Apparel Retailers Reeling from Bangladesh Factory Fire

The Savar garment factory fire that on Saturday took the lives of 112 workers is being cited as one the worst industrial tragedies in Bangladesh history.  Bangladesh is the #2 garment sourcing region for global apparel retailers, second only to China.  Entry-level workers make a mandated minimum wage of about $37 a month, or slightly above.  In the coming weeks, expect to see major retailers like Wal-Mart and Carrefour and others who rely on Bangladesh factories move into action to respond not only to questions about their seemingly implicit endorsement of substandard or even dangerous working conditions there but to mobilize operationally to respond to what will certainly be a major disruption in supply chain operations leading up to the critical holiday season. 

Like the Thailand floods and Japanese tsunami tragedies that last year wreaked havoc on the supply chains of thousands of companies in the high tech and automotive industries, this tragedy in Bangladesh will send shock waves across the garment industry in the coming weeks and months as global retailers scramble to justify their sourcing strategies to the public but also to recover operationally.  In the final run-up weeks of the holiday season, retailers are hyper-focused on ensuring they can get product to the shelves on time, as planned. 

But as we’ve seen, the world is increasingly interconnected.  Companies don’t operate in their own vacuums. They rely on other companies.  And these companies are often thousands of miles away.  The glue that holds the network together is the information systems that companies use collectively to see, to orchestrate, across their networks. 

Increasingly, it’s about responsiveness and flexibility — and less about perfect planning. 

Increasingly, it takes network-based information systems platforms, not enterprise resource planning systems, to run your business.  Importantly, the very systems that can be used to connect companies together and give them the tools to see and orchestrate as a collective are also the systems that allow companies to flag and rank the risks of working with other companies. 

Wal-Mart representatives on Sunday reported to the New York Times, “While we are trying to determine if the factory has a current relationship with Wal*mart or one of our suppliers, fire safety is a critically important area of Walmart’s factory audit program and we have been working across the apparel industry to improve fire safety education and training in Bangladesh.”

In a world where it isn’t immediately known or clear with whom you are actually doing business, it must be especially difficult to respond to major disruptions and tragedies.  Even the largest companies are challenged informationally in this new world. 

See the NY Times piece here http://www.nytimes.com/2012/11/26/world/asia/bangladesh-fire-kills-more-than-100-and-injures-many.html

What Your Supply Chain Can Learn from Nate Silver

In the days following the US Election, the reputation and stock of a great many well-respected political pundits fell, some precipitously.  Nate Silver was not one of them.

Nate Silver, author of the book “The Signal and the Noise” and statistician-cult-hero-blogger at the New York Time’s blog FiveThirtyEight, saw his own stock soar.  Nate correctly predicted in the 2008 elections not just that Obama would win, but which states would go blue, and which red.  He got 49 of 50 right. He was equally prophetic this time around.  In the weeks before the 2012 election he was running thousands of scenarios on a daily basis, using vast amounts of publicly available data and his own advanced algorithms to predict likely outcomes.  He pegged Obama’s chances of winning the presidency at over 90.0% on October 30 – a week before the election.

See his interview with Sarah Green of the Harvard Business Review here:

http://blogs.hbr.org/cs/2012/11/how_nate_silver_won_the_2012_p.html

Supply chain masters can learn a lot from Nate Silver.

First, and importantly: predicting outcomes is indeed a combination of technique and math both, but mostly it’s a lot of math.  Math works.  Not surprisingly, there has been a fair amount of business software designed over the years to help companies forecast outcomes and predict targets better.  But the focus of these systems has been on longer range planning and less on operational responsiveness – the myriad decisions and adjustments that must be made in the face of supply chain surprises and disruptions that happen every day.  Math can make a big difference here too.  The confidence ratio of an ETA, the probability that an order will arrive complete and undamaged, the likelihood that a service level for a critical customer will be met – these are math-based calculations, not gut-feel calls.  Supply chain executives would be well served to reacquaint themselves with the fundamental power of math-based decision making and mobilize their operational teams to leverage more science and less art.

Second, good math requires good data.  It’s estimated that most companies possess just 20% of the data they need to make the operational, math-based decisions that we’re talking about here.  The other 80% of the data resides with external partners.  One of the lessons from Nate Silver is that the breadth and depth of the data is key to improving your odds of bulls-eye predicting.  For supply chain managers, this means developing strategies and systems to gain access to partner data, network data – quickly, completely accurately.  Unfortunately, this is not the domain of traditional enterprise software systems that focus on internal operations but are hamstrung when it comes to connecting to the outside world.  To become better estimators and predictors of outcomes, managers need to connect their processes with their partners so they can gain access to the crucial data they need.  This requires newer IT platforms designed for inter-company collaboration and process automation.  And these systems are increasingly – perhaps exclusively now – cloud-based.

Third, technique and skill are essential.  As Nate Silver points out,  “What you really want to find is not just a description of what happened in the past, but the structural and the causal relationships in the pattern. I think sometimes people think, oh, we have so much data, so much information, that the answers will emerge from that just on its own. And it doesn’t really. It can get you into trouble.”

Supply chain managers should be hiring and training for the statistical, math-based talent required to compete.  Just as in other disciplines (marketing comes to mind) where big data and quantitative analysis is fast becoming table stakes, so too is supply chain execution.

Invest in the talent and the tools today so your companies can be prescient tomorrow.

Cloud Supply Chain Hedge

Is robust IT disaster recovery (DR) a perk only the biggest companies enjoy?  Typically, if a company wants this capability, it means doubling down on IT infrastructure and launching back-up sites hundreds of miles away so that when disaster does strike, systems can be back on-line within minutes. Of course, this can be a company’s saving grace when the hurricane (or tsunami, or earthquake, or flood) hits home. But companies wonder. How likely is it that the hurricane will hit?  It’s a game of odds, and CIOs do their best to mitigate risk by balancing likelihood of incident with economics.

Business-to-business commerce infrastructure can be especially complex and costly. The systems that enable B2B are mission-critical, so they’re particularly sensitive to performance drop-outs and downtime.  An IT failure means a commerce failure.  It means business stoppage.  But who’s ready to set up a fully redundant, highly available, disaster-ready IT infrastructure in multiple sites to guard against the ultra-rare hypothetical knock-out storm that is forecasted to hit just once every 100 years?  CIOs look at the added investment in redundancy and fail-over as a kind of broad insurance package.

When we talk about cloud IT we often talk about the better economics and value alignment compared with traditional “license and install” business software systems.  But as companies deal with the aftermath of yet another natural disaster — this time, hurricane Sandy along the eastern seaboard — CIOs are once again running the math and calculating the cost/benefit trade offs of under investing in their IT recovery capabilities.  Are our data centers located in the right regions?  Are we hedging enough against disaster?  Which systems are most critical?  What are we doing about those?

But cloud-based IT services also change the math around disaster recovery.  It’s precisely because of cloud’s multi-tenancy aspect that companies now have a real and actionable alternative to the old math.  Multi-tenancy spreads the cost out across hundreds of companies so that no single company must shoulder, on its own, the full freight of a highly available, highly redundant, disaster-ready IT system.  When disaster strikes, there’s plenty of IT infrastructure and bandwidth ready, on demand, to fill in.  Companies don’t have to own the infrastructure, they merely rent it.  They rent when they need it, and pay for what they use.  Which allows them to tap into very robust IT capabilities (their insurance package) without being forced to capitalize it all on their own.

IT managers might be re-evaluating the location of their server rooms and data centers after the flooding and power failures after this latest hurricane swept through. Should it really be in the basement?  Should it be on the ground floor?  Above the ground floor?  Inland?

Well, maybe it should be even higher up.  Maybe it should be in the cloud.

Hurricane Sandy — Supply Chain Disrupter!

State of the art supply chain planning could not have planned for hurricane Sandy, which has now effectively shut down east coast ports from New York to Virginia. Closed ports mean closed trade and closed-down supply chains.

http://www.americanshipper.com/Main/News/East_Coast_ports_close_as_Hurricane_Sandy_approach_51694.aspx

Increasingly, the best operators at the best companies are shifting their focus from long-range planning and forecasting to operational agility. Flexibility and responsiveness trumps all. This means that companies need the information systems that connect them with their execution partners and give all the partners along the chain visibility to a single, shared version of supply chain truth. If a storm closes down a port you normally route through, and you’ve got days, not weeks, to react, you need to identify the hot shipments or products destined for the port and quickly instruct your internal AND external partner teams to divert, to bypass, to accelerate.

To react, partners need real-time access to inventory and shipment information: quantities, positions, status.  Enabling that requires cloud-based information systems that stretch beyond the bounds of a single enterprise system. It requires a cloud supply chain.  A cloud supply chain is the information base that operators and partners use to synch their systems and processes so that they CAN connect and orchestrate as a network, not a collection of separately optimizing companies.

Natural disasters wreak havoc on supply chains, and Hurricane Sandy is stacking up to be one of the worst storms to hit our shores.  But the impact and disruption can be minimized significantly through the use of next generation technology that gives companies the ability to detect and respond far more quickly than they could before we had cloud.

Virtual Supply Chain — is a Cloud Supply Chain

Pfizer’s VP of Supply, Jim Cafone, covers the work he and his team have done to create a global information processing layer above the physical supply chain network in this Financial Times piece written by Paul Taylor: 

http://www.ft.com/cms/s/0/1608e5d6-fc59-11e1-ac0f-00144feabdc0.html#axzz26GbfiCZ8

Cafone calls it Pfizer’s “virtual supply chain” because it allows Pfizer and its external logistics and trading partners to build processes and manage material flows not against the actual “hard” devices in the network but rather against the logical informational layer.  This provides a lot of flexibility — and it’s a competitive advantage for Pfizer.  Network nodes and partners can be added or subtracted without massive re-programming of processes, so Pfizer can re-wire quickly, without losing its ability to monitor flow and orchestrate fulfillment processes globally. 

I call that a Cloud Supply Chain.   It’s the informational replica of your physical supply chain, placed in the context of your trading network so you AND your partners can see the single high definition picture of your supply chain at once. 

Fragile Supply Chain — Agile in the Cloud

I had breakfast with a friend in New York City this morning who was recounting the odyssey he went through in the days following 911 just to buy a gallon of milk.  He went to twenty-two places before he got his milk.  Supply lines into the city had shut down, many of the stores had run out of essentials, it wasn’t clear if the attacks were over or just getting started.  In times of crisis and uncertainty the pressure on our collective supply chain infrastructure spikes and everything turns upside down.

Here’s the hard reality: Our supply chains weren’t built to withstand terrorist attacks and tsunamis. How could they be?  Who can predict the flood?  Our systems were built for everyday operations – and with the assumtion that 98% of the time things go as planned, without surprises. We accept that when disaster strikes, we’ll be down, maybe down for days, and picking up the pieces for months and years to come.  It’s the price we pay to enjoy 98% “uptime” with increasingly – and stunningly – efficient service and choice.  Exotic fruit flown in from Thailand at discount prices, polo shirts stitched in Bangladesh and home-delivered, running shoes that you design on your cell phone – all of it delivered to you wherever you are, whenever you need it.

But as this vast and increasingly specialized “hyper” supply network tilts toward our every demand, we are becoming more dependent on it.  The world isn’t just flat.  It’s in the palm of our hands.  It’s coming to us.  It’s hyper convenient.  My friend and his wife get their groceries and meals home-delivered to their Manhattan apartment in custom delivery windows they schedule from their cell phones.  It’s frictionless.

And herein lies another hard reality: We don’t live in everyday 98% time anymore.  Today, it isn’t just the occasional big disruption in our neighborhood that shuts us down, it’s the thousands of small disruptions in neighborhoods thousands of miles away, in countries we’ve never been to, that can shut us down.  We’ve got the world in the palm of our hand, but that world is tethered to a billion points of failure – to the factories and merchants and designers and fields and ports –across the globe.  We live in a hyper-connected world, and we’re a lot more sensitive and fragile than it looks when it’s in the palm of your hand.

Supply chain resiliency is the battle cry and the future of the companies that supply and sell the goods we need to run our plants and homes and cities.

It’s no longer enough to be up and operational in the everyday 98% time we assumed.  Companies have to operate in the hyper-connected world of today, and now the equation is inverted. Things happen mostly not as planned.  A small percentage of flow occurs without disruption.  In the apparel/footwear sector, for example, it’s estimated that more than 90% of purchase orders placed with suppliers change after they’re communicated.  In 2010, in a matter of months, the price of cotton tripled.  In 2011, when the Thailand floods hit, PC makers all over the world went into war rooms to recalibrate and adjust plans to account for the sudden drop in the global supply of disk drives, which had been concentrated in that region.  Commerce is inter-connected, inter-linked, and the little bumps happening far way magnify and affect costs and quality and service and uptime for everyone.

How can companies transform their businesses to operate in the inverted math of the world we live in today, where surprises and pressure spikes are the norm, not the exception?

Now more than any time in history, it’s an information game.  Fast, up-to-date, detailed, complete, and reliably accurate information – plus the systems to share and collaborate around that information base, is the key.  The best operators will use information systems built for sharing and collaborating across networks of companies, not just for sharing within their own companies.  In this respect we are now talking about a radical departure from the IT systems we have been using for the past forty years or so, and on which most of the business world still relies.

Newer network-based information sharing systems were not possible until we had an Internet because they are predicated on a connected world.  Traditional software isn’t.  The enterprise resource planning (ERP) systems that help companies record their financial transactions and automate their  supply chain processes were architected for a world that isn’t connected.  They were architected for the single enterprise.  That’s not the world we live in now.

Do we throw these out?  No.  Companies still need to automate and control their interior processes.  But they must extend the scope and reach of their IT strategies to connect to their larger commerce community of trading partners and service providers.  They need information systems that put all of their partners on the same page, looking at the same single version of supply chain truth, at once, so that when the little disruptions occur way up the chain, the operators way down the chain know – and can quickly and efficiently re-plan to keep things on track.

Cloud-based systems are especially powerful and game-changing in the area of supply chain management because they enable exactly this.  By putting the full information base in the Cloud – by locating that single version of supply chain truth in a commons where the entire, inter-connected community can access and update and act on the information base together, in real-time – we suddenly gain the visibility and control we need to be responsive and agile in the face of constant change and variability.

We get our breaking news on Twitter, well before the evening news.  We post our vacation pictures on Facebook and instantly our friends living thousands of miles away, continents away even, see them too – all courtesy of the Cloud.  Why wouldn’t businesses take advantage of it too?

They are.  Hundreds of leading businesses, across all verticals, from high tech to pharmaceutical and automotive and retail are putting their supply chains in the Cloud so that they can see and share and orchestrate across their networks and be agile in the face of constant change.  For these companies, Cloud isn’t just a cost-effective way to access and use IT.  It’s the ONLY way to connect their supply chains and mobilize their trading partner networks around a single version of supply chain truth.  And it’s strategic. Cloud-based collaboration platforms turn single companies into networked companies.  They enable the entire commerce community to see and respond and manage through the inevitable everyday disruptions while still giving us the uptime, service, and quality we demand.

It’s also a defining line for whether companies themselves will survive in this new world.  The companies that cannot cross over the line to become hyper-networked and connected will not survive.  The companies that can will thrive.  It’s that stark.  The future belongs to networked companies.

For them, the fragile supply chain becomes the agile supply chain.  The networked company beats the single company every time.

Big Data in the Cloud Supply Chain

Interesting to see a fund devoted to Big Data.  For more, see NY Time’s Quentin Hardy’s blog post on the this news:  http://bits.blogs.nytimes.com/2012/08/12/big-data-investing-gets-its-own-supergroup/

As Hardy notes:  “The Data Collective is a fund specializing in investments in companies doing everything from creating large, complex databases and faster processing of information from diverse sources, to applications that make use of novel and interesting patterns that might be exploited. The initial fund is small, but the outfit clearly has some very large ambitions.”

Zachary Bogue, one of four partners organizing the fund, says: “We’re at the start of a multibillion-dollar economic shift based on cheap bandwidth, storage and computing, and an explosion of data.”

One of the most exciting areas in Big Data is global commerce and supply chain.  When companies connect as networks and begin to exchange information at high speed, the resulting data set is not just enormous, it’s deep and very detailed.  Cloud supply chain platforms not only facilitate this exchange, they serve as the information hubs and “memory” bases for hyper-networked companies that use them.  Mining the big data captured in these platforms is a value dimension itself.  And a big one.

Want to see how the contributing costs of product you’re sourcing in Thailand is changing on a daily basis?  What about lead time variability and the root cause analysis of the disruptions that cause variability and force you to hold more inventory?  Or what about identifying which regions are experiencing out of market transfers most often?  Or what these transfers are costing the company?

While the data in a company’s own business is an obvious target for data analysis and insight, this data only tells a small part of the story.  An estimated 80% of the data a company needs to make good supply chain decisions resides outside the four walls of the company — with partners.  This is why platforms designed for inter-company collaboration and supply chain orchestration ultimately offer so much more than just process automation.  They hold the vast amounts of data that tell the full story of commerce between and among companies.  Tapping into that treasure trove will yield new insights and enormous new value for any company with a supply chain.