Supply Chain Governance in

Changing Uncertain Times

N. ViswanadhamComputer Science and Automation

Indian Institute of Science

Bangalore- 560012

n.viswanadham@gmail.com

Feb13, 2015

5th Annual Manufacturing

CIO Summit

Contents

Risk & Volatility in SCNs

Recent Technology Trends

What is the Take away

Design of Future Supply Chains

– Governance

– Partner Selection, Coordination & Execution

Conclusions

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Risk & Volatility in SCNs

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Risk & Volatility in SCNs

Modern businesses are globalized, interconnected &

interdependent, both vertically and horizontally.

Volatility is the new norm in supply chains.

These networks face risk from partners, partner ‘s

partners & Governments.

Disruptions and Disasters happen : Resource shortages,

Longer multimodal routes, Customs & regulations, Port

congestion, Quality, Safety & Environmental

compliance, Weather & Natural disasters, Terrorism,

Political and/or economic instability, Exchange rate

fluctuations, etc

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Drop in Oil Prices

Drop in oil prices is good for importing countries:

China, India etc

Disastrous to the exporting economies

Causes for fall in Oil prices – Rise in unconventional oil (Shale , Sand) & Bio fuel production.

– Decline in oil intensity in China and Germany

– OPEC trying to maintain market share rather than oil price

Shale gas is not economical below $60

Global businesses partnered by Oil rich Countries

may crash

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Political Changes

New Government in Centre, States

New Initiatives: Make in India, Digitization, Smart

Cities, Good Governance, Affordable housing, etc

Relationships with Foreign countries

Eight ordinances in 225 days : Land acquisition act,

FDI in insurance , Facilitating coal auctions, lifetime

Indian visas for persons of Indian origin, etc.

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Equities Surge to Record Highs

Rupee vs. US$

Sensex & Foreign Purchases

of Indian Equities

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Recent Technology Trends

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Technology Changes

Mobile Internet

IOT

3D printing

BitCoin

Drones

Driverless Cars & Trucks

New start ups: One a day in Bangalore: Uber, Ola Cabs,

Doctorie.com, MGaadi, Dosa King, Mobile apps, ..

Cyber security: Estimated annual cost of computer crimes in

US— phishing, identity theft — is presently at over $100 B.

New technologies emerge not from new discoveries but from

the recombination of existing technologies into new systems.

Mobile Technologies Drive a Trillion-

Dollar Impact Mobile Companies invested $1.8 trillion in infrastructure & R&D

from 2009--13 & generated in 2014, $3.3T revenue &11 M jobs.

3 B connections now (3G ,4G) & projected to 8 B by 2020.

Mobile has been a driving force for the success of Apple,

Google, China Mobile, Alibaba, Facebook, and Verizon which

have grown 35 % annually in revenue.

Mobile has become a growth engine for several countries,

contributing about $1.2 T in GDP (2 - 4 % GDP for some

countries & 11% for South Korea)

Major waves of innovation are on the way

– mobile will be the supercomputer in our pockets interacting

with smart objects on our person, in homes & in our offices.

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Game Changing Disruptive Innovations

Ecommerce is disrupting traditional distribution.

Uber and Ola are upending radio and yellow taxis.

Airbnb has hotels very concerned and Bitcoin is future currency

Robotic doctors are a reality, a solution to doctor shortage

Amazon , Alibaba and DHL are testing package delivery drones.

Driverless cars are a boon in traffic congestion & bad drivers

Flipkart, Amazon, Ebay.in, Snapdeal, Shopclues, Myntra,

Yebhi, Tradus, Pepperfry , Homeshop18 are on rise.

BigBasket.com, ZopNow.com, EkStop.com , LocalBanya.com

are competing with their own brands for fruits, vegetables, rice.

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Rise of Algorithmic Governance

Rise of the Machine Reporters

Digital Chef: An algorithm sorts through hundreds of

thousands of recipes & comes up with one to our taste.

An Algorithm is on Board of Directors of a Venture Capital

Firm Deep Knowledge Ventures with voting rights

GE can predict failure of gas turbines weeks in advance

(IOT) no need for scheduled or reactive maintenance

In Retail, focus is shifting from Sales & Marketing to

Predictive Analytics using Industry Knowledge, Consumer

preferences, Social media analytics & Recommender systems

Machine Intelligence substituting Human Brain

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Cognitive Factories

In cognitive factories, human beings, machines, robots,

AGVs and other resources communicate with each other.

They have collaborative decisioning capabilities

Smart products know the details of how they were

manufactured and how they are intended to be used.

Smart Products answer questions such as Which

parameters should be used to process me? , When

should I be made? , Where should I be delivered ?, etc.

The factory can orchestrate the manufacturing process

depending the real time needs.

Big Data in Logistics Applications

Trucks are equipped with radio transmitters and GPSs.

Vehicle Tracking and Dispatch keeps track of the location

and inventory on every vehicle.

Firms use data from sensors—monitoring fuel levels, location

and capacity, driver behaviour, etc. For optimization.

Annual traffic density figures are used to generate the most

efficient routes to minimize the cost of transporting goods.

Warehouse Operations and Cross docking use information

system that dynamically coordinate trucks & the dock

Generation of routes and manifests for the trucks dynamically

based on their inventory loads and tracking & monitoring the

delivery.

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Augmented Reality in the logistics industry

Augmented Reality (AR) is the

expansion of physical reality by

adding layers of computer-

generated information .

Information could be any kind of

virtual object or content,

including text, graphics, video,

sound, & GPS data.

AR is a new type of real-time

natural user interface for human

interaction with objects and

digital devices

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Test tube Baby Production Factory

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Trillion Dollar Club

Over the past decade, six technology-led companies Amazon,

Apple, Face book, Google, Netflix, and Pandora have

collectively generated more than $1 trillion market value

Nokia, Motorola, Borders, Barnes & Noble, AOL,

Blockbuster, Tower Records, and HMV—lost more than

90% of their 2003 enterprise values.

The common denominator of the business models of the

Trillion-Dollar Club: the digital information that surrounds

the product and company (the virtual self), can generate more

value than the physical entity alone.

Companies need to master the new rules of the digital

economy to win.

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What is the Takeaway

Same product is sold by two retailers: One is able to sell other

goes bankrupt

Same brand is manufactured in two countries, it make profit in

one and losses in another

Decision making once in the hands of humans is now done by

machines using wireless sensor networks

Digital upstarts are threatening bottom lines, growth prospects

&business models of traditional service providers

Digitization, Consumerisation, Governance &

Labour productivity make the difference

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Black Swans

Nicholas Taleb introduced the Black Swan Theory in his

book: “Fooled by randomness”.

The “black swan” are high impact events unthinkable based on

past information.

The impact of such events can be either positive or negative.

– Positive black swan event has favourable consequences like the

discovery of a new Vaccine, Internet, Mobile phone.

– Negative black swan events come with catastrophic consequences : the

economic crisis or September 11 attacks or Tsunamis or Oil Price drop

The world is more random than it is commonly assumed and

our understanding of it is even more deficient.

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Design of Future Supply Chains

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Adaptive Digital Supply Chains

Supply chain are inter-organizational networks

collaborating to deliver high value products and

services under normal conditions and also adapt and

respond to changing customer requirements and

environmental uncertainties such as

– Market, political and economic conditions

– Innovations &disruptions in Resources and Technologies

– New business models: Omni Channel Retail, Mobile Sensor

networks in logistics, Combinatorial supply chain

innovations,...

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Supply Chains

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Institutions

The Basic Ecosystem

Investment ClimateCo-Evolution, Conflict, Risk Propagation

Governance: Partner Selection

Coordination & Execution

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Governance Functions

Governance concerns the exercise of authority, direction,

control and management

Identifies and manages relations with government, trade &

social groups, labour, resources and B2B and B2C delivery

Builds systems for effective communication, collaboration and

coordination among the network partners

Identifies the risks from various ecosystem sources and puts in

place risk mitigation strategies in operational readiness

For every customer order, selects the partners, allocates the

tasks and responsibilities & forms the network .

Manages a control room for monitoring and execution of the

planned activities in a timely manner

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Governance: Partner selection,

Coordination & Execution

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Other

Agencies

Coordination

Partner Selection

Partner Selection

Partner selection based on Current State of Ecosystem

– Innovations in products and processes

– Business friendliness of supplier location

– Locations of plants, customers & transportation lanes

– Asset specificity, capabilities, Depth & Width of ties ( Govt.,

cluster managements, etc.)

– Alerts of natural disasters, strikes and protests, infrastructure

failure, etc.

– Digital efficiencies of the suppliers (Traceability) and 3PLs(

AR, GPS, Tracking )

Coordination

Coordination brings different organizations into a

harmonious relationship.

Coordination involves: For every order,

– selection of suppliers : Identifying product specification,

technology , tolerances and process standards and the

production schedules;

– Selection of logistics players, determining their delivery

schedules , etc

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Execution

Monitors the flow of goods and services for each

order as per the coordinated guide

In case of a malfunction or failure takes appropriate

action to mitigate the risk

Manages all exceptions through a control Tower

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Conclusion

During the last decade ERP, CRP etc analyzed

internal data – sales, shipments, inventory, etc .

Now companies need to analyze external data to

gain insights into customer fancies, markets, partner

ecosystem and possible risks & consequences, etc

and design an adaptive SCN

Our framework enables such a design. Technology

plays a Major Role

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Orchestrator Business Model

Supplier Contract Mfg 3PL

Execution

Supplier Contract Mfg 3PL

3PL

3PL

End Customer

Material Flow

Operational

Status

Plans

Payment

Planning, Coordination and Overall Responsibility

OrdersOrchestrator

China Wants To Build a Rail Line to USA

Big Data Public Lecture N. Viswanadham

'China-Russia-Canada-America line' would run for 13,000 km

across Siberia and pass under Bering Strait through 200km tunnel

Self driving car

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The car is equipped with a battery of cameras, radar, and

sensors that give the car a 360° knowledge of the surrounding

environment and allowing it to react proactively to obstacles.