Monday, May 04, 2009

Cheaper Solar Concentrators

Skyline Solar, a new startup, is combining conventional technologies to lower solar-power costs.

By Kevin Bullis

Skyline Solar, a startup that today announced its existence to the world, has developed a cheaper way to harvest energy from the sun. The company's solar panels concentrate sunlight onto a small area, reducing the amount of expensive semiconductor material needed to generate electricity.

Sun collectors: Skyline Solar combines conventional silicon solar cells with reflective parabolic troughs (shown here).
Credit: Skyline Solar

The technology will bring the cost of solar power in line with the average cost of electricity, at least in sunny areas, says Ben Eiref, Skyline Solar's director of product management. Currently, solar power can be far more expensive than electricity from conventional sources; many governments have resorted to subsidies to increase its use.

Skyline Solar has raised $24.6 million to date and has been awarded $3 million by the Department of Energy to speed up production. It has also installed a pilot power plant that can produce 24 kilowatts of electricity, and has started production of its solar panels with the goal of selling them later this year. They are designed for commercial installations in the 1-to-10-megawatt range, such as on food-processing and water-treatment facilities at the edges of cities or in rural areas.

The startup isn't the first company to attempt to reduce costs by concentrating sunlight onto smaller solar cells. But Skyline Solar says that it can better compete with other energy sources by combining two technologies that can be produced in high volume using existing equipment and that have been demonstrated in the field for decades: conventional silicon solar cells and reflective parabolic troughs, which are used now in solar thermal plants. In these thermal plants, the long, curved troughs concentrate light on tubes, heating up a fluid inside them that, in turn, is used to drive power-generating turbines. Skyline Solar has replaced those tubes with narrow solar panels, adding a heat sink to keep them from getting too hot. The troughs concentrate the light by about a factor of 10, increasing the power output of the panels by about the same amount as conventional solar panels without concentrators. (To compensate for the increased power output, the company has incorporated larger electrical contacts into the panels.)

Other companies are developing systems that concentrate sunlight much more--by hundreds of times--in an effort to further decrease the amount of expensive solar-cell material needed. Indeed, two of Skyline Solar's founders were part of the founding team at another concentrating-solar company, SolFocus, that was also developing a high-concentration system. But they decided that the technology, while promising, faced too many technical hurdles to be brought to market quickly.

While Skyline Solar's technology may be simpler and easier to bring to market, it's not guaranteed success, says Travis Bradford, a professor of management at the University of Chicago and a solar-industry analyst with the Prometheus Institute for Sustainable Development. "Parabolic troughs are known, so they know what the costs are, and they can make them at a predictable rate," he says. But like almost all concentrating-solar systems, they require a tracking system to keep the mirrors pointed at the sun. "Mirrors are probably cheaper to make than solar cells--for now. But when you add in the tracking, whether there's any real advantage is questionable."

What's more, Bradford says that prices for conventional silicon solar panels are falling dramatically, closing the gap between the cost of regular panels and the cost of the mirrors and the tracking system combined. Potentially, this makes it less worthwhile to concentrate sunlight.

Bradford notes, however, that if Skyline Solar does manage to keep its prices lower than those of the competition, it has a large potential market. The application that it's designed for--medium-size solar-power plants at the edges of cities, called distributed utility systems--is the fastest-growing segment of the solar market.

Friday, May 01, 2009

Sending Cell Phones into the Cloud

New technology offloads processing from a mobile device to its cloud-based doppelganger.

By Christopher Mims

Face in the cloud: CloneCloud allows processor-intensive applications, like this prototype face-recognition application, to be offloaded to remote servers.
Credit: Intel Research Berkley The problem with mobile phones, says Allan Knies, associate director of Intel Research at Berkeley, is that everyone wants them to perform like a regular computer, despite their relatively paltry hardware. Byung-Gon Chun, a research scientist at Intel Research Berkeley, thinks that he might have the solution to that problem: create a supercharged clone of your smart phone that lives in "the cloud" and let it do all the computational heavy lifting that your phone is too wimpy to handle.

CloneCloud, invented by Chun and his colleague Petros Maniatis, uses a smart phone's high-speed connection to the Internet to communicate with a copy of itself that lives in a cloud-computing environment on remote servers. The prototype runs on Google's Android mobile operating system and seamlessly offloads processor-intensive tasks to its cloud-based double. Details of the project will be revealed at the HotOS XII conference in Switzerland later this month.

It's a trick not unlike the way that many Web-based applications, such as Google Docs, run on remote servers. The difference is that because CloneCloud creates a perfect copy of the phone's software, it can take on literally any processor-intensive task that it calculates it can do faster than the phone itself, after weighing the amount of time and battery life required to transfer the required data.

The big benefit of CloneCloud is battery-life extension, which would naturally follow from lower utilization of the phone's CPU. Chun imagines that this could become a competitive advantage for vendors, like free voice mail or unlimited data plans.

But CloneCloud wouldn't just make smart phones more efficient: it could also make them more capable. A test application developed by Chun performs face recognition on photos. It required 100 seconds of processor time on a standard Android phone, but it finished in only one second when run by a clone of the phone running on a desktop computer. Because the software runs on a cloud-computing platform, it can be scaled in terms of the amount of both memory allocated and processing power, both of which increase performance on computationally intensive tasks.

Security could be an important potential application of CloneCloud. Ya-Yunn Su, a researcher at NEC Laboratories, in New Jersey, who previously developed a prototype system similar to CloneCloud, notes that "as smart phones become mini general-purpose computers, more of the problems we see in desktops, like viruses, will become smart-phone problems." Virus scans, which involve checking the entire file system of a device, are exactly the sort of process that Chun envisions CloneCloud accomplishing in the background, even while the smart phone is off.

On the other hand, like all cloud-based services, CloneCloud could create a whole new class of security vulnerabilities--the sort that arise when all of a user's private data is stored on publicly accessible servers. "Even after you address the technical issues, how can you get users to trust the cloud?" asks Su.

Maniatis, Chun's collaborator on CloneCloud, notes that the team is working on a number of different methods to secure CloneCloud. One approach, known as "private data disclosure detection" or "taint checking," examines all of the variables in a program that could be affected by inputs from outside sources, in order to detect whether these inputs contain data inserted for malicious purposes. Taint checking is extremely processor intensive, which means that CloneCloud could be a unique enabler for it on mobile devices. "We're using execution in the cloud to run e-mail applications in an environment where you can do this emulation without waiting for the heat death of the universe for your smart phone to finish," says Maniatis.

CloneCloud could be bedeviled by another issue that prevented earlier research into offloading computation from mobile devices from being commercialized: network latency and bandwidth limitations. "When they did research on this in the late '90s," says Chun, "their wireless connection was a modem, 28.8 kbps. You can imagine that sending data on this connection could take quite a long time." Smart phones now use much faster wireless technologies: Wi-Fi, 3G, Bluetooth, and, eventually, 4G and WiMax. But the speed of the phone's connection and the power consumption required to transmit data may still limit the kinds of tasks for which CloneCloud can be used.

Chun says that network latency can be masked: the phone could guess what the outcome of a particular process might be and proceed until told otherwise, for example. But it's clear that some applications, like games, would require connections faster than those currently available and might rapidly drain a phone's battery.

Ultimately, Chun envisions that the research behind CloneCloud will help intelligently shuffle tasks to the fastest, or most power-efficient, processor in a data center. This application is especially relevant at Intel, which makes everything from the energy-sipping Atom processors used in netbooks to powerful (and power-hungry) Nehalem processors used in Web servers. "There will be a family of heterogeneous devices, and you would like to move the computing job to the one that makes most sense; from that standpoint, it is a great idea," says Knies.

The same approach could someday allow a computing environment to be unshackled from any one particular device. "You could come home and sit down at a mobile Internet device and have it transfer content and calculations to your desktop PC," says Knies. "You could imagine what that would enable in terms of sharing information between devices in the home and the mobile device you have on you all the time."

China's biggest particle accelerator set to work

China's biggest particle accelerator set to work

(Xinhua)
Updated: 2009-04-30 13:59

BEIJING -- The building and testing of a machine that can create super X-rays capable of exposing the complicated structures of chemical compounds and proteins has been completed at Shanghai Zhangjiang High-tech Park in Pudong New Area.

The Shanghai Synchrotron Radiation Facility is expected to significantly boost China's capability and competitiveness in scientific research, especially in life sciences, officials from the Shanghai Institute of Applied Physics of the Chinese Academy of Sciences, the facility's key developer, were quoted as saying by Thursday's Shanghai Daily.

Related readings: China's most powerful heavy ion accelerator to be completed China retools electron-positron accelerator Bidding for digital medical-use linear accelerator system

The 1.2 billion yuan (US$176 million) particle accelerator, China's biggest light facility, will also help in the study of viruses and new drugs and the development of technology.

Next month the synchrotron will be opened to universities, scientific institutes and companies for approved research.

The trial operation of the facility in about 60 projects since last month has already yielded results.

"We have found seven new structures including one enzyme which can break down an environmental toxicant," said He Jianhua, head of the institute's synchrotron radiation experiment division.

The institute is cooperating with the Shanghai Institute of Material Medica on researching treatment of bird flu and is expected to work with Sinopec on petroleum catalyzers.

"The machine will be an effective tool in research on viruses as well as for swine flu medicines although we haven't received a request yet," He said.

The facility was jointly proposed by the Chinese Academy of Sciences and the Shanghai government in 1995, with construction starting in December 2004.

The synchrotron's beamlines were adjusted from May last year to March. So far the facility has built seven beamlines and experimental stations for research and development in life sciences, new materials, physics and biochemical projects.

The particle accelerator can produce X-rays thousands of times stronger than normal X-ray machines capable of exposing the minute structure of human proteins.

"Thanks to the technology, we can know a protein structure within 20 minutes. Such a procedure usually took several months," said He.

The institute hopes to complete the facility's proposed 60 beamlines by 2020, and have 40 completed by 2015.

Streamlining Manufacturing Processes with SOA Frameworks

Streamlining Manufacturing Processes with SOA Frameworks

SOA platforms and frameworks can dramatically simplify the 'default' manufacturing business processes implemented on an ERP system.

Friday, April 24, 2009
By

Most medium to large manufacturing companies (and many smaller ones as well) use some form or ERP system to help manage the data and processes related to their businesses. While ERP systems have strong transactional capabilities and are good at tracking and storing data, most of them have relatively poor process management capabilities, forcing users to tailor their businesses to the software rather than molding the software processes around what's required by the business.

For example, some of the most popular enterprise ERP systems ship with a rich set of process templates for Dispatch, Invoicing, Production Planning, Logistics, Stock Allocation and several other functions. However, they are designed around the concept of "Separation of Duty," where an assumption is made that every step in a business process may potentially be executed by a different party; in the majority of cases, however, a single person executes a process (for instance, an invoicing process), in which case the process can be dramatically simplified. Moreover, changes to default process templates in the ERP system are difficult and time-consuming, often requiring significant programming in proprietary languages such as "ABAP." Finally, integration with third party enterprise applications remains a significant challenge in the enterprise ERP world.

Enter SOA. SOA platforms and frameworks can dramatically simplify the 'default' manufacturing business processes implemented on an ERP system. In this article, we examine how the world's third-largest distiller, United Spirits Ltd., optimized a number of critical business processes via an SOA framework, saving well over $750,000 in the first year alone. The company in question uses a popular (and expensive) ERP system but the discussion on simplification of the process applies equally well to other ERP systems as well.

Invoicing and Dispatch

The default invoicing and dispatch process implemented over the existing ERP system within the company requires five steps and nine screens for each invoice creation. Designed for generality, where multiple people may be needed to execute separate steps, this process takes 12 minutes per invoice on average. Moreover, significant (and expensive) training is required for each person creating an invoice, making it difficult to scale the invoice creation process across offices located in different geographical locations.

When implemented over an SOA framework, the entire invoice-creation process is reduced to just two steps with two screens, requiring only 2 minutes per invoice. Invoicing data is now entered into customized HTML screens and the SOA framework manages the details of updating the ERP system by making the appropriate API ("BAPI") calls at the backend. The result is a dramatically simplified invoice creation process that requires no ERP-specific training, can be easily scaled across different geographical locations and is over 600% more efficient.

As an example, USL generates over 7,000 invoices per month. With the new, optimized SOA-based invoicing process, USL saves over 150 man-days per month. Moreover, non-tech-savvy personnel in remote locations and factories can easily create dispatch requests and invoices; this was not possible earlier since such personnel had to be pre-trained on the ERP system interfaces -- a difficult and expensive proposition.

Lifting Plans and Bulk Orders

A Lifting plan is an estimate of the sales that will possibly be made over a quarter, half-year or other fixed term. A bulk order is an estimate of what will be lifted in a larger order.

Lifting plans and Bulk Orders are both critical processes in the sales organization of most manufacturing companies. Very often, however, the IT systems of the manufacturer do not support the Lifting Plan and Bulk Order concepts. Even sophisticated ERP systems have inadequate support. For instance, in some ERP systems, the concept of a Bulk Order is tied to a single unit or plant and its functionality is inflexible and cannot be easily customized to match the needs of the business.

SOA technology helps resolve the problems created by inflexible IT systems. It is now possible to create application flows that compare the Lifting plan and Bulk Orders for each salesperson against actual orders, with the results being fed directly to the automated invoicing process discussed in the previous section. Further, the SOA systems enable managers to track differences between actual invoiced orders and the Lifting plan / Bulk Orders for each salesperson, enabling closer monitoring and better tracking of sales and salesperson performance. Benefits include fully automated processes with the Lifting plan and Bulk Order concepts integrated with invoicing and report generation and easy modification of processes without programming.

Logistics

Manufacturers normally ship goods on a regular basis to multiple distributors mostly via road and rail and sometimes by ship. In the typical case, distributors send trucks to a multiple manufacturing plants to pick up goods. Each distributor has a credit limit with the manufacturer. It this limit is exceeded, an explicit approval is normally required from a company manager to raise the credit limit.

The problem of securing credit change approvals efficiently is complicated due to several reasons: distributor vehicles may arrive at a company's production facilities at night; ideally, decisions on approvals should be made quickly since delayed approvals cause significant disruption and loss of profits for both the distributor and the manufacturer. Unfortunately, even with the powerful ERP systems that most manufacturers use today, the approval process is complicated: company managers need to manually log on to the ERP system to approve credit; bad internet connectivity can often prevent access to central company IT systems from remote locations; plus, the ERP interfaces used are typically poor and difficult to learn, requiring companies to spend significant time and resources in manager training.

SOA applications alleviate this situation by easily enabling approval requests on mobile phones. The initial approval request is processed by an SOA flow and placed on a portal that can be accessed by company provided mobile phones. The SOA flow then generates an SMS (Short Message Service) message that is sent to the GPRS-enabled mobile phone of the manager, who then accesses the secure portal by clicking a link in the SMS. The manager can now approve or reject the request in the portal directly over his/her mobile phone. Once the request is handled, the SOA flow automatically updates the company ERP system at the backend with the approved/rejected notice.

This process of using SOA flows to manage approval requests has several benefits. Managers no longer need to access the company ERP system via cumbersome client applications; all relevant information now available on their mobile phones. The learning curve is much lower, as are licensing costs (since fewer ERP client licenses are needed). There is also a significant cost and time saving for distributors due to faster turnaround times for approval requests.

Order Processing and Stock Allocation

Problems with enterprise ERP systems often have a negative impact on the stock allocation and order processing in a manufacturing unit. For instance, many ERP systems allocates stock immediately for any sales order by default. If orders are processed using the default templates, then by the time one reaches the last order in a batch, one may have run out of stock. Also, orders with higher priority that arrive in the middle of the batch cannot be processed because available stock has already been pre-allocated to previous orders. In such cases, the "rollback" needs to be performed manually -- a cumbersome and error-prone process.

All of these problems make it impractical to enter all orders into the ERP system in a single shot. In the typical case, orders not entered into the system until they are ready for dispatch. The lack of prioritized allocation of stock based on how the company wants to run its business is also a major hindrance.

Enter SOA. Using SOA flows, all orders can be entered into the system as they are produced. The orders are 'held' within the SOA flow while they are prioritized. Additional SOA flows are used to prioritize orders before any stock is allocated to each order. Once the orders are prioritized, a third SOA flow is invoked to pick up an order, allocate stock to it "just in time" and send it for invoicing via the optimized 2-step invoicing process discussed earlier in this article.

The benefits of this approach include, among others, highly flexible order processing tailored to enterprise needs, easier and flexible order prioritization, no manual rollbacks and "Just in time" stock allocation.

New Regulations

In almost any jurisdiction globally, new regulations (especially tax regulations) often have revenue implications for manufacturers. For instance, consider a manufacturer that outsources a task to a third party contract manufacturer (CM). For convenience, the manufacturer instructs the CM to sell directly to and end-user or distributor, collect the revenue and pay the Manufacturer its share after keeping the CM commission.

This process works well as long as there's no change in prevailing tax regulations. If for instance, as was the case in a European jurisdiction recently, the payment from the CM to the Manufacturer becomes subject to a new tax regulation (such as Service Tax), the CM has to deduct the new tax from the payment to the Manufacturer. The Manufacturer thus loses money unless the Manufacturer directly sells to the End-user.

A solution to this problem requires custom business processes to be implemented to "reroute" cash flows to legally circumvent a regulation. Using the previous example, a new business process is required to re-route the payment as follows: Manufacturer sells direct to End-user; Manufacturer instructs CM to dispatch goods to the End-User; Money flows from End-User to Manufacturer and from the Manufacturer to the CM, thereby avoiding the service tax.

Existing ERP systems cannot easily handle process-change-requests such as the above. A flexible SOA system, however, can implement such changes within days if not hours. The benefits include rapid, automated business process changes to circumvent new regulations, leading to added business flexibility and profitability

Summary

In this article, we have discussed several real, practical business problems that plague manufacturers every day. All of these examples have been taken from a large manufacturer -- specifically, USL -- the world's third-largest distiller of spirits. By moving to a flexible SOA platform, USL saved over $750,000 in the first year alone (on an investment of less than $200K) by optimizing its Invoicing, Logistics, Order prioritization/Stock Allocation and other processes. USL believes that in the coming years it will save several million dollars a year because of the flexibility of its SOA platform.

Atul Saini is the CEO and CTO of Fiorano Software Inc., a provider of enterprise class business process integration and messaging infrastructure technology. www.fiorano.com

Tuesday, April 28, 2009

Following Swine Flu Online

Tracking and communications could play a key role in combating a pandemic.

By Michael Day

Flu flow: HealthMap, created by Google and the CDC, annotates a global map with news articles, official medical alerts, and other data in real time. Credit: Google Credit: Google

RESOURCES: HealthMap CDC WHO

The World Health Organization (WHO) admitted on Tuesday that it's too late to contain swine flu, and experts say that it is now vital to track the spread of the virus in order to mitigate its effects. Vaccines and antivirals will be crucial to the effort, but tracking and communications technologies could also play a key role in monitoring the virus, distributing accurate health information, and quelling outbreaks.

Bloggers and social-networking sites were among the first to follow the outbreak's rapid spread from its epicenter in Mexico--where swine flu has been linked to more than 150 deaths--to cities across the United States and on to Europe, Israel, and New Zealand.

The need for fast information has seen the Centers for Disease Control and Prevention (CDC) build up a large following on Twitter. Groups ranging from fellow federal institutions, such as the National Institute for Occupational Safety and Health, to local Red Cross divisions, as well as many regular Twitter users, are employing the service to receive updates. Some experts, however, warn that Twitter can just as easily spread misinformation and panic. According to data from the medical tracking site Nielson, conversations related to swine flu reached 2 percent of all messages on Twitter over the weekend. By contrast, Google's Flu Trends, a site that aims to spot flu outbreaks by monitoring search queries related to flu symptoms and treatment, has shown little increase in activity in recent days.

Some Twitter users have also been criticized for spreading misinformation by, for example, warning friends and followers against eating pork, which is not related to the spread of swine flu. Evgeny Morozov, a fellow at the Open Society Institute, in New York, wrote in a blog post on Saturday, "Having millions of people wrap up all their fears into 140 characters and blurt them out in the public might have some dangerous consequences, networked panic being one of them."

Meanwhile, other Internet tools are helping to track the spread of the virus geographically. HealthMap, which was created by researchers from Children's Hospital Boston with support from Google, the CDC, the National Library of Medicine, and the Canadian Institute of Health Research, adds real-time news alerts, official medical information, and other data to a global tracking map.

Susan Perkins, a specialist in microbial evolution at the American Museum of Natural History, in New York, NY, who has previously applied geographical information systems to the study of how viruses evolve, hopes that Internet technology and "the new field of info-epidemiology" can make a difference in future epidemics, if not in the current swine-flu outbreak. "Sites like HealthMap or Google Earth are a good new way to visualize data," she says. "These readily accessible platforms also let people in diverse fields--public health, evolutionary biology, et cetera--share the same information."

Perkins believes that being able to process viral genomes more quickly could make a big difference: "In the future, I would hope that diseases will be able to be better tracked with software that can combine genomic information with real geographic information. That will give us the most power to solve--and then hopefully break--transmission patterns."

Others say that tracking the spread of the virus could help reveal how deadly it is, how easily it spreads, whether drug resistance is emerging, and how to target precious public-health resources. Jeffrey Herrmann, an applied mathematician and software engineer at the University of Maryland, has developed software that can analyze the spread of a disease and pinpoint the best locations for treatment or mass vaccination. He says that this approach "could be used by local public-health departments to determine how many sites and how many staff they need to dispense antiviral medication or vaccinate people."

The WHO's Pandemic Influenza Task Force decided on Monday to raise the alert to level 4 on the pandemic scale. This means that confirmed human-to-human transmissions are now causing community-level outbreaks.

"We might expect up to 30 percent to 40 percent of the population to become ill in the next six months," says Neil Ferguson, a member of the WHO task force and a professor of epidemiology at Imperial College London. He adds that the virus appears less lethal than H5N1 bird flu--but crucially, it's more contagious. In the six years since its emergence in 1993, H5N1 has killed 257 people; swine flu has already killed 150 in a matter of weeks. The last pandemic, Hong Kong flu, killed about 700,000 (1 in 1,000 of its victims) in 1968.

So far, no deaths have been reported outside of Mexico, but the consensus among virologists is that it is too early to say whether suggestions that the death rate is higher in Mexico will be borne out. Some have suggested that better treatment in the United States has made infections there less dangerous. Or it could be that the much greater number of cases seen so far in Mexico--there are now more than 2,000 suspected--has made some deaths there more likely.

Pharmaceutical firms, meanwhile, have begun the race to produce a vaccine. Switzerland's Novartis said on Tuesday that it had received the genetic code of the new virus strain, enabling it to begin work in earnest. The WHO estimates that an effective inoculation is still six months away, but this might be in time for a second wave of infection later in the year.

Peter Dunnill, a professor of biochemical engineering at University College London, warns that even if a vaccine is produced, not everyone will have access to it. "Based on calculations done in relation to H5N1, the global capacity for providing a vaccine at its most optimistic is less than 10 percent of the world's people," he says.

Antiviral drugs are likely to provide the first line of defense. In the United States, Homeland Security Secretary Janet Napolitano said recently that she will release a quarter of the 50 million courses of antiviral drugs in the national stockpile. She added that the Defense Department has another 7 million courses ready. But their effectiveness could be short lived--particularly if they are used now, and the virus resurfaces later in the year. Professor of immunology Peter Lachmann of the University of Cambridge says, "Tamiflu resistance is extraordinarily widespread and develops very quickly. We would be very lucky if this virus does not develop resistance."

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Amazon warehouse case study

Amazon warehouse case study

The Strategic Advantage of Global Process and Practice Networks

The Strategic Advantage of Global Process and Practice Networks

6:42 PM Wednesday March 25, 2009

In our last post, we discussed talent development as an operational challenge. This time around we'll explore how the organization itself needs to change so that it develops a talent edge.

It goes without saying that no matter how much talent a company might have, there are many more talented people working outside its boundaries. Yet all too many companies focus solely on acquiring talent, on bringing talent inside the firm. Why not access talent wherever it resides?

Some might say there's no way of doing so without sharply increasing the cost of complexity. New institutional practices can reduce these costs, however, as companies become:

• Less transactional and more relational.
• Less "hardwired" and more "loosely coupled."
• Less focused on merely accessing external capabilities and more focused on rapid capability building for every participant.
• Less focused on the firm and internal silos and more supportive of richer cross-enterprise interactions and collaborations among workers.

By rethinking their institutional arrangements along these lines, companies can forge connections and carry out interactions less expensively and more rapidly and flexibly than they could through conventional institutional practices. They can also help their own talent connect more easily with other talent, beyond the four walls of the enterprise, to achieve higher performance levels.

In the past, executives have tended to be wary of cross-enterprise collaboration out of concern for a loss of intellectual property or disagreement over the distribution of rewards. However, these concerns are largely shaped by a zero-sum view of the world -- if one party gains, the other parties must inevitably lose.

Focusing on talent development helps to shift executives to a positive-sum view of the world -- as talent improves, more value gets created in aggregate and all participants have an opportunity to gain more than they had before.

But institutional innovations, while necessary, aren't sufficient. Companies must also participate in (and sometimes orchestrate) new organizational forms and structures called global process and practice networks. These play a key role in helping talent-driven companies access world-class talent beyond their boundaries.

The new generation of motorcycle assemblers emerging in Chongqing, China, is a leading example of a global process network. In this network, companies such as Dachangjiang cultivate rapid improvement in motorcycle design and performance through innovative working arrangements with their design partners. Rather than providing designers with detailed product blueprints, assemblers supply them with rough sketches accompanied by tightly specified performance requirements.

It's up to all relevant design partners to work together on their own initiative without the intervention of Dachangjiang to resolve issues and reach the assembler's aggressive performance targets. As highly specialized participants clash around ways to meet aggressive performance targets and still meet tight deadlines, creative new approaches emerge and learning increases across the network of participants. In the process, quality has gone up while costs have fallen by two-thirds.

Global practice networks, by contrast, are even looser forms of collaboration that involve participants from similar skill areas working on common performance issues. Global practice networks are emerging in such diverse areas as open source software and extreme sports.

Although they don't tend to refer to them this way, extreme surfers have used global practice networks to push the limits of their sport. In the 1950s, six-foot waves were considered challenging, yet today big-wave surfers successfully ride 60- to 70-foot waves. Big-wave surfers tend to congregate at specific beaches and breaks to learn their craft, and frequently connect at competitions and, increasingly, through the Internet. They gain from carefully watching each other and observing new techniques and practices under different wave conditions.

Their individual activities and interactions are more often than not orchestrated by commercial entities like surfboard makers and contest organizers, who define new challenges and motivate surfers to push their performance to the next level. Even where money is at stake, collaboration rules: At the 2008 Mavericks Surf Contest in Half Moon Bay, California, as the six finalists paddled out to catch the final set of waves, they agreed to share the prize equally, regardless of who was declared the winner.

Both kinds of global networks -- process and practice -- create opportunities for talent to come together and generate "productive friction": a powerful force that shapes learning, as people with different backgrounds and skills work together on real problems.

While many executives pursue the nirvana of a frictionless economy, aggressive talent development inevitably and necessarily generates friction. It forces people out of their comfort zone and often involves resolving differences among people with divergent views and experiences.

In designing these networks, several best practices are emerging:

First, organize the right environments to generate productive friction. In part, this requires:

1. Bringing together people with diverse experiences.
2. Investing the time required for them to develop shared understanding.
3. Defining aggressive performance requirements.
4. Providing employees with tools that help them negotiate the most promising approaches for achieving results.
5. Specifying action points that force participants to produce a solution meeting the performance requirements within a certain period of time.

Such actions are challenging enough when they occur inside a single firm, but things get all the more challenging -- and rewarding -- when companies connect talent across multiple institutional boundaries. Talented workers benefit from the broad range of experiences and approaches that diverse parties bring to a problem.

Second, innovate talent management within the firm. Leading companies recognize that today's career is no longer a straight shot up the corporate ladder. Instead, it involves what Cathy Benko and Anne Weisberg characterize as a "combination of climbs, lateral moves, and planned descents" along the "corporate lattice." They extend the concept of mass customization to a new approach for how work gets done and careers are built called "mass career customization."

In our next post, we'll look at the changes necessary at the strategic level to gain a talent edge. Meanwhile, what other organizational changes would corporations be advised to implement, assuming they were to take talent development as one of their highest priorities? What likely obstacles would they encounter as they seek to deploy global process and practice networks?

Four Fatal Flaws of Strategic Planning

Four Fatal Flaws of Strategic Planning

3:47 PM Friday March 13, 2009
by Ed Barrows

Strategy execution is drawing a lot of attention these days, but that in no way means companies have abandoned their time-tested strategic planning processes. In fact, as far as management tools are concerned, strategic planning is as popular as ever, with 88% of large organizations engaging in some form of formal strategic planning, according to Bain & Company's 2007 Management Tools and Trends report. This number may still be on the rise as economic conditions force companies to search for new ways to jump-start business growth.

Yet despite this widespread adoption, managers continue to make fundamental mistakes that undermine otherwise well-intentioned strategy-formulation efforts. Here are four fatal flaws that consistently creep into strategic planning processes that, if avoided, can significantly improve both the process and the results.

Skipping Rigorous Analysis
Many managers believe their business experience and knowledge base alone equips them with all the information they need to conduct effective strategic planning. This belief is almost always untrue and serves only to undermine the kind of critical thinking from which truly creative strategies are born. A good strategic planning process takes full advantage of the numerous tools of strategic analysis — such as the five forces model, strategic group maps, or the value chain — to gain key insights regarding how the industry is evolving, how competitors are changing positions, and where an individual firm's sources of competitive advantage lie.

Eric Okerstrom, vice president of strategy management for Hagerty, a national specialty insurance agency that insures collectible automobiles and wooden boats, learned this lesson during his most recent strategic planning efforts. The company conducted extensive customer analysis and market segmentation work and, in so doing, realized that their brand wasn't as well known as they first thought. "Our entire leadership team believed that most participants in the collector market knew who we were and wanted to do business with us. What we found out during our analysis was that while our brand was strong amongst our core client base, there was room for improvement." It wasn't that Hagerty didn't have a known brand or delighted customers — they did. It was just that marketing perception and share data revealed that their name wasn't as widely recognized as they previously thought. "We reoriented a significant portion of our strategy and reexamined who our true competitors were because of the data we encountered during the analysis," says Okerstrom. They found that while the traditional end-user insurance purchaser was still important, it was equally important to focus more intensively on the general insurance agency channel that was recommending their product. Now they have adopted an innovative sales approach with a key distributor segment that will help them reach a major portion of the market they had not focused on previously.

Believing Strategy Can Be Built in a Day
In Hagerty's case, changing the minds of key managers took longer than one day. Yet many executive teams earnestly believe that effective strategies can be identified, explored, and agreed upon during abbreviated offsite meetings where the main driver of the agenda is the timing of snack breaks. While offsite meetings are useful forums in which to share information and address key issues, meetings should be adequately timed — over days or weeks if necessary — so that sufficient preparation and review and discussion can occur before and during the event.

MDI Group, one of Atlanta's largest IT and financial staffing organizations, has engaged in annual strategic planning each year for the past decade. In preparation for their yearly offsite, the leadership team, after examining a comprehensive package of performance information, completes a series of templates including a SWOT analysis and a key capabilities review. "We would discuss our SWOT analysis in the morning of the first meeting day, summarizing critical issues as we went. Then we would brainstorm how to address those issues immediately following lunch, with a hard stop no later than 3:00pm," recalls Mike Cleland, president of the IT division. "It always felt rushed, and it seemed like we never really got our arms around the underlying forces driving the key issues." In reality, they didn't. MDI leaders became frustrated as they kept encountering the same key issues year after year despite putting significant time and energy into the planning process.

So MDI modified its approach. For their most recent strategic planning efforts, the leadership team conducted the same up-front activities, but this time they identified four key issues a month before — not the day of — their meeting. Each key issue was assigned to an "issue team" comprised of senior managers for detailed analysis prior to the meeting. For three weeks each team applied a structured problem-solving approach to their issue, isolating root causes and identifying plausible courses of action. Teams then briefed their findings the day before the offsite to ensure all participants had a consistent understanding of the issue, the causes, the options, and — most important — the team's recommended plan going forward. The result was a streamlined process and better decisions. "It really accelerated the meeting," said MDI CEO Ella Koscik. "Also, we have a much higher level of confidence in our actions coming out of this meeting than we've ever had in the past."

Failing to Link Strategic Planning with Strategic Execution
According to a recent survey by the Conference Board, execution overall and strategy execution in particular hold the first and second positions when it comes to "top issues" in executive's minds. It's no wonder — executing strategy requires the work of the entire organization, whereas strategic planning only requires the top team. But part of a top team's challenge in execution often stems from the failure to link their work with ongoing strategy execution. In his article, "Obstacles to Effective Strategy Implementation" (Organizational Dynamics, Vol. 35, No. 1, 2006), Lawrence Hrebiniak of the Wharton School notes that "Strategic success demands a 'simultaneous' view of planning and doing. Managers must be thinking about executing even as they are formulating plan."

Prescolite and Progress Lighting — both brands of Hubbell (headquartered in Orange, Conn.) — show how to accomplish this in practice. Both businesses use what they dub the Long Range Strategic Planning (LRSP) process. This integrated strategic planning and execution system incorporates both strategy formulation activities, such as ongoing analysis of changes in market conditions, with execution activities like management of integrated strategic programs. At the start of the planning year, they perform a "deep dive" on critical competitive issues facing the businesses; the remainder of the year they focus on measuring and monitoring the progress they are making relative to the strategy. As they encounter unforeseen issues — which they usually do — they then analyze them within the confines of the LRSP process. They also maintain a running list of "must-do" integrated programs that they readjust as business conditions change. "We've refined the LRSP process over the past several years to not only make it more flexible and responsive to changes in market conditions, but to also make it more integrated," says Charlie Harris, vice president and general manager of the Indoor Lighting division. "The process today is at the center of what we do and largely responsible for driving successful execution of our brands' strategies." These businesses have made their strategy process a continuous and dynamic one — a more realistic approach than the once-a-year planning meeting that still dominates many corporate strategic planning efforts.

Dodging Strategy Review Meetings
Strategic plans quickly become obsolete when there is no activity in place to keep them alive. Worse, managers sometimes feel freed from execution accountability when reviews are continually rescheduled or dropped from the calendar altogether.

The most direct way to maintain a consistent focus on strategy is to schedule and hold regular strategy review meetings. At the end of the strategic plan formulation, managers should establish a strategic governance process where strategy review meetings — whether they are monthly or quarterly — are scheduled a year in advance. This way, managers can be sure the time for the sessions remains sacrosanct. A typical strategy review lasts anywhere between a half and a full day — so leaders must plan accordingly. To make the meetings productive, the leadership team should develop a standing agenda they can follow consistently each time they meet. The strategy that was created at the beginning of the execution cycle should be the topic of conversation at every meeting — no discussion of operational issues should be allowed. Consistent with avoiding fatal flaw number one, the necessary analysis should be prepared and the findings circulated before the meeting so that the session can be dedicated to guiding decision-making as opposed to conducting unbounded, unstructured discussion.

The Federal Bureau of Investigation (FBI) began holding regular strategy review meetings at the end of 2007, when they started developing a new strategy execution system. While the FBI maintains a vigilant 24-hour-a-day, 365-day-per-year focus on their top tactical priorities, they had never formally held strategy review meetings. "It was really interesting watching [Director Robert S. Mueller III] ask his staff how they were progressing on their parts of the strategy," noted Executive Assistant Director Tom Harrington of the FBI's Criminal, Cyber, Response, and Services branch. "People were watching to see if Mueller was serious about the strategy. By the end of the meeting, after some pretty intense questioning, it was clear he was." The FBI has gone on to hold strategy review meetings quarterly at the mandate of Director Mueller. Further, both their reporting process and meeting approach has gotten more refined. "The meetings get better every time. They're more focused now; we've come a long way from where we started," says Ryan Kennedy, the strategy management analyst responsible for facilitating the process. Running effective strategy review meetings is a learned skill but one that starts with scheduling and sticking to the strategy in the first place.

Ed Barrows is a lecturer at Babson College and the founder of edbarrows.com. He specializes in coaching executive teams to improve their strategy processes. Reach him at MUOpinion@harvardbusiness.org.

Boeing 737 manufacturing

Boeing 737 manufacturing

Automotive Assembly line

Automotive Assembly line

VanDer Lande conveyors

VanDer Lande conveyors

AS/RS at beverage distribution center

AS/RS at beverage distribution center

Streamlining Manufacturing Processes with SOA Frameworks

Streamlining Manufacturing Processes with SOA Frameworks

SOA platforms and frameworks can dramatically simplify the 'default' manufacturing business processes implemented on an ERP system.

Friday, April 24, 2009
By 

Most medium to large manufacturing companies (and many smaller ones as well) use some form or ERP system to help manage the data and processes related to their businesses. While ERP systems have strong transactional capabilities and are good at tracking and storing data, most of them have relatively poor process management capabilities, forcing users to tailor their businesses to the software rather than molding the software processes around what's required by the business.

For example, some of the most popular enterprise ERP systems ship with a rich set of process templates for Dispatch, Invoicing, Production Planning, Logistics, Stock Allocation and several other functions. However, they are designed around the concept of "Separation of Duty," where an assumption is made that every step in a business process may potentially be executed by a different party; in the majority of cases, however, a single person executes a process (for instance, an invoicing process), in which case the process can be dramatically simplified. Moreover, changes to default process templates in the ERP system are difficult and time-consuming, often requiring significant programming in proprietary languages such as "ABAP." Finally, integration with third party enterprise applications remains a significant challenge in the enterprise ERP world.

Enter SOA. SOA platforms and frameworks can dramatically simplify the 'default' manufacturing business processes implemented on an ERP system. In this article, we examine how the world's third-largest distiller, United Spirits Ltd., optimized a number of critical business processes via an SOA framework, saving well over $750,000 in the first year alone. The company in question uses a popular (and expensive) ERP system but the discussion on simplification of the process applies equally well to other ERP systems as well.

Invoicing and Dispatch

The default invoicing and dispatch process implemented over the existing ERP system within the company requires five steps and nine screens for each invoice creation. Designed for generality, where multiple people may be needed to execute separate steps, this process takes 12 minutes per invoice on average. Moreover, significant (and expensive) training is required for each person creating an invoice, making it difficult to scale the invoice creation process across offices located in different geographical locations.

When implemented over an SOA framework, the entire invoice-creation process is reduced to just two steps with two screens, requiring only 2 minutes per invoice. Invoicing data is now entered into customized HTML screens and the SOA framework manages the details of updating the ERP system by making the appropriate API ("BAPI") calls at the backend. The result is a dramatically simplified invoice creation process that requires no ERP-specific training, can be easily scaled across different geographical locations and is over 600% more efficient.

As an example, USL generates over 7,000 invoices per month. With the new, optimized SOA-based invoicing process, USL saves over 150 man-days per month. Moreover, non-tech-savvy personnel in remote locations and factories can easily create dispatch requests and invoices; this was not possible earlier since such personnel had to be pre-trained on the ERP system interfaces -- a difficult and expensive proposition.

Lifting Plans and Bulk Orders

A Lifting plan is an estimate of the sales that will possibly be made over a quarter, half-year or other fixed term. A bulk order is an estimate of what will be lifted in a larger order.

Lifting plans and Bulk Orders are both critical processes in the sales organization of most manufacturing companies. Very often, however, the IT systems of the manufacturer do not support the Lifting Plan and Bulk Order concepts. Even sophisticated ERP systems have inadequate support. For instance, in some ERP systems, the concept of a Bulk Order is tied to a single unit or plant and its functionality is inflexible and cannot be easily customized to match the needs of the business.

SOA technology helps resolve the problems created by inflexible IT systems. It is now possible to create application flows that compare the Lifting plan and Bulk Orders for each salesperson against actual orders, with the results being fed directly to the automated invoicing process discussed in the previous section. Further, the SOA systems enable managers to track differences between actual invoiced orders and the Lifting plan / Bulk Orders for each salesperson, enabling closer monitoring and better tracking of sales and salesperson performance. Benefits include fully automated processes with the Lifting plan and Bulk Order concepts integrated with invoicing and report generation and easy modification of processes without programming.

Logistics

Manufacturers normally ship goods on a regular basis to multiple distributors mostly via road and rail and sometimes by ship. In the typical case, distributors send trucks to a multiple manufacturing plants to pick up goods. Each distributor has a credit limit with the manufacturer. It this limit is exceeded, an explicit approval is normally required from a company manager to raise the credit limit.

The problem of securing credit change approvals efficiently is complicated due to several reasons: distributor vehicles may arrive at a company's production facilities at night; ideally, decisions on approvals should be made quickly since delayed approvals cause significant disruption and loss of profits for both the distributor and the manufacturer. Unfortunately, even with the powerful ERP systems that most manufacturers use today, the approval process is complicated: company managers need to manually log on to the ERP system to approve credit; bad internet connectivity can often prevent access to central company IT systems from remote locations; plus, the ERP interfaces used are typically poor and difficult to learn, requiring companies to spend significant time and resources in manager training.

SOA applications alleviate this situation by easily enabling approval requests on mobile phones. The initial approval request is processed by an SOA flow and placed on a portal that can be accessed by company provided mobile phones. The SOA flow then generates an SMS (Short Message Service) message that is sent to the GPRS-enabled mobile phone of the manager, who then accesses the secure portal by clicking a link in the SMS. The manager can now approve or reject the request in the portal directly over his/her mobile phone. Once the request is handled, the SOA flow automatically updates the company ERP system at the backend with the approved/rejected notice.

This process of using SOA flows to manage approval requests has several benefits. Managers no longer need to access the company ERP system via cumbersome client applications; all relevant information now available on their mobile phones. The learning curve is much lower, as are licensing costs (since fewer ERP client licenses are needed). There is also a significant cost and time saving for distributors due to faster turnaround times for approval requests.

Order Processing and Stock Allocation

Problems with enterprise ERP systems often have a negative impact on the stock allocation and order processing in a manufacturing unit. For instance, many ERP systems allocates stock immediately for any sales order by default. If orders are processed using the default templates, then by the time one reaches the last order in a batch, one may have run out of stock. Also, orders with higher priority that arrive in the middle of the batch cannot be processed because available stock has already been pre-allocated to previous orders. In such cases, the "rollback" needs to be performed manually -- a cumbersome and error-prone process.

All of these problems make it impractical to enter all orders into the ERP system in a single shot. In the typical case, orders not entered into the system until they are ready for dispatch. The lack of prioritized allocation of stock based on how the company wants to run its business is also a major hindrance.

Enter SOA. Using SOA flows, all orders can be entered into the system as they are produced. The orders are 'held' within the SOA flow while they are prioritized. Additional SOA flows are used to prioritize orders before any stock is allocated to each order. Once the orders are prioritized, a third SOA flow is invoked to pick up an order, allocate stock to it "just in time" and send it for invoicing via the optimized 2-step invoicing process discussed earlier in this article.

The benefits of this approach include, among others, highly flexible order processing tailored to enterprise needs, easier and flexible order prioritization, no manual rollbacks and "Just in time" stock allocation.

New Regulations

In almost any jurisdiction globally, new regulations (especially tax regulations) often have revenue implications for manufacturers. For instance, consider a manufacturer that outsources a task to a third party contract manufacturer (CM). For convenience, the manufacturer instructs the CM to sell directly to and end-user or distributor, collect the revenue and pay the Manufacturer its share after keeping the CM commission.

This process works well as long as there's no change in prevailing tax regulations. If for instance, as was the case in a European jurisdiction recently, the payment from the CM to the Manufacturer becomes subject to a new tax regulation (such as Service Tax), the CM has to deduct the new tax from the payment to the Manufacturer. The Manufacturer thus loses money unless the Manufacturer directly sells to the End-user.

A solution to this problem requires custom business processes to be implemented to "reroute" cash flows to legally circumvent a regulation. Using the previous example, a new business process is required to re-route the payment as follows: Manufacturer sells direct to End-user; Manufacturer instructs CM to dispatch goods to the End-User; Money flows from End-User to Manufacturer and from the Manufacturer to the CM, thereby avoiding the service tax.

Existing ERP systems cannot easily handle process-change-requests such as the above. A flexible SOA system, however, can implement such changes within days if not hours. The benefits include rapid, automated business process changes to circumvent new regulations, leading to added business flexibility and profitability

Summary

In this article, we have discussed several real, practical business problems that plague manufacturers every day. All of these examples have been taken from a large manufacturer -- specifically, USL -- the world's third-largest distiller of spirits. By moving to a flexible SOA platform, USL saved over $750,000 in the first year alone (on an investment of less than $200K) by optimizing its Invoicing, Logistics, Order prioritization/Stock Allocation and other processes. USL believes that in the coming years it will save several million dollars a year because of the flexibility of its SOA platform.

Atul Saini is the CEO and CTO of Fiorano Software Inc., a provider of enterprise class business process integration and messaging infrastructure technology. www.fiorano.com

Inventory Optimization -- It's All About Uncertainty

Inventory Optimization -- It's All About Uncertainty

A multi-echelon inventory optimization solution can drive global supply chains to peak efficiency by recommending precise inventory levels, lot sizes, replenishment plans and locations from end to end.

Friday, April 24, 2009
By 

Every large enterprise today has an Enterprise Resource Planning (ERP) system as part of its core technology infrastructure. A common characteristic of ERP systems is that they manage lots and lots of static details that, once recorded, do not change. When supply chain operations fall under the ERP umbrella, the ERP systems can come up woefully short due to volatility and uncertainty for which they have no solution. ERP systems can only help companies have the right products at the right locations at the right time if supply and demand conditions cooperate by not changing.

In realty, of course, almost everything in the supply chain environment changes all the time. For instance, a transportation problem may trigger the need to find a different supplier or transportation mode, having much the same impact as a sudden labor strike. In fact, supply chains are already stretched to their limits, with factors such as fuel costs, working capital, credit scarcity, global labor rates, raw materials, exchange rates, customer demand, and many others in a perpetual state of flux. The only way to give the supply chain a competitive edge is to augment the capabilities of the ERP system: to monitor and respond quickly to changes in critical supply chain factors.

That's not easy in today's fast-changing economic, regulatory and globalized world. Volatility and uncertainty pummel the network of suppliers, producers, wholesalers, distributors, and retailers that convert raw material to finished products for our homes and offices. That supplier in China may ship you 100,000 units this week, but only 20,000 units next week. That shipment may take 10 days to arrive or 20. Demand can be steady for weeks, then spike or drop unexpectedly, confounding the forecasts and causing excess inventories or product shortages. Businesses are struggling with these issues, and losing the battle precisely because their ERP systems were designed to manage constants but are faced instead with volatility, uncertainty and change.

With Necessity Comes Invention

Technologies such as inventory optimization have emerged that augment and complement ERP systems to bridge the 'volatility-uncertainty gap.' Inventory optimization technology uses sophisticated mathematics to model crucial aspects of supply chain behavior and analyze how different parts of the chain depend on each other. Inventory optimization intelligently quantifies and 'dollarizes' the effects of volatile shipment lead times, fluctuating demand, imperfect forecasts and many other factors. The result is a set of recommendations for inventory levels and policies that minimizes the amount of working capital tied up in inventories while guaranteeing that customer service levels are met.

Managing inventory can be a daunting task for an enterprise with tens of thousands of products that are spread across hundreds of locations. The challenge is even greater when the locations are situated in different tiers or echelons of the enterprise's distribution network. In such multi-echelon networks, new product shipments are stored at a central facility, and then sent to local distribution centers prior to being shipped directly to the customer or store. All locations may be under the internal control of an ERP system that lacks visibility up and down the supply chain and across multiple levels. This system cannot create successful replenishment strategies for multiple echelons.

In this case, inventory optimization complements the ERP system by taking available (and often incomplete or flawed) supply, demand, forecast and production data from the ERP and related transactional systems, and returning optimal inventory targets back, right down to the individual product level. Inventory optimization tools formulate optimal policy decisions and can feed them into the ERP system for execution. To the ERP system it looks just like business-as-usual -- more detailed facts to handle -- because the optimization "magic" was done outside the system, where the factors of change and volatility were transformed into fact-like data the ERP system knows how to process.

With a multi-echelon approach to inventory optimization, demand forecasting and inventory replenishment decisions can be made at the enterprise level. Each echelon has visibility into the other echelon's inventory. The primary customer demand signal and other information at the distribution centers drive the forecasts in all echelons. In each echelon, order cycles are synchronized and replenishment decisions account for lead times and lead-time variations of all suppliers.

The only way to thwart the problems caused by volatility and uncertainty is to gain visibility into all the factors needed to improve inventory decisions across the supply chain. A multi-echelon inventory optimization solution can drive global supply chains to peak efficiency by recommending precise inventory levels, lot sizes, replenishment plans, and locations from end to end -- and help inventory planners decide where and how much stock to maintain to buffer against uncertainties.

For several years supply chain managers at industry-leading companies have been implementing inventory optimization programs to complement their ERP systems. The results are compelling: many have reduced inventory by 20-30%, dramatically improved service levels, and reduced cycle times by 15-20%. At a time of unprecedented uncertainty, it's one fact that has been reassuringly reliable.

Fred Lizza is CEO of Optiant. Optiant provides a robust multi-echelon inventory optimization solution called PowerChain. www.optiant.com

The Competitive Edge -- The Trillion-Dollar Club and the Health of U.S. Manufacturing

The Competitive Edge -- The Trillion-Dollar Club and the Health of U.S. Manufacturing

The United States must take steps now to participate in the high-growth promise of these emerging economies.

Wednesday, April 15, 2009
By Thomas J. Duesterberg

The Peterson Institute for International Economics (IIE) has taken to calling six large emerging economies the "Trillion-Dollar Club," as all have, at least before the current recession, passed this threshold in national output. This group of nations -- to which I would add the Association of Southeast Asian Nations, or ASEAN -- is crucial to near-term global economic recovery, to the long-term health of the global economy, and especially to U.S. manufacturing.

Together, ASEAN plus the six -- China, Russia, India, Brazil, Mexico, and South Korea -- account for about 20% of world GDP. Emerging markets grew at an 8.3% rate in 2007, compared with 2.7% for the advanced economies. In contrast to the financial crisis of 1997 when many emerging markets were at the epicenter of the crisis, most of these countries have shown relative stability in the current recession -- in large part due to the lessons they learned in 1997.

Indeed, they could well help lead the world out of the 2008-2009 downturn. China especially has a robust stimulus plan in effect which IIE's Nick Lardy estimates will lead to a bottom in that country's slowdown this spring and a return to as much as 9% growth in the second half of 2009. India, Korea, and Brazil all have withstood the worst of the downturn and, together with ASEAN, could recover quickly if the massive stimulus in the United States and China manages to turn these economies around.

As we look beyond the debilitating recession still plaguing us, the six plus ASEAN will be a prime pillar of growth. The collective GDP of this somewhat artificial grouping is large enough to be an "engine of growth," has a higher potential growth rate than the debt-ridden and consumption-saturated industrial countries, and so is likely to be the primary focus of increased demand for manufactured goods once global recovery begins.

To take advantage of the growth opportunities, however, U.S. manufacturers will have to regain lost market shares both domestically and, especially, in Asia. About 30% of U.S. exports went to this grouping in 2008, but only 18% if free-trade partner Mexico is excluded.

Moreover, we have lost market share in the vital Asian region, primarily to China. Between 2000 and 2008, China increased its exports to other Asian destinations by 400%, while we saw an increase of only 19%. China now has more than twice the U.S. market share in Asia, the fastest-growing and most populous region in the world.

Several steps are needed to promote U.S. competitiveness in these markets. China, Korea, Japan and ASEAN have been aggressive in recent years in building a web of free-trade agreements (FTAs) spanning most of Asia. India is now negotiating entry into this network. At a minimum, the United States will have to find a way to join this free-trade network, or risk losing even more market share. A vital first step is ratifying the U.S-Korea FTA. Our trade with FTA partners is largely in balance.

Additionally, we will have to find a global path to rebalance the undervalued Asian currencies, an action which also will contribute to global economic stability in the coming decades and, hopefully, accelerate consumption growth in Asia.

Finally, in terms of domestic policy, the United States cannot keep undermining the competitiveness of manufacturers by raising taxes, imposing ever tighter controls on the energy economy, and stifling innovation through tighter regulation of private firms.

Dr. Duesterberg is president and CEO of the Manufacturers Alliance/MAPI, an executive education and business research organization in Arlington, Va.

©2008 IndustryWeek. All Rights Reserved.

Global supply chains and the CIO

Global supply chains and the CIO

---

InformationWeek has a very interesting and timely article entitled “Global CIO: Global supply chains and the CIO.” This discussion goes hand in hand with what I’ve been thinking (and blogging) about recently. (See my post last month “The right supply chain management priorities during the downturn position you for future success“) Our natural inclination during a recession is to batten down the hatches and wait out the storm. Stop all spending, suspend projects, layoff anybody not critical to the functioning of the business. The question to ask is “How does this strategy position my company after the recession ends?” Don’t get me wrong. Companies should always be looking at trimming projects, processes and people that don’t contribute value to the organization. Cut out the fat so to speak. However, when these cuts start cutting into meat and bone, you’ve left your company weaker rather than stronger.


In fact, recessions are exactly the time to make careful, strategic investments in your business. In your article, you’ve identified some great areas on which to focus, both for cost cutting and for strategic investment. Some additional areas of investment are as follows;

1. Implement lean manufacturing: Take apart your processes, examine each piece, identify which steps add value to the customer and which steps are waste. Then you put the process back together, keeping the parts that add value and discarding the steps that don’t. Once you have your internal processes in order, reach out to suppliers and customers to help them improve. Then you continuously improve. Sounds simple but it’s devilishly difficult to do – especially when you are struggling to meet demands. But then again, in a down market meeting demands isn’t such a big issue…
2. Implement Sales and Operations Planning (S&OP): S&OP provides two key benefits; visibility to demand and supply projections into the mid to long term (typically 12- 18 months) and the ability to bring the various departments together (Sales, Marketing, Supply Chain Management, Finance) to define a plan that all understand and agree to.
3. Implement a Supply Chain Risk Management process: Companies that have the tools and processes to predict and mitigate risk as well as respond quickly when the unexpected happens will be able to survive a supply chain event relatively unscathed.
4. Implement tools and processes to help you respond to change: Successful companies have tools and processes that allow them to very quickly react to change and re-align on a corrected course. To successfully respond to changes you need tools that deliver supply chain visibility, provide the ability to simulate changes and responses, enable collaboration with your team inside and outside the company and provide alerting mechanisms to let you know when something has happened.

The interesting thing about these investments is that while they position your company for growth when the recession ends, they also are excellent tools to help you manage your business during the recession. And that can’t hurt.


John Westerveld is a Product Manager for Kinaxis, provider of the on-demand RapidResponse service that empowers multi-enterprise manufacturers with the collaborative and integrated demand-supply planning, monitoring, and response capabilities.

PepsiCo, GlaxoSmithKline

PepsiCo shook up the fizzy-drinks industry by offering $6 billion in cash and shares to take full ownership of its two biggest bottlers. Tighter control of its distribution system will help PepsiCo to ship products to big retailers more efficiently.

GlaxoSmithKline (GSK), a drugs giant, agreed on a $3.6 billion deal to buy Stiefel Laboratories, a dermatology firm. The purchase is part of a strategy to reduce GSK’s reliance on blockbuster drugs by focusing more on consumer health-care products.

China cars: Double standards

FROM THE ECONOMIST INTELLIGENCE UNIT
April 16th 2009
China is the world's second largest car producer, yet its cars are supposedly still not safe enough for western markets. What is going on?

China has overtaken the US as the world’s largest new vehicle market, and is already the world’s second-largest producer of cars. Yet this size appears to mean nothing abroad, with Chinese car-makers not even registering in the world’s dominant three markets of North America, western Europe and Japan. Now, one Chinese car-maker’s renewed – and once again failed – attempts to pass European safety standards are leading to accusations of foul play from certain motoring groups.

A total of 1.1m new vehicles were sold in China in March 2009, a monthly record and far outnumbering the 857,735 sold in the depressed US market. This is now the third month running that China has outsold the US, making it the world’s largest new vehicle market, while it is second only to the US in terms of production. Yet the profile of Chinese car-makers abroad is still spectacularly low, with Chinese brands woefully under-represented in all corners of the world apart from the handful that are very slowly starting to appear in Russia, the Ukraine and a few other Eastern European and South American markets.

Of course, the Chinese market itself is not dominated by domestic players. Germany’s Volkswagen Group is by far the largest seller of cars in China, followed by various Japanese, Korean and US car-making groups, including General Motors, Toyota, Honda, Nissan and Hyundai. If Chinese consumers themselves prefer to buy established, foreign brands with their attractive designs and more sophisticated technologies then what hope do the Chinese manufacturers have in penetrating the sophisticated home markets of their older and more established rivals?

The marriage of Chinese carmakers to Western counterparts was supposed to address some of these issues, by allowing local car-makers to tap into the technological expertise of their more experienced partners. Germany's Volkswagen hooked up with First Automotive Works (FAW) and Shanghai Auto (SAIC), which is also a joint venture partner of GM of the US. Japan's Honda and PSA of France have both joined forces with Dongfeng, while Germany's BMW is in bed with Brilliance Auto. There are countless other Chinese/western car and commercial vehicle making alliances. Yet in reality, the Western brands have benefited more from these alliances in terms of their access to the vast Chinese market than has happened the other way round.

Playing Fair?

Branding and perception issues aside, one of the biggest challenges that Chinese car-makers have is matching the stringent safety standards insisted upon by US, European and Japanese authorities. So far, they have failed miserably in this area. This was exemplified best by the experience of Chinese car-maker Brilliance Auto, which in 2007 was forced to put its European export plans on hold after one of its cars allegedly recorded the worst crash test results in the history of one European motoring association.

The treatment that Brilliance has received ADAC – which is Germany's and Europe’s largest consumer motoring body - has been questioned, however. The video of the disastrous crash test, which was supposedly carried out under Euro-NCAP conditions found its way onto YouTube, thereby ensuring global damage of the Brilliance brand and obliteration of the name in Europe. A subsequent test carried out in Spain which gave the same Brilliance BS6 car three Euro NCAP stars, as opposed to the one star it received in Germany, attracted nowhere near as much attention.

More recently, ADAC subjected another Brilliance car – the new BS4 – to more Euro NCAP style testing. Yet again, the car failed miserably, gaining no stars whatsoever this time, despite the fact that the BS4’s safety credentials were significantly improved on those of the BS6 which was originally tested.

As acknowledged by ADAC, however, the conditions of the new test were somewhat unfair. Although the BS4 was introduced in October 2008 when the old Euro NCAP rules were in place, the car was tested under the brand new, and considerably more stringent Euro NCAP rules. Under the old rating system, the car would have been awarded three stars, the same as a number of other European best-sellers including several Audi, Fiat and VW models.

ADAC’s treatment of Brilliance has led some to criticise it of foul play, even including one leading German business magazine. A lack of electronic stability control (ESC – or sometimes referred to as ESP) on the car, which seemed to automatically disqualify the BS4 from gaining any stars in ADAC’s eyes was judged as particularly unfair. The new Euro NCAP rules actually state that a car without ESP cannot be awarded the full five stars, no matter how well it performs on other tests but not that it should fail outright. More to the point, ESP is not even mandatory yet in the EU, although it is likely to made so in the future.

The fact that the tests were not carried out by Euro NCAP itself raises more questions. Indeed, Brilliance does not feature anywhere on Euro NCAP’s website, leading to suspicions about the accuracy of ADAC’s interpretation of Euro NCAP style testing. Perhaps most ironic of all is that Euro NCAP is not even an official standard, and there is no legal need for a car to pass its tests before it can be sold in Europe.

It is clear that the road into western Europe, not to mention the other difficult-to-crack markets of the US and Japan, is going to be a long and arduous one for Chinese car-makers, and indeed for manufacturers from other emerging markets. National motoring groups such as ADAC with their own agenda and keen to protect the interests of their domestic industries will not be making it any easier. As always, politics are at play here just as much as genuine safety concerns.

On the upside, the initial positive press that other non-established brands and cars have so far gained – notably India’s Tata Nano – suggests that new brands from emerging markets do have a chance of success if the process is managed well. Brilliance itself is not giving up, with the head of its European importer – himself a former VW board member - recently talking up the brand’s imminent European success, not least as it prepares a whole range of models to compete in Europe. With the recession and credit crunch tightening up purse strings in all markets, this could pose an opportunity for lower-cost emerging market brands to strike. But before they do so, they must be armed with a full set of ammunition, ready to fight off their adversaries