5 reasons consumers will embrace artificial intelligence

Christmas 2017 was a busy one for retailers. During peak season, Amazon reported records for holiday shipping as they handled deliveries to 185 countries. UPS, meanwhile, said it was breaking records on package returns, having processed more than a million daily in December. With a 23 percent global growth in the last year, e-commerce continues to post solid performances, but stress and confusion are routine for merchants, logistics companies and consumers. According to a UK survey, over half of Christmas parcels failed to turn up on time in the run-up to Christmas, and parents panicked as popular Christmas toys sold out at the UK’s biggest retailers.

Artificial intelligence can help bring order to this chaos. Here’s how:

On-time or faster deliveries through AI

Delivery delays and out-of-stock items cause consumer frustration. Wouldn’t it be ideal if companies knew who was likely to buy what and when? Supply chain professionals could then make sure they had the right manpower, warehouse and transport capacities, or even send goods to be stored close to delivery addresses before we buy them (a process known as “anticipatory shipping”). Amazon has been experimenting with AI for years – for example in its cashier-less store – but other companies are close behind. Otto, a German e-commerce merchant, has created a system that analyses around 3 billion transactions and 200 variables, including sales data, website searches and weather information. With 90 percent accuracy, it is able to predict sales behaviour in the next 30 days. Now, the company purchases around 200,000 items a month without human intervention. Surplus stock has declined by a fifth and product returns by more than two million items a year. While customers receive their orders more promptly and efficiently, the planet benefits too, as fewer shipped packages need to be sent back.

Consumers get what they wish for

A major challenge in the supply chain is predicting next season’s hit products. Merchants have to make choices early on, and accept the risk that their stockpiled goods may not be bought. On the other side, consumers also have to hope that retailers have in stock what they want to buy. Supply-demand uncertainties and mismatches are costly and inefficient for all participants. Brand reputation is at stake, and consumers pay a higher price to cover the risk. One AI-powered approach is dubbed optimised line planning, which integrates data such as internal sales and customer records, competitive intelligence, trend analysis and social media preferences to create a customer profile or persona. This customer segmentation allows retailers to determine the selection of products that will resonate best with each persona. Designers can create placeholders for next season, and even calculate expected revenues. This provides confidence that both sales targets and the needs of the consumer will be met.

Goods travel safely

When supply-chain professionals know what is happening, they can ensure packages will arrive despite any adverse conditions. The Tel Aviv maritime data provider Windward says it is able, through AI, to predict shipping safety worldwide. The Israeli startup signed a deal with London-based insurance market Lloyd’s in November 2017, with Windward providing Lloyd’s member companies software that forecasts maritime hostilities or accidents at sea. Flextronics International – which counts Apple, Microsoft and Ford Motor as customers – has pioneered software that generates real-time alerts of supply-chain disruptions throughout its 14,000-strong network of global suppliers. The AI-based system helps predict actual and potential problems, such as supplier delays, strikes, earthquakes or tsunamis, and allows the relevant teams to make informed decisions to keep inventory moving and consumers happy.

Fewer goods are stolen

Some orders don’t arrive due to crime. The FBI estimates that cargo theft costs US businesses more than $30 billion each year. Facial recognition and the detection of suspicious behaviour can help prevent this. At the Chinese AI research company Yitu Technology, the pass cards of staff and visitors taking the lifts to floors 23 and 25 are read automatically – no swipe required – and each passenger is deposited at their specified floor, and only there. Cameras record everyone entering the building, and track them once they are inside. “Our machines can very easily recognise you among at least 2 billion people in a matter of seconds,” says Yitu co-founder and chief executive Zhu Long. Yitu’s generic portrait platform already contains 1.8 billion photographs of those logged in the national database and everyone who visited China recently. 320 million of the photos have come from China’s borders, where pictures are taken of everyone who enters and leaves the country. This cutting-edge technology can be used to protect any kind of asset – from vehicles to shops, to warehouses and even entire cities. In Boston, intelligent security cameras are even anticipating crime. The security system monitors feeds in real time and alerts authorities the moment it identifies unusual activity.

Quicker and better customer service

According to a survey conducted by Genesys in 16 key economies, the cost of poor customer service is estimated at $338.5 billion per year. Consumers disappointed when drivers don’t show up or products are sold out can still be satisfied when they can act based on timely and correct information. AI tools can speedily provide proper information to customer service staff, and improve customer-agent conversations without replacing them (chatbots have been shown to thus far lack empathy and problem-solving capability). At the same time, digital voice-activated assistants could provide an opportunity for progress – just imagine you ask: “Contact DHL and find out when my order will arrive,” and your digital assistant connects to a chatbot, finds the information and gets it to you promptly. The assistant would soon even be able to use your voice, if required. A paper published by Google in December 2017 reveals details of a text-to-speech system called Tacotron 2, which claims to be able to replicate near-human accuracy when imitating a person speaking.

These developments don’t come without risks. Concerns about job losses and out-of-control machines that have the potential to teach themselves are daily topics in the news. As AI-enabled robots have started to work alongside humans as autonomous vehicles, security cameras and digital assistants, some experts have said they should be fitted with an “ethical black box” to keep track of their reasoning, and enable them to explain their actions when accidents happen – such as the fatal self-driving car crash of a Tesla Model S in May 2016. Others think the behaviour of robots should be viewed similarly to that of humans, which often remains a mystery. While there are many voices urging caution, there are also positive ones. Stephane Kasriel, the CEO of Upwork, predicts “that there will not be a shortage of jobs in the future, but rather a shortage of skills to fill the jobs“. History has taught us that, over time, concerns with respect to new technologies will be addressed so that consumers can reap the benefits.

AI is on the rise and is sure to enter into many parts of our lives. Considering the impact it can have on consumer satisfaction, it would not be surprising if consumers not only embraced the intelligent supply chain but demanded more AI solutions in the purchasing process. Meanwhile, investors soon may no longer fund businesses that aren’t planning to incorporate AI in some form.

Image: Andy Kelly/Unsplash

This article was originally published at the World Economic Forum Agenda.

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3D-printing might not kill global trade after all. Here’s why

One of my biggest concerns are fears rooted in overhyped topics. Although I very much believe in the benefits of advanced technologies like 3D-printing, we need to be mindful about the risks we are taking by overstressing their impact on traditional sectors and in particular jobs. Of course 3D-printing will support – in combination with other technologies – distributed manufacturing and hence contribute to reshaping the supply chain but in a way which leaves clearly room for international trade and transport.

3dprint

Last year Adidas has opened its first 3D-printing plant for sports shoes – its highly automated, so-called ‘speedfactory’ – in Ansbach, a small town in Bavaria in the south-eastern part of Germany.

The German sports-goods company announced similar plans for Atlanta in the US, as well as other Western European markets. In the mid-run these factories will each manufacture half a million pairs of shoes per year.

3D-printing based production – also known as additive manufacturing – helps to bring factories closer to customers and products faster to the markets.

Traditional production can require a one-year process for design, sampling and large-scale manufacturing.

The new way requires, at its best, only days – reducing lead times on average by 66%. The shorter the cycle, the more retailers can place orders based on actual sales instead of estimates. Suppliers deliver what is really needed. Finally, consumers get what they want.

Eventually, consumers will be able to have goods produced by a printer near to them, ready for pick up, or have goods delivered, or printed at home, if a printer is available there.

It’s not all about speed

Distributed manufacturing is the name of the concept, and it reduces inventories and carbon footprints. In addition, 3D-printing makes very different and new product designs possible.

Unsurprisingly, companies like Adidas and Nike want to turbocharge their supply chains. The goal is to be short and fast.

But Adidas says that, in parallel to its speedfactory-based, short and fast supply chain, it will also expand its traditional, longer and slower supply chain.

1. The economics for 3D-printing-based mass manufacturing don’t yet work out.

Many experts doubt that they will in the foreseeable future either.

The unit costs for thousands of mass-produced, identical parts, like industrial components are still simply much lower than those manufactured by any other means.

3D-printing also falls short where natural fabrics like leather, cotton, wood and stone, or marble, granite, and minerals, such as rare earths, are needed – either to ensure the functionality of a product, or because they are just demanded by the customer.

Therefore, it might well be a myth that 3D-printing will replace mass manufacturing by mass customization, even in the midterm.

Adidas plans to grow its global athletic wear sales from $290 billion in 2017, to $355 billion in 2021. These additional sales will hardly be reached through the application of just one technology.

Reaching the target will require a mix of technologies and supply chains. Furthermore, moving the manufacture of all 301 million pairs of shoes Adidas produces each year to new sites – not even counting its double digit annual growth – would imply tremendous effort, cost and risk. The investment would be very high: just imagine the number of new speedfactories needed.

2. The technology works best for personalised goods

3D-printing generates significant value in the field of highly personalised goods and to meet demand for smaller quantities at affordable prices.

Parts can be printed on demand, obviating the need for storage.

Boeing deploys 3D-printed parts in jet engines and the technology could save the manufacturer $3 million in construction costs on each B787 jet it builds.

Deutsche Bahn has started to print spare parts to accelerate maintenanceprocesses.

Daimler uses 3D-printing to personalise parts and vehicles, and manufacture smaller batches for automotive customers.

In healthcare, 3D-printing applications range from brain and organ models, to personalised plaster casts and low-cost prosthetic parts. But an example for a global scale supply chain is lacking.

The opening of the speedfactory can be considered a Kitty Hawk moment in the history of additive manufacturing. It is an example of highly automated production in high labour cost countries.

But the most popular technologies currently used in 3D-printing were developed in the early eighties. We still might need to wait some time before we see the first mass-manufactured, 3D-printed jet plane taking off.

3. Personalisation changes the game – but not entirely

One in three consumers wants personalised products, a Deloitte study finds. And this trend will drive major change in global supply chains.

But Mark Zuckerberg still buys only one piece of cloth – a grey T-shirt, he wears every day – and so do millions of consumers.

One-colour sports shirts do not need to be manufactured at the place of consumption, as high-speed delivery is not a prerequisite for success. And this is valid for most long-lasting consumer goods, which represent the major part of today’s consumer demand.

Only designer goods and fashion require a high level of convenience, flexibility, speed and regularly changing models.

However, smart design enables personalisation by using mass-produced parts to produce a broad variety of different models. Different luxury bags of the same brand can be made of the same parts – just stitched together in different ways.

Postponement is another way to enable personalisation in mass-production: by dividing the manufacturing process into the two phases of manufacturing base products and then customising base products.

The base products are mass-manufactured, while finalisation happens in or close to the market.

Postponement pushes the finalisation of a product down to the end of the chain – for example, the colour and certain parts come last. This is a process commonly used in the automotive industry.

3D printing will complement this practice by enabling unique parts to be added at the end, while the base product will continue to be mass-manufactured in traditional ways.

4. Manufacturing technology and customer wants are not the only factors at play

Supply chains are shaped by many factors.

First, different supply chains – fast and slow, short and long – respond to different needs: from bringing resources to the factories near consumer markets, to moving parts through global value chains, to connecting the different players within industrial clusters.

Second, many external factors shape supply and value networks. Among these are geopolitical risks, the availability of skilled workers, the quality of infrastructure, tax considerations, the cost of land and energy, the time and effort to obtain licences.

Different locations have different capabilities, possibilities and brandings: ‘Made in Germany’, for example, is a unique feature, which can hardly be globalised.

These factors not only determine the design of global supply chains, but also the speed and magnitude at which technology-driven nearshoring can advance.

Third, the capacity to manage change and complexity is limited.

Changes can have huge implications – the workforce needs to be taken into account and assets might not have been written off or amortised yet.

Management needs time and energy to keep its focus on customers and markets and ensure the stability and smooth continuation of the business.

Fragmentation has its limits.

How many sites can a management team successfully manage in light of an increasingly complex and competitive business and operating environment?

Focus has major benefits; therefore, management will always seek a certain level of aggregation and concentration of activities and efforts at certain locations to ease the management burden.

Companies will continue to test new technologies and apply them where it makes sense.

3D-printing is one useful enabler to respond to customer needs and wants; an important tool for designers, operations and supply chain managers. The technology will surely further improve and so will other manufacturing technologies.

Long supply chains will still have their role to play. And so will international trade, which helps to keep diverse global production networks going.

In summary, 3D-printing holds high potential in those areas where it is a good fit. But, for now, its revolution has clearly not yet come.

This article was originally published at the World Economic Forum Agenda.

As shops go cashier-free, are retail jobs checking out?

For a long time it looked as if online shopping would gradually replace the high street. But the same digital development that was considered to be the end of physical shops may have brought a new beginning.

AmazonGoHow? Over the past two years a number of cashier-less stores have emerged in Europe and the United States, including the digital check-out test shop opened by Amazon in Seattle last year.

The innovative grocery store with no checkout line was called Amazon Go. But it wasn’t a new idea: some 15 years ago the German Metro Group, one of the world’s largest retailers, experimented with something called the Future Store, where radio frequencies and electromagnetic fields were applied to identify and track the tags attached to products. The concept was never commercialized.

Fast-forward to today, and Amazon Go uses sensor fusion, historic customer data and artificial intelligence; it connects to customer accounts via an app on their mobile phones.

Digital cashier-less stores promise certain advantages for business. For a start, the information they acquire and store can enrich existing data and help companies to analyse and plan. It also helps forecast consumer demand, predicting what buyers are going to buy before they know it themselves. The result is cost savings on shipping, inventory and delivery, and increased sales. It’s also good for consumers, in that it represent a significant shift towards seamless 24/7 retail and would open up new options for people in remote locations.

One thing that a digital store doesn’t do, however, is deliver products quickly. The solution here is in the scaling: delivery on the same day, or even within hours or minutes, becomes easier in a close network of stores and distribution centres. The denser the network, the shorter the distance to the customer, and the faster the goods arrive. This is where more stores and the use of drone delivery, reportedly just around the corner, could speed things up.

But this is only one side of the story. There’s another, darker question hanging over the whole enterprise, one perhaps reflected in the public’s mixed response in the chart below: the future of jobs in the retail sector, which after all is one of the largest employee groups.

No more shopkeepers?

In the digital store, the number of check-out staff is expected to decline dramatically. By contrast, jobs for business oversight and store security – as well as in technical positions – will persist. People will always be the best candidates for customer-service roles on the shop floor. It’s an important area of differentiation and it’s already happening. Following the centralization and automation of accounting and invoicing tasks, Walmart announced it was shifting 7,000 jobs to the sales floor. It seems clear that the responsibilities of employees are going to change.

Amazon, for example, has filed a patent for 3D printing within mobile manufacturing units. This concept of a moving factory or a moving manufacturing store would mean more flexibility, less stock and more tailored manufactured products for end consumers. In store, 3D printers can be used to produce made-to-order goods or offer 3D printing as a service. Customers pay with smartphones – no checkout line, of course. On the other side of the world, another tech revolution is taking place. In China, the commerce platform ULE is transforming stores into hundreds of thousands of hubs for e-commerce business.

In order to prepare for the future, both businesses and governments need to really understand the impact of automation on the supply and value chain. But information and opinions on this impact tend to vary. Bill Gates and Elon Musk, for instance, believe consequences will be severe. Roman Zitzelsberger, meanwhile, head of the German labour union IG Metall, considers robots less as a threat and more as an opportunity to move our professional lives towards higher-value tasks and more flexibility.

It seems that whatever happens, not only our professional lives but also our private lives – and many, if not all, businesses – will be affected significantly.

This blog was originally posted on the World Economic Forum Agenda.

 

How blockchain can restore trust in trade

containerInternational trade is under pressure. Fears fuelled by the global refugee situation and terrorist threats have led to tighter border controls – and these come at a cost. Every inspection of goods, every stop along the supply chain, eats up time and drives up prices. It harms businesses and consumers alike. Those involved in international trade – whether manufacturers, trading houses, transportation companies or banks – are seeking ways to ease the situation and cut time and costs.

Blockchain technology can help. The cloud-based ledger ensures that records can’t be duplicated, manipulated or faked, and increased visibility in parts of the supply chain promotes an unprecedented level of trust. It means governments can better protect citizens, while business partners can be certain trading documents are real. Consumers can check the quality and provenance of products, and banks can reduce processing time. And it’s all paperless.

Thanks to blockchain, all kind of legal, financial and product-related information can be made available. This allows even the least trusting parties to comfortably conduct business. With further investment and experimentation, blockchain could potentially hide confidential information to protect the interests of trading parties – pricing information, for example.

Does it work in the real world? Barclays reported the first blockchain-based trade-finance deal in September 2016. The transaction guaranteed the trade of almost $100,000 worth of cheese and butter between Irish agricultural food co-operative Ornua and the Seychelles Trading Company. The process – from issuing to approval of the letter of credit, which usually takes between seven and 10 days – could be reduced to less than four hours. Other banks are also exploring ways blockchain technology can improve processes along the supply chain. In August 2016, banking consortium R3CEV reported that 15 of its members had joined a trade finance trial to test its distributed ledger protocol, named Corda. Also in August, Bank of America, HSBC and the Infocomm Development Authority of Singapore (IDA) revealed that they had built a blockchain application to improve the letter of credit (LC) transaction process between banks, exporters and importers.

It’s not only banks: Maersk, the world’s largest container-shipping line, has been participating in a proof-of-concept initiative, using blockchain expertise from the IT University of Copenhagen to digitize the ships’ cargo inventories. These so-called “bills of lading” require an enormous amount of paper. A shipment of roses from Kenya to Rotterdam, for example, can result a pile of paper 25cm high. And the cost of handling it can be higher than the cost of transporting the containers. Maersk’s aim is to optimize the flow of information while raising visibility along the supply chain.

Often when making a purchase, buyers don’t know where the goods they ordered are coming from, or even whether they have been shipped at all. With blockchain, consumers can be informed of every step in the process. Combined with the internet of things, this could also extend to the care with which a product is transported. Swiss start-up Modum, for example, uses blockchain as a way of assuring recipients that pharmaceuticals have remained within an acceptable temperature range while in transit.

Trust and transparency

Citizens are worried that reduced barriers at the borders, as well as trade agreements, increase the risk of terrorism and illicit trade. Blockchain technology can in fact provide the backbone of a system of authorized trusted participants, bringing everything into the light, whether it’s a product, the party selling it or the path it takes to reach the buyer. Consumers and watchdogs, public and private, can trace every item moved through the authorized blockchain-backed channel and validate or reject both product and party. Customs clearance, too, can be optimized using blockchain. Parties that are part of the group can act quickly and efficiently, while others face scrutiny.

Immutable records on every aspect of a transaction – from the source of the raw material to where and how the products were manufactured, to their distribution, maintenance, repair, recall and recycling histories – are the new basis of trust. Information about ownership, provenance, authenticity and price are all held in the blockchain. Digital product memories connected to smart devices along the supply chain will provide secure proof of everything from manufacturing processes to quality controls. This will reduce the cost of compliance, i.e. the adherence with laws and regulations. Furthermore, this will open doors for replacing current product labelling practices to protect consumers and accelerate customs-clearance processes. Customers and consumer-protection organizations, as well as customs authorities, will have all the information they need to decide to buy or not to buy, to let goods through the border or to block them.


Blockchain has the potential to become the new gold standard of business and trade. But first, all nations need to accept the new technology. There are technical hurdles to overcome too. First, blockchain protocol(s) used to secure the ledger of global trade and manufacturers must be trusted by all of its users and be effectively un-hackable. Technical capabilities to handle very large transaction volumes will also need to be enhanced and the cost of maintaining the protocol may need to be lowered. Ordinary companies and individuals will need to be onboarded into the machine-to-machine (M2M) economy. The liability model of trade conducted on the blockchain will need to be reviewed as the appropriate treatment of liability may differ from current models.

Blockchain can help to reinforce trust in today’s complex and globalized world – giving citizens and governments fresh confidence in the global exchange of goods.

Image: Erwan Hesry

This blog was originally posted on the World Economic Forum Agenda.

The world is building fences. Here’s why we should worry

Long forgotten seem the walls, fences and barbed wires at all borders. Therefore, the understanding of the benefits of open borders might be fading. Of course, with terrorist attacks and waves of migrants concerns are rising. However, I wish that we are mindful and clear about the effectiveness, consequences and cost of the new global disintegration tendencies.

Fences

In December 2015, the BBC wrote: “EU border security becomes new mantra“. Not only Europe but larger parts of the world are going through a phase of increasing disintegration: the Brexit referendum, discussions about the exclusion of Greece from the Eurozone and the beginning of the construction of fences along the green borders of barrier-free Schengen.

Near Schengen, on 14 June 1985, the picturesque town in Luxembourg, five European countries signed the agreement which led to the creation of Europe’s borderless Schengen area. In light of mass flows of migrants seeking asylum in Europe, Hungary blocked migrants from onward travel to the rest of Europe and constructed a four-metre-tall fence along sections of the border with Serbia – a country not part of the Schengen area.

Also, Austria has begun building an anti-migrant barrier across the Brenner Pass at the Italian border. Putting an end to hope on one side and reducing fears on the other. However, it’s not only in Europe that countries are raising the bar. US presidential hopeful Donald Trump wants to build a wall at the Mexican border. Increasing fear of terrorists in the US has led to the reintroduction of a visa for “certain Europeans“.

EconomistBorders

Image: The Economist

Click here to see other regions in the Economist’s interactive map

The hidden cost of disintegration

What would be the impact of reestablishing barriers? Citizens would face long-forgotten burdens: the northern Europeans, for example, would experience long traffic jams at the Brenner Pass on the way to the holiday destinations in the south. Labour markets would also be affected: 1.7 million people cross European borders every day to get to work. Consumer prices would rise due to the forced slowdown and necessary adjustments along the supply chain. Waiting and inspection times at the borders would need to be factored into the prices of goods, as well as the changes required to the highly cost-optimized just-in-time concepts – largely applied in global manufacturing in the automotive industry – and the efficient goods supply out of the distribution centres. Many of the products made available by bilateral and multilateral agreements would disappear from supermarket shelves.

Disintegration would affect the competitive position too. Europe, for example, might find itself in a very disadvantaged situation given that Asia is continuing to integrate. What if TTP arrives and Schengen leaves? There might also be explosive geopolitical risk involved, with Crimea, Ukraine and new Chinese islands in the South China Sea heating up the debate. As new fences go up across Europe, what tensions could result from countries such as Spain, Italy and Greece being left more or less alone with new waves of migrants?

How effective are visas and border controls?

Looking back: how safe has the world been with more barriers? Did borders protect Italy from the onslaught in the 1970s of the Red Brigades, Spain from the ETA, Germany from the Red Army, and France from GIA? Did borders protect the US from attack on 9/11? How effective have been the high metal fences and walls, barbed wire, alarms, anti-vehicle ditches, watchtowers, automatic booby traps and minefields along the inner German border from 1945 to 1990? The threat often lies within: “Not one Paris attacker has been identified as a Syrian refugee”, Mashable wrote.

Tightening up security

The world has experienced decades of advancing global integration. Increasingly open borders and many trade and investment partnerships have strongly contributed to the prosperity and wealth of people and nations. International organizations and agencies have not only supported global growth but also established institutions in charge of dealing with the risks of reducing national barriers. Organizations have developed international ties and many platforms of collaboration to fight crime and terror have emerged.

Interpol – the International Criminal Police Organization – has strong links with Europol, the organization coordinating the local police forces across Europe. Within countries, ministries and agencies are increasingly working together. Germany, for example, has established the GTAZ – the Joint Counter-Terrorism Centre – an autonomous authority and co-operation platform used by 40 internal security agencies.

The private sector has launched initiatives to protect staff and assets against terrorism and other threats across the globe. Since the attacks of 9/11, security measures have been tightened. Today, individuals and companies are checked against the sanction lists of the US and Europe. Employees appearing on the lists are no longer allowed to be paid a salary, and companies are excluded from doing business. Though, as the Panama papers show, we have not yet closed all the back doors.

Battle on the internet

Social media helps terrorists organize itself and recruit new fighters. On the other hand, the FBI uses internet surveillance software like Carnivore to identify and stop attacks. Organizations such as the Search for International Terrorist Entities are scanning propaganda material and training manuals, and sharing the insights with other organizations. Technology trumps. The internet has the potential to flatten borders while reducing risks. The more people are active on the net, the better economic value can be extracted and (potential) terrorist activities monitored. Which also does not come without concerns and complexities – as the discussion between Apple and the FBI shows.

Governments have the obligation to protect citizens and the right to control borders. However, what are the effects of the potential disintegration on citizens, migrants and the economy? The Bertelsmann Foundation warns that reestablishing permanent border controls in Europe could produce losses of up to 1.4 trillion euros over 10 years.

We need to understand and be mindful of the impact of our decisions on the economy. All the same, should we apply economic reasoning to a decision on whether or not to offer a helping hand to people in severe need?

Image: REUTERS/Marko Djurica

This blog was originally posted on the World Economic Forum Agenda.

Supply chain safety or the genetic code of everything

In a recent Forbes article we could read that the CDC estimates that approximately one in six Americans get sick each year from foodborne diseases, leading to roughly 3,000 deaths. This is well in line with the horrifying stories of the milk powder scandals and 300,000 thousand affected babies. The news about shortcomings and effects of irresponsible behavior in respect to the supply chain is taking its toll. Apparently is our knowledge about the origin and the risks of materials, parts and products limited. What can be done to better protect our lives?

Field.jpg large

Authenticity is the first step. In order to ensure authenticity, safety, security and quality of the food we eat and the products we use, there is not only the one solution needed but a bundle of protective measures. In addition to the obvious standards and efficient certification processes, we are in need of pragmatic laws and regulation. We also require reliable product tracing technology allowing the seamless follow through and detailed information about the products – about the score against the standard – and insights in the organisations involved; these can be transportation companies, traders and manufacturers. The effective protection requires data sharing, and maybe the need to establish an independent and efficient data market.

The ultimate protection of our health requires the genetic code of everything!

What we need is the full set of information of each and every product – the unique product fingerprint which can be compared with the database of safe practices. We need the measurement of truth, the proof of compliance with standards, laws and regulations. Imagine that all products we consider buying carried the QR code providing pre-checked information, including the origin, the quality and the manufacturing process. Imagine that through the internet every smart phone user would be able to retrieve the specific information about the meat we eat, the soap we love, and the paint used in the offices, the apartments, and the public buildings we are living in or we are visiting.

Total Supply Chain Visibility: a vision in the making?

Governments and organisations like the Consumer Goods Forum are working to develop and share best practices. The United States passed the Consumer Product Safety Improvement Act (CPSIA) to establish safety standards and requirements for children’s products. The supplier certifications accepted by the Global Food Safety Initiative (GFSI) aim at delivering safe food to citizens worldwide. The private sector plays its role too. Large companies help small farmers to fulfill requirements. There are around 700 global certification programmes. Probably too many, creating complexities which might slow down processes and cause unnecessary costs.

Laws and regulations have been put in place elevating traceability beyond just a value-added to the supply chain. In the European Union traceability has been obligatory for all businesses in the food chain since January 2005. In the United States of America, the Bioterrorism Act came into effect for larger companies in 2005 and for smaller players in 2006, with similar requirements regarding records to identify previous sources. Traceability becomes the new standard in the modern supply chain.

Most companies are mapping the parts of the supply chain under their control. However, the exercise needs to go beyond the borders of direct responsibility and control. We need visibility of the whole flow. Starting upstream at the mines and fields, going further along the various steps of manufacturing and assembling of products or the processing of food down to the buyers and subsequent cycles of usage. Unfortunately, in the eye of catastrophes such as the salmonella outbreaks companies sometimes appear ill-equipped to respond quickly.

With the new age of digitisation, with the emergence of sensors in almost everything – from electronics and vehicles to cloth and wallpaper governments, organisations and companies can gather and compile enormous quantities of data. More importantly the information can be transmitted to the internet where various applications can enrich, analyse, organise, and store the records. Through product identification, unique tracking numbers and labeling, we are able to link materials, parts, products and food back to specific data relating to the production, and distribution. Through the new technologies we have access to the entire cycle history. Held available in internet platforms, users can swiftly and easily retrieve this information by smart devices like phones, watches and other wearables. The proof of traceability might soon be the minimum standard for doing business in the digital age.

Where are the hurdles? Traditionally, individuals and companies struggle to exchange information and data. Furthermore, there are standardisation gaps and security concerns. Privacy protection is a challenge too. One solution might be a data market. Similar to the stock exchange this place of clear rules and supervision would allow to safely and swiftly exchange and monetise the data gathered or produced by the different parties. The data market would be an incentive to generate and share even more data.

There is much to gain!

Beyond our own individual safety, many opportunities lure in the world of the retrievable genetic code of everything. Players along the value chain, like raw material providers, suppliers, manufacturers and food processors can differentiate themselves from competition through visibility and an enlarged safety offer. Logistics and transportation companies can enhance their vertical knowledge and build new services around data management and the orchestration of the relationships along the supply and value chain. New services and players will emerge. TrueTag and CLEARthru are examples of this development.

Despite all technology and process innovation, we still need to act upon the new wealth of information and knowledge to protect ourselves. The responsibility for the health and wellbeing of the planet and society will stay with us and the many other consumers and buyers everywhere on the globe. It is up to us all to accept or reject. Finally: as most tracing technology has been available for so long, we might wish to consider to push a bit harder on the implementation and utilisation.

4 things to know about the new era of global trade

As Otaviano Canuto, the executive director of the IMF, wrote in the Huffington Post, “world trade suffered another disappointing year in 2015, experiencing a contraction in merchandise trade during the first half and only low growth during the second half”. After the boom of previous years and since 2008, world trade has been rising slower than GDP. In light of the lingering effects of the global financial crises, China rebalancing towards domestic consumption and the lack of new BRIC-like global growth engines, companies and governments need to adjust their strategies.
4ThingsNewTrade

The main characteristics of the new era of global trade are relatively mature value and supply chains, increasing regionalization and localization of production, the rise of non-tariff barriers after a period of significant tariff reductions, and an e-commerce boom, which often struggles to overcome the hurdles in international business. Digitization appears to be the key enabler of modern times, and an important lever to capture value in the new era of global trade. It is digitization that opens up new horizons for product design and management, manufacturing, retail, and the repurposing of goods. However, we need open and courageous leaders in government and business to make the change happen and capture the opportunity in the following main areas of development.

1. The new customer experience: “fast products”

Today’s customers demand fast products, such as fast fashion with quickly changing models. In fact, this works well for brands wanting to avoid the high inventory and high risks they encounter when they have to make big bets on the right designs for an entire fashion season, for example. Fast products require short supply chains. Consequently, production needs to move closer to the markets and shops to meet the shorter lead times from sketch to shelf. Zara, for example, “adapts couture designs, manufactures, distributes and retails clothes within two weeks of the original design first appearing on catwalks”. In creating the new customer experience, the management of the supply chain becomes a critical source of competitive edge.

Companies that wish to play in the “fast economy” will require new factories close to the markets and new distribution platforms. Those countries that provide the most fluid import and export ecosystem will be high on investors’ lists. In particular, countries in regions close to large markets, such as Central America, South-East Asia and North Africa might wish to review their strategies to capture the value of this trend.

2. Multilayer global manufacturing and supply platforms

Digitization helps the fast economy. In the past, brands tended to centralize manufacturing for better manageability and quality control. The power of information technology, the internet of things, big data and the cloud provides a new level of collaboration and empowerment throughout the value and supply chain. One example is the Flex Pulse Centre. The enhanced visibility allows companies to move factories closer to the customer without risking sudden surprises. In the continuous process, the global supply chain is converting towards a more and more dense and integrated platform of short, medium and long distance cargo moves – with regional and local distribution centres along the way. With the fast economy some intercontinental flows of goods will become regional and local traffic. However, the new factories will continue to require global supply, as not all materials and resources will come from sources nearby.

These multilayer global manufacturing and supply platforms still have many black holes. Some blackouts of visibility are caused by governmental security concerns, for example in freezones, others by the lack of digital infrastructure. There are opportunities for business and government through public-private partnerships to establish not only the digital architecture but also the trust to fully leverage the available technology. It goes without saying that the smooth and seamless movements of goods in and out of countries through the reduction or elimination of tariff and non-tariff border barriers is essential for establishing denser platforms and making countries and locations more attractive.

3. Scaling up market participation: International e-commerce

The era of “platformization” allows for a more inclusive economy. Global e-commerce platforms such as eBay or Alibaba can connect millions of manufacturers and billions of consumers, making the global market accessible to even the smallest manufacturer and providing the broadest choice to all consumers. In addition to much broader and better match-making, middlemen are cut out which allows for higher margins on the sales and lower prices on the purchasing side. It also reduces the risk of corruption. However, the concept only works if the underlying logistics and transportation platforms support the digital transactions.

Unlocking the potential of international ecommerce requires efficient and cost-effective logistics and smooth customs processes through the paperless digital export and import processing. On the import side there is a need for effective tools to be able to process and analyse information about shippers and products moved. These tools reduce clearing times, even enable pre-clearance, and help to manage the risks that come along with lower value goods, which fall often below the threshold of more diligent customs clearance processes. In addition, governments need to ensure healthy competition and avoid the formation of digital monopolies. Platforms can also be used to foster the job-creating small and midsized business landscape.

4. Repurposing of goods

Although there is a need to analyse the entire value chain, as sometimes even long-distance transport might be less carbon intense than local production, tightening the supply chain in many cases saves energy and emissions. Hence, the trend towards localization and regionalization helps with resources and the environment. However, new technology and digitization can go well beyond the simple shortening of the supply chain.

The new visibility in the supply chain not only helps identify leakages and misuse but enables new operating and business models, ranging from optimizing delivery routes to tapping into unused capacity enabled by the many platforms of the sharing economy. Additional potential lies in the resources locked in the products which are thrown away every day: electronics, paper and plastics. Asset tracking could help unlock a potential value of about $52 billion annually for consumer electronics and household appliances alone. Repurposing products will be a major challenge and opportunity for governments and companies in the years ahead.

In the modern interconnected and interdependent world, we need seamless global visibility and fluidity of the flow of goods. Businesses seek and will find new sources of value in tracking products throughout the first lifecycle and the recovery for the repurposing. By creating a repurposing capability, the public and private sectors have a unique opportunity to position themselves as modern and responsible players.

In the past, developed and developing countries have benefitted from globalization, with China as the most recent role model of trade-driven growth. Some low-cost labour countries might still be able to repeat China’s success, others need to look for new models. While globalization has driven the rise of emerging markets and global players, it has also paved the way for today’s dense multilayer value and supply platforms, which are the basis of our modern life.

Companies and governments need to update knowledge and adjust strategies. We must keep in mind that despite all the technological possibilities, it is our skills, wisdom and courage that will help develop new business models and drive the necessary policy reforms. As Sachin Maini once said: “While technology makes it possible to do much more than we could without it, it can’t help us decide what to do.”

This blog was originally posted on the World Economic Forum Agenda.