Monday, September 29, 2014

New Hubs Arrive to Serve “ Just in case” inventory

Major natural calamities and events  like Hurricane Sandy  have forced companies following Just in Time inventory management plan to shift to Just in Case inventory management plan . Companies employ this technique to increase efficiency and decrease waste only as they are required to reduce their inventory levels and cut off the tied up costs. Thus any catastrophic event may halt the manufacturing process, which adversely affects the sale and profits.  A Just in Case inventory management plan however allows to keeps large inventory which reduces the risks of loss of sale, however increases the tied up capital costs.
This shift has led retailers and logistics department to alter supply chains by adding distribution centers. This is creating a growth in the real estate markets outside the traditional seaport hubs too.  Just in Case planning reduces the vulnerability of Just in Time planning by stocking the merchandise in different regions, which can be used as a backup in case any region’s supply chain is disrupted by an event.  For example the Hurricane Sandy which hit New York and New Jersey, and the 2002 lockout of International Longshore and Warehouse Union workers from the West Coast seaports delayed the unloading of container ships.
Ranger Steel, a company based in Houston, the largest privately owned steel plate distributor in the US, used to ship their products from the port of Houston till late 1990’s. The low transportation costs, declared this type of distribution the best solution. However with the increase in the fuel prices and new governmental rules on insurance coverage for truck drivers, the expenses for transportation increased tremendously. Thus the company added distribution centers to its network, cutting down the transportation time for 3 weeks to 24 hours.
The online retail stores too have started to expand their distribution centers as a result of competition and provide rapid shipping in order to cut down on transportation costs and taxes associated. Amazon, for example opened new fulfillment centers in nearly a dozen states across the US.
Thus reduced transportation costs, reduced risks of sales loss and increased customer satisfaction are the pros for the Just in case planning technique. However striking a balance between maintaining minimum inventory yet not running out of stock is the greatest challenge to avoid capital loss.

References-

Just in Case- http://www.investopedia.com/terms/j/jic.asp

From Modular Design to Mass Customization



From Modular Design to Mass Customization

Nowadays, people's living standards continues to improve and the need of people is getting increasingly diversified. Instead of mere consideration on price, most people purchase a product according to their individual preferences. Therefore, manufacturers are competing more and more intensely, not only on price and adaptability but also on the variety of products, which are all driven by customer satisfaction.

Face with a variety of customer’s requirements, customization production is becoming more and more popular for a firm to achieve variety and high customer satisfaction. Traditional view may holds that individual customization must have cost a lot, yet the advent of mass customization address the tradeoffs between cost-saving and customization effectively. Its rapid and low-cost production of goods and services satisfies unique customer desires, accompanying with standardized high volume production. Modular design is one of the most efficient means to facilitate mass customization and I think it is the key to the success of mass customization.

Modular products refer to products assemblies and components that fulfil functions through the combination of distinct building blocks or modules. To put it simply, modular design is a form of standardization in which component parts are subdivided into modules that are easily replaced or interchanged. Due to standardization, it allows easier diagnosis and remedy of failures, easier replacement and simplifier manufacturing and assembly. Taking Dell as an example, Dell's competitive advantage is in its process strategy, which is mass customization. It spends most of its research budget on efficient installation and configuration of PCs, rather than on new computer parts. Based on its existing sourcing and production of components, Dell uses the component sharing modularity. By using modules, the product can be quickly assembled. With customized and order-based assembling, Dell not only meet the need of different customers but also enjoys a reduction on its total cost. Another case for modular design is Lego. With its simple products that consist of small colored bricks, Lego provides children not only the real toy but also the unique experience of fitting the parts together and make their own customized toy. Looking at the operation of IKEA, it is even more evident when you walk through the pickup district to find the components of your favorite furniture and then go home to construct products by yourself. Many people are fond of IKEA just because they love this kind of lifestyle, which develop an attachment or sense of pride to the finished furniture.

In such a rapidly growing society, advanced technologies is emerging at leaps and bounds. New and creative products almost springs out every day. As a result, there are increasing uncertainties for the companies to forecast the need of customers. Companies can suffer from correspondingly sales decline if there occurs a changing market trend. Therefore, using a different combination of modules allows for quick and easy customization, as well as high volume of production.

Technology in Supply Chain Management

Supply Chain Management involves the management of several interconnected business entities like the manufacturer and distributor in order to ensure that the end product reaches the customer in time without the quality of the product being compromised. Throughout the process, the exchange of information between every step is important for effective decision making. Many years back, supply chain management was something that was not given due importance. Even the customers were less demanding and more patient. Therefore, customer satisfaction was not a huge challenge. But now, with the increasing use of technology and changing times, using technology in supply chain management has become inevitable.

Now, technology in supply chain management is much more than the use of computers. Companies use speech recognition, digital imaging, radio frequency identification (RFID), real-time location systems (RTLS), bar coding, GPS communication etc. to improve their processes. Even factories use technology in the form of automated processes, data recognition equipment etc. These updated processes help in increasing the efficiency and reduce time such as reduction in cycle time due to automated factory process (1).This also ensures that the customers receive their goods on time, building on the reputation of the company and thereby maintaining customer loyalty.

Companies use technology in broadly three areas: transaction processing, supply chain management and order tracking and delivery (1). In transaction processing, technology helps in order processing, billing, tracking delivery status etc. For supply chain management, it helps in planning and collaboration thereby increasing efficiency. It helps in processes like analyzing customer feedback, maintaining inventory levels, demand forecasting, determining production capacity etc. This kind of data also helps in the implementation of lean management techniques. For order tracking and delivery, it helps in tracking shipments and ensuring that the order reaches the customer in a fixed stipulated time. Organizations are also using a technology called Electronic Commerce, where transactions are completed using electronic media like electronic data interchange (EDI), electronic funds transfer (EFT), CD-ROM catalogs etc. All required information is recorded electronically with minimal human intervention (2).

It’s very natural for companies to implement technology and upgrade their processes to stay in the market and to be competitive. However, there are some concerns regarding the use of IT and technology such as implementation costs and user-friendliness for their optimum use. A lot of companies going through mergers and acquisitions have to collaborate their internal processes. How do they deal with the change? And more importantly, how do they manage and train their employees to use technology?



References:
2.    2.   Importance of information technology for effective supply chain management - http://www.ijmer.com/papers/vol%201%20issue%202/BU012747751.pdf


Technology An Underused Tool In Emerging Market Supply Chains


We humans always use technology to do things easily and efficiently. Technology improves efficiency as it follows certain rules set by us, which are not easily over ruled. Thus operating at a point where optimal result can be achieved. In fact, businesses that operate at a large scale will have a hard time managing with out the use of these technologies. However, a recent study by Accenture has concluded that technology is an underused tool in emerging market supply chains.

The study has identified the leaders and non-leaders in the market to observe what traits are followed, that have set them in the position they are in. As expected, Market leaders are more inclined towards implementing technologies that support their emerging market presence. It is found that nearly three quarters of the leaders made heavy investments on automation tools such as manufacturing systems, ERP and supply chain systems. This supports the argument that use of technology in supply chains improves efficiency that helps businesses to remain as leaders.

Integrating to collaborate is one key point that every business needs to keep in mind before implementing new technologies. The use of technology should only help all the departments to reduce the amount of work they do and maintain the flow. This is important as otherwise it would instead increase the time taken in performing tasks related to reporting to the system.

Firms have been implementing software’s like Access delta and KPI technology, which perform different tasks in the warehouse. But collaborating these software’s results in a better efficiency. Access delta provides a graphical warehouse map that enables real time inventory management whereas KPI manages warehouses and wider supply chain performance. So, it is important to have a holistic approach in implementing technology in supply chains to be successful in the market.

Though implementation of technology has many benefits, the cost of implementing has always stopped small businesses from automating completely. In most of the cases, the big companies that implement these software’s have maximum benefit and the small businesses tend to use them later. In some cases, these software’s are so expensive that it never allows the small business to afford such software’s. Can we have software companies pricing them according to the business size so everyone can afford it?


Sources:

http://www.mbtmag.com/news/2014/09/study-technology-underused-tool-emerging-market-supply-chains

http://www.supplychainstandard.com/2014/09/integrate-to-collaborate/

ModCloth – Social Media and Customer Engagement as Drivers of Online Retail


Over the course of the last few weeks, we have continually learned how variability is bad, yet can be a driver of innovation. Rettig’s article highlights this dichotomy quite well. On one hand, technological advances bring the hope of endless possibility and revenue, while the reality of incorporating change or superimposition of new systems on obsolete ones results in added expenses, human error and long lead times. While Rettig’s tone is on the negative side, I feel that she fails to take stock of companies such as ModCloth, who came to the table after the tech boom, and who seem to have harnessed the power of technological innovation.

ModCloth is an online retailer akin to Starbucks – they not only sell clothing, they sell a user experience. Not only do they allow the user to dictate what wares they stock, they have also created a sense of community and social responsibility (Adamzcyk) that caters to their target end-users:

















Casserly’s article, “ModCloth Hits $100 Million In Revenue, Gives Social All The Credit” highlights how leveraging social internet communities and analytics can translate into revenue. In part, this sense of community comes through peer quality assessment and sharing (photos of users wearing said merchandise), which ModCloth in terms monitors.

Using analytics to predict user behavior is, simply put, ingenious. Using the user input on what they want to purchase – ModCloth has an option where you can add out-of-stock merchandise to your cart, and subsequently be alerted when it is available - most likely cuts down on over-stock and the sense of stock-out. Similarly, keeping costs low by not having a physical location and having a pretty bare bones staff, probably keeps revenue high.

Clearly, tapping into the social media and user interaction/crowd-sourcing can be effective as Gandhi mentions.  However, from my own experience I still feel that Rettig’s concerns are well grounded, especially for companies who have been around for a while.

For example, Kaplan is a rather well-established test-prep company and one I used to work for. When I began as a front desk clerk in 2005, they had just begun transitioning over their DOS based purchasing System (DK Web) to a newer, simple interface system (Kaplan Business System or KBS), where purchasing  and class scheduling were integrated. The full transition took more than 5 years, with the first few years being quite bumpy, as employees were using both systems simultaneously. By the end of the changeover, KBS ran slowly a lot of the time and felt like it was due for an overhaul. Maybe it would have been cheaper and less frustrating to look at alternatives, which involved just starting over.

This brings me to the question week’s reading left me with. My question is whether the real problem is not that of mitigating technological obsolescence, but rather recognizing upfront when technology change will likely become obsolete at the end of the implementation phase and deciding to start over – a tabula rasa - even if the upfront cost is greater?   

References
Adamczyk, Alicia. "Not A Size 2? ModCloth Wants Your #FashionTruth." Forbes. Forbes Magazine, 4 Sept. 2014. Web. 28 Sept. 2014. <http://www.forbes.com/sites/aliciaadamczyk/2014/09/04/not-a-size-2-modcloth-wants-your-fashiontruth/>.

Casserly, Meghan. "ModCloth Hits $100 Million In Revenue, Gives Social All The Credit." Forbes. Forbes Magazine, 23 July 2013. Web. 28 Sept. 2014. <http://www.forbes.com/sites/meghancasserly/2013/07/23/modcloth-hits-100-million-in-revenue-gives-social-all-the-credit/>.

Gandhi, Anshuk et al. "How technology can drive the next wave of mass customization." McKinsey & Company. McKinsey & Company, 1 Feb. 2014. Web. 28 Sept. 2014. <http://www.mckinsey.com/insights/business_technology/how_technology_can_drive_the_next_wave_of_mass_customization>.

"ModCloth YouTube Case Study." YouTube. YouTube, 27 July 2012. Web. 28 Sept. 2014. <http://www.youtube.com/watch?v=05HcERLr98Q>.


Rettig, Cynthia. "The Trouble With Enterprise Software | MIT Sloan Management Review." MIT Sloan Management Review RSS. N.p., 1 Oct. 2007. Web. 28 Sept. 2014. <http://sloanreview.mit.edu/article/the-trouble-with-enterprise-software/>.

Technology and Supply Chains – Current Trends and Future Predictions

Sarah Foster
Blog Post #5 -Connection to Week 6: The Role of Technology and the Web on Global Supply Chains

Technology and Supply Chains – Current Trends and Future Predictions

This week’s readings focused on the increasing role of technology in supply chains.  To learn more about technology’s current and predicted influence I read two articles: Supply Chain Matters’ “Trends that Will Shape the Supply Chain in 2014,” and Forbes’ “Supply Chain and Logistics Predictions for 2014.”

“Trends that Will Shape the Supply Chain in 2014,” Supply Chain Matters, Supply Chain 24/7, January 28, 2014, http://www.supplychain247.com/article/trends_that_will_shape_the_supply_chain_in_2014.

Steve Banker, “Supply Chain and Logistics Predictions for 2014,” Forbes, January 10, 2014, http://www.forbes.com/sites/stevebanker/2014/01/10/supply-chain-and-logistics-predictions-for-2014/

Key trends highlighted in Supply Chain Matters are: the predicted growth of e-commerce; the growing importance of social media; the technological advancements of 3D printing; the increased applicability of big data; cloud computing to improve resiliency; the importance of emerging markets; and the increased complexity of urban deliveries. I will elaborate on two of these trends: e-commerce and urban deliveries.

Companies are relying more and more on e-commerce to maintain and increase revenue. Companies will need to revamp supply chains so that they can account for “more items going to homes and fewer to stores.”[1] This relates to the Home Depot article that delineates the retailer’s strategy to manage e-commerce growth. Home Depot is offering additional products online that so “associates at Home Depot stores will be able help customers find and buy items by offering them a broader array of merchandise through access to the retailer’s extensive online inventory.”[2] I think that Home Depot’s strategy will work, so long as they have a sufficient number of knowledgeable employees in stores to ensure that customers that do find what they want in the physical store will find what they want on the website.
  •          What strategies would you propose to a company that needs to manage an increased online demand?

Cities are becoming more congested and setting higher environmental standards.  The article states that “retailers, manufacturers, and logistics companies therefor need to work together to make their delivers more environmentally friendly: through using alternative vehicles, load sharing or other innovative solutions.”[3]  This makes me think of Amazon’s experiments with drone delivery, and I think that in the emerging markets, where air traffic regulation is at a minimum, numerous companies may implement drone delivery strategies in the future.  I think that if a company is a leader in this innovation (like Amazon) then that company will have a huge competitive advantage in regards to emerging markets in developing countries. I think this because developing countries do not have the extensive, maintained road and highway infrastructure that is present in developed nations. 
  •          Do you think companies will begin to build distribution centers and warehouses close to emerging markets? Under what circumstances would this result in a substantial competitive advantage?

The second article, Supply Chain and Logistics Predictions for 2014, forecasts: the growth of natural gas fleets; an increase in the use of robots; the rise of Omni-channel courier companies; and supply chain software becoming more user friendly.  One reason the author predicts a high return on investment for running natural gas fleets is that “the price of this domestically generated fuel going forward will be much less volatile than oil and gas products that are sources from some very unstable regions of the world.”[4]  I wonder if exporting natural gas will cause prices to increase in the United Sates.

The article mentions Kiva Systems, which was discussed in class, and predicts the eventual omission of people in warehouses.  I think that the prevalence of robots combined with 3D printing technology will cause huge disruptions in the future in regards to a decreased number of jobs.  The article also discusses Omni-channel courier companies, claiming “to achieve higher volumes, multiparty retailer/courier collaboration would be very helpful… if one courier was delivering orders for several retailers in a metropolitan area, route forecasts would be more accurate while the cost per delivery would go down.”[5]
  •          Do you think some retailers and/or industries would benefit more so that others from Omni-channel courier companies and e-fulfillment warehousing specialists? Why?




[1] “Trends that Will Shape the Supply Chain in 2014,” Supply Chain Matters, Supply Chain 24/7, January 28, 2014, http://www.supplychain247.com/article/trends_that_will_shape_the_supply_chain_in_2014.
[2] William B. Cassidy, “Home Depot’s New Strategy Tied to E-Commerce Growth,” Journal of
Commerce, August 18, 2014, http://www.joc.com/international-logistics/distributioncenters/home-depot’s-new-strategy-tied-e-commerce-growth_20140307.html
[3] “Trends that Will Shape the Supply Chain in 2014,” Supply Chain Matters, Supply Chain 24/7, January 28, 2014, http://www.supplychain247.com/article/trends_that_will_shape_the_supply_chain_in_2014.
[4] Steve Banker, “Supply Chain and Logistics Predictions for 2014,” Forbes, January 10, 2014, http://www.forbes.com/sites/stevebanker/2014/01/10/supply-chain-and-logistics-predictions-for-2014/
[5] Ibid. 

Technology and SCM in Small Businesses

My parents own a small business here in Pittsburgh called Extended Day Services (EDS), which is before and after-school child care service that runs directly in conjunction with the school districts it serves. So, instead of driving your kid to another location for after-school activities while you finish off your shift at work, the child remains within the confines of the school he or she normally attends, but is entertained by employees - often also certified teachers - of my parents' company. Here's a little shameless self-promotion :) - http://www.extendedday.com/

Anyway, EDS started before I was born when my parents were newly-weds, and the number of clients was puny. We're talking 25 kids in one school district. Since then, however, the company has expanded tremendously to include 20 different schools in 8 districts spanning from Upper St. Clair, PA to Beaver, PA. My dad is the tech geek behind this operation, and as you might imagine, his job has become increasingly more complicated as my mom writes to other school districts about how EDS can help their families - and obtains their business.

Now, the Forbes article that we had to read for this week only talks about the role of cloud computing in the supply chain of huge, international businesses like Samsung, P&G. My parents' company will surely never be that big, but I think it's important to emphasize that cloud computing and other technology is just an important for smaller businesses when it comes to managing supply chain functions.

EDS ultimately offers services, not products, but in order to provide children with an enriching after-school experience, my parents have to keep track of a million things that they order, receive, and then send out to the different school districts - paper, markers, snacks, etc. My dad's job is essential to keeping all of that organized. He built (and now maintains) a central database for these different transactions that keeps track of how many boxes from the latest order of Oreo cookies go to Eisenhower Elementary School, for example, or how many bottles of green paint were delivered to EDS's administrative office. This information ensures that each EDS location has ample supplies for each week. Data like this is also stored in a cloud and analyzed at EDS as branches of the company grow. For instance, if 50 boxes of colored pencils were delivered to Peters Township Middle School in 2013, and that particular EDS location has seen growth in the last year, then EDS staff in charge of ordering goods knows to purchase more the next time an order in placed.

The Forbes article also mentioned that "only 12% of enterprises have "extensive" communications with their network, while a quarter are still relying on e-mails, phone calls, and faxes." Here is where a small business excels in terms of communication within a supply chain. Since there are fewer people with whom to communicate in a smaller company, "agile, real-time communication," as the article calls it, is much more sustainable. At EDS, one central administrative office houses everyone, making communication really easy. My parents are always talking business, even when they aren't at work; for EDS in particular, this is a strength and a potential reason why it has expanded. My dad's nifty database is nice too, since it shares analytical information with everyone in the office. Collaboration is also mentioned in the article as being key to solving supply chain problems faster. Again, small business have a higher tendency to promote more collaboration among employees simply because it's easy. Giant corporations, like some highlighted in the article, have a hard time coordinating meeting times among many employees, making collaboration and real-time communication difficult.

With a combination of technological infrastructure - like the database and the cloud - and the compact size of EDS's central office, I like to think that my parents are doing something right (they're both CMU alumni, by the way!). Do you think that enough small businesses are using technology to their advantage? Is there a way to make these advancements more accessible to smaller companies who don't have technologically savvy employees so that these business can grow too?

Sources: http://www.forbes.com/sites/louiscolumbus/2014/02/12/where-cloud-computing-is-improving-supply-chain-performance-lessons-learned-from-scm-world/


Digitally Empowered Consumers and Online Retail

In an increasingly digitized retail marketplace, consumers have access to much more information, and supply chains have to act in accordance with consumer expectations to stay ahead of competitors.  The growth of the internet has spawned a large online marketplace for consumers to quickly and directly order products.  Online retailers are growing in number of outlets and products sold, and their business operations have to be able to support these orders.  The supply chains have to support the retailers in such a way that they can deliver large volumes of products within a short time frame.

The age of the internet in online retail has also given consumers more of an easy opportunity to compare prices and shop around between different retailers.  They are easily able to research a product, find price and shipping delivery and cost variations, and choose their vendor according to what best fits their immediate needs.  Never before has a price-sensitive consumer been able to so easily choose between different sources of products.

Price sensitive consumers should be a huge focus of online retailers.  People who shop online tend to do so because prices online are generally cheaper than in a physical store.  For instance, electronics are for the most part available for a lower cost through Amazon rather than a retailer like Best Buy.  Since retailers' operating margins depend heavily on selling in quantity, offering a product at a lower cost could mean the difference of thousands of dollars on a larger scale operation.  Retailers, both online and physical, need to therefore appeal to the price-sensitive consumer in order to sell the volumes needed for mass profit.  To offer products for a lower price, the cost of operations, especially shipping and distribution, needs to be minimal.

Retailers can achieve this through closer proximity of distribution centers.  By keeping distribution centers closer together, shipping costs can be minimized.  The time it takes to get the products to consumers is also going to be severely shortened.  Closer distance of hubs will give consumers an incentive to use a specific retailer because they will be able to offer a lower price and a shorter time to receive their orders.

Online ordering for consumers also enables them access to customization.  For instance, when ordering a new Dell computer, customization options are given on a widespread scale, to a point where very few customized systems are alike.  This forces the retailer to keep very good stock of inventory.  Just as consumers are becoming more technology-based, so too are retailers.  They have to have the capability of keeping stock of inventory, tracking orders, and making sure customized orders are being put together as specified by the customer.  Retailers are upgrading their computer systems to optimize locations and inventory parts, track customized orders, and make sure that the final product meets consumer expectations.  Supply chain computer systems have never made it easier for suppliers to track customer orders and give consumers their products in a short amount of time.

Questions for further consideration:

How do consumer expectations influence what retailers they choose?
What role does social media play in perceptions of consumer retailer choices?
How does a "price-matching" strategy for physical stores affect supply and demand in their supply chains?
What is the best way for a supply chain to plan for growth?
Should consumers have transparency for inventory management systems?


Works consulted:
http://www.arabiansupplychain.com/article-10429-is-the-digital-boom-driving-supply-chain-changes/

Mass Customization - The Future of Retail

In any market, “Customer is the King”. Hence, it becomes imperative to provide outstanding service to customers. Flexible work flows and latest information technology allow companies to customize their products and meet their customers’ unique needs at a low cost. Mass customization is described as "enabling a customer to decide the exact specification of a product or service, and have that product or service supplied to them at a price close to that for an ordinary mass produced alternative". Many companies have explored this option to benefit from customer heterogeneity.

Paris Miki is a big Japanese eyewear retailer and has many global eyewear stores. The company developed Mikissimes Design System which eliminates the need to view random choices when selecting a pair of glasses. The process involves capturing a digital image of the customer’s face, analyzing its attributes, inputting customer preferences, recommending lens shape and size and displaying it on the digital image of the customer. The customer is provided options to select hinges, arms and nose bridges to finalize the design. Once the design is decided, the optician assembles the eyeglasses within an hour.

ChemsStation, a company in Ohio, mass customized industrial soap used for car washes and cleaning factory floors. It analyzes the customer’s needs and formulates the correct proportion of soap and other ingredients. The company analyses the consumer patterns and delivers more soap without the customer placing an order. Hence, the customer does not have to spend time reordering goods.

Hertz, a rental car service, changed the processes governing car reservations, preparations and returns to reduce counter interaction and less time consuming. It started the gold service program, under which it assigned vehicles to customers en route and automatically prepared rental agreements. Hertz found out that the gold service actually cost it less than the standard operating procedure.

Ritz-Carlton uses data mining techniques to learn about individual needs and customize the rooms based on their preferences. It stores information about guest such as their preferences for particular radio stations and tv channels, hypoallergenic pillows and their food preferences. It then uses it to tailor the service for the customer’s next visit. Each visit adds more preferences to the customer database and the hotel is able to customize and create a unique experience for its guests. [1]

Nike, a sportswear company, allows its customers to customize clothing using the NikeID service. The customers are allowed to add personal designs to selected items. NikeId attributes for almost 20% of the company’s revenue. [2]

Wild Things, an outdoor gear retailer, offered customizable jackets by allowing customers to select the linen fabric, color combination and even the zipper. It also allowed the customers to remove the pockets or pick the location of the pocket depending on whether the customer was left or right handed.[3] Nowadays customers have the option to personalize the card background image (Disover Card), design their shoes (Shoes of prey), choose the perfect artwork according to space (at60inches) and also make their own serial (MixMyOwn).

Although mass customization is lucrative, companies run the risk of sliding from phenomenon to fad if they pick an overcrowded category. Companies need to strike a perfect balance between the features it allows its customers to customize and standard features. High rate of customization might increase costs and delivery times. One should consider all these factors before adopting mass customization techniques.

[1] Four faces of Mass Customization, Harvard Business Review

[3] http://www.entrepreneur.com/article/229869

Robotics, Big Data and the future of Supply Chains

After reading “How technology can drive the next wave of mass customization” by Mckinsey’s Anshuk Gandhi, I researched the possible effects that advancement in robotics will have on supply chain management, what industries are most and least susceptible to roboticization, and how robotics, in combination with big data, can revolutionize different industries through mass customization. Particularly shocking were the extent to which human labor can be roboticized, the centrality of big data in forecasting in an age when the customer can get exactly what he or she wants whenever he or she wants it, and the implications of robotics on strategic sourcing trends.
                
The industrial revolution fundamentally changed labor by increasing the productivity of humans; machines let unskilled workers make artisan-quality products at a fraction of the cost. The coming revolution is different; as Alexandros Vardakostas, cofounder of the burger-flipping robot company Momentum Machines, said in a recent interview, “[Our] device isn’t meant to make employees more efficient. It’s meant to completely obviate them.”[i] Besides fast food, what other industries will benefit from automation in the coming years?

To answer that, I found a study by two Oxford University researchers, Carl Benedikt Frey and Michael A. Osborne. Their paper, “The Future of Employment: How Susceptible Are Jobs to Computerisation?” estimates that 47% of the entire U.S. workforce could be automated using technology well within reach.[ii] They achieved this estimate by identifying three elements in which robots are currently weak, fine perception and manipulation, creative intelligence and social intelligence. Then, they assigned ratings to 70 occupations in terms of these three elements. Not only could transportation, construction, manufacturing jobs soon be roboticized, but so could office support, sales and low-skilled services.[iii] As companies successfully automate their workforce, their competitors will be forced to automate too or become uncompetitive. This will quickly lead to the automation of whole industries.    

Customization was the focus of the McKinsey article, but the paper doesn’t really explain one important aspect of what makes customization possible: big data. Without big data and without data analytics, it’s much more difficult to make producing custom products profitable. Inaccurate forecasting almost always leads to lost profits, and demand variability is notoriously high when you begin to add hundreds of different options to a product. High variability implies a greater chance of inaccuracy which thus means a greater chance for lost profits. With big data AND a way to analyze that data using analytics thereby reducing variability, technology has finally advanced to a point where mass customization is doable and profitable.[iv]

For companies, the implications are stark. Just as firms that failed to offshore in the 1990s and 2000s found themselves at a competitive disadvantage, so will companies that fail to “next-shore.” From a strategic sourcing perspective, the robotics revolution makes offshoring much less attractive. First, with a vastly reduced labor force, there’s no labor cost arbitrage. Secondly, roboticized workplaces require a highly skilled labor force for monitoring, maintenance and troubleshooting. Thus, factories will have to be built in places with access to these workers. Lastly, companies will have to begin competing on the ability to complete custom orders and deliver them in a timely fashion. To make this possible, companies will have to depend more on big data to adequately predict demand on a wide variety of products AND custom features. Failure to do so will often mean failure of the firm as entire industries move in this more efficient direction.

This leaves me with a number of questions and concerns about the future of supply chains as well as policy. How will companies ensure that they have access to the data they need to deliver their products in an age where privacy becomes more and more of a concern? Will areas with stricter privacy laws than the United States, like the E.U., fall behind due to restrictions on how they can use data? Furthermore, will the public continue to support business friendly policies if companies employ fewer and fewer people (and more and more robots) even as profits soar? Will people replaced by robots be able to find work to support themselves comfortably? Or will there be a public backlash against roboticization? In any event, the future is sure to be an interesting time.



[i] Love, Dylan. “Here’s the Burger-Flipping Robot That Could Put Fast Food Workers Out of a Job.” Business Insider. August 11, 2014. Retrieved from: http://www.businessinsider.com/momentum-machines-burger-robot-2014-8.


[ii] Frey, C.B. & Osborne, M. A. “The Future of Employment: How Susceptible Are Jobs to Computerisation?” Oxford Martin School, Progamme on the Effects of Future Technology, University of Oxford. September 17, 2013. Retrieved from: http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf.

[iii] Ibid.

[iv] Peters, Brad. “The Age of Big Data.” Forbes. July 12, 2012. Retrieved from: http://www.forbes.com/sites/bradpeters/2012/07/12/the-age-of-big-data/.