way) which has been long an area of public policy and government run programs. 

The obligation towards inclusion also extends to other important sectors where companies have to ensure that people at Bottom of Pyramid have access to their products and services. Many companies have redesigned their operations, products and services to target weaker sections and are also making money in the process. FMCG and Banking sector provides several examples.

Inclusion should not be confused with philanthropy or charity. The roots of inclusion principle lie in basic tenets of human rights and dignity and hence has to be approached in same spirit. A business is under obligation to ingrain the inclusion principle without compromising on meritocracy and profitability.

Reverse Supply Chain: An Evolving Business Imperative

• In US, nearly 20% of everything that is sold is returned back to the manufacturing
• Reverse logistics in the US costs companies roughly $100 billion per year
• Reverse logistics represents anywhere from 3 to 35 % of a company’s bottom line.
• Moving product back through supply chain is 4 to 5 times costlier than moving it forward
• In 2008, about 60% of Americans have avoided certain brands because of a recall

As evident from above, reverse supply chain is a significant and at the same time an ignored topic. Executives choose to focus more on  forward supply chain as its impact on bottom-line is more substantial. But now their is a need to address it while formulating business strategy, primarily for following three reasons.

- Business Efficiency: Marginal cost of improvement in forward supply chain has been rising. Reverse supply chain is being seen as a low hanging fruit to increase business efficiency. Also reverse supply chain can offer a wealth of actionable intelligence to improve the product design, process design and operations.

- Market Drivers: Reverse supply chain offers various sources of revenue from auctions, refurbishments, recycling and others. Also how a company manages its warranties, product recalls have a significant impact on its brand image.

- Non-Market Drivers: Current regulations (like Bioterrorism, WEEE and others) list chemical and hazardous waste disposal requirements. More such regulations are expected in future to effect EPR (Extended Producer Responsibility) to protect environment and human health. 

 

For benefit of readers, lets explore the breadth of what constitutes a reverse supply chain:

• Returned Products: Products may be returned from any point in outbound supply chain because of Excess, Short, Damaged, Refused reasons.
• Recalled Products: Sometime companies need to recall certain batch of products due to defects which went unnoticed during product design and manufacturing.
• EOL/EOU products: EOL(End of Life)/EOU(End of Use) products refer to products discarded after use. 
• Containers: Some companies own their containers which go as assets in accounting books. Companies end up carrying a excess buffer of these mobile assets as they don't have real-time visibility into location and inventory of empty containers.
• Cases/Pallets/Racks: These are also considered as mobile assets. They are either to be handed over to forward supply chain or disposed off.

Having clarified the breadth of reverse supply chain, we now examine the areas business strategists need to look at. Following areas are key to drive business efficiency and address market and non-market demands.

Disposition Strategies & Gating:  There are several disposition alternatives like Auction, Donate, Redistribute, Repair, Refurbish, Recycle, Incineration, Landfill or Energy generation. The first step is to recognize the choices available because most companies limit themselves to redistribute or repair or dispose. 

Next step would be making the right disposition choice and routing the returns accordingly. The gating choice is dictated by regulations and cost-benefit analysis. Reverse supply chain can become a revenue source from just a cost center with wise disposition choices.

Traceability: 

Traceability is maintained in forward supply chain, but it breaks down in returns. Proper traceability using barcodes, RFID, GPS avoids mix-up of returns with forward flowing items/components. Also it avoids returns landing up at un-intended places which may put the company under legal risks.

Mobile assets like containers, pallets, cases may not have any traceability at all. Traceability would enable efficient management of these assets and free up the capital locked up in excess buffers.

Financial Control: 

Long 'Returns to Credit' cycle can harm a company's relations with its customers, retailers, and distributors. A good approach is to internally develop a SLA of 1 week and improve the processes to achieve it.

Tax implications is another area of attention. For instance, VAT paid in managing returns largely go unclaimed as the accounts dept. does not get timely information. Also visibility into custom duties and other taxes paid for returns can guide the company in optimizing the routes and destinations of returns.

Root Cause Analysis & Feedback: 

The National Retail Federation (NRF) estimated that fraudulent returns cost upto $3.68 billion in 2010. As high as 70% of claims are in 'No Fault Found' category. By collecting and analyzing the data at time of claims helps to identify the patterns in fraudulent claims and plug the loop-holes.

For genuine claims, root cause analysis in reasons of product failure can help product and process design.

In cases of returns due to excess/short/damage, a collaborative root cause analysis with logistic providers and distributors can help to reduce such incidents.

Overall reverse supply chain has a lot of actionable intelligence which can be leveraged to improve product and process design and also reduce the quantity of those goods in reverse supply chain which should not have been there in first place.

Recall/Warranty/Repairs Support: 

Product recalls are one of the most undesirable situation a company wants to be in. Recalls carry risk to company's image and hence should be handled with care. Proper customer helpdesk support goes a long way  in pre-empting any bad mouthing from customers in public domain. 

In case of food recalls, regulations also step in and hence an extra effort is required in generating and maintaining compliance reports.

Warranties/Repairs is another sensitive area for customers where providing customers the necessary information and regular updates goes a long way in assuaging their concerns. A company's website should be the first source of information and allow creation of RMA (Return Material Authorization) followed by helpdesk.

Logistics Optimization:

Working closely with third party logistics providers and using transport optimisation techniques can make reverse supply chain efficient. Good news is some of the third party logistics providers have recognized the need and hence are differentiating themselves from other providers on reverse supply chain capabilities. 

Performance Management:

'One cannot improve what one cannot measure' holds true for reverse supply chain. A bunch of KPIs need to be defined within the Balanced Scorecard of the company to monitor the progress. Some of the KPIs can be 'Returned Goods as % of Sales', 'No Fault Found ratio', 'Reverse Supply Chain costs as % of Operating Expenses', 'Product & Process Improvement initiatives', 'VAT Recovered as % of Total Returns' etc..

An effective reverse supply chain management also offers benefits to the Logistics Provider and the Customer. It can reduce driver downtime and improve delivery response for a logistics provider. For customers, it would mean peace of mind while dealing with returns, recalls. 

 

Fixing reverse supply chain is not about reverse logistics alone. Also with evolving business conditions, it will no longer be a choice in future. Companies who address it now in holistic way will not only derive business efficiency but also competitive advantage in time to come.

Exploring the contours of Food Crisis

The purpose of this blog is to turn spotlights on impending food crisis. World has its hands full dealing with Energy and Water crisis, yet this is the right time to also turn attention to looming food crisis and take necessary steps. It would be reasonable to say that today we are at a inflection point in food crisis. From this point forward, the cost of any preventive and corrective measures is only going to increase. 

Food Crisis - How its affecting the World

Lets start with exploring the evidence which indicate as why the food crisis is real.

The above map depicts two things:

- First, the affect of food crisis comes in various forms. The most serious form being the political unrest itself as observed in recent years. It was food crisis at heart of the movement which toppled the Tunisian dictator.

- Secondly, The affects of food crisis are not confined to any single country, region or continent. Its a global phenomenon now.

Various international organisations have acknowledged the problem:

World bank has said that rising food prices has pushed 44 million people into extreme poverty in developing countries since June 2010.

FAO has declared that global food price index is at a record high compared to the last food crisis three years ago.

Roubini, NYU economist, said that rising food and energy prices are fueling inflation across the emerging markets and hence pose one of the biggest threat to global economy recovery.

Private food companies are now forced to pass on the burden to consumers. ConAgra is mulling 25% increase in price on some of its products. Kraft has opted for stealth moves like reducing the packaging size or using the cheaper ingredients. 

What is Fueling Food Crisis

Again we map it out the reasons behind food crisis.

As evident from above, unpredictable climatic conditions and increased consumption has been primarily responsible for food crisis. Other reasons being land diverted for bio-fuels etc. World has been addressing unpredictable climatic conditions by pollution control, afforestation and other means. However, it is a long drawn struggle with no quick cure. 

China, India which have become engines of world growth have to feed their population. Increased consumption is going to be a norm as world population increases and living standards improve in developing countries. 

Hence effective solution lies in improving the food supply and food security.

Need for Broad & Inclusive Measures

World Bank has suggested following steps: 

• Achieve better food chain security
• Improving weather forecasting
• Establish humanitarian food reserves in disaster prone and isolated areas
• Empowering smallholder farmers through transactions with global groups like the World Food Program 

G-20 backed a billion-dollar Global Agriculture and Food Security Fund to get food aid to needy countries.

Much of the efforts are seen at country levels where governments are responding by increasing the budgetary spending, price controls and trade controls. However, caution needs to be exercised while using price controls and trade controls.

- Price controls and public distribution should not take away the incentive to produce from farmers.

- Trade controls and any other protectionist measures can bring more harm than good at global level by restricting food trade.

True opportunity lies in increasing agriculture yield as many of developing nations have low yields, as much as one seventh of the developed countries.

Food crisis and recent food contamination incidents have renewed the focus on food safety.

• European Union has issued a directive towards legal compliance to food safety measures throughout the supply chain.
• US enacted the bio-terrorism act and recently have come with Food Safety Modernization Act. 
• Several industrial standards like GS1, ISO 22000 have evolved over time to address the issue of food safety.

The compliance pose a big challenge to food industry as whole supply chain (starting from farmer) needs to be revamped and aligned.

Food crisis has not reached severe proportions yet. And it should not be allowed to. As H. G. Wells put it 'Hunger makes a fool of a man'. France President Nicolas Sarkozy too acknowledged the seriousness when he declared that 'The world faces the risk of food riots if leaders around the world do not deal with food inflation'.

So to conclude, Food crisis warrants our attention just as other major crisis.
We have our hands full with triple crisis - Energy, Food & Water. 

Proactive Management of Supply Chain Risks: Optional to Essential

Supply Chain Risks is an important part of the whole gamut of Enterprise Risks that an organization faces. Lately their importance has grown and hence a renewed focus on the topic is warranted.


The Need
Thoughts around proactively insulating your supply chain from risks have been around for a while. Only few companies have taken it forward with a dedicated program inside their organizations. However it might be time for other organizations to actively consider it, primarily because of three reasons:

• A company is finding itself managing a complex web of relationships across geographies and supply chain tiers. Hence a company is susceptible to disturbance though the problem may not be with its immediate partners but several tiers away in supply chain.

• The business world is far more competitive than before and a small mistake can lead to greater consequences like being shut out of a market.

• The increasing unpredictability in world, be it commodity prices, climate, regulations or other events. An enterprise can never know what would hit them and where.

There are numerous examples of how dear supply chain disruptions cost. A fire at sole supplier of an electronics company eventually resulted in its exit from the particular line of business as the competitor ate away into its market share while the company recovered. Researches have indicated that a supply chain disruption can cause 10% drop in price and takes two years to recover (Source: Kevin Hendricks, Vinod Singhal). Over 3 years, a supply chain disruption can result in 11% higher costs, 7% lower sales growth and 35% reduction in shareholders’ value (Source: Corporate Executive Board).

Recent global events have supply chain executives losing sleep. As world watched Egyptian crisis unfold, executives were worrying about movement of Goods along Suez canal. Japan's tragedy has affected semi-conductor industry worldwide due to fab shutdowns and halted product shipments. However, the ones who had Japan as major portion of their fab capacity are poised to lose more and fall behind the others. In automotive industry, Toyota and Nissan has closed down factories.

(Japan's earthquake, tsunami and nuclear crisis are tragic events and whole world shares the pain and sorrow. The brief reference of Japan's tragedy in the blog is in context of a different topic as such).

The Approach
The starting point for a proactive approach is to make a business case. Any program for active risk management would involve investment. Investment is required not only in form of direct cost like data collection, analysis, administration costs but also in form of indirect costs like high inventory levels, burden of managing more supply chain partners, foregone discounts etc. The benefits are far more intangible in terms of avoided losses. A business case should endeavor to use examples from past history to quantify the benefits and then work out return on investment.

Objectives of such a program will have direct bearing on the business case as it would influence both investment and benefits. Program objectives could be in form of: 

• Recovery Time and Cost: Allowable limits on time and money which can be spend to mitigate supply chain disruption. 
• Business Impact: The target cap on any losses on topline, bottom-line, shareholders worth, brand image, company image etc. when a risk goes live.

Objectives are key to define the boundaries of the program so that the company keeps a balance and does not go either overboard or under-invests.

Design of whole program is another factor which would influence the business case. One can opt to cover the following entire spectrum or components of it:

Inbound Supply Chain: Refers to commodities, components and/or products from contract manufacturers. It also includes logistic providers.

Prioritization: Prioritization of inbound parts is key first step and not all parts handled are equal in terms of importance. Shortfall in some parts can be more damaging than others. ABC classification, proprietary components, lead times can be some of the criteria for prioritization.

Risk Assessment: Next step would be risk assessment of each part and of supplier/logistic provider. Several agencies provide required data on suppliers to assess the risks. Specialized companies help with commodities risk management. Elaborate analytical models are capable of assimilating the risk data on several parameters like financial risk, nature risk, physical risk, political risk etc. Apart from parameters, risks also needed to be analyzed on following three dimensions:

• Severity of the risk 
• Probability of occurrence
• Ease of prior detection

A single risk number is then calculated which is then used for risk prioritization, tracking and event management.

Risk Planning: If a risk is beyond a given threshold, mitigation steps can be taken till the risk drops below threshold. Also plans are devised if risk crossed threshold in future. Crisis teams are identified. Trigger points and escalation matrix are established.

Risk Tracking: This would require continuous information gathering and updating the analytical model to keep the risk number current. Personalized dashboards help executives to keep an eye on various developments, changes in risk levels, trends and sound alarm.

Risk Recovery: Unpredictable things will happen, risks will go live and execution will then matter the most. A well trained crisis team ensures timely and cost-effective execution of a risk mitigation/recovery plan.

Learning and Improve: With every passing event, knowledge would be generated which would improve the prowess of organization to handle risks. However, this is possible only if a system is in place to capture the knowledge generated and make it available at right time to right people.

In-house Supply Chain: This would cover in-house manufacturing and other operations. The steps would be similar to above. Business Continuity Planning will be a key risk planning measure.

Outbound Supply Chain: Distribution to warehouses, distribution centers, retailers/dealers, reverse supply chain form part of this.

Any successful program for managing supply chain risks needs to have a wide breadth to cover every possible source of disruption and depth of analysis to derive actionable intelligence and plan. A well-defined proactive approach to manage risks is the best insurance a business can have in these unpredictable times.

Sustainability for Profit: How to Build a Business Case for Sustainability in your Company.

Literally every company is engaged in some activities around sustainability. But barring some, others have not been able to make it an integral part of their business. For many it is confined to philanthropy. As the relevance to bottom-line is unclear, many companies treat Sustainability as sort of 'Extra-curricular'. Its something which is left to discretion of CXO. They are the ones who have championed it in their organisations. It has been a top down approach till date and rest of the management hardly pushes for any sustainability initiatives. Though they would nod in agreement that it is something which they ought to do but they just don't have the business case around it to support it. Its the perception of intangibility and soft benefits which needs to be overcome to nail down the hard benefits. Lets explore Sustainability strictly from 'Bottom-line' point of view keeping the soft-benefits aside.

(I have used real-life examples to drive home the point for an abstract concept like Sustainability)

Market Differentiation: Sustainability awareness has been growing among consumers and now they care. Given a choice, they would always prefer a product which is environment and society friendly. 

 - A Swedish hotel chain was able to differentiate in market through its commitment to environment. 

 - A US Builder received nation-wide recognition because of its Green Buildings. 

There are several examples where such market differentiation has translated into more revenues either by more volume sales or by a  price premium.

Companies can demonstrate their commitment by Eco-labels. There are 369 eco-labels developed for different geographies and industries which guide organisations to sustainability practices and give them the seal for marking their product..

Improved Product & Process Design: An environment friendly product and process design goes a long way in  improving overall performance while reducing the cost.  

 - A chemical company applied the principles of bio-chemistry to reduce the process waste and increase the yield by 30%.

- Under pressure to recycle old carpet, a company discovered that it can make better carpets at reduced cost.

- A woods product manufacturer saved money by putting the waste back into the product.

- A aerodynamic fairing in front of a truck lowers the fuel consumption.

- Using Bio-mimicry, many innovative products are on anvil which would perform much better while consuming less resources.

- A company decided to measures carbon footprint of its Supply Chain and instantly identified areas of improvement. By reducing the carbon footprint it also saved much in energy costs.

The list would go on and on. Carbon Footprinting, Recycling Waste, Collaborative Research, Partnering for Closed Loop Manufacturing are some means by which company can get started to leverage sustainability to improve the bottom line.

Reduced Legal & Image Risks: In todays connected world in which bad news travels as fast as light, spreads like a viral and in a form which can adversely impact consumer perception of a product, brand or company. 

 - Activist used the popular and viral Dove Evolution campaign to attack the company for palm trees destruction. Dove had to go in damage control mode and started sourcing from sustainable forests.

 - A footwear company suffered a big dent in its image due to sourcing from 'Sweat Shops' in China.

 - A semi-conductor company got lower insurance rate because it eliminated toxic chemicals from its process.

 - A gaming product got banned in Netherlands due to high cadmium content in their cables which led to severe revenue loss for the consumer electronics company.

  - A Swiss textile co. was smart enough to see a legislation coming and proactively switched to being chemicals from toxic chemicals.

 - WEEE, RoHS, CRC are some of the regulatory compliance which companies will have to adhere to be eligible to sell in the market.

The impact can be measured in ways of avoided legal cost, potential loss of revenues or reduced insurance cost. Though putting the numbers might be subjective here, one can always fall back on real life examples of above to drive home the impact on bottom-line. 

New Revenue Sources: A focus on sustainability can open up unexpected new sources of revenue.

 - A photocopier producer realized that it can sell off the waste ink to paint companies and packaging to home furnishing companies.

 - An Indian company on its focus on Bottom of Pyramid, invented a cheap way of refrigeration and a new ice cream offer to open up a new market for itself. 

 - Advent of mobile banking had expanded the consumer base for many companies while bringing better standard of living to secluded communities.

For companies, a new consumer base in this competitive world is far valuable than usual revenue projections. A re-look in reverse supply chain which is often considered a burden can open up new revenue opportunities.

Above are just pointers to how Bottom-line can benefit from Sustainability. Add to it, the other intangible benefits and our responsibility to progeny and posterity and we have a compelling case. 

A top down approach may not suffice. Participation from other levels of management is key to tightly integrate sustainability with business.

'Collaboration': The word which would redefine the Business World

Collaboration has been a sort of buzzword for long with companies and consultants gravitating towards it alike. Collaboration is now much more than social networking which caught the attention of business folks in first place.
Following only gives a glimpse of the limitless potential of 'Collaboration' to address business complexities of today.


Multi-tier
Internal Collaboration: Organisations are divided into silos of departments. However value chain cuts across departments (dept.). Hence came the concept of internal customer where every department tries to serve the downstream dept. best. Collaboration extends the reach of an individual depts to literally any other dept far off in value chain. A design dept. is not longer limited to marketing and engineering but can also talk to manufacturing and field service.


Supplier Collaboration: Made popular by Toyota Production System, supplier collaboration is now reaching new heights as companies move towards outsourcing and off-shoring to gain competitive advantage. Present day challenges include aligning a contact manufacturer in China with business strategy of the company, aligning proprietary equipment design to your design process, to build responsiveness and flexibility at supplier to move towards open configuration products and mass customisation.


Customer Collaboration: This is another frontier which has opened up where companies are trying to engage their customers to design better products and services. A must for 'Engineering to Order' companies and a competitive advantage for 'Make to Order' and Service oriented companies. 
Customer collaboration also helps in building brand and loyalty. Agriculture firms are leveraging new technologies to reach out to farmers and help them to improve the yield.
Customer collaboration also holds key to product innovation.


Strategic Partners Collaboration: No longer individual companies compete. Its the networks that compete with each other. For a company to grow, it needs to have a network of strategic partner ranging from Govt. agencies to NGOs, independent researchers and academia. Some examples can be:
- Collaborative Research or Co-creation: Companies can stay ahead in technology trends by engaging with independent researchers. 
- Crowd-sourcing: To tap into collective intelligence of public to identify new trends, ideas and outsource research, product testing and innovation.
- Pro-active Public Image Management: Collaborating with activists, NGOs can help to identify areas where a proactive action can pre-empt any possible public backlash.
- Competitor collaboration: Sometimes collaboration with competitors can help to usher the whole industry into new era and create new market opportunities and avoid threat of substitutes.


Multi-site
Overcoming Geographical Barriers: Companies now operate with a complex web of geographically dispersed design teams, field service team, sales personnel, customers,manufacturers, tier 1,2 and 3 suppliers. The challenge has always been to promote interaction between geographically dispersed stakeholders as good as face to face interaction.


Overcoming Systems Barriers: Many companies grow with acquisition and hence end up having diverse systems and processes within the organisation. The barriers would include different IT systems to completely different organisational procedures. Monolithic and disparate ERP systems, CAD systems within the organisation and outside the organisation with suppliers hinder organisational  alignment towards business strategy. System barriers become more prominent as organisation try to move towards mass customisation and wants visibility and control throughout the supply chain. Monolithic systems handicap executives in gathering Business Intelligence for effective decision making.




Information flow is key to enable collaboration. IT systems are now gearing up for the challenge and SOA (Service Oriented Architecture), Cloud Computing and others are gaining prominence. IT systems now allow both synchronous and asynchronous collaboration. Platforms like SharePoint which are both open and scalable are purpose made for collaboration. Concepts like Enterprise 3.0 incite companies to go further and connect seamlessly to IT systems of supplier itself onto one Service Bus.


Even with limitless potential and developing support systems, collaboration wave has not swept the industry as predicted. The lukewarm reception can be attributed to many reasons like
- How does it help me in doing my job better?
- I don't have training to do this kind of thing.
- Are these things worth investing in?
- Looks more like bling-bling to me.


The companies are not yet able to establish direct relationship with bottom-line and has been guarded in their approach. A clear business impact and direct relevance to ones job at hand is critical to acceptance and adoption. 

International Migration: How to turn it into Public Good?

We have one Earth and its limited resources can support human population and its growth only to a certain extent without hurting the progeny and posterity. But Earth is divided into about 200 nations with their own identities and aspirations. These boundaries make it difficult to reach a balance in Demographics as every nation has their own political and cultural climate which restricts international migration.

Let’s investigate without getting trapped by national boundaries as how international migration can be good for all. Demographics vary in different regions of the world. Some regions would have ageing population and some would have surplus young population. Migration of surplus young workforce to regions of ageing population helps to provide the working population to complement the ageing population and sustain the growth of the region. The young regions benefit by lower unemployment and hence lower social ills related to high unemployment like poverty, crime, violence, fanaticism etc. In long term the regions trade place. After 50-60 years, the young regions grow old and other regions come up with young population. On overall, the world has right age distribution but not regions wise. Migration gets the distribution right.

The above sounds simple enough till you add the factor of national boundaries which changes the whole game. Nations differ in extent of economic development and culture which adds several anomalies and make international migration dysfunctional.

• Developed nations with shortage of workforce have been importing high quality workforce from developing nations through visa rules and restrictions. This has helped the developed nations tremendously and robbed the developing nations of the very people who would have championed the growth of their region. Also developing nations loose the investment which has gone into their upbringing, education and training. This brain drain results in reverse foreign aid to developed nations from developing nations which is much more than a direct foreign aid from developed nations to developing nations as per some studies.
• Cultural identities too play a major role. Japan has a very ageing population. But Japan culturally is closed to outsiders ‘Gaijin’. The demographic imbalance in Japan has taken its toll on the country pushing the Debt to GDP ratio of this second largest economy to 200%. We also hear protests against migration from West as people are not able to accept immigrants who are glaringly different in appearance, customs and culture. Add regional politics to above and one gets further muddled situation. Politicians cash on popular (though unjustified) sentiments and introduce policies which are protectionist and create trade barriers.
• Occupational and lifestyles discrepancies further compound the problem. Emigration from rich agriculture resources countries to modern, attractive and consumption oriented regions tends to affects world food production.

However, the above anomalies disappear within a national boundary. Within a country, people can move from one place to another to inhabit and work without any restrictions, no matter how culturally different the place is. India is one good example as how a region with numerous cultures, ethnicities, appearances, customs allow unrestricted and good migration which does not suffer from the anomalies mentioned above. The challenge is enable similar good migration across national boundaries. Formation of European Union with relaxed movement across European countries (which in themselves are culturally diverse) is a step in right direction.

OECD recently declared that migration is key to long-term growth. Most economists agree that legal and illegal migration is beneficial to economy. However, general public opinion is negative in countries which face immigration. International agencies like UN and ILO are constantly working towards strengthening international cooperation on the topic.  The current recession literally put brakes on good international migration. However, in a increasingly growing global and flat world, its imperative to manage international migration and public opinion better to turn migration into public good. 

Social Capital: Need of the Hour for India (An Independence Day Special)

As India celebrates Independence day on 15th August and completes 63 years of freedom, its time to reflect on present day challenges and how to address them. India has gained world prominence due to its economic development. To ensure further sustainable economic development, its imperative to bolster the Social capital in addition to other capital like Money, Land etc.. The blog entry takes a dispassionate view of current social conditions and emphasis the need to address Social Capital needs of the nation. 

But the need of Social capital is not confined to India. After reading the blog, one would realise that whole world needs it more as it influences social and economic well being of people.

Numerous incidents in recent times have concerned me about deteriorating social capital of the country. Rising crime rate, corruption, communal riots, rising regionalism, casteism are symptoms of it. India is currently in an enviable position demographically, with half of its population under 25 years. I too believe in its youth power. But got a big shock when a promising youth leader used language to divide people, breed hatred and spark riots, just to firm up his regional votebank. These incidents indicate declining social capital in the country and a misguided youth can become a liability rather than strength of the country.

What is Social capital?

It's a set of informal norms in the society. The informal norms that constitute social capital lead to greater trust and cooperation in society. These informal norms are related to traditional virtues like honesty, honouring commitments, sincere discharge of duties, reciprocity etc. Maybe this is what makes Social Capital an elusive and ignored subject in public debates. A high social capital has not only social benefits but also economic benefits. Studies by World Bank have shown that social cohesion is critical for societies to prosper economically and for development to be sustainable. A perfect example would be Japan, who was shattered in Second World War, rose back due to its high social capital. For a modern stable democracy, social capital is sine qua non.

Can Government Play a Role?

Can government increase our stock of social capital? Yes, it can to some degree. The best way government can influence it is through education. Not any education but morals and values based education. The need of this education was emphasized long back by 'Father of Nation (India)', Mahatma Gandhi. But is being ignored as today's education is more geared towards science and profession. Also a government which provides property and public safety breeds trust and cooperation in society hence indirectly creating social capital. Promoting organization of people for greater cause like environment protection, poverty eradication etc also strengthens society cohesion. More specifically to India, which is home of more than 100 languages, many religions, cultures and ethnic groups, any voice of separatism should be nipped in the bud, rather than allowing it to spin into vote bank politics. Separatist sentiments are a killer of social capital in the country.

Role of Non-Governmental Bodies

Many non-governmental initiatives like 'Art of Living' also go a long way in preserving the social capital and improving it. Spirituality opens ones heart and inspires one to live a value driven life. Indian public is very emotional, when it comes to movies. In recent times many movies like Rang De Basanti, Chak De India, Peepli Live etc., not only entertained but also sent across right message to public. In real life too there are many stories which demonstrate human values and compassion. Media can play its role by covering these incidents, rather than sensationalising all negative incidents. Last but not the least, how a common man can contribute? For a start, follow the core values of his/her religion, which is based on moral values and love for humanity and is common to all religions. A common man would do just great by believing in 'One World One Family' and upholding moral values in work & public dealing.

Social Capital and Sustainability

But why should one worry about social capital at all? Yes, one can choose to ignore it as we become used to living in present conditions. But if we want to ensure a better future for our children, then we have to act now! And that is the basic tenet of Sustainability.

Some members of society employ unethical means to amass wealth, justifying it in name of creating better future for their children. Unwittingly they end up teaching unethical short-cuts to their children too. All unethical actions by members of society invariably flow and diffuse into the society, hence polluting it. Happiness of a person is also a function of his surroundings & society. Wealthy children cannot remain happy as the world around them grows meaner, corrupt, violent and polluted. No one lives in isolation, we are all connected and hence we can no longer afford to ignore the need to develop this all important but elusive Social Capital for our progeny and posterity.