The new normal

The McKinsey Quarterly

The new normal

The business landscape has changed fundamentally; tomorrow’s environment will be different, but no less rich in possibilities for those who are prepared.

March 2009 • Ian Davis

This short essay by McKinsey’s worldwide managing director, Ian Davis, is a Conversation Starter, one in a series of invited opinions on topical issues. Read what the author has to say, then tell us what you think the new normal will look like.

It is increasingly clear that the current downturn is fundamentally different from recessions of recent decades. We are experiencing not merely another turn of the business cycle, but a restructuring of the economic order.

For some organizations, near-term survival is the only agenda item. Others are peering through the fog of uncertainty, thinking about how to position themselves once the crisis has passed and things return to normal. The question is, “What will normal look like?” While no one can say how long the crisis will last, what we find on the other side will not look like the normal of recent years. The new normal will be shaped by a confluence of powerful forces—some arising directly from the financial crisis and some that were at work long before it began.

Obviously, there will be significantly less financial leverage in the system. But it is important to realize that the rise in leverage leading up to the crisis had two sources. The first was a legitimate increase in debt due to financial innovation—new instruments and ways of doing business that reduced risk and added value to the economy. The second was a credit bubble fueled by misaligned incentives, irresponsible risk taking, lax oversight, and fraud. Where the former ends and the latter begins is the multitrillion dollar question, but it is clear that the future will reveal significantly lower levels of leverage (and higher prices for risk) than we had come to expect. Business models that rely on high leverage will suffer reduced returns. Companies that boost returns to equity the old fashioned way—through real productivity gains—will be rewarded.

Another defining feature of the new normal will be an expanded role for government. In the 1930s, during the Great Depression, the Roosevelt administration permanently redefined the role of government in the US financial system. All signs point to an equally significant regulatory restructuring to come. Some will welcome this, on the grounds that modernization of the regulatory system was clearly overdue. Others will view the changes as unwanted political interference. Either way, the reality is that around the world governments will be calling the shots in sectors (such as debt insurance) that were once only lightly regulated. They will also be demanding new levels of transparency and disclosure for investment vehicles such as hedge funds and getting involved in decisions that were once the sole province of corporate boards, including executive compensation.

While the financial-services industry will be most directly affected, the impact of government’s increased role will be widespread: there is a risk of a new era of financial protectionism. A good outcome of the crisis would be greater global financial coordination and transparency. A bad outcome would be protectionist policies that make it harder for companies to move capital to the most productive places and that dampen economic growth, particularly in the developing world. Companies need to prepare for such an eventuality—even as they work to avert it.

These two forces—less leverage and more government—arise directly from the financial crisis, but there are others that were already at work and that have been strengthened by recent events. For example, it was clear before the crisis began that US consumption could not continue to be the engine for global growth. Consumption depends on income growth, and US income growth since 1985 had been boosted by a series of one-time factors—such as the entry of women into the workforce, an increase in the number of college graduates—that have now played themselves out. Moreover, although the peak spending years of the baby boom generation helped boost consumption in the ’80s and ’90s, as boomers age and begin to live off of retirement savings that were too small even before housing and stock market wealth evaporated, consumption levels will fall.

Companies seeking high rates of income and consumption growth will increasingly look to Asia. The fundamental drivers of Asian growth—productivity gains, technology adoption, and cultural and institutional changes—did not halt as a result of the 1997 Asian financial crisis. And Asian economies—though they have rapidly deteriorated in recent months—are unlikely to be stopped by this one. The big unknown is whether the temptation to blame Western-style capitalism for current troubles will lead to backlash and self-destructive policies. If this can be avoided, the world’s economic center of gravity will continue to shift eastward.

Through it all, technological innovation will continue, and the value of increasing human knowledge will remain undiminished. For talented contrarians and technologists, the next few years may prove especially fruitful as investors looking for high-risk, high-reward opportunities shift their attention from financial engineering to genetic engineering, software, and clean energy.

This much is certain: when we finally enter into the post-crisis period, the business and economic context will not have returned to its pre-crisis state. Executives preparing their organizations to succeed in the new normal must focus on what has changed and what remains basically the same for their customers, companies, and industries. The result will be an environment that, while different from the past, is no less rich in possibilities for those who are prepared.

About the Author

Ian Davis is the worldwide managing director of McKinsey & Company.

Back to top

© Copyright 1992-2009 McKinsey & Company

Heightened Complexities

Heightened Complexities
Recession creates unpredictable customer and supplier patterns.

Shnouws Semiconductor has never had an easy time of clearly identifying short- or long-term demand and triggering our supply chain based on that demand. Other manufacturers may have the luxury of classic A, B, and C product categories, but at Shnouws we have the entire alphabet. We design and produce nearly 4,000 different electronic SKUs (radio frequency circuits, oscillators, controllers, sensors, semiconductors, etc.) for nearly 11,000 customers worldwide. Nearly half of our business is contract manufacturing.

Managing our complex supply chain and outsourcing relationships — not unlike that of many electronics companies today, including our competitors — has always been a mix of science and art when trying to balance demand and supply. Within the current recession, though, we've gone from complex to volatile to absolutely unpredictable: customer orders disappear overnight; outsourcing contracts (for which we've already invested in material and assets) are cancelled; suppliers can't get credit to buy raw materials; other suppliers fail without warning; customers go out of business; and yet some of our markets (green technologies) experience huge growth.

Shnouws needs to develop a more cohesive approach to identifying and segregating our demand and then quickly sharing those signals throughout our diverse vendor base — even amid the current chaos. We must be able to predict demand more clearly, more efficiently aggregate the design and manufacture of our products, and more productively manage our supply chain. We're not looking for a magic potion, just some better ideas, processes, and tools.

Volkswagen: „Durchbruch für RFID in der Materiallogistik

Volkswagen: „Durchbruch für RFID in der Materiallogistik

Wolfsburg. Der Volkswagen-Konzern will seine Materiallogistik auf den Einsatz „modernster Informationstechnologie“ ausrichten. Alleine dadurch soll im Wareneingang der manuelle Aufwand um bis zu 80 Prozent verringert werden, teilte der Automobilhersteller kürzlich mit. VW schaffe in der zentralen Logistikhalle am Konzernsitz in Wolfsburg die Voraussetzungen.

Vorausgegangen war ein einjähriges Pilotprojekt von Volkswagen und IBM, bei dem die RFID-Technik (Radio Frequency Identification) gemeinsam mit Lieferanten erprobt wurde. Für das Pilotprojekt im Werk Wolfsburg rüstete Volkswagen 3000 Spezialbehälter mit RFID-Funketiketten aus. Zum Beispiel wurden Schiebedächer für den neuen Golf erfasst. Antennen an Halleneinfahrten, Handlesegeräten und Gabelstaplern identifizierten laut VW zuverlässig Behälter und Inhalt. Dazu Thomas Zernechel, Leiter der Konzernlogistik: „Die von Volkswagen angewandte Technik optimiert den Wareneingang zu einem einzigen Schritt: So werden vier Paletten gleichzeitig auf einem Gabelstapler erkannt und automatisch im Lagerbestand gebucht. Darüber hinaus wurde die Technik so weit verfeinert, dass auch Metallbehälter, die im Allgemeinen den Funkverkehr stören, erfasst werden können.“ Gemeinsam habe man, so VW-Projektleiter Marc Wenzel, einen Durchbruch für die Alltagstauglichkeit der RFID-Technik im Automobilbau und darüber hinaus erreicht.

„Unser langfristiges Ziel ist eine durchgängige und papierbeleglose Fertigungs- und Logistikkette im gesamten Konzern“, sagte Klaus Hardy Mühleck, Leiter der Konzern-IT bei Volkswagen. Das Pilotprojekt habe gezeigt, „wie wir die innovative RFID-Technik zuverlässig und kostengünstig in unsere Geschäftsabläufe integrieren können“. Kurt Rindle, bei IBM für das Thema RFID verantwortlich, betonte: „Das Pilotprojekt ist wegweisend: Es ist das erste weltweit, das einen Materialfluss zwischen Lieferanten und Automobilhersteller mit RFID-Technik im Tagesablauf verwirklicht hat.“ (pi)

Video Process Monitoring

Video Process Monitoring

By Steve Rubin, President & CEO
Longwatch, Inc.

There are three primary ways to enjoy a baseball game: view it in person, watch it on TV or listen to it on the radio. We’ve probably all used each of these methods at one time or another; some fans even combine a couple of methods such as bringing a radio to the game to hear the announcers describe what they are seeing. Maybe they don’t trust their own interpretation of what they see, and need to have it explained. That’s like watching readouts on an HMI screen—what’s really happening out there? Why not cut to the chase and see what’s going on?

Today, there are two primary ways to monitor a process: in person, by walking around the plant, or from a control room via an HMI screen. But there is a third way: Watching the process via camera monitors that put images directly on the HMI screen (Figure 1) or onto a cell phone or PDA. That way, you don’t have to wonder what’s happening at the process unit. You can see it.

Camera monitoring of process control is relatively rare. Granted, there are limited applications, such as a flare stack camera or a camera in the shipping area. Why hasn’t video been applied more widely in process monitoring applications and what additional value could be delivered?

A camera image on an HMI screen can be used to verify that certain operations are actually being performed—such as an operator adding ingredients to a batch reactor. The video “snapshot” can be stored on disk, along with batch production data, as a visual record . Like a baseball game, it’s an instant replay. Unlike a baseball game, you can watch it as many times as you want.

In water and wastewater treatment plants, where tanks, lagoons, pumping stations and other equipment is spread over a wide area, camera images can make sure that valves open and close, lagoons are at the right level , and a child hasn’t fallen into the lagoon. The same stream of video has multiple purposes, much like a multi-variable sensor. Video not only provides process information, it can mitigate liability and provide security. With video, you know whether to take a shotgun or a wrench to the field to fix a stuck valve.

A camera image can be used to help diagnose problems in the field. Wouldn’t it be nice to be able to actually see what the process is doing without having to walk out to a distillation column in a Texas summer? I’ve been to plenty of plants where the sensors have exhibited problems which confounded the operators. Open circuits on thermocouples, valves that stick, pressure transmitters that fail, and so on. In some instances, the engineers solve this problem by putting extra code in the control system, or install extra sensors, so that problems can be diagnosed remotely. Imagine how easy it would be to simply look at a camera image of the valve while it was operating, to see if it was sticking.

For example, I’ve seen a situation where instrumentation told the operator that pumps were off-loading oil from a barge, only to find out later that the coupling was off and the oil didn’t make it into the plant…it made it into the river! Another situation involved a cryogenic pump that froze up on a humid day and didn’t work properly. These are situations that an operator could see and understand what was happening, if he or she had video.

Watching Instead of Visualizing
Whenever I’m visiting a plant, I’m usually given a tour of the facility, shown the process equipment and the instrumentation, and then brought to the control room. There, the operators show me the HMI displays that are designed to mimic the layout, behavior and status of the equipment. It’s up to the operator to imagine, in his or her mind’s eye, what’s actually happening in the plant, given the indications from the instrumentation.

This is easier with today’s HMIs than with the traditional dial, chart recorder and annunciators of 10-20 years ago, but this method relies on the accuracy and timeliness of the instrumentation readings, as well as the fidelity of the HMI’s mimic display.

Some process measurements are easier to see than they are to instrument (the flare camera comes to mind…a quick look tells you that it’s lit and if it is smoking). And a camera image can tell you if a process vessel is overflowing, a line is leaking, or if steam is escaping, Figure 2. After all, “a picture’s worth a thousand words.”

“Attention by exception” is really how most process plants operate. We periodically observe indications, but only take action when an alarm condition occurs. The alarm may be an “alert” about an event, or it may be an actual transition requiring remedial action.

If a video image of the process unit appeared on the screen when an exception occurred, the operator would be able to immediately see what was happening. This method of operation is much better than the standard “surveillance” approach of watching closed-circuit TV monitors, waiting to pick up visual cues to changes. Studies have shown that humans will lose interest and be unable to detect changes shown on screens if they are forced to stare for more than 20 minutes.

How many times have you needed to “babysit” an intermittent problem in the field or the plant? Video is a tool that can significantly boost efficiency. A video system can be configured to watch equipment and take video snapshots when certain conditions occur—such as that intermittent problem.

With proper configuration, a “before” and “after” clip can be generated to help troubleshoot the cause of the problem. In other words, the camera watches the process continuously, and stores video images internally; when an alarm condition occurs, it can transmit a video snapshot of the unit for, say, five minutes before the alarm occurred, and then continue transmitting real-time images for as long as necessary. All the images can be stored for playback and analyzed as many times as necessary.

Transmitting Data to the Control System
If video can help us discern more about the real conditions, help us see into remote areas, and bring us more information faster…then why has video been so slow to be adopted in process applications? Until recently, all camera technology was analog, and thus it required its own network for operation. Many traditional video systems were originally designed for casinos, parking garages and shopping malls. It was extremely difficult to connect these “closed circuit TVs” to an HIM screen.

But many plants have a much more suitable network, one that’s almost hack-proof, paid for, and reliable: the instrumentation network for the SCADA/HMI system, Figure 3. This network was designed to handle digital communications between controllers and computers, and it can easily accommodate video images, too.

Some users are reluctant to use the SCADA (or “level one”) network for anything other than process control communications. In some respects, that makes sense: when there’s a plant upset, you want to make sure that control messages (for example: turn off a motor) are delivered on-time and reliably. But there are ways to embed chunks of video clips into “envelopes” that simply pass through the SCADA network. These messages travel at a lower priority than the control messages, so that it might take longer for the entire video clip to show up at the HMI. But it’s better than seeing nothing, and better than driving to a remote process unit.

New camera systems use the bandwidth available in most industrial networks to report video information to the host system, handle real-time diagnostics and the like. It’s easy to “drop” cameras on these networks, especially if two networks are being used in the plant: one for instrumentation/control and the other for operations data/information .

While digital cameras will quickly saturate most networks, proper software provides a means of controlling the network traffic, in an orderly fashion, so that video and control messages can co-exist.

Adding a video camera to most industrial networks simply requires a local “Ethernet port” or a drop-in communications module, similar to adding another smart sensor. The camera plugs in and can be configured as just another sensor. However, configuration and the integration with a SCADA/HMI system can be tricky if you don’t have good application software.

Dealing With Data
Digital cameras can become the electronic equivalent of purple loosestrife (prevalent in the Charles River basin around Boston): Nice to look at, but overloads the environment quickly. In fact, just four cameras transmitting images could use 55MB of bandwidth every minute! Storing video from twelve megapixel cameras for 10 days would take 2.4 terabytes of storage.

How can we deal with the issues of:

Mitigating impact and traffic on the network,

Deterministic response of the network,

Reasonable storage requirements and fast access to video-of-interest, and

Integrating easily with the operator’s standard console

in a way that’s consistent with good engineering and operating practices for industries?

The solution lies with software specifically designed for video applications in factory automation. Essentially, the software asks for video images to be transmitted over the factory network only when it needs the data—such as when an alarm occurs or a step occurs in a batch procedure.

The software converts a computer into a comprehensive digital video recorder (DVR) that:

Continuously collects and archives high-resolution video from a multitude of cameras

Automatically edits the video stream into before-and-after “clips” when an “event” occurs

Sends that video clip, along with an alarm message, to the HMI or SCADA system for further handling by the user

Automatically latches the alarm so that the user is always notified (and must acknowledge) and no alarms are lost

Automatically stores and forwards messages if the network is temporarily unavailable

Communicates efficiently over almost any network provided, from gigabit fiber networks, to mid-speed wireless and wired systems, all the way down to 9600 baud wireless and telephone lines.

Newer industrial video monitoring systems have all these features. Installation is simple, requiring only plug-in connections to the existing network. The software to process video data can be embedded in most commercial HMI/SCADA software systems, or interfaced via OPC. And the commands to take video snapshots can be defined by ISA-88 recipes, or sent by any major distributed control system, at various stages in a batch or continuous process, or in response to an alarm.

A key need is to edit the videos down to the clips that are important, and store those compressed clips in a way that makes them easy to retrieve. A relational database serves this need well, especially in manufacturing and process control applications.

How do you interface to the HMI? Fortunately, the industry has developed standards such as OPC, HTTP and even Modbus. These enable application programs to share data structures and pass commands between applications. In the case of Longwatch, we use OPC so that the operator can, from an HMI (like InTouch or iFIX) send a command to acknowledge a video alarm, create an event clip “on the fly,” or even go into “live streaming” mode to take an immediate look into the field.

Video has the opportunity to be applied to process control applications in ways that were just not possible a few years ago. Better yet, there is technology that enables video to be transmitted over very long distances, on existing networks, so that “blind spots” in the operation are eliminated at very low cost.

Video images can also be transmitted to cell phones or PDAs, so that engineers can diagnose problems from home in the middle of the night. Or an engineer can stand next to the process unit, watch the recorded video snapshot of a problem, and try to figure out what really happened . Because the video data is available as an historical record, images and process data can be sent to an outside expert for an analysis.

Having video available on HMI screens helps operators see what’s going on at a process unit, verifies and provides a record that events occurred, and helps operators and engineers diagnose problems from afar.

FIGURE CAPTIONS


Figure 1: Video images on the HMI screen at the Littleton water department in Littleton, MA, allow operators to see what’s happening in the well house and surrounding area.


Figure 2: An operator at the water plant in Madison, MA, can quickly glance at video images from important areas of the process.


Figure 3: Diagram shows how cameras transmit data over standard industrial networks to a video processor. The video processor stores the data in a relational database and makes images available to an HMI/SCADA system, DCS, PLC, process historians, web browsers, cellphones and PDAs.

About Longwatch
Longwatch, Inc. was founded by industrial automation and software veterans with the goal of simplifying video delivery over existing SCADA, HMI and distributed control networks. The result is the Longwatch Surveillance System™, a portfolio of products that enables SCADA system users to view events and easily verify alarms at local and remote sites using both legacy and new networking infrastructures. The system integrates video and system alarms on the same display for fast, reliable operation and decision-making. Visit the website

Monday, March 09, 2009

A Mobile Mesh Network Goes Nuclear

Backpacks that detect nuclear material form a wireless mesh network.

By Kristina Grifantini

Nuclear option: This backpack (top) contains sensors that detect radioactive materials. Coupled with a mesh network, it automatically builds a map showing hazardous materials in the area. A mesh node wirelessly transmits results from nuclear sensors to handheld devices (bottom), such as a wrist-worn display or a PDA. Credit: Joseph Tumminello

New mesh-networking technology will allow soldiers to more quickly search an area for signs of nuclear contamination. A company called Rajant has combined mesh radio transmitters with radiation-sensing backpacks to create a system that automatically sets up a communications mesh and displays a map of radiation across a region.

Mesh networking offers a fast, cheap way to construct a communications network. Instead of sending messages via a central command point, information hops from one node to another until it reaches its destination. A number of companies use static mesh networks for tasks such as traffic monitoring andenvironmental sensing, but creating reliable mobile mesh networks is more challenging. This is because each node must constantly track its moving neighbors to figure out how best to pass on a message while also preserving energy and bandwidth. Rajant addresses this problem by having nodes monitor just a few of their closest neighbors at any time.

For the detection system, Rajant's communication nodes, called BreadCrumbs, are connected to backpack sensors that detect radioactive material including plutonium and enriched uranium; the sensors are made by a company called Nucsafe. Team members wearing the sensors branch out and perform reconnaissance of an area. Data from each node hops back to a main computer, which builds a map showing the position of each node and its radiation data while individual users can see a map of their pack's results on a wrist-worn display or a laptop. Rajant presented the newest version of the system at the 2009 Soldier Technology Conference in Florida last month.

Each BreadCrumb can communicate with a peer that is up to five miles away, says Glenn Booth, vice president of marketing for Rajant. He adds that the mobile network has enough bandwidth to transmit a video stream or VoIP, even with hundreds of nodes all moving in different directions. The company already sells the wireless technology to mining companies and the military, and a single BreadCrumb device costs up to about $5,000.

"Building a reliable network is difficult because of mutual interference between radio nodes," says Dipankar Raychaudhuri, who works on mobile mesh networks for vehicles at Rutgers. Networks work with a certain density of radios, he says, but "can fall apart if radios move out of range in uncontrolled settings."

"The problem with completely mobile networks is that there is no guarantee of connectivity," adds Nader Moayeri, who works on mesh and ad hoc networks for the National Institute of Standards and Technology. "One other challenge is the capacity of the network," says Moayeri. Normally, as each node moves, it has to recalculate the best routes for a message. "That's considerable overhead," he says. "It eats up bandwidth you could be using for sending actual data."

Another way to improve a mobile network is to use several radio transmitters. For example, a company called MeshDynamics has developed transmitters that use two radios to send and receive data instead of just one.

Monday, March 02, 2009

How to Share without Spilling the Beans

A new protocol aims to protect privacy while allowing organizations to share valuable information.

By Erica Naone

Credit: Technology Review

Last fall, two of Israel's leading political parties, Likud and Kadima, became embroiled in a dispute when, in a close primary race, it was alleged that some voters had illegally registered to cast their ballots twice. The parties struggled to find a way to resolve the dispute, since neither wanted to turn over its list of members to the other. Finally, the parties agreed to give their lists to the attorney general, who would compare them confidentially.

This sort of problem is increasingly encountered by large organizations, including government agencies and big businesses, says Andrew Yehuda Lindell, an assistant professor of computer science at Israel'sBar-Ilan University and chief cryptographer at Aladdin Knowledge Systems, in Petach Tikva, Israel. He also calls the solution devised by Likud and Kadima "outrageous," adding that handing over party-membership details to the government is "almost the same as revoking vote confidentiality for these citizens."

Lindell is one of a community of researchers studying ways to share this sort of information without exposing private details. Cryptographers have been working on solutions since the 1980s, and as more data is collected about individuals, Lindell says that it becomes increasingly important to find ways to protect data while also allowing it to be compared. Recently, he presented a cryptographic protocol that uses smart cards to solve the problem.

To use Lindell's new protocol, the first party ("Alice" in cryptography speak) would create a key with which both parties could encrypt their data. The key would be stored on a special kind of secure smart card. Alice would then hand over the smart card to the second party in the scenario (known as "Bob"), and both parties would use the key to encrypt their respective databases. Next Alice sends her encrypted database to Bob.

The contents of Alice's encrypted database cannot be read by Bob, but he can see where it matches entries in the encrypted version of his own database. In this way, Bob can see what information both he and Alice share. For extra protection, Bob would only have a limited amount of time to use the secret key on the smart card because it is deleted remotely by Alice, using a special messaging protocol.

Lindell says that, in tests, it took about nine minutes to compare 10,000 records. The same system can also be used to search a database without exposing either the database or the nature of the search.

Lindell says that his protocol can be mathematically proven to work efficiently and securely, but he admits that there is one weak spot. "I'm introducing another avenue of attack," he says, referring to the smart card. Bob could try to pull the secret key from the smart card in order to decrypt Alice's database and read its contents. However, Lindell notes that high-end smart cards have strong protections and can be designed to self-destruct if the chip is compromised. "Smart cards are not perfect," Lindell acknowledges, but he says that competing schemes have their own weaknesses.

By introducing a smart card, Lindell's system requires far less computing resources to protect people's private information, says Benny Pinkas, a professor of computer science at the University of Haifa, in Israel, who has also worked on the problem. "In my view, the trade-off is reasonable for all but the very most sensitive applications," he adds.

Ari Juels, chief scientist at RSA Laboratories, agrees that some sort of hardware is needed for this kind of information-sharing scheme. However, he is "somewhat skeptical" about the smart-card approach. For one thing, he says, the card essentially serves as a trusted third party, so it could be difficult to find a manufacturer that both organizations trust completely. Even then, "assuming that a smart card is secure against an individual or modestly funded organization may be reasonable," Juels says, "but not that it's secure against a highly resourced one, like a national-intelligence agency."

Michael Zimmer, an assistant professor at the University of Wisconsin-Milwaukee who studies privacy and surveillance, says that Lindell is working on an important problem: "There can be some great benefits to data mining and the comparison of databases, and if we can arrive at methods to do this in privacy-protecting ways, that's a good thing." But he believes that developing secure ways of sharing information might encourage organizations to share even more data, raising new privacy concerns.

Currently, Lindell's protocol can only be used to make certain types of comparisons, but he argues that it could still prove useful. "Let's give [organizations] only what they need, and, when we do have solutions already, let's at least start somewhere and limit what they could be learning," he says.

Monday, March 09, 2009

Scrubbing CO₂ Cheaply

A new carbon-capture method will be tested at a German coal plant.

By Duncan Graham-Rowe

Catching carbon: This illustration shows the layout of a plant with carbon capture and storage. Credit: Siemens

A new process for scrubbing carbon dioxide (CO₂) from power-plant exhaust gases could make carbon capture a more affordable option for the energy industry. The process, which is to be tested in Germany this summer, promises to remove up to 90 percent of CO₂ from flue gases while using far less energy than other methods.

Existing carbon-capture methods reduce a plant's efficiency by about 11 percent. The new process, developed by Siemens, could reduce this efficiency loss to just 9.2 percent. This may not seem like much of an improvement, "but in a power plant, that's a huge benefit," says Tobias Jockenhoevel, head of the project at Siemens, in Erlangen, Germany. Capturing CO₂ will always consume a certain amount of energy, says Jockenhoevel, so the aim is to find ways to keep these losses to a minimum.

In theory, 99.9 percent of the CO₂ emitted from a power plant could be removed using the process, but Jockenhoevel says that 90 percent is the economic optimum in terms of infrastructure costs and how much energy is required: "The last 10 percent costs too much."

In August, the Siemens process will be put to the test at a pilot facility built by Siemens and the energy company E.ON: the Staudinger coal-fired plant, near Frankfurt. The plant will be adapted so that part of its exhaust gases are fed into a chimney containing a 25-meter-high column that gives off a solvent mist that reacts with CO₂ under pressure. As the flue gases pass through the mist, the CO₂ is chemically absorbed, leaving residual gases to pass out of the chimney. The CO₂ can then be separated from the solvent, which can be reused.

"It's basically like washing the gases," says Jockenhoevel. It is a standard approach to scrubbing CO₂; the novelty of the process comes down to the solvent used and the way it is recovered, says Jockenhoevel.

"There's a lot of research looking for new solvents," says Amparo Galindo, a physical chemist in the Carbon Capture and Storage group at Imperial College London. Currently, the most preferred solvent is monoethnolamine (MEA). "MEA reacts very strongly, but the difficulty with it lies in recapturing it so you can reuse it," which requires a lot of energy, she says.

The Siemens system uses a solvent made from amino acid salts instead. CO₂ can be removed and the solvent recovered by applying energy to break apart the chemical bonds formed between the two. This means simply boiling the solvent off, but the chemistry involved allows this to happen at lower temperatures. Amino acid salt formulations are also more stable than MEA and less likely to react with oxygen and sulphur dioxide in the exhaust gases; virtually none of the solvent should escape into the atmosphere along with residual gases. While the supply of other solvents needs to be regularly topped up because of these losses, this isn't the case with the amino acid salts, says Jockenhoevel. Instead of heating the solvent in one location to remove the CO₂, it is divided into two streams that are heated separately in a way that requires less energy.

Jim Watson, director of the Sussex Energy Group at the University of Sussex, in Brighton, U.K., cautions that the cost of carbon capture has to be balanced against the relatively low cost of buying carbon credits. He adds that developing the technology is expensive, and storing sequestered carbon reliably is an as yet unsolved problem.

However, Watson believes that the project is a positive step. "Anything that gets the efficiency losses down is important," he says. "The loss in efficiency is a very significant barrier to anyone taking up this technology."

Jockenhoevel suggests that the efficiency loss must be below 10 percent--any higher, and the cost of capture becomes more expensive for utility companies than paying for carbon-offsetting certificates, he says.

The technology will work with any kind of power plant that runs on fossil fuel and can be retrofitted to existing facilities, says Jockenhoevel. However, even if this summer's tests go according to plan, it will be years before the technology is deployed, partly because of the difficulty of storing CO₂, and partly because of the price of carbon on the carbon-exchange markets.

"It is low and very volatile," says Watson. Unless the cost of offsetting carbon increases, he says, carbon capture will remain a very pricey alternative.

An Interview with Keith Harrison, Global Product Supply Officer forProcter & Gamble

An Interview with Keith Harrison, Global Product Supply Officer for Procter & Gamble

Brand, especially in consumer products connotes value. It stands as a promise and should justify a price premium or at least a measure of shopper loyalty. Unlike the physical product, however, brand is essentially pure intellectual property. And while difficult to precisely value, this intellectual property is certainly worth protecting and extending wherever possible. Marketing may create brands and R&D may create formulas, but product supply instantiates them and, in so doing, can either fulfill and enhance brand value or mishandle and damage the brand.

How does a supply chain strategist think about brand IP? We asked the top supply chain executive at one of the world’s most respected brand owners about this topic: Keith Harrison, global product supply officer atProcter & Gamble, the $83 billion global consumer goods company.

Kevin O’Marah: What would you say is the most important job product supply has when it comes to fulfilling Procter & Gamble’s brand promise to consumers?

Keith Harrison: Well, there are several that vie for top billing, including the classic supply chain metrics of cost, quality, and availability. Maybe most important, though, is our ability to support innovation. Innovation is our lifeblood, and a supply chain that can’t handle the drumbeat of innovation would be a competitive disadvantage and a letdown to our consumers.

KOM: What most frequently makes doing that job difficult?

KH: External variables have been significant the past year, with material availability and commodity price increases and decreases making supply a challenge for almost every manufacturer. The pace and amount of innovation in P&G is relentless, so ensuring the supply network can contribute to and deliver against this innovation stream is another demanding dynamic of our role.

KOM: What downstream data does supply chain have access to that can influence brand development? How well do other functions (especially marketing) appreciate this demand data?

KH: Point-of-sale (POS) data, inventory, shelf availability data; these are all available broadly. Marketing certainly appreciates this data, but, in particular on the innovation front, real-time POS data from initially after launch allows us to validate assumptions about variants’ appeal to consumers. Collaboration with marketing allows us to understand and use all this downstream data, but the variant-split POS data is key for successful innovation.

KOM: How can supply chain influence the success or failure of brand extensions, promotions, or customer-specific initiatives?

KH: Close collaboration with the R&D folks on design of products and processes is what allows us to bring out tangible products. Our work on agility is giving us the ability to manage a huge innovation portfolio. At a minimum, we must avoid being on the critical path; ideally, we’re an enabler to innovation. The flexibility to be able to differentiate without dramatically increasing costs is important. If all you do is bolt on to the existing supply chain, you can’t succeed. You need to rethink supply chain design to anticipate needs down the road and build capabilities for the future. That is the idea behind our 2015 design project.

KOM: How important is the problem of brand artwork or labeling in executing supply chain strategies? How has this been affected by new information technologies?

KH: Critical. For many companies, artwork, label art, and packaging art are their key challenges partly because, historically, it has not been the most disciplined process. There are lots of touches from general management to brand management, to R&D, to legal, to product safety. This is an area that is ripe for mistakes. We’ve done a lot of work here and have had no major quality problems. Small issues arise with things like UPC codes, for instance, that can cause customer problems, but not consumer problems. We’re working toward a Right-First-Time principle measuring the percentage of times artwork makes it through the entire process with no changes. We have been dramatically improving this, but from a low base.

In terms of IT, some vision systems to match labels against intended artwork have been successful. We are also exploring digital printing to reduce lead times and changeover times. Normally artwork is on the critical path. The technology is clearly developing to help but only if it can be overlaid onto a disciplined process. Artwork is one of the most complex processes in our entire company; if you try to map the process you end up with flow charts covering all four walls.

KOM: Is counterfeiting or other third-party damage a problem? What can be done about it?

KH: If you do not have a counterfeiting problem, you probably don’t have a successful product. We work very closely with our retailers, distributors, internal security teams, and external enforcement agencies to rigorously defend and protect our intellectual property. Thanks to this work, the chances of our shoppers being confronted with a counterfeit product have been dramatically reduced.

KOM: Further up the supply chain, how do formulas, manufacturing technologies, or other patented IP contribute to brand value? How are these protected?

KH: I think this is the core of where supply chain working with product development adds great value. Process development technology is a key strategic advantage to the company. Simple things like the Cascade Action Pack, which was an internally-developed process technology, have been difficult for competitors to copy. In fact, so far they can’t. Or the example of Always Infinity in our feminine hygiene business: we have developed eight new-to-the-world technologies for materials manufacturing, which according to the experts at Los Alamos, are advanced. Only Procter can pull this off.

KOM: Are there any other important lessons you have learned about building, monetizing, or protecting IP in the global supply chain?

KH: One thing I’ve learned with our work on CDSN (Consumer-Driven Supply Networks) is that monetizing supply chain capability is impossible alone. Whether upstream with R&D on process development or downstream with the customer organization, it takes a team. Also, it takes a focus on capability development bringing specific nuts and bolts tools to the party with a long-term vision of where you’re headed. It’s also important to recognize that if you’re not moving forward, you’re moving backward. The constant dissatisfaction with the status quo is essential today.

KOM: Thank you for your time, Keith.

In the lead up to our spring Supply Chain Executive Conference, with the theme “Captains of the Content Economy,” we will be presenting a number of interviews and case studies with Supply Chain Top 25 leaders here and in our blog. We hope these lessons from the leaders will help you with your operational excellence efforts.

Cloud computing not ready for critical apps

Cloud computing not ready for critical apps

March 9, 2009 (Computerworld) Educational Testing Service (ETS), developer of the SAT and other tests, runs applications on software-as-a-service platforms such as Salesforce.com. And CIO Daniel Wakemanhas benchmarked internal servers against Amazon.com's Elastic Compute Cloud (EC2) service.

Costs for both were similar, and cloud computing services like EC2 would enable ETS, which has a highly cyclical business, to ramp its processing capacity up or down as needed. But Wakeman said he's limiting the company's cloud use to pilot projects and development testing -- "things that don't require full levels of security."

Cloud computing vendors such as Amazon and Google still aren't ready to meet corporate IT needs, according to Wakeman and other Premier 100 conference attendees. Security concerns topped the list of shortcomings, but they also cited reliability, availability and manageability issues.

"I probably wouldn't put anything mission-critical in the cloud now," saidManjit Singh, CIO at Chiquita Brands International Inc. Singh hopes to be able to do so eventually, but he's also worried that if he decided to switch cloud providers, his data might not be returned to him in a recognizable form -- raising the specter of vendor lock-in.

The U.S. Defense Information Systems Agency is deploying an internal cloud service for use by the Department of Defense. In the future, DISA CIO John Garing wants to use external services as well. But if things continue as they are at cloud vendors, "we're going to be at an impasse," Garing said.

Martin Colburn, chief technology officer at the Financial Industry Regulatory Authority in Washington, also isn't ready to put his trust in cloud services. Cloud computing is still in the "innovation stage," he said, adding that its vendors will have to be as capable of withstanding IT audits as outsourcers are.

This version of the story originally appeared in Computerworld's print edition.

Cut Cross Border Logistics Costs

Feb 25, 2009 11:02 AM

There are six discussions of ways to better manage transportation and delivery costs in “Creativity and Flexibility are Keys to Managing Rising Logistics Costs,” a white paper from Purolator USA. With particular focus on cross border freight traffic between the US and Canada, as well as shipments moving within the US, here are a few suggestions from Purolator to aid in controlling costs while not sacrificing service or standards.

Rethink Shipping Options. For example, reserve air transport only for those shipments that are extremely time sensitive and must be delivered by a specific date. Weigh the costs and time window since there are available ground shipment options that might get the job done.

Take Advantage of Governmental Trade Program Incentives. There are programs beyond NAFTA offered by both the US and Canadian governments to help shippers widen their customer bases. They include the Non-Resident Importer and Duty Drawback programs, among others. These and other governmental matters are discussed in the white paper.

Rethink Brick and Mortar Facilities in Canada. If a company maintains distribution facilities in Canada, with the US dollar gaining strength against the Canadian dollar, it might make more sense to use third party services for both product storage and delivery than to maintain separate facilities and duplicate inventory.

The white paper presents more ideas and does so in greater depth. "Priority number one right now is to work with customers to make sure that logistics plans are as tight and efficient as they can possibly be," says Purolator USA president, John Costanzo. "We are very committed to helping our customers manage during these tough economic times." For a copy of the white paper, visit the Purolator USA website.

The Death of the Supply Chain

The Death of the Supply Chain
Gone are the days when supply chains were linear, static, in-country and tightly coupled to the brand owner or OEM's internal manufacturing captivity.
March 9, 2009

The supply chain as it has traditionally been defined is no longer feasible. The changing nature of global business has had a dramatic effect on how companies design, build and deliver goods and services across virtually every industry. Gone are the days when supply chain were linear, static, in-country and tightly coupled to the brand owner or OEM's internal manufacturing captivity. Nowadays, globalization and outsourcing are pervasive -- thereby dramatically transforming the traditional notion of a supply chain from a traditional linear model to a highly dynamic demand-supply network.

Visibility: A Victim to a Highly Dynamic Demand-Supply Network

Often times, supply chain visibility is the first and most significant victim of this shift from a static, linear to a dynamic, networked model. Also militating against supply chain efficiency is the rapid pace of business: demand now moves at Internet speed, from around the globe, while supplies and finished goods can only travel as fast as a cargo jet, or, more often, an ocean-going freighter. This dichotomy between the speed of supply and demand makes the supply chain as much the problem as the solution to the problem. Without dramatically changing how the supply chain functions to compensate for this dichotomy, the supply chain itself becomes the main barrier to success for a modern, global company.

Visibility requires real-time information about not only what's happening inside the linear supply chain, but what's happening across a complex global network of suppliers, contract manufacturers (CMs), assemblers, distributors, channel partners, logistics companies, retailers, and, even, end consumers. These different stakeholders, by definition, have vastly different qualities and quantities of technology at their disposal in order to communicate with one another, and by themselves lack any self-organizing principle -- not to mention a common currency, time zone, and legal regime -- that could facilitate such a dialogue.

This makes the brand owner or OEM's task daunting at best. The Tower of Babel that has emerged from these dynamic demand-supply networks is largely incomprehensible to the vast majority of supply chain and ERP solutions today, most of which are designed to work within a linear supply chain largely defined by intra-company processes. These aging technologies have a singular difficulty in making the transition to supporting a networked, global, dynamic business model.

Technology Barriers

As the need for managing complex, multi-enterprise demand-supply networks vastly outpaces the ability of standard, on-premise supply chain management (SCM) and enterprise resource planning (ERP) systems, companies are increasingly realizing that their existing software and business models are inadequate for today's outsourced, multi-tiered, global 24/7 business world. Nowadays, companies require a new class of demand-supply management systems that are adept at managing external processes, partners and even buyers.

On top of this, the problems of integrating transactional data from multiple heterogeneous systems -- a key means by which a networked supply chain can automate supply chain operations -- is an ongoing issue across the enterprise, and one that is particularly problematic with respect to a demand-supply network. This limitation is due to the fact that heterogeneity among external suppliers and other partners is a given, and represents an enormous support burden for an on-premise system.

Five Requirements for Breaking the Supply Chain Barrier

With the shortfalls of on-premise ERP and SCM acting as a barrier to implementing the manufacturing enterprises of the 21st century, a growing number of companies have turned to an on-demand model to meet their demand-supply network goals.

Today's companies require a new class of demand-supply management systems that are adept at managing external processes, partners and even buyers. To support the kind of dynamic, demand-supply network that is needed today -- and well into the future -- companies must consider these five requirements:

1. B2B Integration: The ability to connect multiple stakeholders in a single networked environment provides the basis for the process and data integration needed to support a twenty-first century demand-supply network
2. Business Process Management: Managing a complex set of business processes from a single on-demand platform allows for a level of business process orchestration between partners that is largely impossible in an on-premise world.
3. Exception and Event Management: Once process management and data are standardized, exception and event management can be greatly facilitated as well. One of the problems that has always limited exception management across trading partners has been inconsistencies in how exceptions are defined and communicated across the network. With a single on-demand environment functioning as a data and process management hub, exception and event management can become highly automated and remediation can be greatly accelerated.
4. Business Intelligence: The ability to normalize and aggregate data and processes, and to directly connect all stakeholders across the demand-supply network, makes it an ideal launching pad for an expanded set of analytics and business intelligence services. The on-demand environment effectively creates its own data mart that readily lends itself to producing comprehensive analyses of a quality and reliability not possible in the on-premise world. This is a direct result of the increased visibility offered by on-demand services.
5. Operations Management: None of the above would be possible without an extremely well designed, highly functional, secure on-demand platform. Having the on-demand network owner function as the domain expert removes this burden -- and its costs -- from the individual stakeholders

6. By embracing an on-demand model, manufacturers who are shifting from a linear supply chain to a network system are able to work in concert with their entire demand-supply networks -- thereby maximizing visibility and better positioning themselves for success in this new paradigm of demand and supply management. The supply chain -- as we have known it -- is dead.

   Andrew Salzman is the Chief Marketing Officer for E2open Inc. E2open provides SaaS-based demand and supply network solutions. www.e2open.com

THU, MAR 5, 2009 12:40 EST

Supply Chain Disaster Brewing: Quest for 'Cheaper and Faster' Has Created Huge Data Blindspots

POSTED BY: Thomas Wailgum in News TOPIC: Applications BLOG: Enterprise Software Unplugged

For decades, CEOs have given supply chain chiefs marching orders that typically sound something like this: We want it cheaper, faster, better.

Many consequences and trends have resulted from this mantra. For instance, companies are now more likely to use less-expensive and standardized packagedapplications, rather than in-house software. And companies big and small now source goods from lower-cost and speedier manufacturing partners in China. (One can even make a case for those companies whose supply chain still relies on the good 'ole fax machine; but that's a different story.)

A new IBM study resulting from interviews with 400 supply chain executives, however, points to one disastrous and unintended consequence of the "cheaper, faster, better" mindset: a "data visibility" crisis in enterprises' supply chains.

Nearly three-quarters (70 percent) of the respondents say their number-one challenge is "overwhelming and fragmented data," as well as a "lack of ability to make sense out of the information."

But, say these supply chain execs, fixing the problem is actually not a high priority right now, even though they understand the threat and consequences of these "information blind spots." Why? The execs say it is a costly endeavor, there's a high degree of difficulty in actually making it work, and they are "just too busy." (To read about challenges of a "going green" in the supply chain, see "A Green Global Supply Chain? Yeah, Right. Maybe Next Decade.")

On top of it all, according to the IBM study, respondents said that their supply chain data "silos are worse than ever." Just 16 percent said that they are "effective at integration and visibility of information across the supply chain with external partners."

Yikes.

I want to state that it's my extrapolation—not IBM's—that the "cheaper, faster, better" mantra has played a part in creating this supply chain data disaster. I've written about this topic before. Case in point: Nearly half of business users still rely on their gut when making critical business decisions today, rather than relying on theirERP, CRM and BI apps.

All of this ties into supply chain execs' number-two problem: risk management. You know, those nasty product recalls, data breaches, acts of terrorism or lead-paint scares that can wreak all kinds of havoc. Unsurprisingly, 60 percent of respondents in the study state that risk is escalating as a concern.

And here's where the data visibility problem and risk management dovetail so perilously that it should send shudders down any CEO's spine: How can you understand and manage risk across your global supply chain if your core data is unintelligible and unmanageable? In the IBM study, supply chain executives cite "the lack of standardized processes, insufficient data and inadequate technologies" as the chief stumbling blocks preventing effective risk management.

Sanjeev Nagrath, global leader of IBM's supply chain management practice, commented in the IBM study that "as supply chains have become more complex, global and stressed, the executives we spoke with believe they must drive far more intelligence throughout their supply chains if they are going to anticipate, rather than react."

Sure, "cheaper, faster, better" enabled the unprecedented expansion of global supply chains and sourcing capabilities, and the supposed cost-savings realized by companies and their customers during the past several years.

But nothing actually comes for free. And now, in the depths of a battered global economy, companies are paying for their choice.

Keywords:

better, bi, cheaper, crm, data management,disaster, ERP, faster, global, ibm, supply chain, survey

President Barack Obama 2009 Inauguration and Address

President Barack Obama 2009 Inauguration and Address

Martin Luther King "I have a dream"

Martin Luther King "I have a dream"

Steve Jobs