Supply & Demand Chain Executive May 2017 by Supply+Demand Chain/Food Logistics

WILL 3D PRINTING KILL THE TRADITIONAL SUPPLY CHAIN? Global Supply Chain Solutions Covering Procurement, Risk, the IoT and More

MAY 2017

HOW BLOCKCHAIN IS CHANGING SUPPLY CHAIN

CYBERSECURITY:

Where the IoT Meets IT

FREE TRADE BALANCED TRADE

Uncertainty about political policy is reaching fever pitch. Who will win and who will lose?

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May 2017 | Volume 18 | Issue 2

CONTENTS 16

FEATURES

EXECUTIVE FOCUS

06 Risk

Management T RANSPORTATION under the Trump 26 Drones in the Administration Warehouse May Uncertainty about Not Be as Far political policyOff as You Think global trade, taxation, immigration-abounds.

10 How Blockchain Is Transforming the Supply Chain

Companies like SAP and IBM are leveraging the blockchain to increase supply chain transparency upstream and downstream.

26 10

SPECIAL REPORTS

18 THE INTERNET

OF THINGS Cybersecurity: Where the IoT Meets IT

How to play it safe when the IoT is added to the information technology highway.

22 PROCUREMENT

The Benefits of Digital Transformation

Digitizing procurement can reduce supply chain and procurement costs, increase revenue and slash risk.

SDCEXEC.COM

29 WAREHOUSING A Dangerous Work Environment Will Cost You

Maintaining a safe workplace culture is not only important for the wellbeing of your employees, but also your bottom line.

34 SOFTWARE

& TECH Virtual Inventory in the Virtual Warehouse Will 3D printing kill the traditional supply chain?

COLUMNS

04 EXECUTIVE MEMO 16 MADE IN AMERICA 38 WORK HARD, PLAY HARD

Exclusive online features and solutions for successful supply chain operations

Why Wal-Mart’s Project Gigaton Offshore Manufacturing and the Is Corporate America’s Moonshot New Administration—Preparing sdcexec.com/12328281 for the Unknown sdcexec.com/12327005

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Drone expert Matt McLelland provides an inside look at what the future holds for commercial drones in the global supply chain.

Why Retail CFOs Need to Understand the Supply Chain sdcexec.com/12327118

SDCExec.com | May 2017 | SUPPLY & DEMAND CHAIN EXECUTIVE

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EXECUTIVE MEMO By Ronnie Garrett, Editor rgarrett@ACBusinessMedia.com

DIGITIZATION:

A Risky Business How prepared is your company to prevent cyberattack?

n early May, a phishing email reached approximately a million Google users. The email claimed to have come from Google Docs—a service that allows people to share and edit documents online. And, to users, it appeared to come from legitimate contact. The email asked users to click on a link and follow the instructions, giving hackers access to the user’s email account. This scam impacted personal and corporate email accounts across the globe, and had many IT managers scrambling to block access. The scam highlights a critical risk faced in today’s corporations and in supply chains. But it’s a need corporate leadership is already aware of, reports Patrick Connaughton, senior research director at The Hackett Group. He reports that for the first time—ever— participants in the consultancy’s annual sourcing and procurement benchmarking research for 2017 put cybersecurity at the top of their list of concerns. Today’s supply chains, as articles in this issue on blockchain, digitization in procurement and 3D printing clearly show, are becoming increasingly reliant on digital technologies and electronic data from sourcing and manufacturing to distribution. Supply chain’s digital transformation is upon us, but it appears companies may not be fully prepared to take on the cybersecurity challenges this upheaval presents.

Digital technologies and the potential uses for Big Data offer the supply chain endless opportunities, but also come with enormous risk. Cyberattacks are just as unpredictable as natural disasters and can wreak just as much havoc on supply chain. However, while it’s impossible to do anything about Mother Nature, it is possible to ward off cyberattack. This begins with organizations asking some very important questions: How prepared are we to prevent cyberattack? What technologies do we currently have in place to secure our data? What technologies do we still need? What policies are in place to protect our data? What steps must we take now to prevent problems in the future? It’s not enough to look at cybersecurity practices internally, however. Companies also need to consider the cybersecurity practices of their supply chain partners. How are they keeping their data and their information exchanges with your company secure? The Google Docs scam was a nuisance, but should serve as a wakeup call for all. The next attack may be one that steals customer data, intellectual property and more. How prepared is your organization to prevent this? While the digitization of the supply chain has much promise, we also need to be very aware of the cybersecurity risks and responsibilities it brings.

DIGITAL TECHNOLOGIES AND THE POTENTIAL USES FOR BIG DATA PRESENTS THE SUPPLY CHAIN WITH ENDLESS OPPORTUNITIES, BUT IT COMES WITH ENORMOUS RISK.

SUPPLY & DEMAND CHAIN EXECUTIVE | May 2017 | SDCExec.com

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www.SDCExec.com PRINT AND DIGITAL STAFF GROUP PUBLISHER Jolene Gulley ASSOCIATE PUBLISHER Judy Welp EDITORIAL DIRECTOR Lara L. Sowinski EDITOR Ronnie Garrett MANAGING EDITOR Carrie Mantey ASSISTANT EDITOR Amy Wunderlin SENIOR PRODUCTION MANAGER Cindy Rusch ART DIRECTOR Kayla Brown AUDIENCE DEVELOPMENT DIRECTOR Wendy Chady AUDIENCE DEVELOPMENT MANAGER Angela Kelty ADVERTISING SALES (800) 538-5544 JOLENE GULLEY, jgulley@ACBusinessMedia.com STEPHANIE PAPP, spapp@ACBusinessMedia.com EDITORIAL ADVISORY BOARD LORA CECERE, Founder and CEO, Supply Chain Insights TIM FEEMSTER, President, Foremost Quality Logistics JOHN M. HILL, Director, St. Onge Company, and Board of Governors, Material Handling Industry of America RORY KING, Analytic and Big Data Advisor, SAS Institute KAREN MASTER, Vice President of Communications, SAP Ariba WILLIAM L. MICHELS, CEO, Aripart Consulting JULIE MURPHREE, Founding Editor, Supply & Demand Chain Executive ANDREW K. REESE, Senior Portfolio Marketing Manager, IHS, and Former Editor, Supply & Demand Chain Executive BOB RUDZKI, President, Greybeard Advisors CHRIS SAWCHUK, Global Managing Director and Procurement Advisory Practice Leader, The Hackett Group RAJ SHARMA, CEO, Censeo Consulting Group KATE VITASEK, Founder, Supply Chain Visions CIRCULATION & SUBSCRIPTIONS P.O. Box 3605, Northbrook, IL 60065-3605 (877) 201-3915, Fax: (800) 543-5055 Email: circ.sdcexec@omeda.com LIST RENTAL Elizabeth Jackson, Merit Direct LLC (847) 492-1350, ext. 18, Fax: (847) 492-0085 Email: ejackson@meritdirect.com REPRINT SERVICES JOLENE GULLEY, jgulley@ACBusinessMedia.com AC BUSINESS MEDIA INC. CHAIRMAN Anil Narang PRESIDENT AND CEO Carl Wistreich EXECUTIVE VICE PRESIDENT Kris Flitcroft CFO JoAnn Breuchel VP OF CONTENT Greg Udelhofen VP OF MARKETING Debbie George DIGITAL OPERATIONS MANAGER Nick Raether DIGITAL SALES MANAGER Monique Terrazas Published and copyrighted 2017 by AC Business Media Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage or retrieval system, without written permission from the publisher. Supply & Demand Chain Executive [USPS #024-012 and ISSN 1548-3142 (print) and ISSN 1948-5654 (online)] is published five times a year: March, May, June, September and December by AC Business Media Inc., 201 N. Main Street, Fort Atkinson, WI 53538. Periodicals postage paid at Fort Atkinson, Wisconsin and additional entry offices. POSTMASTER: Please send all changes of address to Supply & Demand Chain Executive, P.O. Box 3605, Northbrook, IL 60065-3605. Printed in the USA. SUBSCRIPTION POLICY: Individual subscriptions are available without charge in the United States, Canada and Mexico to qualified individuals. Publisher reserves right to reject nonqualified subscribers. One-year subscription to nonqualified individuals: U.S., $30; Canada and Mexico, $50; and $75 for all other countries (payable in U.S. funds, drawn from U.S. bank). Single copies available (prepaid only) for $10 each. Return undeliverable Canadian addresses to: Supply & Demand Chain Executive, P.O. Box 25542, London, ON N6C 6B2. The information presented in this edition of Supply & Demand Chain Executive is believed to be accurate. The p ublisher cannot assume responsibility for the validity of claims or performances of items appearing in editorial presentations or advertisements in the publication. May 2017 / Volume 18 / Issue 2

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FEATURE

By Ronnie Garrett, Carrie Mantey & Amy Wunderlin

RISK MANAGEMENT

under the Trump Administration

Uncertainty about political policy-global trade, taxation, immigration-abounds.

ith market globalization, industrialized and developing nations have embraced free trade as a means for opening markets, raising competition and reducing consumer prices. Yet, free trade ha also been blamed for a lot of the worldâ&#x20AC;&#x2122;s ills, including human rights violations, harmful environmental impacts and unintended economic consequences. The Trump administration appears to be striding toward protectionism to protect the United States from some of these negative impacts, but the potential of this taking place is causing outcry among some who fear it may reduce trade with foreign countries and raise consumer prices domestically. Supply & Demand Chain Executive (SDCE) recently interviewed key people in the supply chain industry to gather their feelings on this subject and more, including the pros and cons of prospective Trump administration policies on balanced versus free trade, the North American Free Trade Agreement (NAFTA), the border-adjustment

tax (BAT), and immigration and its potential supply chain and global trade impacts. In our deep dive into possible Trump policies, SDCE spoke with Harry Moser, founder of The Reshoring Initiative, an organization that helps manufacturers realize that local production, in some cases, can reduce their total cost of ownership of purchased parts; Doug Surrett, chief product strategist, and Celeste Catano, global product manager and customs expert, from BluJay Solutions, a provider of logistics and transportation software and services; David Spooner, a partner in the corporate department and co-chair of the international trade practice at law firm Barnes & Thornburg; Alan Behr, partner in the corporate and business law department, intellectual property practice, and chairman of the fashion practice at Phillips Nizer; and Arun Pillai-Essex, senior North America analyst at Verisk Maplecroft, a global risk consultancy. Letâ&#x20AC;&#x2122;s take a look at what our experts had to say.

A L A N B E H R , partner in the corporate and business law department, intellectual property practice, and chairman of the fashion practice at law firm Phillips Nizer

ARUN PILLAI-ESSEX, senior North America analyst at Verisk Maplecroft, a global risk consultancy

D O U G S U R R E T T, chief product strategist at BluJay Solutions, a provider of logistics and transportation software and services

C E L E S T E C ATA N O, global product manager and customs expert at BluJay Solutions, a provider of logistics and transportation software and services

D AV I D S P O O N E R , partner in the corporate department and co-chair of the international trade practice at law firm Barnes & Thornburg

H A R RY M O S E R , founder of The Reshoring Initiative, an organization that helps manufacturers realize that local production, in some cases, can reduce their total cost of ownership of purchased parts

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What are the potential risks of balanced versus free trade (or vice versa) on the supply chain industry? MOSER: “The U.S. has been the policeman,

the sugar daddy, the bank for the world ever since World War II. After the war, we were responsible for 50 percent of the world’s manufacturing, and now we’re down to around 20 percent. Some of that was inevitable as other countries recovered, but some was brought on by our not protecting our market. And people have told me about cases where the tariffs on our products coming into another country will be 10 to 15 percent, and the tariffs on their products coming into our country are 4 percent. You’ve got an imbalance in the terms of trade. What I see happening [with the Trump administration] is an effort to restore that balance to where it should be.” SURRETT: “The U.S. is the world’s largest importer and second largest exporter, so we clearly carry a large stick when it comes to global trade. China is certainly the largest exporter in the world and the second largest importer, so it behooves the two countries to be on good terms. But I think a lot of the noise that Trump has been making, certainly in the campaign and even afterward, was partly to set the table for establishing a more balanced global approach in relationships with more governments— so it’s not just about protectionism or trade. My personal opinion is that the trade discussions, while they’re a part of what he’s trying to do, are simply a tool in his strategy to change the nature of a number of these relationships.”

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CATANO: “The risk associated with [protectionism] is that other countries can retaliate, adding additional tariffs to our products trying to be exported into those countries, so long term, it may not be good, depending on the industry.” SPOONER: “I think, more than anything else, supply chain executives cringe at unpredictability. Of course, everyone would like to have open markets instead of protectionism, but what really freaks people out, or what really makes it hard to plan, is not knowing what countries might have tariffs next year. Of course, generally, for companies that source globally, it’s far preferable to not have penalty tariffs, protectionism and also what are called non-tariff barriers (retaliation from other countries that might result in customs bottlenecks). “Right now, with the talk of renegotiating the North American Free Trade Agreement (NAFTA) and reevaluating other free-trade agreements, I think we won’t see new tariffs or changes in the rules in the next six months. It won’t happen that quickly, but I think it makes it hard for people to plan a year or more out. I think virtually all of the companies I work with are holding their breath. They would be opposed to new tariffs, but they also say there are things in old free-trade agreements that they wish were better and maybe this is a chance to fix the problems we’ve seen in the past.”

Though the Trans-Pacific Partnership was abandoned almost immediately after Trump became president, the way the new administration hopes to change the North American Free Trade Agreement (NAFTA) remains unclear. President Trump believes the U.S. has been on the wrong side of this trade agreement for many years and he promises that changes will be made for it to stand. What are the potential risks posed by changing, or even ending, NAFTA, and how might this impact global trade? SDCExec.com | May 2017 | SUPPLY & DEMAND CHAIN EXECUTIVE

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FEATURE SPOONER: “If you talk to global companies, CATANO: “We still haven’t seen what parts of business executives quietly tell you the world has NAFTA that [President Trump] wants to change changed in 25 years, and NAFTA could use some and whether that’s going to have an actual effect updating. There could be some positives out of long term. It may help companies short term by renegotiating NAFTA. We could streamline things allowing them to build up their own companies, at the border and have rules that protect, or at least but long term, it could really have a negative regulate, e-commerce among all the countries. That effect because all of the companies that rely on could be a tremendous help to trade.” exports to, say, Mexico may not be able to export PILLAI-ESSEX: “The Trump administration their products to Mexico, and they’ll have to start is expected to take a finding other sources far more measured or other countries to “The U.S. is the world’s largest approach to export their goods to.” reforming NAFTA importer and second largest than touted during If news exporter, so we clearly carry a large the 2016 presidential reports race. U.S. negotiators stick when it comes to global trade.” are accurate, will seek concessions the Trump — DOUG SURRETT, BLUJAY SOLUTIONS from their Canadian administration and Mexican dropped support counterparts on for a borderprotected industries adjustment in both jurisdictions, tax (BAT) on and will strengthen imports, but enforcement of U.S. some Republicans intellectual property are still holding regulations. the line on it. If “While reform to NAFTA provisions appears enacted, the BAT would impose levies to be largely cosmetic, a draft reform proposal on billions of dollars on imported goods. does include a call for treaty members to have Though, for now, it may be a moot point, the right to reimpose tariffs in the event of a we already saw the administration flood of imports that cause ‘serious injury or vacillate on proposed policies in other threat of serious injury’ to the domestic industries areas, so it’s still a topic on everyone’s of another member. This provision injects an minds. In your opinion, what are the element of volatility, as it would allow NAFTA potential risks of a 20 percent BAT, and members to impose ad hoc unilateral tariffs. While how would this impact global trade? the imposition of selected tariffs could disrupt SPOONER: “There’s an unresolved debate as to cross-jurisdictional supply chains, any tit-for-tat whether the BAT would impact supply chains, but escalation between members is highly unlikely as it people are certainly concerned about it. We don’t would threaten the entire accord.” have a draft of the legislative text yet, but the BAT, SURRETT: “NAFTA was clearly good for in theory, would not tax the corporate earnings the American consumer, [but] it’s terrible for from sales overseas and not allow companies to the producers in America. You could make the deduct from earnings costs spent on importing. argument that, for the average American, the Basically, it would encourage exports and penalize price of the products we buy are much lower than imports. Most of the companies I work with are they would otherwise be, so in that sense, it’s been strongly opposed to the BAT. They think it would very good. But at the same time, it took a lot of make their corporate taxes go way up to the point manufacturing jobs and a lot of middle-class wages of some of them becoming unprofitable. The out of our economy. I’m not convinced that Trump corporate folks are fighting with the economists, is necessarily trying to undo all of that as much as who believe if a BAT is imposed, the value of the he is trying to shape other policies and use the trade dollar would adjust and it should have no net effect agreement as a way of bringing people to the table.” on corporate income taxes.”

SUPPLY & DEMAND CHAIN EXECUTIVE | May 2017 | SDCExec.com

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MOSER: “The BAT could provide roughly $1 trillion of tax revenue over 10 years, which is needed to offset the corporate tax rate reduction from 35 percent to 15 percent. Now some people say the dollar will go up enough to counterbalance its effects and it will not improve our competitiveness. I think they’re wrong, [but] the only way to find out is to do it. There’s a lot of concern that, if you impose that tax, retail prices will go up by 15 or 20 percent, [but] they won’t go up that much because internal U.S. retail costs won’t go up, so you don’t have to raise the retail price proportionally.” PILLAI-ESSEX: “The prospect of a BAT— effectively a 20 percent tax on all global imports that would be put in place through a wider tax overhaul—is highly unlikely. The proposal has drawn significant opposition from Senate Republicans and industries contingent on imports. The Trump administration has, in turn, been lukewarm in its support of the proposal. If implemented, U.S. industries, particularly those reliant upon low-cost global imports, will be forced to make tough choices in order to absorb the higher cost. Increasing consumer prices is one option; the other one is to cut their workforce— neither option is particularly appealing to a White House that promised to create jobs and improve living standards. “The U.S. dollar would have to appreciate significantly to absorb the rise in import costs. If it fails to do so, the higher production costs will be passed on to consumers. Finally, foreign firms selling to the U.S. market would be at a disadvantage compared with their U.S. counterparts, as the higher tax burden would make their products less competitive.” CATANO: “I think it’s very similar to protectionism. If [the government] starts imposing a border tax, other countries are going to start doing the same, and then the cost of the products coming from those countries will be prohibitive to the American people. Because Americans want those products, supply chains are going to have to start looking for other sources of those goods. Then if we want to do any trade with Mexico, we’re going to have to price our products in such a way that it’ll work; then the Mexican government will retaliate with their own tax. It could be very cyclical.”

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On May Day, we saw rallies across the U.S. against the Trump administration’s get-tough policy on immigration. What are the potential risks of changes to U.S. immigration policies and how might this impact the supply chain industry? PILLAI-ESSEX: “One of the pillars of

President Trump’s America First policy is taking a stronger stance in limiting migration, both undocumented and legal immigration. This was exemplified by the administration’s pledge to construct a border wall with Mexico, the release of an executive order on refugees and visitors from seven Muslim-majority countries, and the publication of plans to expand programs to locate and deport undocumented workers. Businesses voiced their concern over a stricter approach to immigration. Undocumented workers are one of the largest sources of labor across the U.S. Given their dependence on migrant and undocumented labor, sectors like construction, agriculture and retail could face higher operating costs and disrupted supply chains as a result of the stricter enforcement of current laws.” CATANO: “If the immigration laws are tightened, the industries that rely on illegal labor will end up having to raise their costs to hire legal residents [because] they would have to pay them more than what they typically pay illegal laborers, so I think we’ll see an increase in cost. If we have to raise the prices here, then the cost of goods to global partners would end up increasing as well.” BEHR: “People are justifiably worried about their jobs. When someone says, ‘I’m so desperate for work: Forget the $15 minimum wage—give me $10,’ I think the only way this can work with protectionism is to protect the authenticity of labor, which is to say, you have to show up legally. You have to be paid a fair wage on the books.” SURRETT: “The supply chain industry is adaptive, and it’s going to find a way to work with whatever cards are dealt to it. [Immigration] is going to have an impact, but it’ll probably be somewhat short-lived in that companies are going to find ways to do things with fewer people. They’re going to look for automation; they’re going to look for opportunities to do things more efficiently so that the rising labor cost can be mitigated.” SDCExec.com | May 2017 | SUPPLY & DEMAND CHAIN EXECUTIVE

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FEATURE

By Ronnie Garrett

HOW BLOCKCHAIN IS TRANSFORMING THE SUPPLY CHAIN Companies like SAP Ariba and IBM are leveraging the blockchain to increase supply chain transparency upstream and downstream.

hough diamonds have been around forever, it wasn’t until the 1950s that the four Cs for diamond quality—cut, color, clarity and carat—became a globally accepted standard for describing diamonds. There is a fifth C, however, and that is certification. A diamond certification is a diamond-grading report, which is a printed opinion on the quality of a diamond by a specific diamond grader at a set time under exacting conditions. The certificates provide an unbiased third-party opinion as to a diamond’s characteristics and a means of identifying one diamond from another. In 2000, an additional certification measure went into effect when the United Nations (UN) General Assembly passed a resolution to create an international certification scheme for rough diamonds to stem the trade of conflict diamonds. This measure, approved by the UN in 2000 and in effect by 2003, is known as the Kimberley Process Certification Scheme, and sets the standard for controlling rough diamond production and trade. However, despite having precise certification methods in place, fraud still runs rampant in the diamond world. In April of this year, the Federal Bureau of Investigation (FBI) arrested 10 men in New York for their alleged role in fraudulently obtaining millions of dollars in untraceable diamonds in New York, Las Vegas and Mumbai. A few years earlier, a criminal network in London, known as the boiler-room gang, was convicted for selling dozens of colored diamonds to investors at up to 30 times their value. 10

Leanne Kemp, the founder and CEO of Everledger, a startup launched in 2015 through the Barclays Techstars accelerator, hopes to restore the diamond industry’s tarnished image by making sure the provenance of diamonds is crystal clear. The London-based fintech company seeks to accomplish this by cross-referencing certified diamonds against a digital ledger that records ownership and origin of the stones to prevent fraud. Everledger securely captures the defining characteristics of the diamonds and creates a digital thumbprint that is stored in the blockchain for each one. This information, which includes history, transport, events and ownership, is relied upon by multiple stakeholders across global supply chains to verify each diamond’s authenticity. Blockchain, the decentralized record book that underpins Bitcoin, was the perfect place to create a digital ledger designed to trace and verify certification of diamonds, according to Kemp. “Diamonds are the perfect use case for blockchain technology,” she says. “Blockchain is a network technology, orchestrating trade amongst participants with embedded trust and smart enablement of contracts. Take the Kimberley Process as a prime example of a network in which there was already a consortium and operating protocols. This framework of consensus plays well into the fabric of blockchain. In the diamond industry, we have inspection points, certificates and physical scientific laboratories. It is a controlled environment where certain levels of science and scanning technologies are applied. All of these are important parts to the structure of integrity.” More than a million diamonds were added to Everledger’s digital ledger since its inception in 2015

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to prevent unauthorized access and tampering, and meet the industry’s stringent security requirements. But Kemp sees the use of this technology extending far beyond diamonds. Everledger currently is working to build additional security platforms for fine art, rare wine, luxury goods and electronics—all industries that Kemp finds in need of similar protections. “The eventuation of this technology can prove ownership, tackle fraud and deter theft,” she says. Blockchain’s use for diamonds and other luxury goods has those in nearly every industry, including supply chain, excited by its potential. In the words of Ramesh Gopinath, vice president of blockchain solutions for IBM, “Blockchain is going to fundamentally transform industries across the board-every industry you can imagine. And why? Well, what is business about at the end of the day? It’s about businesses interacting with each other, building up contractual obligations, meeting those obligations and then getting paid for it.” Everledger works to understand blockchain at its deepest core, according to Kemp. “We learned that beyond bank payment technology, it was well-suited for supply chain transparency, business network orchestration and operating an ethical supply chain,” she says.

BLOCKCHAIN BUILDS TRUST

to be distributed, existing on multiple computers at the same time in such a way that anybody with an interest can maintain a copy of it. “Better still,” Ars Technica’s site continues, “the block validation system ensures that nobody can tamper with the records. Rather, old transactions are preserved forever and new transactions are added to the ledger irreversibly. Anyone on the network can check the ledger and see the same transaction history as everyone else.” The fact that blockchain is an independent, transparent and permanent database, coexisting in multiple locations and shared by a community, builds trust. Gopinath states that data in a blockchain can be trusted for three primary reasons: 1. Any data added to a blockchain undergoes a vetting process for people to reach critical consensus. 2. Anything that goes into a blockchain goes in with digital signatures, so there is the notion of non-reputability, so you can’t say you didn’t do that. “Once the data gets sent, it’s relatively permanent,” he says. “I say relatively because all software is software, so there is a very small chance that something could go wrong.” 3. It is virtually immutable in that there are multiple copies. If a user were to unilaterally change a copy, it would become inconsistent with the rest of the data. “There’s this notion of taking a fingerprint off of a block of transactions and putting it into the next, and that’s why it’s called blockchain,” he says. “Because of these three properties, and the fact that what goes in there stays unchanged or unaltered into perpetuity, is why it can be used to store salient information relevant to

To understand the attraction of blockchain in the supply chain, one must first understand what blockchain is. Ars Technica, a technology news website, defines it as follows: “A blockchain is a ledger of records arranged in data batches called blocks that use cryptographic validation to link themselves together. Put simply, each block references and LEANNE KEMP, EVERLEDGER identifies the previous block by a hashing function, forming an unbroken chain, hence the name.” Ars Technica adds, “A blockchain sounds like a database with built-in validation—which it is. However, the clever bit is that the ledger is not stored in a master location or managed by any particular body. Instead, it is said

“THE TECHNOLOGY CAN PROVE OWNERSHIP, TACKLE FRAUD AND DETER THEFT.”

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FEATURE “ONE OF THE BIGGEST ISSUES THAT COMPANIES FACE RIGHT NOW IS TRACKING AND TRACING GOODS BEFORE, DURING AND AFTER SHIPMENT.”

business transactions,” he says. This process makes sense in the supply chain, he adds. He gives the following example: When a U.S. retailer buys an item from a Chinese manufacturer, there are many actors involved. There is the shipper in China, then a trucking company that takes the goods to a port, where the product must go through customs and various brokers. Then there is the carrier that ships the product to the United States. Once in the U.S., DANA GARDNER, the product moves through a similar setup before the consignee receives INTERARBOR SOLUTIONS the goods. Then there is movement of money in the opposite direction, possibly with financing behind it, a letter of credit and so forth. “There are really three flows: There is the flow of goods, there is the flow of information associated with the physical flow and the movement of money,”

he says. “Today, a lot of information is shared in a highly inefficient fashion, often manual and paperbased. By having a database, or blockchain, that is trusted, you can share information in a selectively visible fashion, so that only the people who are supposed to see the data see it, and you can do a better job of managing the flow of goods, the flow of money and the flow of information.”

SAP ARIBA TAKES THE FIRST STEP In March, SAP Ariba became one of the first companies to leverage blockchain across cloud-based applications and business networks to upend the way goods and services are traded. Joe Fox, senior vice president of business development and strategy at SAP Ariba, reports the move made sense because “blockchain facilitates greater visibility and trust. By embedding it across our applications and network, we can enable supply chains that are smarter, faster and more transparent from sourcing all the way through settlement.”

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SAP Ariba sees the first application in procurement and supply chain in the tracking and tracing of goods. “One of the biggest issues that companies face right now is tracking and tracing goods before, during and after shipment,” says Dana Gardner, president and principal analyst at Interarbor Solutions. “All too often, a seller will ship something to a warehouse where it is swapped for a knockoff without the buyer knowing. The distributed ledger capability of blockchain provides buyers and sellers with increased visibility and control from shipment to receipt, which ultimately reduces the risk of fraud.” SAP Ariba moved into blockchain through a partnership with Everledger, which will extend blockchain capabilities to the Ariba Network. “By harnessing the best of disruptive technology, we built a global platform of provenance by connecting records of authenticity to a physical object and its certification as it moves throughout the supply chain,” says Kemp. “We know the impact this can

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have. Integrating our technology with SAP Ariba’s business network can not only lead to a reduction of JOE FOX, SAP ARIBA risk and fraud for stakeholders, but additionally help to reshape a new era of global trade focused on the pillars of transparency, sustainability and ethics.” According to Fox, the technology is a natural fit within SAP Ariba’s solutions. “If you can track and trace diamonds, you can track and trace anything,” he says, noting SAP Ariba does $1 trillion in commerce annually. “There are a lot of assets that flow based on that trade and spend, not just physical assets, but the payments for the assets.”

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FEATURE THE SOLUTION WILL HELP REDUCE FRAUD AND ERRORS, REDUCE THE TIME PRODUCTS SPEND IN THE TRANSIT AND SHIPPING PROCESS, IMPROVE INVENTORY MANAGEMENT AND ULTIMATELY REDUCE WASTE AND COST.

two companies recently partnered to use blockchain technology to help transform the global cross-border supply chain. This blockchain solution is based on Hyperledger Fabric, an open technology framework for distributed ledger solutions from The Linux Foundation, and was built by IBM and Maersk for the shipping and logistics industry. The solution is designed to manage and track the documentation of shipping containers by digitizing the supply chain process from end to end to enhance transparency and allow for the secure sharing of information among trading partners. When adopted at scale, the solution has the potential to save the industry billions of dollars.

Leanne Kemp, founder and CEO of Everledger, plans to use blockchain technology to build additional security platforms for fine wines and other luxury goods.

The new technology can vastly reduce the cost and complexity of trading by using blockchain to establish transparency among parties. The solution can also help reduce fraud and errors, decrease the time products spend in the transit and shipping process, improve inventory management, and ultimately, minimize waste and cost. The technology’s potential is already demonstrated through IBM and Maersk’s work with a number of trading partners, government authorities and logistics companies. For example, goods from Schneider Electric were transported 14

on a Maersk Line container vessel from the Port of Rotterdam to Newark in a pilot with the Customs Administration of the Netherlands under a European Union (EU) research project. The U.S. Department of Homeland Security Science and Technology Directorate, and U.S. Customs and Border Protection also are participating in this pilot. Damco, Maersk’s supply chain solutions company, supported origin management activities of the shipment while utilizing the solution. The international shipment of flowers to Royal FloraHolland from Kenya, Mandarin oranges from California and pineapples from Colombia also were used to validate the solution for shipments coming into the Port of Rotterdam. “As a global integrator of container logistics with the ambition to digitize global trade, we are excited about this cooperation and its potential to bring substantial efficiency and productivity gains to global supply chains, while decreasing fraud and increasing security,” says Ibrahim Gokcen, chief digital officer at Maersk. “The projects we are doing with IBM aim at exploring a disruptive technology, such as blockchain, to solve real customer problems and create new innovative business models for the entire industry. We expect the solutions we are working on will not only reduce the cost of goods for consumers, but also make global trade more accessible to a much larger number of players from both emerging and developed countries.” IBM has high hopes that this new supply chain solution will be a transformative technology with the potential to completely disrupt and change the way global trade is done. Bridget van Kralingen, senior vice president of industry platforms at IBM, says, “Working closely with Maersk for years, we’ve long understood the challenges facing the supply chain and logistics industry, and we quickly recognized the opportunity for blockchain to potentially provide massive savings when used broadly across the ocean shipping industry ecosystem. Bringing together our collective expertise, we created a new model the industry will be able to use to help improve the transparency and efficiency of delivering goods around the globe.”

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MADE IN AMERICA By Ronnie Garrett

Wenonah finds success in paddling against the off-shoring current, keeping its bow pointed toward U.S. shores.

CANOE COMPANY STAYS AFLOAT ON U.S. SOIL

enonah canoe literature proclaims, “When the bow and your heart are pointed in the same direction, each (SUPs), Wenonah has never lost its are still American made today.” stroke brings you closer to something family feel. In fact, there are still times It’s a concept that isn’t likely beyond your destination.” when Cichanowski and his team host to change as Kueper explains It’s a statement owner Mike shareholder meetings around a kitchen manufacturing in the USA gives Cichanowski has taken to heart table and sneak out early on a Friday to the company better control over his entire life; first as a young boy paddle the waters of the Great River. the products it makes. “We can do cultivating a love of paddling, later as Here, from his modest office lacking customized products in a timely fashion a teen building wooden and eventually in traditional executive accoutrements, because there is no overseas shipping. fiberglass canoes from the family garage, such as a massive and polished wooden We have better control of our inbound and finally as an adult fashioning his desk and king-sized leather office supply chain. Everything playing into craft into a thriving canoe business that chair, and in a town of just over 27,000, quality and oversight is here.” turns 50 this year. Cichanowski has built a paddling The company receives the bulk of its As Wenonah’s competitors have empire that adds American-made to its raw materials from U.S. manufacturers. sold their assets to holding companies long-list of achievements. Most of its canoes are made of Kevlar, or moved manufacturing an aramid fiber produced overseas to the lowest in Richmond, Virginia, We can do customized products in a bidder, Cichanowski by DuPont USA. Kueper timely fashion because there is no overseas explains the company has stayed the course, keeping the company’s shipping. We have much better control of prides itself in staying manufacturing facilities away from faux Kevlar, securely anchored in preferring instead the our inbound supply chain. Everything Winona, Minnesota, near lightweight properties and playing into quality and oversight is here. superior durability of the the banks of the Mississippi — BILL KUEPER, WENONAH River. real thing. In addition, And, though the aluminum trim comes company has grown from a single BORN IN THE USA from Iowa, and the rivets used in employee to more than 70, from a “We were American-made before every model are purchased from a U.S. small garage to 140,000 square feet of American-made was fashionable,” says distributor. operational space, and from a single Bill Kueper, Wenonah vice president. “The tricky thing with supply chains product line to one that also includes “When this business started 50 years is how far back do you go? Do you go all kayaks and stand up paddleboards ago, we were American made, and we the way back to dirt?” Kueper asks. “Our 16

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The journey to diversification actually began years earlier when a history of collaboration with Current Designs’ kayaks led to Wenonah acquiring the Victoria, British Columbia-based company. After the purchase, Wenonah continued to operate its Canadian factory. However, the logistical challenges of operating a factory on an island eventually led to the company moving kayak manufacturing to the United States. “It’s not a good place to manufacture for global distribution,” Cichanowski explains. “It’s challanging because raw materials and finished goods must ferry to and from the island making it expensive to do business.” Kueper adds this move, enabled by a JOBZ grant from the State of Minnesota, packed financial benefits as well because both canoes and kayaks use the same fabrics and resins. Before the move, Wenonah was unable to take advantage of supplier discounts because materials were being shipped to different locations. The move also enabled the company to combine the two division’s customer service departments and other operations. In 2011, the company acquired QCC Kayaks, which made boutique high-end composite boats, and in 2014, right after the company learned Royalex was going away, Wenonah acquired the C4 Waterman brand of SUPs. The company now offers more than 40 different boards. “Having these product lines here gives our sales force the ability to say, ‘I can take care of your canoe, kayak and SUP needs,’ ” Kueper says.

high-value, quality parts and pieces, and raw materials, are all from the U.S.”

A DIVE INTO DIVERSIFICATION Royalex canoes were once a big part of Wenonah’s canoe line. The product enabled Wenonah to earn a reputation of not only having the lightest Kevlar canoes in the industry but also the slightly heavier, more robust and price-sensitive Royalex canoes. All that changed, however, in 2014, when the sole manufacturer of Royalex sheets shuttered the enterprise. “We were the largest producer of the Royalex canoe in the world, so this was a huge blow to us,” says Kueper. Wenonah shifted some of the former Royalex sales into robust composites utilizing Kevlar, fiberglass and TuffWeave. The resulting canoes were lighter than Royalex canoes but not suitable for demanding situations like whitewater. These composites take more labor in the build process, and the price points were higher, so the company has never returned to the production levels experienced in Royalex’s heyday. For this reason, it has made sense for the company to diversify its business and move into the SUP industry.

TALENT IN THE WORKFORCE The Midwestern work ethic is known far and wide, and here in small-town Minnesota, Cichanowski has seen this

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bear out as the company hires and trains craftsman to do very specialized canoe and kayak building. The Midwesterner’s proclivity for hard work is another reason behind Wenonah’s decision to stay in the states. “You’re not going to find an experienced canoe man, someone who already knows how to do the work,” says Jim Brown, company president. “We might find someone with an adaptable skillset, but not someone who necessarily builds canoes.” Though the company unearths the right skills in its workers through on-the-job training, Brown admits Wenonah is not immune to manufacturing’s skilled labor shortage. He explains the river city has a very diverse manufacturing base, making the labor market extremely competitive; everything from a global music printing company to apparel and chain manufacturers call Winona home. The company navigates this challenge by offering a competitive compensation package that includes a 401K match and a 4/10 workweek. And, for those paddling enthusiasts in its midst, there is a program that allows employees to earn points toward product purchases. Once employees are onboard, Kueper points out they keep them there helping them further their skills. For instance, the company’s North American sales manager was formerly its logistics manager, and before that, he worked in canoe production. “He showed an interest, he showed potential and we promote from within,” Kueper says. With a solid product line in place and new developments in the works, it’s safe to say this Minnesota company will be navigating the waters of change to keep its operations onshore for some time to come.

SDCExec.com | May 2017 | SUPPLY & DEMAND CHAIN EXECUTIVE

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SPECIAL REPORT THE INTERNET OF THINGS

By Ronnie Garrett

CYBERSECURITY:

Where the IoT Meets IT Learn how to play it safe when IoT is added to the information technology highway.

mploying the Internet of Things (IoT) without a cybersecurity plan is a lot like playing the trust fall game without a person to catch you. The one thing that has been a constant since the first computer went online is that almost any technology, including the IoT, can be hacked. The case of a possessed baby monitor shouting obscenities at a Texas tot provides a terrifying view into the IoT’s inherent security risks. Here, a hacker bypassed a firewalled and password-protected wireless network to gain access to the unit, and control its camera and voice mechanisms to terrorize the end user. Understanding how the IoT works provides insight into how the above situation and others are possible. With the IoT, an object-for example, a sensor in a baby monitor, on the engine of a delivery truck, on a pallet of fresh food stored in a cold-chain warehouse or on equipment in a manufacturing plant-becomes part of a networked 18

environment. These sensors collect information, then transmit it through a host of devices and networks to data centers located in the cloud. Later, users can retrieve data from the cloud for analysis. This process introduces security vulnerabilities that must be addressed at every step of the data journey.

information, including customer order data. Though this information is extremely valuable to company operations, Mel Kirk, Ryder senior vice president and CIO, emphasizes that using the IoT in this way also introduces cybersecurity risks. “The supply chain business is becoming an order management business in which an order encompasses information regarding the point of sale, the person’s name and address, and possibly even credit card number,” he says. “There are

In the old days, the data was contained within our firewalls, but now it’s on the Internet and in the cloud, and security is an important consideration. — RICARDO BONEFONT, RYDER SYSTEM INC. Ryder System Inc., a commercial fleet management, dedicated transportation and supply chain solutions company, is broadening its technology roadmap to leverage IoT sensors across the full spectrum of its logistics services. The company is expanding its use of IoT sensors on fleet vehicles to pinpoint preventive maintenance needs, locate a truck at any given time and provide real-time

more insights about individuals than ever before, casting an even greater spotlight on security.” Ricardo Bonefont, director of enterprise information technology (IT) security and compliance at Ryder, says, “It’s all about the data [and] ensuring it’s protected along the way. In the old days, the data was contained within our firewalls, but now it’s on the Internet and in the cloud, and security is an important consideration.”

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SPECIAL REPORT Though Ryder takes steps to protect its data, often IoT security vulnerabilities are not considered until things go awry, states Drew Cohen, president and CEO at MasterPeace Solutions of Columbia, Maryland. “The race to adopt this technology and make your devices smarter is what the marketplace is demanding. Because security can be an inhibitor to adoption, it often comes after the fact,” he says. Gemalto is an international digital security and IoT company providing software applications, BY THE NUMBERS IoT connectivity modules and security solutions, including Machine Security breaches in 2016 Identification Modules (MIMs), secure elements, smart cards and Increase in security breaches since 2015 tokens, and managed services. In this role, the firm works Breaches occurring in the business sector with enterprises to connect devices and things, and boost TH CONSECUTIVE YEAR their IoT security. Hacking/skimming/phishing attacks Gemalto’s e-book, top the list of data-breach incidents A Safer Internet of Things recommends that data be secured “not only on the [IoT] device, but on its journey through the network toward the data center and beyond. With so many links in the chain, the security framework must be interconnected and coordinated to avoid breaches, snooping, hacking or accidental leaks.” This requires companies to think beyond the typical scope of security, says Juan Carlos Lazcano, vice president of the IoT for North America at Gemalto. He explains, “The reality is companies often only consider security from the device point of view and not as part of something that belongs to a much bigger ecosystem. They think about what they need to secure from their implementation, but not what type of access it could give to the rest of the ecosystems—this puts an enterprise at risk.”

DATA BREACHES 1,093 40%

45.2% 8

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SPECIAL REPORT THE INTERNET OF THINGS a capability Cohen views as essential as the IoT becomes commonplace within the supply chain. “With the IoT, the price points are low, the software is readily available and the capabilities are high. However, when you put general purpose technology into specialized devices, you’re taking the same cyber vulnerabilities and deploying them in things that were never connected before,” he says.

privacy, safety, fraud, cyberattacks and intellectual property (IP) theft. 2) Secure by design. Gemalto reports it is key that device security is considered at the development stage. This should include end-to-end points and countermeasures, including tamperproof hardware and software. 3) Secure the data. To properly secure data, companies need strong authentication, encryption and securely managed encryption keys. says, “All too often, … when you put general purpose technology into specialized Lazcano people say, ‘I added a key, devices, you’re taking the same cyber vulnerabilities and the device is secure.’ The problem is they put it in a deploying them in things that were never connected before. place that is really hackable, like memory that is not — DREW COHEN, MASTERPEACE SOLUTIONS protected at all. But because While many IoT companies are whitelists that essentially say, “The only they put a key in there, they feel like opting to make IoT sensors more places these IoT devices are allowed they have an adequate security system.” secure by encrypting data on the to go is back to their known endpoints Lazcano recommends a trusted device and in its communications, and not to anywhere on the Internet.” key manager solution that generates they are implementing the technology “We create firewalls and lock them a unique identification and in a cybersecurity vacuum relative to down so they cannot communicate authentication key for each device, so existing network security solutions, beyond where they are supposed to,” if one device is hacked, the rest of the Cohen maintains. Cohen says. devices on the network remain secure. On the other side of the spectrum, He explains, “By eliminating the use network security employees within GET BACK TO BASICS of a common password and a common companies are working to enhance Though no standard currently authentication key, you are diversifying cybersecurity across the enterprise. exists specifically for securing the IoT, the keys, making it much harder for However, the protections they are Bonefont states ISO 27001:2013 and anyone to get mass access to your putting in place focus on safeguarding the National Institute of Standards devices.” the general IT structure. and Technology (NIST) Cybersecurity 4) Engage lifecycle management. Both are good strategies, but Cohen Framework provide guidelines that can Security is ongoing; a company cannot says a disconnect arises because those help companies bolster IoT security. set it up and forget about it. Gemalto’s securing the IoT are not partnering A primary consideration within guide states it’s “imperative that IoT with those protecting the enterprise. these standards is mapping the devices devices are protected for the lifecycle “There is a real opportunity here to connecting into a company’s network of the device.” Lazcano adds, “Many make them smarter about each other,” and performing annual audits to make pieces are used for decades, so you have he says. “Most enterprises have security sure the entire system, from the IoT to think about the lifecycle of your in place, but the IoT isn’t connected sensors to the internal network, meets devices, and how security might be into it. And often, the network security industry standards. improved and enhanced over time.” group doesn’t even know what its IoT In A Safer Internet of Things, When technology, processes and devices are doing.” Gemalto goes beyond these steps and policy are protecting the IoT, it is Zuul IoT helps bridge this gap introduces four additional measures possible for companies to play the IT through an innovative solution designed to improve IoT security: trust fall game with a cybersecurity designed to integrate security across 1) Evaluate risk. Developers need to safety net, thus keeping their systems both the IoT and the enterprise. Zuul’s understand all potential vulnerabilities. safe and their information secure. solution is based on two products, the Evaluation processes should cover 20

Gatekeeper and Keymaster, that help secure IoT devices across a range of industries. The Keymaster first secures the IoT devices by checking that they are properly configured and their data transmissions are encrypted. The Gatekeeper puts alerts in place should the device access files it’s not supposed to or change data within the network. The Gatekeeper establishes network whitelists and application-to-endpoint

SUPPLY & DEMAND CHAIN EXECUTIVE | May 2017 | SDCExec.com

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4/21/17 5/5/17 7:37 9:19 AM

SPECIAL REPORT PROCUREMENT

By Ronnie Garrett

THE BENEFITS OF DIGITAL TRANSFORMATION Digitizing procurement can lower procurement costs, reduce supply chain process costs, increase revenue and slash risk.

hat’s in a word? Plenty when that word is digitization. Research from the Center for Global Enterprise (CGE) predicts that digitizing the supply chain has the potential to lower procurement costs by 20 percent, reduce supply chain process costs by 50 percent and increase revenue by 10 percent. With stakes this high, it is no wonder digitization tops many company priority lists. However, as digital innovation ramps up within firms, it places pressure on the traditional procurement model, which must evolve to meet new growth, cost and risk objectives. The “Deloitte Global Chief Procurement Officer Survey, 2017,” finds today’s CPOs state their top goals include improving agility, responsiveness and customer centricity while supporting the company’s digital transformation. But, with many procurement operations reporting just a 1 percent increase in their operating budgets for 2017, charging into the digital frontier presents a few challenges. Consider that Deloitte’s survey also finds that 90 percent of survey respondents believe their industries will be disrupted by digital technology, while just 44 percent indicate they are adequately prepared for these disruptions. The Hackett Group’s sourcing and

procurement benchmarking research for 2017 made similar discoveries. The consultancy’s analysis found nearly 85 percent of all procurement organizations believe digital transformation will fundamentally change the way they deliver services over the next three to five years. The study also revealed that the use of cloud-based applications, advanced analytics, robotic process automation (RPA), mobile computing and Big Data also are expected to grow dramatically. Yet, just 32 percent of procurement organizations responding to this survey report having a formal digital strategy in place, and only 25 percent indicate they have the needed resources and competencies in place today. The overall theme that emerges is procurement can play a key role as analytics, robotics and other technologies creep into corporate strategies. But, Ryan Flynn, principal at Deloitte, says, “CPOs first need to think about how they can use digital to transform their own operations.”

PUT PROCUREMENT IN THE DIGITAL PICTURE Dr. Gordon Murray, a strategy and change management specialist with procurement expertise for Tata Consultancy Services, reports digital technology can “deliver

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SPECIAL REPORT PROCUREMENT

improved procurement performance through reduced costs, faster access to procurement platform solutions, accelerated access to information, flexibility in working, increased innovation and creativity, and improved procurement intelligence.” While Murray highlights the potential for true transformation, Patrick Connaughton, senior research director at The Hackett Group, warns he’s found when company leaders discuss digital transformation they often do so in the context of how the company can better support the end consumer. As such, the process transitions to more of a sales and marketing type of digital enablement. This, he says, is shortsighted because digital also can transform the back office and propel procurement forward. Procurement’s digital potential is often limited by a lack of insight into how digital can impact procurement operations, stresses Kay Ree Lee, the director of Value Realization for SAP Ariba. He explains, “Some companies have a basic understanding of digital procurement, while others are more advanced in their thoughts about it. At the very basic level, it involves conducting transactions on the network or in the cloud, while on a more advanced level it includes things

like artificial intelligence, Big Data, blockchain and more.” In most cases, procurement, like many other company operations, has already moved down the cloud computing path, which is a positive first step, notes Flynn, but he adds it’s time to begin thinking about cognitive analytics, which Deloitte defines as “a term used to describe how organizations apply analytics and cognitive computing technologies to help humans make smarter decisions.” “Things like cognitive spend analytics, crowd sourcing in the information technology space, using machine learning to pull content from thousands and thousands of contracts, and predictive analytics are rapidly maturing, and more and more companies must begin to adapt,” Flynn says.

A BONANZA OF BENEFITS Predictive analytics helps procurement better forecast risk, which can significantly impact a brand and its margins. And, it encompasses more than just a supplier’s financial liability; advanced analytics can help procurement perform predictive forecasting to better understand a supplier’s impact. Because of its potential to make a difference, Connaughton indicates, this is an area

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procurement can focus on right away. Lee points out SAP Ariba already offers companies a means of tracking suppliers, but stresses the company’s products also include a predictive analytics engine designed to forecast risk for every supplier. “You also can tweak how you think about risk,” he says, because one company may define risk differently than another. “This allows a company to predict outcomes instead of looking back; they know Company A has historically had certain challenges and can plan their outcomes from there.” Digital technologies also allow procurement to review the stakeholder experience in order to provide an intuitive, streamlined buying experience. In this way, procurement can add in enabling technology that makes stakeholder’s lives easier. The effort builds trust and helps procurement gain organizational support to take on higher-value work. “Stakeholders want to find the supplier they need quickly, and may be asking how they can find something that is going to let them be more innovative,” Lee stresses. “Modernizing the buying experience is also part of the digital transformation.” Digitization also can help procurement gain a better handle on advanced vendor-managed inventory processes. Digital offerings can provide alerts when raw materials will be arriving late, so a company can make adjustments to avoid stock outs. “This can help take working capital out of the system for the overall organization,” states Rich Katz, chief technology officer at Elemica, a company that markets products designed to automate supply chain processes. “It provides a bigger picture of what the company is trying to achieve from a financial perspective.”

SDCExec.com | May 2017 | SUPPLY & DEMAND CHAIN EXECUTIVE

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SPECIAL REPORT PROCUREMENT —Key Issues Study, The Hackett Group, 2017

by the numbers digital transformation

25%

75% OF CPOs believe procurement’s role in delivering digital strategy will increase in the future

Report having the needed resources and competencies in place today

Report having developed a strategy for getting there

89%

32%

Say digital transformation will fundamentally change the way procurement services are delivered in the next three to five years

Overall, Katz stresses procurement 1) Improving the Stakeholder digitization helps companies reduce Experience: Top-performing risk. “Any advanced warnings about procurement organizations already supply shortages can be addressed in a have unearthed most of the significant way that avoids plant shutdowns, which opportunities for cost savings and can be terribly expensive,” he says. efficiency gains, and many are now Flynn agrees, “There’s a huge focusing on improving the stakeholder opportunity to be more predictive at experience as a way to create additional managing risk across the organization, value. Raising stakeholder satisfaction especially in risks is a strong that require you strategy to help to look across procurement gain your entire supply organizational base. Digital permission to procurement take on higher allows you to level work. get visibility The Hackett down the supply Group’s research chain to help identifies three companies get key strategies in — RICH KATZ, ELEMICA ahead of potential this area: Build supply disruptions.” an omni-channel and personalized stakeholder experience, measure value TAKING THE NEXT STEP beyond savings, and segment the “It is key for companies to do stakeholder community to find the right a readiness assessment that asks: service level mix. ‘How prepared are we for digital 2) Orchestrating a Procurementtransformation?” states Connaughton. as-a-Service Portfolio: An “as-a“To fully understand the level of effort service” portfolio refers to streamlining that’s going to be required they need to the buying experience and creating know how ready they are, and if there an organizational model that permits is a plan in place to improve the buying procurement to be closely aligned to experience or for advanced analytics, for its primary stakeholders, so it can react example. That assessment is really the quickly to changing requirements. To first step.” achieve this, The Hackett Group advises The Hackett Group’s research procurement to develop a well-balanced then details four additional areas to portfolio of sourcing and purchasefocus on as companies seek to digitize to-pay service offerings, rebrand the procurement: procurement organization to increase

“DIGITAL PROCUREMENT ALLOWS YOU TO GET VISIBILITY DOWN THE SUPPLY CHAIN TO HELP COMPANIES GET AHEAD OF POTENTIAL SUPPLY DISRUPTIONS.”

Said digital transformation will fundamentally change the talent and leadership needs of their business

awareness and influence, and optimize the use of centers of excellence and placement of resources globally. 3) Setting a Foundation of Analytics-Driven Insight: As procurement’s role matures from transactional facilitator to trusted business advisor, a key enabler is proficiency with Big Data, nextgeneration analytics that offer an unprecedented ability to quickly model massive volumes of structured and unstructured data from multiple sources. To take full advantage, The Hackett Group advises procurement to invest in training for analytics, center of excellence and special projects teams; deliver new forms of market intelligence, in part by using thirdparty category intelligence reporting services; and mitigate risk through predictive forecasting. 4) Leveraging Technology to Accelerate Transformation: Technology is at the heart of any digital transformation. To ensure a successful transformation, The Hackett Group recommends finding the right mix of suite versus niche software solutions, building flexibility into the roadmap to take advantage of emerging technology, and helping to improve technology sourcing for the company.

IDENTIFY THE QUICK WINS The next step is to decide highvalue items to tackle first. Perhaps RPA makes more sense initially then full-blown cognitive computing,

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SPECIAL REPORT PROCUREMENT

“IT IS KEY FOR COMPANIES TO DO A READINESS ASSESSMENT THAT ASKS: ‘HOW PREPARED ARE WE FOR DIGITAL TRANSFORMATION?’ ”

for example. “If procurement is looking for quick-win automation, RPA is a good place to start versus having some holistic predictive cognitive risk forecasting tool,” Katz says. Another easy area to tackle, says Katz, is transactional sourcing. “The quickest thing to automate is transactions; purchase orders, shipping notices, etc. are easily automated — PATRICK CONNAUGHTON, THE HACKETT GROUP in the digital world.” The challenge, says Lee, is that not all companies know what to do with their data. “They need to consider how they take what they have in terms of data, make sense of it and then use it for the good of the company and its goals,” he says. Flynn states that procurement has always struggled with its use of data, and stresses these operations need to invest in their data and their analytics capabilities. “This includes their vendor data as well as item data about what they are buying. They need to be able to take that data, cleanse it and then analyze it quickly to find opportunities,” he says, noting he sees real opportunity in using artificial intelligence and machine learning to draw insights that LoadExpress is the online › Lower freight cost by can help procurement leverage spend across the organization. multiple carriers bidding freight auction and The key is to have companies start for your shipment directly. small, pick a couple of solutions that matching marketplace make sense, and phase them in over where shippers and › Lower operational cost, time. “They might want to explore solutions that can leverage existing higher productivity, carriers deal directly systems and data, and don’t require a reduce daily hassles of huge transformation for them to do it,” without brokers. Flynn says. “They can move quickly logistics. with these solutions to quickly build out some successes.” Ideal for on-demand › Only FMCSA-authorized Flynn also encourages procurement to “think big” about the technology carriers are used. freight booking and that might transform the operation five to 10 years down the road. management. › Totally FREE to join. “They need to consider this from an operating model and a skills perspective, so that they connect the overall strategy, the operating model, the talent strategy to where you www. loadexpress.com want to be as an organization in the Email: sales@loadexpress.com future and how you want to leverage Phone: 619-916-3123 Ext. 1711, 1712 additional technologies.”

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SDCExec.com | May 2017 | SUPPLY & DEMAND CHAIN EXECUTIVE

5/5/17 8:44 AM

EXECUTIVE FOCUS

{ TRANSPORTATION}

By Amy Wunderlin

DRONES IN THE WAREHOUSE

May Not Be as Far Off as You Think Drone expert Matt McLelland provides an inside look at what the future holds for commercial drones in the global supply chain.

by the numbers

drone facts by DMR

It’s projected that

SEVEN

MILLION drones will be in the United States by 2020. More than

600,000 commercial drones will be in the air by 2018. Today there are

20,000 drones registered for commercial use.

orget delivery by drones. Experts are now suggesting companies experiment with deploying unmanned aircraft systems (UAS) in their own airspace before even attempting to deliver directly to the consumer. Efforts by leading retailers like Amazon and Wal-Mart are well underway, with The New York Times reporting in June 2016 that WalMart began testing the use of flying drones to handle inventory at its large warehouses, which supply thousands of stores throughout the nation. Currently, the company performs its inventory cycle-counting process manually through scanning pallets and handheld scanning devices, which the company tells The New York Times takes about a month, whereas the use of a drone would bring its cycle down to just days. While these retail giants have the resources to dedicate to drone experimentation for their own personal gain, others are leading the way in drone development as a commercial solution. In fact, third-party logistics provider Kenco Management Services created an entire department dedicated to giving its customers a look into the future of logistics. Titled Kenco Innovation Labs, the test center doesn’t invent or develop new technology, but works with people who are already doing it well. “There’s three of us in there, and it’s our job every day to work and think about the future of logistics. Not what

sort of solutions can we buy today off the shelf, but what sort of things do both we and our customers need to be keeping our eye on as it relates to six months away, a year away, even so far as five years away,” explains the lab’s innovation research manager and resident drone expert Matt McLelland. With that in mind, the lab teamed up with a number of small companies to explore the use of drones to manage warehouse systems and yard operations. “As the drone guy in our group, this was one of the things that we saw coming very fast and furious— not just in our industry, but in a wide variety of others as well,” he says. “What we found early on, with respect to other industries like agriculture, and oil and gas, was that logistics wasn’t really doing much.” In 2013, Amazon CEO Jeff Bezos introduced Prime Air, which was his solution to last-mile delivery. The announcement lit a spark throughout the supply chain, specifically among logistics providers, and “that was kind of the first time logistics people ever really started talking about drones,” notes McLelland. And according to a new study by PricewaterhouseCoopers (PwC) on the commercial applications of drone technology, titled “Clarity from Above,” the conversation is just getting started. PwC estimates the emerging global market for business services using drones is valued at

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TRANSPORTATION

Drones can make cycle counting more efficient by finding lost pallets and slots that are supposed to be full, but are currently empty.

counting. Traditionally, a full cycle count (checking to see that inventory the system says is located in certain slots is really there) is a tedious job, requiring the help of 10 to 15 people. Drones could make this process more efficient by finding lost pallets and slots that are supposed to be full, but are currently empty. McLelland is not privy to information in regard to PINC’s indoor drone, but he estimates the solution may be ready commercially by the end of the year. The second company Kenco is working with is DroneScan, a small South African company that offers the only commercially available indoor scanning solution on the market today. It assists with cycle counting indoors, using a manually controlled drone

over $127 billion, with applications in infrastructure, agriculture and transport having the best prospects. Kenco currently is partnered with two small companies that are experimenting with ways to use drones for inventory cycle counts and another startup tackling the problem of autonomous indoor flight. The first, PINC Solutions, teamed up with Kenco to explore the use of drones in yard management. Currently, the way it keep its yards up to date is with a human driver in a truck with a wand, who scans RFID tags attached to the sides of trailers. “Some of these warehouses, these distribution centers have giant yards with hundreds of trailers. That job can take a while, so [PINC] asked, ‘Why don’t we put a drone in the air to fly about 10 feet above all these trailers?’” McLelland explains. “The drone would have an RFID reader that could read the tags, making the job a little bit better, faster, cheaper, but more importantly, it could be completed more frequently. And if we’re able to fly more frequently, then there’s value in more up-to-date data.” Outside of its partnership with Kenco, PINC is developing a drone to be used inside the warehouse for cycle

LIMITATIONS For a number of reasons, moving from a manually controlled drone to a completely autonomous system is one of the largest challenges companies see when considering drone technology within the warehouse. Like most things, cost is a driving factor, as hiring somebody to manually operate a drone is more expensive than the average warehouse worker. Battery life may be one of the largest complications from a purely technological perspective, because not only does the drone itself draw energy from a battery, but every system on the device is also powered by battery.

AS THE DRONE GUY IN OUR GROUP, THIS WAS ONE OF THE THINGS THAT WE SAW COMING VERY FAST AND FURIOUS—NOT JUST IN OUR INDUSTRY, BUT IN A WIDE VARIETY OF OTHERS AS WELL.

— MATT MCLELLAND , KENCO MANAGEMENT SERVICES to scan items higher up on a rack in certain types of warehouses, so that a human can be scanning at ground level within the full reach of his or her arm. Kenco’s third partnership is with a Chicago startup that is working toward solving the puzzle that is autonomous flight by drone.

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“What it wants to do—and really what the entire industry wants to do—is find a way for these things to fly themselves rather than have people flying them manually,” McLelland says. Kenco’s lab is in the very early stages of working with this company, but McLelland says they are making some real headway on a solution to the problem. He is hopeful that autonomous flight will be resolved within the next year.

A drone’s flight time depends on a number of factors, including the size of the drone, the size of the battery, the types of systems running on it and whether they are processing programs, such as optical character recognition used to do barcode scanning, whether

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TRANSPORTATION

warehouse where drones fly freely, lifting boxes or moving equipment around, coming to fruition in the next two to three years.

REGULATIONS

it’s running a Wi-Fi device so that it can communicate to the cloud or if it has a camera. “Everything that runs requires battery life, so I think that battery technology is going to have to take another leap forward before we can start getting the flight times out of these things that make them practical. That’s probably the biggest problem I see,” adds McLelland. So between the struggles with weight and battery life, the idea of drones moving objects around a warehouse is still the stuff of science fiction. “I always get a big kick when I see some kind of clip art that shows a box underneath a drone flying through a warehouse. That just doesn’t happen; it can’t happen. The laws of physics don’t work like that,” McLelland says. He does note, however, the idea is not that far off. He sees a futuristic 28

You can explore, experiment and test all you want, but when it comes down to it, one of the biggest questions still on everyone’s mind is: How are regulations going to affect the use of drones for commercial use? There is little disagreement about the dangers of unmanned aircraft, making the cautious approach to regulation understandable. And while the Federal Aviation Administration (FAA) liberalized restrictions on commercially used drones last summer, in most cases, they still can’t be flown directly over people or for long distances. The agency planned by the end of 2016 to unveil a proposal to allow drone flights closer to people, but that was delayed over security concerns. For the Amazons of the world, these restrictions are damning, but for those interested in keeping drones indoors, the FAA has no say. The agency has no control over the airspace within a company’s private property, and so far, no regulations are projected for enclosed flight. But legal concerns still exist, McLelland warns, especially in regard to insurance companies and the Occupational Safety and Health Administration (OSHA). “You can do whatever you want to within your own four walls. Now the problem there is what about OSHA and what about insurance? If there was some sort of accident, and OSHA came in and did an inspection, we’re just not sure what its official response is to this.

“I think that a lot of companies, both people purchasing these solutions, but also developing these solutions, want a little bit more clarity from the insurance industry on how difficult they are going to make it for potential customers to operate these types of things,” McLelland adds. “Who wants to sink millions of dollars into developing a new technology that, ultimately, the government says you can’t use?” McLelland’s gut tells him that, if OSHA were to implement a drone standard, it would look similar to those that address heavy machinery safety, such as a certification to fly an object like those awarded to drive a forklift. Another hot topic of discussion amongst industry leaders focuses around the Trump administration’s promise to reduce regulation for businesses by up to 50 percent. “We don’t really know what that means; that could mean anything. But if you take him at his word, it could mean that he is going to make OSHA relax a lot of its regulations that are unclear and it could affect [drone regulation],” McLelland says.

TOMORROW’S OUTLOOK Kenco’s partners are not the only companies working on solutions for drones in the logistic space, but McLelland says there are probably less than seven—and so far, everyone is still in the testing stage. “I have yet to meet anybody in the United States that is using a drone as part of daily operations for a traditional warehouse-type industry,” he says, noting, however, that by the end of this year, “you’re going to start seeing this idea of a modern warehouse with drones … and by the end of 2018, we will see drones receiving instructions and being able to simultaneously carry out a task, working in conjunction with each other.”

SUPPLY & DEMAND CHAIN EXECUTIVE | May 2017 | SDCExec.com

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5/4/17 9:00 AM

EXECUTIVE FOCUS

{ WAREHOUSING}

By Amy Wunderlin

A DANGEROUS WORK ENVIRONMENT WILL COST YOU Maintaining a safe workplace culture is not only important for the well-being of your employees, but also your bottom line.

workers in total were killed on the job in 2015 [most recent data available]. So how do we achieve what might seem impossible—the goal of zero workplace deaths or injuries while maintaining an efficient and profitable business? Prevention—as well as a little investment—is key and that begins with implementing a safe workplace culture. According to Jonathan Jacobi, a senior environment, health and safety (EHS) adviser for UL EHS

safe working culture is always a hot topic among supply chain professionals. But is it possible to bridge the gap between safety and operations? “Everybody wants to make [their facilities] the safest place possible, but you’re going to look to justify a return on investment,” says Brian Neuwirth, vice president of sales and marketing at UNEX Manufacturing Inc., a provider of order picking and carton flow solutions. “It’s about finding the balance and designing a system that’s going to make you efficient without justifying people’s safety.” The Occupational Safety and Health Administration (OSHA), which regulates safety in American warehouses through a series of standards, reports that, since the administration began in 1970, the amount of occupational deaths was cut by 62 percent and workplace injuries declined by 42 percent. However, the fatal injury rate for the manufacturing industry was at its highest point in 2015 since 2008, rising from 349 fatalities in 2014 to 353 in 2015. OSHA reports that 4,836

by the

5 out numbers of 100 According to the 2017 Liberty Mutual Workplace Safety Index, the most disabling workplace injuries and illnesses in 2014 amounted to

$59.9 billion

in direct U.S. workers’ compensation costs. This translates into more than a billion dollars spent by businesses each week on the most disabling injuries.

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people suffer an injury that requires time off work, which can be a massive financial cost for companies. Each year an average of

3 MILLION PEOPLE — in private industry —

FACE SOME KIND OF INJURY as a result of their jobs. In many industries,

INJURY COSTS CAN EXCEED PROFIT IN A GIVEN YEAR.

SDCExec.com | May 2017 | SUPPLY & DEMAND CHAIN EXECUTIVE

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Sustainability (a provider of EHS, occupational health and sustainability training, advisory services, and software solutions), at its core, workplace health and safety is made up of four essential parts. They include: ❯❯ Culture-the values, assumptions, norms and everyday behaviors of an organization’s people. ❯❯ Compliance-meeting mandated regulatory standards. ❯❯ Risk management-processes to better identify risk and control exposures. ❯❯ Governance-establishing controls by which an organization can validate and ensure compliance standards and policies. “To truly create lasting change, organizations must create an environment in which safety is more than just a box to be checked, but is an attitude that makes up the very foundation of the company and is upheld by everyone-from frontline workers to senior management,” according to Jacobi. “Safe workplaces are created when workers make good decisions. But workers need good information in order to make good decisions,” he adds, noting a systems approach to training is often best as it ensures a continual stream of current and contextually rich information when and where it is needed. And when workers are wellinformed, they become “dynamically adaptive, productive workers,” resulting in gains that offset resources invested.

ERGONOMICS Each year, OSHA releases a list of the top 10 most frequently cited violations. And though these violations result in numerous injuries—and even deaths—poor ergonomics, for which OSHA does not have a standard, might be the most impactful cause of injury in the workplace. Back injuries and other soft-tissue, manual material-handling injuries 32

THE TOP CAUSE OF DISABLING INJURIES WAS, ONCE AGAIN, OVEREXERTION. This includes injuries

related to lifting, pushing, pulling, holding, carrying or throwing, and cost businesses $13.8 billion in direct costs and accounted for 23 percent of the national burden.

caused by poor ergonomics can have “Order picking is one of the most adverse effects on both operations costly activities from an operating and finances because they affect an standpoint, and your workforce and employee’s ability to efficiently do their labor are the driving cost of that. A job and may even keep them from safe workplace is something that is their work if severe enough. going to boost overall productivity … “Frequent citation or not, it is in so you want to make sure your people an employer’s best interest to address are working happily, they’re working the causes of ergonomic injuries,” says safely, they’re working efficiently, and Jacobi. “Well-considered investments that all goes hand in hand,” he says. in ergonomics almost always result in UNEX Manufacturing makes a safer and more productive working ergonomically sound equipment for environment.” distribution centers, warehouses and Neuwirth agrees that there is a direct automotive assembly operations. The correlation between a safe workplace and manufacturer’s most popular solution higher productivity, which means happier employees and higher profits. “Ultimately, workplace injuries are going to cost you because it’s not just a timeout; you’re also replacing people with staff that have to be trained,” Neuwirth says. “There are a lot of costs associated with workplace injuries beyond just the actual injury; it trickles over onto operations.” Using OSHA’s Safety Order picking is one of the most costly activities from an operating standpoint, and your workforce and labor Pays calculator, Jacobi was are the driving cost of that. able to determine how much an injury costs and the amount is its carton flow and pick tray that of sales needed to cover that cost. For not only keeps the workstation neat example, a serious strain or sprain can and orderly, but also keeps important cost a company more than $67,000. If parts and products at the point of pick, your company has a profit margin of eliminating excessive reaching that can 5 percent, you need sales of more than result in strain or injury. Carton flow $1.3 million to pay for that single injury. keeps product rotating, so they are Neuwirth emphasizes that, though the loaded from the back and picked from cost of injury often outweighs the cost the front. It allows operators to always of investing in safety equipment, it is a have something in that first location, discipline that not all companies have. which not only prevents injury, but

SUPPLY & DEMAND CHAIN EXECUTIVE | May 2017 | SDCExec.com

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5/4/17 9:06 AM

BLAST: A BETTER BARRIER SELECTION PROCESS

WAREHOUSING

By Andy Olson, marketing manager, Rite-Hite Aftermarket

The intersection of pedestrians, valuable product and machinery in any distribution center presents real safety concerns. Considering that workplace injuries account for nearly $206.1 billion a year, according to the National Safety Council, many facilities are implementing a wider variety of physical barriers to protect against dangerous accidents. An improved test methodology called BLAST (short for barrier load and speed testing) has reinvented the process of evaluating and selecting the ideal barrier for any given situation. Many manufacturers rate industrial barriers based on their ability to stop an impact of 10,000 pounds at 4 mph, which has been an industry standard for more than 30 years. While this rating provides a meaningful reference for a specific load at a specific speed, it fails to define several key variables:

WWHow is the barrier’s performance affected as the mass or speed of the impacting vehicle changes?

WWHow severely was the barrier damaged by the impact? Is replacement necessary?

WWDid the barrier stop the load soon enough to prevent injury or damage? BLAST determines barrier ratings in terms of total kinetic energy absorption, instead of a specific mass and speed. Centered on the formula for kinetic energy (EK = ½mv2, where m=mass and v=velocity) it takes into account both the weight and speed of the impacting object. This methodology allows safety managers to determine an appropriate barrier for the specific application in their facility. Installing safety barriers is a small safety investment that helps prevent accidents, injuries and damage to products and equipment before making an investment. Once these site-specific variables are determined, a user can be confident that their new barrier is properly selected to meet their safety and protection needs. The information herein is provided as a general reference regarding the use of the applicable product(s) in specific applications. This information is provided without warranty. It is your responsibility to ensure that you are using all mentioned products properly in your specific application and in accordance with all laws and regulations.

also improves overall efficiency because they don’t have to take the time to access product that is further away. “What we see a lot is people who are trying to improve the ergonomics of order picking as far as reaching and bending. This is associated with accessing product that is bulky or just not easy to grab. It all comes down to the ergonomics of actually picking and fulfilling the order,” Neuwirth explains. In addition to investing in ergonomically designed solutions, Jacobi says many employers establish lifting limits for manual material handling. With these limits in mind, heavy lifts can be performed with the mechanical assistance of a forklift, as a team, and workers can be placed appropriately

according to job demands. “Knowing what needs to be lifted helps determine safe storage and picking positions. Employers can opt for self-leveling lift tables, keeping bins at a bio-mechanically advantageous waist level, and heaviest items can be placed on middle shelves, so workers do not need to stoop or reach to pick parts,” Jacobi says.

OTHER COSTLY INJURIES Improving ergonomics in the warehouse will go a long way in not only improving the safety of your employees, but also saving you the costs associated with injuries—but not all workplace injuries are so easily prevented. Forklifts are the second leading cause of

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machine-related death in the workplace, with struck-by and tip-over accidents most prominent. OSHA estimates 100 people die, 95,000 are injured and 20,000 are seriously injured by forklifts each year in the United States, resulting in an average of 60 lost workdays incurred per incident (nine times the average for all other injuries). According to Jacobi, one of the reasons forklifts are so dangerous is because of the differing perspectives on who should have right of way (who yields to whom)—pedestrians or forklift operators? An updated 2015 version of the American National Standards Institute (ANSI) rule provided simplified guidance, stating lift operators should “yield the right of way to pedestrians and emergency vehicles, such as ambulances and fire trucks.” Jacobi notes that the revised regulation emphasizes the message: separate forklifts and pedestrians. “People are vulnerable relative to industrial vehicles and they generally have the right of way in plant settings, just as they would on public streets,” he adds. One industry leader taking a proactive stance on forklift safety is The Raymond Corporation. The forklift manufacturer is taking safety to the next level with its virtual reality (VR) training, which it introduced last month during ProMat 2017 in Chicago. The VR headset allows new operators to use a Raymond forklift truck in simulation mode for an enhanced training experience that mimics the movement and feel of operating a forklift in the warehouse, while using the truck’s actual controls. Used as a supplemental training tool, new forklift operators are able to become more comfortable with the vehicle and its controls before operating it within the actual warehouse environment.

SDCExec.com | May 2017 | SUPPLY & DEMAND CHAIN EXECUTIVE

5/4/17 9:06 AM

EXECUTIVE FOCUS

{ SOFTWARE & TECH}

By Carrie Mantey

VIRTUAL INVENTORY IN THE V

Will 3D Printing Kill the Traditional S 3D printing has the potential to exponentially disrupt the supply chain and logistics industries ... now and in the future.

ordon Styles, the founder and president of Star Rapid, a 3D printing service provider, has been 3D printing since 1993, about which he quips, “It was a huge surprise to me when, in 2011, I found out that 3D printing was just invented.” As Styles implies, 3D printing has only recently become a buzzword, which is sort of oxymoronic. While it is still considered a major disruptive technology, the process was patented in 1984 and commercially available three years later. And while the technology may not be new today, its applicability in supply chain and logistics is going to revolutionize the way we design, manufacture, store and transport products tomorrow.

head. Instead of manufacturing a part, then warehousing and transporting it outwardly from the point of manufacture, 3D printing permits parts to be manufactured wherever and whenever. Rather than shipping a physical part to a distribution center to store or logistics provider to transport, businesses can simply transfer a digital file of the part to be 3D printed within proximity to where it needs to be transported. And the capability to print a part on demand eradicates the need to carry that inventory, which minimizes warehouse footprints and overhead costs. It also saves on transportation costs and greenhouse gas emissions from reducing unnecessary miles traveled, while also having the positive consequence of speeding up the supply

3D printing has the potential to turn supply chains on their head. Instead of manufacturing a part, then warehousing and transporting it outwardly from the point of manufacture, 3D printing permits parts to be manufactured wherever and whenever.

3D printing works with many different kinds of materials, including plastics, metals, ceramics and even food. 34

3D printing, also called additive manufacturing, incorporates the use of a digital product design or computer-aided design (CAD) file to control the addition of layer upon layer of material to create a 3D object or part. It is the opposite of traditional manufacturing in that it adds material—whether it be plastic, metal, ceramic or even chocolate—instead of subtracting it. Similarly, 3D printing has the potential to turn supply chains on their

chain as the part arrives when printed. Because of this, 3D printing can also solve the problem of global supply chain sprawl. It may be more cost-effective to outsource some components in China, for example, but coordinating an efficient global logistics network to get those components to where they need to go after production can be a daunting— and expensive—task. Since producing parts with 3D printing, in contrast,

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E VIRTUAL WAREHOUSE:

al Supply Chain? can be done anywhere, part production can be positioned closer to strategic markets or logistics providers, thereby trimming the length of the supply chain, which slashes travel time, and logistics and inventory costs. With virtual inventories come virtual warehouses and, in some cases, virtual parts transportation since file transfer is the only vehicle needed until the part is printed and ready to be delivered. Almost everything regarding supply chain or logistics can occur virtually.

print parts as needed or maintain a much smaller inventory at each location. When applicable, 3D printing facilitates fast production of needed components on site, allowing workers to get parts in their hands in a matter of hours or days. That kind of accessibility is invaluable.” Due to the on-demand nature of 3D printing, it can also better match supply with demand. Forget the inaccurate, pie-in-the-sky demand forecasts of yesterday. “3D printing creates a more efficient supply chain and better matches supply with demand. People are realizing that 3D printing is an option: I don’t have to buy 5,000 when I only need 500,” says Alan Amling, vice president of corporate strategy at United Parcel Service (UPS), one of the world’s largest package delivery companies, which employs more than 60 3D printers in its U.S. stores. He says that the current demand for 3D printing centers around lowvolume production, which can include prototypes, service parts and minimum order quantities. Traditional manufacturing requires specialized tooling to make unique parts, and creating the tooling itself is an expensive and time-consuming endeavor. Due to economies of scale, however, it makes sense for mass production because the tooling can be used indefinitely for high-volume parts. By definition, low-volume production (as is the case with prototypes, service

BETTER MATCHING SUPPLY WITH DEMAND IN AN ON-DEMAND ECONOMY There is no sign of the on-demand economy slowing. In fact, consumers and businesses alike want what they want, when and where they want it, now more than ever. A Business Insider article, entitled “The On-Demand Economy Is Revolutionizing Consumer Behavior—Here’s How,” defines the on-demand economy as “the economic activity created by technology companies that fulfill consumer demand via the immediate provisioning of goods and services.” 3D printing certainly qualifies as one of those services that satisfies instant consumer gratification. The on-demand economy, combined with the need to trim excess inventory and reduce the burden of logistics costs, are just some of the obstacles that 3D printing is overcoming, thus making it an alluring reality today. Kent Firestone, COO of Stratasys Direct Manufacturing, an on-demand parts provider, notes, “Users can either

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THE ON-DEMAND ECONOMY, COMBINED WITH THE NEED TO TRIM EXCESS INVENTORY AND REDUCE THE BURDEN OF LOGISTICS COSTS, ARE JUST SOME OF THE OBSTACLES THAT 3D PRINTING IS OVERCOMING, THUS MAKING IT AN ALLURING REALITY TODAY.

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SOFTWARE & TECH parts and minimum order quantities) can’t achieve those economies of scale. 3D printing foregoes the need for this specialized tooling, making it ideal for low-volume production. Firestone confirms, “Using 3D printing for lowvolume projects means companies don’t need to invest the time and money into tooling. While tooling is more costefficient for high-volume runs, it is cost-prohibitive for low quantities. The time savings also mean companies can get to market faster.” The service parts logistics sector depends upon quick accessibility for service parts in case of an equipment shutdown due to a damaged critical component. These service parts, while crucial to keeping operations running smoothly, don’t frequently turn or, in some cases, don’t turn at all. And there was no solution for all of these slowturning products taking up space in the warehouse ... that is, until 3D printing became available. 3D-printed service part designs can be downloaded and parts printed in the back of a truck to more rapidly and easily service customers. The same can be said about having no solution for disproportionate minimum order quantities. It is frustrating when an organization may only need 100 of a part, but the minimum order quantity is 500 or 5,000. Amling says these scenarios spurred UPS to bring on-demand manufacturing through 3D printing into its supply chain network. The company viewed it as not a manufacturing solution, but a logistics solution.

traditional manufacturing, and second, production itself. The company works with partners, such as SAP, to determine if 3D printing is an appropriate solution for a specific product. They ask questions like: Can 3D printing integrate with the customer’s current production methods? Does it make economic and design sense? Amling warns, “It’s no small task to identify what parts make sense for 3D printing and approve suppliers and certify parts. If you really want to take advantage of it, you need to go through that process and you need to start now, because as these technologies keep getting better, you’re going to see the value and not be able to get there quickly because you didn’t do any of the work. You can’t adopt industrial 3D printing until you go through that process. There’s no bypassing it. You can’t put it into virtual inventory until you prove that the technology and material meet all of your quality standards.” It’s your reputation on the line, after all. If pre-production proves the use case for 3D printing, then UPS gets further involved, from production through to delivery. In fact, UPS

invested in Fast Radius, a 3D printing company, absorbing its expertise and capabilities, then surrounded it with its global logistics network and integrated it so that 3D-printed products can seamlessly go from production to the part’s final destination. In UPS’s Louisville facility, which houses the company’s first 3D printing factory, Amling boasts, “Our pull time is 1 a.m., so we can really produce until midnight and get it anywhere in the country by the next morning. It’s the integration of manufacturing with a logistics network that makes that possible. The idea is to take these manufacturing pods, what we call our 3D printing factories, and put those in different regions of the world because, as 3D printing begins to really take off and we see more adoption, we are going to see goods being manufactured in smaller quantities, more frequently, closer to the point of use.”

THE FUTURE OF 3D PRINTING—WILL THE SUPPLY CHAIN AS WE KNOW IT DIE? The lines between science fiction and reality are blurring. A machine that can Gordon Styles, pictured right, is the founder and president of Star Rapid. He has been 3D printing since 1993. Alan Amling, vice president of corporate strategy at UPS, says 3D-printed parts should go through a pre-production process in which suppliers are approved and parts are certified. This can be especially critical for certain industries, such as health care.

NOT JUST A CONCEPT: 3D PRINTING IN THE REAL WORLD OF LOGISTICS UPS uses a two-pronged approach to 3D printing with its customers—first is pre-production to make a business case for implementing 3D printing or 36

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SOFTWARE & TECH make whatever your heart desires on demand? It’s not that far off. A couple years ago, TNT, an international courier delivery service provider, partnered with trinckle 3D, a 3D printing software and service provider. According to Styles, TNT can imagine—and is anticipating—“a time when manufacturing is so localized that people would just go to their local 3D print bureau, choose what they want or order it in advance, and just pop down a few hours later and pick it up, or it’s delivered to you (what is called the last mile). “TNT and UPS and FedEx are thinking very far in the future and asking the question: What if there was no need to produce something in another country or another end of the same country, and ship it all the way to the customer? There’s no need for a logistics company anymore? That’s why they’re just starting to play with this idea of logistics companies becoming the manufacturer.” One of the obstacles that 3D printing has to overcome to gain wider adoption in the supply chain and logistics industries, however, is 3D printer and material costs. But it’s only a matter of time before that happens. And once it does, and the cost of these 3D printers make them accessible to the consumer market, then what? It’s not a question of if consumers will 3D print their own parts, but when. What will become of the supply chain and logistics industries then? “Just a few years ago, national news outlets were raving about how 3D-printing users could print phone

“TNT and UPS and FedEx are thinking very far in the future and asking the question: What if there was no need to produce something in another country or another end of the same country, and ship it all the way to the customer? — GORDON STYLES, STAR RAPID cases at home instead of running to their local electronics store. Right now, that just isn’t feasible, nor cost-effective for most organizations or individuals, but we see that as an area ripe for disruption in the coming years,” confirms Firestone. “The supply chain and logistics market could be drastically changed, especially for consumer products, as 3D printing technology advances, and technology and material costs come down. Those developments could condense the supply chain—raw materials, manufacturing, distribution and retail. With that, sub-tier suppliers will be reduced, consolidated, or in some cases, potentially eliminated,” he says. “Manufacturers may no longer be providers of specific components: Instead, they could be suppliers with warehouses of printers ready to produce parts at the press of a button.” Amling concurs. He thinks 3D printing is going to eventually mature to the point that more products will be produced on demand, reducing unnecessary transportation and warehousing in the supply chain. He forewarns, “If you aren’t playing in this space now, you’re going to be left behind.”

ADVERTISER INDEX ADVERTISER............PAGE NUMBER BluJay Solutions......................40 www.blujaysolutions.com CenterPoint Properties...........19 www.centerpoint.com

CLX Logistics...............................2 www.clxlogistics.com Hannibal Industries.......... 30, 31 www.hannibalindustries.com LoadExpress..............................25 www.loadexpress.com

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ONE OF THE OBSTACLES THAT 3D PRINTING HAS TO OVERCOME TO GAIN WIDER ADOPTION IN THE SUPPLY CHAIN AND LOGISTICS INDUSTRIES IS 3D PRINTER AND MATERIAL COSTS. BUT IT’S ONLY A MATTER OF TIME BEFORE THAT HAPPENS.

Old Dominion Freight Line Inc................. 12, 13 www.odfl.com UPS Capital.................................5 www.upscapital.com

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WORK HARD, By Amy Wunderlin

PASSION OUTSIDE THE OFFICE

Translates into Professional Success Kenco Group’s Innovation Research Manager Matt McLelland enjoys a variety of outdoor activities that keep him both personally and professionally motivated.

rom an early age, Matt McLelland gravitated toward activities of the more unconventional type— something he carried into adulthood. When he’s not focused on his work in the Kenco Innovation Labs, McLelland can be found jumping from a cliff, running along a wooded trail or maybe even swimming amongst sharks at the Tennessee Aquarium. “Even when I was a teenager, I just didn’t enjoy some of the traditional sports that kids my age did. I always wanted to go camping. I wanted to go hiking and I wanted to visit national parks,” McLelland says. “My parents encouraged that from an early age and it always stuck with me.” One of McLelland’s favorite outdoor activities is hang gliding, which he has been doing for the last 16 years. Fittingly, he first became certified while living in Lookout Matt McLelland finds joy in all things outdoors, especially unconventional activities. One of his favorite pastimes, shown here, is hang gliding. 38

Mountain, Tennessee, where one of the best hang-gliding schools in the country resides. “It’s a fantastic hobby that requires a little bit of time, a whole lot of judgment and personal responsibility, and an understanding of the weather. I’ve never been the kind of guy that wants to play golf … or do things that people traditionally do, like play tennis. I don’t judge people who do things that are different from me, but I just can’t imagine not doing some of the active things that I do. Hang gliding certainly falls into that category,” he adds. Before starting a family, McLelland traveled a lot for work, which allowed him to hang glide all over the country. If he was staying in a place where there was hang gliding close by, he would find a way to borrow or rent a kite, and stay for the weekend. The most epic flight of his life, he says, was over Yosemite National Park. Another active hobby McLelland

participates in is trail running, which has been a passion of his for about 10 years. “We live in an area where there are a lot of off-road places … The magic of it is I can do it right out my back door.” McLelland lives about 15 minutes outside of Chattanooga, Tennessee, which besides being known as a supply chain hub, was named Outside’s Best Town Ever in 2011 and 2015. In addition to Chattanooga’s bustling outdoors scene, it also is home to the largest freshwater aquarium in the country, the Tennessee Aquarium, where McLelland has volunteered for 16 years. As a certified scuba diver, he participates in a program where he helps clean the inside of the shark tank. “It’s probably the most selfish sort of volunteerism possible because I’d probably pay to do it. Being able to dive in crystal-clear water with 78 species of fish is just amazing,” he adds. An unconventional lifestyle and maybe even less-than-traditional supply chain job keep McLelland motivated both personally and professionally. He believes loving your job is essential, but also that having a passion outside of work is equally important. “It’s important to me to have a race, a vacation, an activity, something to look forward to. It really motivates me to work hard during the week, because part of the success I have professionally drives what I’m able to do personally,” he says.

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