Monday, September 30, 2013

Drones Deliver in China

The development of technology has greatly changed the business model of supply chain management. Companies adopt sophisticated information technology to keep the information flow fluently and shared among all the stakeholder.

In addition to the information technology, lots of machines or devices has been invented to help automated the supply chain process, and as a result, the labor cost and human error could be reduced. Amazon recently acquires the Kiva System, which provides robots who can move the inventory to the right places. Google's self-driving vehicle just finished the driving test across the nations with only one accident - the self-driving vehicle is hit by a careless drivers. It's not hard to imagine how it will change the supply chain world. Another news that amazes me is that a company named Linkall, which was formed by several recently graduate Chinese students, invented an unmanned plane which will be used for package deliver.

When people talk about drone, they may think of weapon, military, and will rarely relate it to our daily life.  Linkall invented a drone called SmartBee to provide delivery service. Imagine you get hungry after work in the midnight, and order some food online; after a while, your food is delivered by this unmanned plane and you don't even need to go downstair.

The following picture is the first prototype of the drone. The drone is surrounded by four propeller blades, which enable the drone to fly vertically. It has a "hand" at the bottom of the plane, which could grab the package that will be delivered.

The team is working on an improving version of the first prototype. They want to redesign the drone to make it more customer-friendly. They want to make sure that when the customers receive the package, they don't feel like they get the package from a cold machine. 

Hu Jiaqi, one of the cofounder of the Linkall, said that they designed the drone to address to "the last one mile" delivery problem in urban city. In general, more costs occur during the last one mile of the delivery. The logistics company reduce the cost by delivery the products in batch, so they could spread out the fixed cost. Since the destination may spread across the cities during the last one mile, it may require more delivery man during this step. As the labor cost increase, it becomes a more and more important problems. The drone could also improve the same-city deliver, like the food delivery. Since such kinds of delivery usually provides through the day, it would be better to have a "deliver man" who can work 24/7. 

The following diagram shows the pick-up process for the drone. It first lands on the landing area, and then it will be put on the conveyor. Then it will go through the 3D Scan Tester, to check whether the drone have damages. If so, the drone will be moved to the maintenance/parking area. If not, or after the repair, the drone will get charge and pick up the package, standing by the next flight. 

For the security reason, the company want to limit the interaction between the drone and the customers. They designed a deliver box that will be hung outside the building of the customers. The package will be dropped directly to the box. 

Of course, there are still a lot of problems for this business model. Recently, US government has approve the commercial use of drone, but China doesn't have a explicit law on this issue. There are also other alternative to address the "last one mile" problem. In Japan, since the 7-21 connivence store is everywhere (at Tokyo, there is nearly one 7-21 every block), the customers could ask the delivery man to leave their package at the closet 7-21 convenient store. Compared with the drone, this alternative seems much cheaper. And there are also security reason. How to make sure the plane won't hurt people? How to make sure the safety of the product? However, I am still pretty excited to see such a great technology happening the supply chain, and I believe the problem will be solve someday. 

How Hospital Supply Chains are improved using IT

The importance of hospitals using effective supply chain methods boils down to bottom line profits and improving patient care. According to Booz Allen, “Supply chains in hospitals can account for as much as 30 percent of total hospital costs.”[1] Procurement as part of the supply chain comes very expensive when it comes to hospitals. It seems that there is no direct alignment between savings and the parties buying supplies for hospitals. According to the Arizona School of Business, hospitals usually buy the things that doctor’s request, without much consideration to costs. This is why being able to know where the savings in every part of the supply chain is important.
IT can be used to effectively manage costs and cut back where hospitals are using a lot of money. For example, electronic medical records provide hospitals the ability to cut back on paper use. Electronic medical records(EMR) are a patient’s health information that can be accessed anywhere if there is a web connection or internal network connection. It allows patients the ease of easily switching doctors and even the ease of seeing a specialist doctor, when not seeing a primary physician. In addition EMR allow access to health information at anytime and anyplace.
According to Reuters digital health records may save some money[2]. The possibilities with EMR are endless. Administrators within hospitals can now see how many different things the hospitals are treating, who was treating, the length of time a patients takes to recover, all because the information is available electronically[3]. It would take long hours to input all of the patient’s information from a piece of paper to a computer. With EMR, the process is simplified. No more paper copies of health records that have to be mailed if switching physicians and no more data loss. Doctor’s will have accurate information about a patient if they have EMR. Hence, in the long run EMR help save hospitals money and therefore cutting down on supply chain costs.
What are some ways that IT can help other service areas besides medicine? Does IT always help trim back on service industry costs? What about the training costs of implementing IT to reduce the total supply chain costs?


Cloud Computing & Its Adaptation to SCM

  Its interesting to see how cloud computing has advance over the last few years. Like most technological advancements, people are drawn back but once its catching on its the new craze. Living in the Bay Area I encountered an array of technology wizards who large proponents of the cloud technology. I was fortunate enough to go to a DreamForce conference that is hosted by SalesForce every year. At the event there of the worlds largest companies in the world that are adopting the cloud technology. Now with the advancements that the technology has seen in the last couple if years it has been applied to other area of businesses, not just databases.

Yet in retrospect I never thought cloud computing could help out with a companies supply chain, hence it is interesting to see how companies are using the cloud technology to implement to better implement SCM techniques. The article from details how companies are now slowly adopting cloud technology despite the initial push back. Ian Finley, vice-president of research at AMR research says "it revolves around political issues that require a change of mindset. People have to think of themselves as part of supply network rather than as individuals, and it is a difficult shift." 

The push back from this can be associated from the trust a team needs to build around the computing. With the potential of companies SCM being hampered the risk is always there. But given that we live in a technology filled world, I think cloud computing can have a great impact on SCM. I have worked with a cloud based system and they do have their advantages and the ability to access the information any where (as long as there is internet access) is great. It is often user friendly and you can tailor the needs to your company as well. Given that SCM involves a great deal of increasing productivity and efficiency , the has the capability to improve current SCM practices around the world. 

Groceries anyone?

Week six’s topic is The Role of Technology and the Web on Global Supply Chains and I read an article “Technology for A Smarter Food Supply Chain” by Diane Palmquist. It was actually an interesting read because of the correlation between food supply chain and technology. With the changing nature of technology, it is now part of everyday life.

The article goes to explore how customers now prefer online shopping versus going into the actual store. Fresh Direct, an online grocery store has used web technology to  communicate with their customers, suppliers and distributors. A customer can place an order online for  fresh produce and whatever grocery item they desire, and it will be delivered in two days. This optimizes inventory through numerous sales channels. While I have never ordered food over the internet, would you?


Is technology worth it?

In the constantly evolving climate of business, technology is changing the way companies structure their organizations and function in the market place. A lot of companies are adopting cloud technology and technology that allows them to see the inventory of their stores in real time. Although, this emerging technology allows companies to gather large data points on their customers, a lot of companies are struggling to use the information they gathered from the data effectively. Management in a lot of these companies say they hardly have time to actually implement the information they gather from data or they don’t know how to utilize the data. I think companies need to work one education programs to teach their staff the importance of the data they gather and how they can implement what they learn from their data into their business strategies or supply chains. A growing trend with the implementation of technology into businesses is that the technology being implemented is causing more harm than good because people don’t know how to utilize technology to its full potential.
I think it would be beneficial for companies to adopt the Toyota approach to their infrastructure and supply chain. I think the Toyota model is the best method to utilize because it addresses every level of the company to not only eliminate waste but to also change the mentality of the staff. I think this is why Toyota has been successful over the years, by having all their staff contribute to the decision making process, the management at Toyota can have unique perspectives on how to solve problems and improve upon their supply chain. Although, this Toyota model is effective very few companies implement it because it’s difficult to do. Instead a lot of companies just implement lean and hope this will have the same or similar impact as Toyota. With this being said, I wonder if implementing a Toyota model will help companies find better ways to integrate technology into their supply chain and infrastructure?

GHX Award Winning Healthcare Supply Chain Management Solution

Healthcare spending accounts for 18% of the gross domestic product in the United States, with an expected 6% growth rate through 2020.  GHX, a healthcare oriented supply chain management company, focuses on reducing hospital expenses through increasing efficiencies of their supply chains.  They offer products that provide an open electronic trading exchange, procurement and accounts payable automation, inventory management, business intelligence and reporting, with data synchronization between all aspects of the supply chain.

Healthcare faces particularly difficult challenges in managing their costs and supply chains, in that they are regulated by government bodies and are not paid directly by the end consumer, but by third party payers.  With the advent and implementation of Electronic Health Records (EHR) hospitals have access to more information than was available to them before, and are able to increase the quality of their patient care.  This improves larger hospitals’ ability to handle the increase in demand, while smaller hospitals which are unable to employ IT management solutions, have had to close their doors.

GHX offers an additional level of supply chain management improvement over what EHR's afford alone.  GHX offers hospitals access to group purchasing distributors, enabling hospitals to group their purchase orders together, ordering supplies in bulk, reducing the price per unit across the board.  Recently, GHX has released a software solution that enables hospitals and device distributors to have access to and share information through portals that show product usage during specific procedures.  Being integrated through the entire system, this enables easy inventory management feedback, with automated reorder points and dashboards to provide both hospital managers and distributors with additional feedback to improve performance.  GHX has shown that through automating hospital purchase orders and invoices, are better able to track their spending, and save on average $1 million annually to provider organizations implementing their solutions; $3.5 billion industry wide savings in North America since 2010.  Due to their supply chain management solutions, GHX was recently awarded the Global Healthcare Supply Chain Management Award from Frost and Sullivan for 2013. 

What other industries are behind the curve, and could benefit from additional implementation of IT supply chain management solutions?  Are there any situations where having an automated purchase ordering system will create larger problems in supply chain management, through the whip effect, when using data analytics?  Can this be mitigated through looking at average product usage between multiple hospitals?


Joe, a 32 year old, is suddenly noticing some eruptions on his body and decides to schedule an appointment with his physician. The physician calls it to be a common skin allergy and prescribes a particular medication. Not being covered by insurance Joe decides to look out for the best prices and finally orders the medicines online after doing a little bit of background research regarding the firm and its reputation. The medicines arrive on time, neatly packed and carefully delivered. Joe has taken them for a couple of days but sees no apparent changes in his blisters. He meets the physician again and to the worst of his fears finds that he was provided “COUNTERFEIT DRUGS” by his reputable online store! Though Joe was carried away by the lucrative prices anybody can become a victim of counterfeit drugs. At least Joe’s company was reputable and the fraud occurred in the supply chain. Even though this proves that Joe’s background research efforts weren't completely wrong or wasted, it still leaves behind a lingering question pertaining  – “Downstream supply chain security (especially in pharma)”.
How reliable are theses downstream supply chain operations? With essential and life-saving products (like drugs) now being ordered online and shipped to the consumer’s homes what more can we do to assure that the increasing number of illegal medicines that are being shipped from outside the country don’t infiltrate the supply chain. These infiltrations could take a toll on patient’s health causing serious health consequences. What more is needed to ensure that these products reach safely without being manipulated?! “RxTec” could be one of the answers. Not just the downstream supply but all along the pharma supply chain it is essential that any opportunity for drug manipulation or robbery be killed. There might not be a comprehensive solution that we could simply purchase and put in place immediately but there definitely is a way in which we could motivate the industry with examples and inspire the entire system to opt for safer and more secure supply chain.
RxTec refers to a track and trace system developed for the pharmaceutical industry. It has the capability to tag several million drugs with help of software and IT, such that scanning and tracing the number printed onto the products, could give essential information about the location, condition and other needed information relevant to the drug. This IT enabled supply chain was supported by ‘The Pharmaceutical Tractability Enhancement Code’ which intended to balance the security risks and the financial investments needed for implementing this technology. The committee realized that technology development and software designing might take a couple of years but convincing all the folks in this large industry starting from the vendors who provide the raw material through the manufacturers and suppliers and distributors and dispensers, would to be a even harder task.

While it is feasible to visualize a dream wherein every unit of medication will be tagged and made scannable thereby increasing the security of the pharmaceutical supply chain network but would it be feasible to convince the individual entities in this huge supply network, to invest in this technique? A synchronous system of coding and tagging could be beneficial when looked at the system holistically. Unfortunately we are in a situation where it is becoming hard to convince businesses to share any data relevant to patient health (be it even for the good of the patient) and expecting the big pharma businesses to join RxTec as an interdependent entity might prove to be very difficult. Probably legislation could do it by enforcement but for this we need the FDA, Congress and other important stakeholders to give it a more serious thought and prioritize the issue. Nonetheless this system will definitely prove to be useful in the short run (until hackers nullify or defeat its purpose and then we need to begin rethinking the safety of pharma supply).


Boeing’s outsourcing flaws

Federal investigators have grounded all of Boeing's new 787 Dreamliner jets after reports that the aircraft's lithium-ion batteries were overheating and catching fire. Various analysts blame their outsourcing strategies to be the most important flaw behind this debacle. Boeing, an iconic American company that is a symbol of American manufacturing decided to outsource its key components, both nationally and internationally for their new aircraft, the Boeing 787, as a way of lowering costs and accelerating development. The approach was estimated to reduce the aircraft’s development time from $10 to $6 billion.

Source: and

However the end result was the opposite, the project outcome was billions of dollars over budget and three years behind schedule. Boeing adopted this approach not only to reduce cost but, to improve travel experience for their customers by using new materials (carbon fiber, aluminum and titanium) that would allow for increased humidity and pressure to be maintained in the passenger cabin, offering substantial improvement to the flying experience. The lightweight composite materials would enable the 787 to fly nonstop between any pair of cities without layovers. Also, to improve the value for its immediate customers (Airline companies) by improving the fuel efficiency and an electrical system using lithium-ion batteries, resulting in 20 percent less fuel for comparable flights and cost-per-seat mile 10 percent lower than for any other aircraft.

Once the aircraft was released, it became the fastest selling plane in aviation history. The stock price exploded and the C-suite (Corporate suite or important senior executives) received their bonuses. But the reality has since set in. Boeing 787 was subjected to a lot of complaints such as braking problems, fuel leak, cracked windshield and electrical fires, and emergency landing in Japan due to overheating of lithium ion batteries. Critics have blamed the company’s strategy to offshore its suppliers, more than 30 percent came from overseas, including the Japanese-made lithium-ion battery that is one of the prime concerns for Boeing.

Upon careful attention on the manufacturing process of boeing 787, some serious flaws were identified. First is the lack of coordination.  A Boeing aerospace engineer Hart-Smith stated, “It is necessary for the prime contractor to provide on-site quality, supplier-management, and sometimes technical support. If this is not done, the performance of the prime manufacturer can never exceed the capabilities of the least proficient of the suppliers. These costs do not vanish merely because the work itself is out-of-sight.” Boeing did not provide such on-site support to their suppliers. When the suppliers did not perform the necessary coordination, boeing had to send hundreds of their engineers to Tier-1, Tier-2 and Tier-3 suppliers to troubleshoot various technical problems that ultimately resulted in the delay of the 787’s development. A good flow of information from and to the suppliers is necessary to reduce variability in the parent company’s expectation and keep the manufacturing process coordinated with the suppliers.

Second is the risk of outsourcing complicated products. Complicated products like aircraft involve a necessary degree of outsourcing, simply because the firm lacks the necessary expertise in some areas, e.g. engines and avionics. However Boeing significantly increased the amount of outsourcing for the 787 over earlier planes from 30 to 50 percent for their previous models to 70 percent for the 787.Boeing embraced outsourcing in the 787 as a means of reducing costs and the time of development.

But Outsourcing didn’t cut costs and increase profits; instead, it drove profits and knowledge to suppliers while increasing costs for the mother company as told by Hart-Smith. Boeing didn’t follow Hart-Smith’s advice and outsourced the engineering and construction of the plane long before the product was designed and the relative costs established. The results have been disastrous. Boeing’s 787 projects are many billions of dollars over budget and the first planes were delivered over three years late. 


Third is the risk of offshoring. Some degree of outsourcing in other countries is an unavoidable aspect of manufacturing a complex product like an airplane, because some expertise exists only in foreign countries. For example, the capacity to manufacture Lithium-ion batteries lies outside the US (in Japan). Boeing had no choice but to have the batteries made in another country.
While there is nothing in principle wrong with necessary offshoring, the cultural and language differences and the physical distances involved in a lengthy supply chain create additional risks. Mitigating them requires substantial and continuing communications with the suppliers and on-site involvement, thereby generating additional cost. Boeing didn't plan for such communications or involvement, and so incurred additional risk that materialized.
In order to gain an edge over its competitor after losing market share to Airbus in the late 1990’s, boeing decided to focus on reducing the selling cost and provide an improved experience to its immediate (airlines) and secondary customers (passengers). The intention of Boeing was on the right track but the implementation of their supply chain strategies was where they made mistakes. Better coordination and better flow of information between the parent company (Boeing) and their suppliers, and nullifying the innovation risk by proper testing methods could have helped reduce such variability in their products. Other than the suggestions stated above, what strategies do you think Boeing could adopt to be cost effective and provide quality products at the same time?