Whether it is about moving people and cargo, fleet and fuel efficiency, asset protection, visibility into user behavior or product usage, IoT is being looked as a major disruptive force for Supply Chain. Is it just a tall claim? If IoT is likely to make such an deep impact on Supply Chain, how should organizations prepare for this new megatrend?

Contributor

• • Michael Hugos, Author, Essentials of Supply Chain Management

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Transcript

Sanjog Aul [00:00:30]:

Hello and welcome to the segment on CTN. To learn more, please visit ciotalknetwork.com, and as always, we invite you to join the discussion on Twitter and look for this show as #IoT and #supply chain. Our topic for today is Will IoT Disrupt Supply Chain, and I have a dear friend of mine, Mike Hugos, who’s an author of Essential Supply Chain Management, a bestseller on Amazon, and he’s also a celebrity award-winning CIO. Hey, Mike. How are you?

Mike Hugos [00:00:58]:

Hey, Sanjog Aul, and you flatter me with the introduction. I did write a book, but I don’t know if I’m a celebrity.

Sanjog Aul [00:01:05]:

No. It’s always an honor to have you. You’re such a wealth of knowledge. Now the reason we invited you here is because we are fundamentally looking at supply chain, not because it has been incrementally improving or companies are investing in it, just because we have this new megatrend or disrupting force called IoT, Internet of Things, and when we look at supply chain, yes, there are always ways to tweak it, but some are claiming IoT will essentially get disrupted or people will be forced to rethink supply chain. Now what do you think about this whole claim with new IoT, there’s a hype around it? Or do you think there is some truth to this claim?

Mike Hugos [00:01:48]:

There is some truth to it. I do think that there is a lot of unwarranted hype, but at this stage, if we can’t tell the hype from reality, well then we probably shouldn’t get out of bed. I do think that there is potential for IoT, Internet of Things, to make a tremendous improvement in supply chain coordinations, and then I will add that it doesn’t mean that people will be replaced. I do think that when people learn how to integrate via IoT with Internet, that it will be astounding, and there will be a lot of people who don’t figure that out until many others have. There will be a first mover advantage.

Sanjog Aul [00:02:39]:

So you are framing IoT in a way where, okay, supply chain exists and people will not be replaced, and to some extent, IoT is being put together as a way where machines and systems will talk to each other, and there would be other kind of communication, which is not gonna render humans redundant, but a lot of those things will get automated so you have a better idea about what’s going on, and then you are not really requiring monitoring in some cases because maybe the system will fluidly change based on how the events are happening. This is like Star Trek of supply chain.

Mike Hugos [00:03:19]:

It is like Star Trek. I am suspicious of claims that perhaps the way that you move products around inside of a warehouse or a factory, I should think that would be totally automated, but I am suspicious and I do not agree with the notion that global supply chains will be totally automated through the IoT and that they will respond flawlessly, and if you believe that, I do have some really good real estate, I would like to talk to you about after the show, but my concern is that we are entering an age of a lot of disruptions and it is very difficult to predict everything from demand to what tomorrow’s weather will be. So I think that when we talk about automation, a lot of us are still thinking about the glory days of the last century, also known as the Industrial Age. We’re not in the Industrial Age anymore. We’re building on that, but there’s a whole new wave of events, and I would say we’re entering into the age of unpredictability, an age where a lot of our systems are being stressed. For instance, in the airline industry, we are very good about increasing the efficiency, but increases in efficiency also mean a lack of flexibility. So for instance, if your flight gets canceled, of course, they’ll put you on a standby list for the next flight, but how many empty seats do you think there will be in the next flight? Maybe 2, maybe 3, maybe none. So efficiency and flexibility, they are opposite ends of the spectrum, and in supply chains that are attempting to be very efficient, yet working in very unpredictable environments, that’s going to create a strong need for human beings because human beings still are pretty good at figuring out unexpected problems, responding in a way that wasn’t necessarily preprogrammed, and that’s where I think that humans with the kind of information, real time information that IoT can deliver, then humans and machines will, I think, take on a new relationship with each other.

Sanjog Aul [00:06:00]:

So in your experience, and frankly, your response was a great one, I also sniff a healthy skeptic, which is the right thing to do. Now here, when we talk about supply chain, we know we could manage by exceptions to say, okay. We will we know that there will be exceptions, but are there enough in number and in magnitude that we forego or we try to undermine the value of efficiency? Because at the end of the day, that’s a cost, and for a business or even for me, if I get an apple at a grocery store, it has gone through the supply chain, and I want to pay the least amount for that apple.

Mike Hugos [00:06:40]:

Yeah.

Sanjog Aul [00:06:40]:

Why would I kinda think about, oh my god. Where did that apple truck get lost? Because that’s not my concern, and that’s what is driven what that’s what is driving supply chain. So would you think managing by exception is a great idea and that that in a way is also making you and maybe many others start thinking about IoT as not the panacea that it could potentially be or at least we can pursue it in that way?

Mike Hugos [00:07:04]:

Well, I think, yes, managing by exception will become much more the norm, and there are different kinds of supply chains. Actually, I’ve been doing some work lately with a couple of organizations. One is a government agency and another one is a disaster relief agency, also known as NGO, non-governmental organization, and both of them approached me, because of my book. I guess, somehow they ran into that Essentials of Supply Chain Management book and they read it and they said, well, who is this guy? Let’s give him a call, and what they want to know about was how could we better improve supply chains that are not strictly commercial supply chains, and hats off to them for looking to the commercial sector for ideas because they should be doing that, but on the other hand, we need to remember that the commercial sector for the most part works in a regulated and predictable environment, and although we all hate regulations and we all want to get rid of them, if you did get rid of them, I do believe the business would probably crash because business is so carefully calibrated based on the law of large numbers, anyone in the insurance business certainly understands that phrase, the law of large numbers, and what that means is in any population of a million people, I don’t know who will die tomorrow or get sick, but as an actuarial, I’ll know that some percentage, I’ll know with a high degree of certainty that some percentage will die, some percentage will get sick, some percentage will get into a car accident, and then what we do is we fine tune our systems with those expectations in mind, and of course, the great the mass of transactions are very predictable. So in to the extent that our commercial supply chains are going to remain steady and predictable, we can do more automation. I don’t know how many people honestly, for instance, expected the sudden bankruptcy of a huge, perhaps, I don’t know, I think it’s maybe Hanjin, the company called Hanjin, maybe the third largest shipping company in the world, maybe the second, I’m not sure. Anyway, South Korean firm went bankrupt several weeks ago, and on their ships that were on the water, as they say, were, I don’t know, billions of dollars of cargo. Now all of the companies that maximize their efficiency, drove down their cost, The shipping industry, the ocean shipping industry is in a price war. Very few of those companies are making money anymore. It’s great for all of us who need to ship products across the ocean, except for when one of them suddenly goes broke because they’re not making any money, and then all of our products are stuck on those ships somewhere out at sea, and as a follow on effect, the ports said no Hanjin ships can come into our port. I wonder why they said that. Well, let’s see. If Hanjin is bankrupt, then Hanjin is not going to pay their bills. So nobody wants to have a huge cargo container ship in their port that they have to unload that they know they won’t be paid for. So now it turns into something of a crisis, something of a crisis akin to what happened in Los Angeles a while back when there was a strike there at the port. All of those unpredictable things suddenly take your carefully calculated equations for lowest price and best performance and throw them out the window, and if you don’t have a backup plan, Last month’s highly efficient supply chain becomes this month’s total disaster. So you know what I mean? It’s when we push something to extremes, it no longer is what we thought it was.

Sanjog Aul [00:11:13]:

So basically, Michael, go ahead. Yes. So based on your response here, I think what you have hinted at is the softer side of humans, which is the people side of supply chain.

Mike Hugos [00:11:26]:

Yeah.

Sanjog Aul [00:11:27]:

People and politics or some other irrational behavior or the fear. Yes. Those are the things that we cannot claim IoT can handle, but what it can do is basically try to at least work towards where at least most of things which can be automated or made making supply chain autonomous, the areas in which it can, which would eliminate human intervention where it’s really not needed or there is a realistic replacement possible. At least we can work towards that versus completely saying that, okay. IoT can come and it cannot solve everything. IoT is not playing God. It is coming in to add a certain value. Would you say there is a concern you would have in approaching it with that in mind?

Mike Hugos [00:11:54]:

Right.

Sanjog Aul [00:11:54]:

Would you say there is a concern you would have in approaching it with that in mind?

Mike Hugos [00:12:14]:

Yeah. Yeah. I believe that what you wanna do is for the more predictable activities, you want to automate them, and then for the last predictable activities, there’s a lot of discussion about artificial intelligence and various wickedly clever algorithms that will do everything from predict the future to get you a date, and there are plenty of apps that claim to do both, and if either of those worked, we should take that power and try to predict what’s going to happen tomorrow in the stock market and all get rich and go buy an island in the Caribbean and be done with all the rest of that, but since no one is doing it and it can’t be done, I think that we have to take all of these claims with a grain of salt. Now heaven knows, I love computers and have devoted the best years of my life to fooling with that technology and I still do it. I would say that think of the IoT as a constant source, a source of streaming real time data from all sorts of different elements within a supply chain. Now I don’t think human beings can track all of them. Obviously, they cannot. Computers can track them, and that’s where this whole notion of managing by exception comes in. Start to look for the exceptions, and as soon as you start to see an exception, have people in the decision making loop; don’t have algorithms making decisions when an exception drifts outside of some predefined boundaries. That’s where you want to get people in the loop and then supply people with information, not just data, but information to help them understand what’s happening and then make decisions and then keep making decisions because a lot of times they’re going to be encountering completely new situations that no one had really thought of before.

Sanjog Aul [00:14:11]:

Let’s take a quick break, listeners. We’ll be right back, and, Mike, when we come back, let’s talk about what’s new or different or more can IoT bring to the table compared to when it wasn’t been utilized to somehow impact supply chain? Because we have been at it. We have been trying to make supply chain more predictable through artificial intelligence existed before that, and many other supply chain optimization techniques, you know, existed before that. So what’s different and what is possible with IoT? As you said, what it’s nothing else but a live stream of data which can be analyzed. So if you were to take that as a resource or as something which was not available before, what would be an incremental change or a quantum change we can bring about in supply chain leveraging IoT. Please stay tuned, listeners. We’ll be right back.

Speaker 0 [00:15:07]:

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You are listening to CTN, CIO Talk Network with Sanjog Aul. To learn more about our program, please visit ciotalknetwork.com. Now back to the show.

Sanjog Aul [00:17:12]:

Welcome back. So, Mike, we’ve seen supply chain, been always worked at in academia, in industry by the experts to see what we can do to shave off some slack, if you will, that that may exist, and we’ve also tried to do disruption. So do you think with think about the pre IoT era of supply chain innovation and or efficiency improvement versus now, and you just made IoT as a resource and very important or a novel resource, which will be a stream of live data and some way to analyze it. What are the incremental or quantum ways in which supply chain can be impacted?

Mike Hugos [00:17:54]:

Well, I think that as we start to get into new markets and by new markets, I think that, for instance, if you go into a grocery store, a lot of the grocery stores will say locally grown, purchased locally. They’ll tout the fact that they make a lot of effort to purchase from farmers within maybe a 300 mile radius, and that is very interesting to me because I think that sort of thing is going to continue to happen more frequently. The whole sustainable agricultural movement has to then expand with sustainable consumption as well, and those are new markets, and when you get into new markets, you can do a lot of studying, but it’s not going to give you the level of predictability that you might have in more traditional and established markets, and that’s where IoT can make a difference, and I really think it’s things like simple sensors. Internet of Things really means, after all is said and done, that we have little data collection in transmission sensors and then some simple technology that would make decisions based on the data that it receives, and I do think that as you put that together and if you keep people in the loop so that they can handle the unexpected, that your supply chain in a new market is going to be more responsive than your competitors’ supply chain in a new market. If you make use of people, the real time visibility that you can get from supply chains and then assuming that everybody in that supply chain is working together because in spite of the fact that we all work for different companies, unless the entire supply chain works, which means everybody is pulling in the right direction, then no one’s really going to win. As the example of the big shipping company, Hanjin, that went bankrupt, I’m sure a lot of the shippers felt, well, we’re winning, we’re saving money on our shipping, except the company that moved the products across Pacific Ocean went broke. So actually, nobody really won in that case, and I am fascinated with technology, but I think that we are running into a situation now where politics are getting involved and people’s livelihood too. Driving down cost is a good thing. I’m all for it, and at the same time, remember that it’s also driving down other people’s salaries, and there is a point where you start to wonder how much money do I need to save versus how much money do I need to make, and I do believe that we have just begun to have that discussion. Most of economics for the last 150 years or so has been about driving down cost. I don’t think we’ve had a big discussion about how does everyone make enough to stay in business, how does everyone make enough to thrive. You know what I mean?

Sanjog Aul [00:21:10]:

So to that, this is an important point that you bring up. So if you were to take the positive angle of inviting IoT into somehow working with supply chain to create responsiveness, as you said, which is a competitive advantage, what other type of growth oriented features or traits of supply chain can be introduced or further refined or honed with the input and or application of IoT in your view?

Mike Hugos [00:21:39]:

I think that there are 3 things and they can be readily introduced into any supply chain, and from personal experience, and I can tell a story about that, I have seen that when these 3 conditions are present in a supply chain, amazing things happen when you need to be responsive, and those 3 things are, get out your pencil. Number 1, real time visibility. That’s where IoT comes in. It’s going to be broadcasting a massive stream of real time data from all different elements of the supply chain. Number 2, the people in the supply chain have authority to act. They can when they see something happening, they can act. I would put in parentheses, they can act within rules to achieve common goals, but do they have authority to act? And then the Number 3 is that everybody in that supply chain needs to have a stake in the outcome, and I do mean that they need to see a profitable outcome for all of them. It’s not that some people will profit wildly and others will be reduced to serfdom, and when you take those 3 things, real time visibility, authority to act and a stake in the outcome, introduce that into a supply chain, amazing things happen, and if I might, I’ll tell a little story. Are we

Sanjog Aul [00:23:02]:

Yes, please go

Mike Hugos [00:23:03]:

ahead. I some years ago, I was the CIO for an organization that still very prosperous, very profitable organization that delivers janitorial supplies and foodservice disposables, and one of the largest chains of restaurants in the world, certainly in North America, used us as the people who would deliver all of their food service disposables. That means paper cups, napkins, you know, all the unglamorous stuff that you actually do have to have to run a restaurant, and in the holiday seasons, they would always come out with a special holiday brand. They still do. They always come out with a special holiday brand. All of their products, the cups, the napkins, the bags, etcetera, are branded with that holiday theme, and the key is that you want to use up all those products that holiday season because next holiday season, they’ll have a new theme and they can’t just reuse old stuff. So it’s a classic supply chain problem of make enough so you think you can cover demand, but then move it around efficiently so that no one store anywhere, and there were about at the time, there were about 4,500 stores across America and there are more than that now. What they tried to do always was figure out where is the demand, move the products to cover the demand, classic supply chain stuff, but by using very sophisticated algorithms, it didn’t work, and we all wondered why. We would wait with bated breath for that the expert supply chain managers at that company to tell us what to do, and they never got it right, and they spent a lot of money and had very cool technology and they certainly had very smart people. Why didn’t they get it right? They didn’t get it right because number 1, it was unpredictable. It wasn’t like their regular yearly business where they had a lot more data and there was a lot more predictability. It was the holiday season, and so if it was warmer in one city, then what was expected, well then maybe sales wouldn’t be as great. If it was colder in another city, maybe sales would be even bigger than what was expected, and we found something else, which was that when only a small group of people were in charge, which you would think is the right way to go, don’t you don’t want to have decision making by committee, right? So they would literally have a very small handful of people at their headquarters watching all those numbers and then they would tell us what to do, except they would never tell us what to do until it was almost too late or so late that we had to suddenly make rush deliveries. That would be things like how do you move a whole boatload of paper cups from New York to Atlanta? Well, you air freight them, and when you air freight paper cups, anyone who’s in the transportation business knows that that’s a really money losing proposition. There isn’t enough value in paper cups to justify being air freighted anywhere, but when you have to get there in 2 days, that’s what you do. So we would actually literally lose money during holiday seasons and then try to make it up with that customer the rest of the year. When we took a different approach and everyone was looking for a different approach, what we did was we put some information that everyone could see and we updated it only every 24 hours, which was still a huge improvement from what we had seen before. We consolidated all the information from across the supply chain into a single database, and instead of letting everyone have their own separate databases that always suffered from time lags, so maybe my database is a little bit more updated and yours maybe is lagging by 24 hours, which often happens. So we agreed that there would be one central database that everyone would look at, turned out to be our database since we were the distributors, and then we let everybody see it, who needed to see it, and then surprise, surprise, we all made decisions faster, and that seems to be counterintuitive. We had more people in on the decision making, but here’s the key. They had a stake in the outcome, and they were not bureaucrats. They were street smart professionals who had time pressure to act. In other words, they couldn’t think about it for another 30 days, and they certainly had a stake in the outcome because if things went well, they were going to make money or at least save considerable amount of money, and if things didn’t go well, the opposite would happen. What we saw was that within about 2 weeks for a holiday period that lasted for almost 3 months, within the first 2 weeks, we went from a defensive posture where everyone would basically hunker down and then point fingers at each other to make sure that they didn’t get blamed for something, and then all of a sudden, what we saw was a whole lot of collaboration and the data we use some very simple most people run their operation on a handful of key indicators and that’s what they pay attention to. If one of those key indicators drifts out of preset parameters, then they’ll drill down and look for more information, but so we provided basically a simple handful of key indicators. We all watched the numbers. We could drill down and look at from individual stores to regional distribution centers back to the factories, and when we started to see things happening, everybody got involved. We all agreed what needed to be done, and here’s the key, we made decisions faster because no one small group of people would be blamed if things didn’t work out, but street smart professionals with a stake in the outcome who have good real time visibility of the supply chain, how often do they make mistakes? Less than computers do. That’s what the answer to that. They don’t make that many mistakes, and so the efficiency of the supply chain, in other words, the amount of excess material left at the end of the season, dropped considerably. The speed at which we made decisions increased and the effectiveness of our decisions also increased, and I have never forgotten that and actually have been using that principle with other companies since then.

Sanjog Aul [00:29:27]:

Let’s take a quick break, listeners. We’ll be right back, and, Mike, you did mention about the ecosystem partners. You know, the supply chain partners, they have to come on board. They should have the incentives to be able to adopt IoT, get that embedded in the way their processes work internally and also the integration points. So all of them have to come together. Now this is not a small undertaking, and it has to happen in a way where we are not going piecemeal. It almost seems like all or nothing. I’m not sure if you can do it even in phases. So how do we tame this beast? Where do we get started? How do you go about bringing all supply chain partners to, first of all, agree to the IoT? The standards don’t exist today for IoT, so how do you bring them on one system or one standard and get them to start working towards building that efficiency and realize in due course of time, but while all that time, everyone spends money. It’s difficult to get everyone to spend money before they will make or save money. How do you make this happen? Please stay tuned, listeners. We’ll be right back and explore.

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Patient centered care requires a connected enterprise. Are you ready? If you’re looking to scale your healthcare IT efforts, visit redmane.com/health today. Whether it’s to connect data from multiple partner solutions or developing software for unique needs, RedMane can help. To find out how RedMane can help your company deliver on the patient centered care promise, visit redmane.com/health or call (773) 693-3919. Visit today.

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You are listening to CTN CIO Talk Network with Sanjog Aul. Now back to the show.

Sanjog Aul [00:32:43]:

Welcome back. So, Mike, we know we are trying to get IoT embedded, and as you very rightly mentioned, one company embracing IoT is not gonna cut it when it especially is in context of supply chain because all your partners need to come on board. Each company has a different agenda, different profit and cost metrics, and they have different intentions. They may want to work with you, but they’re not gonna lose their shirt because you want to go embrace IoT. How do you make this whole group or family come together?

Mike Hugos [00:33:19]:

That’s a very true statement and a very good question. Some years ago, Walmart attempted to force all of its suppliers to implement RFID chips and it was going to result in great improvement for Walmart and the benefit for the suppliers would be, well, you get to continue selling to Walmart, and Walmart was not subtle or gentle. They laid down edicts and they issued deadlines and it still didn’t happen, and I think that expecting everyone to come up to the same grade before anything can be done is a recipe for getting nothing done at all, and I do also think that supply chains, although we have our Tier 1 companies, the Fortune 500, the multibillion dollar companies, they have spent a lot of money on technology and they have a fine stack of applications, but we forget that most of most supply chains, most products in the world move through a supply chain that is populated by Tier 2, Tier 3, Tier N suppliers. In much of the world, certainly in Asia, certainly in powerful economies like China, distribution is handled by small family owned businesses that might own 5 or 10 trucks, and they’re working on thin margins to begin with. They’re certainly not going to be forced by anyone to spend a lot of money on technology that they don’t see immediate benefit with. So the question then becomes, how can we do it? And I believe that you can take an incremental approach. I believe that you need to structure your approach so that people start to see significant benefits for themselves as they move down a path, and you also need to be open to change and new ideas, so the path is not etched in stone. It’s not a preset 5 year plan that everyone must follow regardless of how the world turns. I do think that, again, this is common sense, but there is some glare in any supply chain, everyone in that supply chain already knows what the biggest problems are. You don’t need to bring in consultants and heaven knows. I am a consultant, and I love to consult with people, but often, what I do is I go around and I ask the people right at the scene of the action. I usually don’t ask the people at headquarters. Of course, I ask the people at headquarters what they think, but to really find out what’s going on, I visit the field locations, I ask people right at the scene of the action, what bothers you? What’s driving you crazy this week? And if you ask enough people, usually somewhere between 50 and 100, which doesn’t take that long, you’re going to start to see a common set of issues, and then you start to think about, all right, how could new technology like IoT start to address some of that? How could we employ it in a way where we can get a big win upfront, usually within the first 90 days. Because once you’ve delivered a big win, then you will start to get people to swing over to your side. When you ask people like they did at Walmart to spend hundreds of thousands, if not millions of dollars to do something which Walmart felt would be good, at least for Walmart, the motivation for anyone else to cooperate, although no one will defy you in public, they will drag their feet in private. There will always be a reason why it doesn’t get done and it won’t work. So I think that we’re going to have to learn as we get into a more interconnected world and as technology becomes more powerful, we’re going to have to learn two almost counterintuitive things. First of all, what do people still do better than computers? And there’s a lot, and then secondly, how do we create — excuse me for this terrible cliché — but how do we create win-win situations? If Walmart, which is certainly they’re starting to lose ground, Amazon is eating their lunch, but if Walmart couldn’t force everyone to implement RFID technology, then I doubt that anyone else could have done a better job through use of force alone. There were other ways to approach it. You don’t have to have everybody up to a 100% level before you start to see some benefits. So long winded answer, but no.

Sanjog Aul [00:38:14]:

No, and it’s a good answer. Now question is there could be upstream and downstream players. You may not always be at the top or at the bottom. Yes, and you may not be the company which will gain the most. You do not know that. So who takes the lead? Are we just gonna be everyone wants to be a second follower, so nothing moves? Is that what’s gonna happen?

Mike Hugos [00:38:35]:

I think that there are a group of people and it should be the people who are perhaps maybe the end use user. Typically, that’s what’s happening now. It’s no longer the big manufacturers who are the most blind as to where their products go once they ship them out of their warehouses. They often don’t know where they go. They know that, okay, I shipped several truckloads to distributor XYZ, but where it went beyond that, they don’t know. So I think that you need to have a small group of well funded people who stand to probably reap the greatest benefits, and they need to come up with a flexible approach and show everybody how the benefits will be spread around evenly. I do believe that nobody is going to cooperate in their own demise unless they’re either diluted or you literally have a gun to their head because why would they? That’s not what business is about. It’s not what life is about. So just because we’re talking about complex technology doesn’t mean that you have to have complex solutions, and there is an art to that, and I would say that I have been a student of that. Actually, an article that I wrote going on 10 years ago now about that problem with the holiday supply chain is still online. If you were to do a web search on the Tao of supply chains, and that’s TAO as in Dallas philosophy, not DOW as in the stock market, but the Tao Supply Chains will talk about the solution that we used, which was amazingly simple, and actually, had it not been so urgent to do something quickly, people would have resisted that because as many people had told me, I explained the idea and they said, well, gee, Mike, that’s awfully simple, and I said, yes, I know. I’m sorry, but there’s value in simplicity when it is done right. So simple, flexible approaches are going to be successful approaches. Expensive, complex and rigid approaches are going to fail. I will stake my fortune on that statement.

Sanjog Aul [00:40:54]:

When we talk about business continuity and when it is people dependent, you train for it, you plan for it, and you do test runs, the pull-the-plug test, you name it. Well, when we are talking IoT where you’re trying to first bring autonomy and have one machine talk to another, and then you got the supplier, the people side of it, and even there are sensors which you’ve had at places which you cannot even reach once you’ve installed them.

Mike Hugos [00:41:20]:

Great.

Sanjog Aul [00:41:20]:

How do you ever have a foolproof or not actually there’s nothing like foolproof. How can you deliver near foolproof business continuity plan and execute it on it and make it the basis where you will sleep well at night because now you know you’ve introduced systems and sensors and other things which are supposed to give you autonomy, but they’re also in a way doing things their way versus asking a human being.

Mike Hugos [00:41:50]:

Yes. Yes, and that’s again where I get back to if it’s highly predictable, you can make it highly automated, but if it’s not predictable or if the consequences of even a rare unpredictable event could be catastrophic, you need to have people in the loop, and I think that when people talk about business continuity, they’re not quite getting their arms around the whole thing. It’s like when people say, I want low price and high quality, well, so do I. It’s just that they tend to go in opposite directions. If you’re getting a product for $0.99 that normally costs $10 it’s either A, a fake, B, dangerous, C, you’re a fool. There is no such thing as high quality and low price when you’ve maximized if you’re trying to maximize them both. You have to come up with some type of a shift in compromise. There will never be an answer, it will always change, and business continuity means redundancy and flexibility in your supply chain, and redundancy and flexibility in your supply chain will be looked at by an accountant who will say, oh, you’re just duplicating facilities or we don’t need three ways to do something, we only need one way or we don’t need five suppliers or 3 suppliers of this product, we only need 1. In a perfectly predictable world that is focused relentlessly on efficiency, that is the right answer, and that was the answer that we came up with in the Industrial Age. It is a good idea, as a general rule, to limit your number of suppliers, but when you come down to only 1 supplier for a key part, and I think a lot of people began to learn this when remember in 2011, where there was a big earthquake off the coast of Japan, unexpected tidal wave, melted down several nuclear reactors, shut down some very sophisticated electronic manufacturers in Japan, and then all of a sudden, companies here in the States who had done a very good job of procurement, eliminated all their excess suppliers, cut redundancy out of the supply chain, ratcheted down the cost. All of a sudden, we’re unable to get a key part and they had to shut their production lines down. So there’s a question, what do you want? If everything works perfectly, if everything is predictable, efficiency is the way to go. To the extent that there is unpredictability, variability or really disastrous consequences, as in the meltdown of those nuclear reactors on the coast of Japan, then you want some level of flexibility and responsiveness, and that is a mix that changes from year to year, maybe even from month to month.

Sanjog Aul [00:44:49]:

take a quick break, listeners. We’ll be right back, and, Mike, when we come back, based on what you just said, to have IoT in a reasonable dose and have the human intervention in a reasonable dose, so that you have a good mix of efficiency and be able to handle the unpredictable events. All of that said and done, what specific type of disruptions or quantum leaps can we get now that we have access to this IoT paradigm, if you will. Let’s just explore that when we come back. Please stay tuned, listeners.

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You are listening to CTN CIO Talk Network with Sanjog Aul. Now back to the show.

Sanjog Aul [00:47:33]:

Welcome back. So, Mike, we know we discussed all the things that are possible, where we should be in balance, think about IoT getting it impacting supply chain in a certain manner for maximum benefit. All that said, where do you think there is a potential for something major, something quantum in terms of impact we can make on supply chain by virtue of leveraging IoT?

Mike Hugos [00:48:01]:

The central issue and I one person who left a comment on my book on Amazon said, well, this information is dated, and the thing about supply chains is, well, yes, supply chain the essentials of supply chain management have not changed much in perhaps the last 10,000 years until we literally do have the ability to beam people up, to turn them to energy and then turn them back into matter. The essential elements of supply chains are will remain the same, and it’s all about getting the right stuff to the right place at the right time, and although that is simple in concept, it can be very difficult in practice, and one of the biggest problems is that you got to keep track of where everything is, and when you’re running a supply chain that stretches for longer than about maybe 10 blocks, it’s very easy to have stuff get lost. Now imagine that everything what Walmart tried to do was mostly they were just focused on their own receiving and shipping operations. They were only focused on their own facilities. If they looked at the whole supply chain and although RFID isn’t quite the right technology, IoT technology is starting to be much more powerful, and imagine that every item in your supply chain had a little transmitter that sent out a signal and you could track it. If you knew where everything was, including maybe a truckload of your high priced electronics got hijacked someplace and then that truck got parked at a roadside stop and then those boxes got unloaded and scattered everywhere, but when you are able to track all of your individual items, a supply chain is as much as anything, it’s like a network of pipes and water flowing through a network of pipes that connect reservoirs, reservoirs being warehouses and then all the way out to the final consumer being me when I turn on the tap, I want the water to come out immediately. So that’s what a supply chain is. IoT is going to start to provide the information. The question is, what will we do with it? And that’s why I say you need a mix of humans and computers. The computers can keep track of a trillion things moment to moment. People cannot. When you program the computers with a managed by exception type of approach, and then you let the computers refer the exceptions to the people instead of having the computers beyond some very simple exceptions, then I think what you’re going to get is the entire supply chain will start to become more cohesive. I think it will be very interesting in the sense that all the supply chain by definition is a collaboration of different companies. There is no supply chain of any consequence that is managed by one single organization all by itself. There are always outside suppliers, trucking firms, transportation firms, manufacturers, people who finance the inventory that you’re moving, even people who write the advertisements to sell the products that you’re moving, and people who predict all of that. So when you get all of those people starting to work together because you’ve introduced the 3 things that I mentioned earlier, which is real time visibility, which is where IoT is going to be absolutely the most valuable, then everybody has authority to act within rules to accomplish goals, and then everyone has a stake in the outcome. In other words, everyone can see the benefit in it for themselves. That real time data that IoT provides is going to be the glue or the rope that ties it all together. So we have not yet seen that. We are still, for the most part, fine companies who have spent zillions of dollars on great technology are still in many cases flying blind. They don’t know where their products are after they leave their facilities. When we can all start to see what’s going on and everyone is collaborating because we can all see what’s going on and there’s a stake in the outcome for all of us, that is going to transform supply chains. It’s going to make them more efficient and they’re going to be more responsive because we are already knee deep and going deeper into a world where predictability is becoming much harder to find.

Sanjog Aul [00:52:33]:

Security, we know, is, of course, a threat in many cases, and supply chain, when it gets autonomous or gets uber interconnected, then we are talking about single or multiple points of failure, whichever way you look at it, but there are ways you would become vulnerable that could be beyond imagination. Is there a solution to that, or are we supposed to go in there?

Mike Hugos [00:52:58]:

There is. I’ve been working with some agencies who’ve done a lot of work on that, who have experienced hacker attacks, and they have a phrase called the attack surface of their systems, which in layman’s language means that the more complex the technology, the larger the attack surface. The simpler the technology, the smaller the attack surface, and then there’s an old saying from back in the day when I was a developer, and you’re right you know, in order to write good code, you want to modularize your code, you want to turn it into objects, and those objects, those code modules should be, as they say, highly cohesive and loosely coupled. If you weld all the pieces together which starts to be, it can be efficient, but as soon as one thing breaks, all the rest break. So I’m going to leave it at that. Google highly cohesive, loosely coupled. Read what it says. That’s our way forward, and IoT can be simple and loosely coupled, and that will be the way that we respond to sudden and continuous unexpected

Sanjog Aul [00:53:47]:

30 seconds. Yep. Go ahead.

Mike Hugos [00:53:49]:

Which starts to be, it can be efficient, but as soon as one thing breaks, all the rest break. So I’m going to leave it at that. Google highly cohesive, loosely coupled. Read what it says. That’s our way forward, and IoT can be simple and loosely coupled, and that will be the way that we respond to sudden and continuous unexpected changes.

Sanjog Aul [00:54:17]:

On behalf of the show and our listeners, thank you so much, Mike. You were a wealth of knowledge and experience, and your examples were right on. We know that supply chain definitely needs ongoing improvement, and IoT can promise us disruption. However, it looks like it has to be a healthy dose and not going overboard with just building autonomy and also get rid of people because that could cause us more harm than good. So thank you so much again, Mike, for your inputs here.

Mike Hugos [00:54:48]:

Well, thank you for having me, Sanjog Aul.

Sanjog Aul [00:54:50]:

Thanks again, and listeners, please like us on Facebook. Search for CTN CIO Talk Network, and be sure to follow us on Twitter. Thank you again for listening to this segment on CTN. This is Sanjog Aul, your talk show host. Till next week, take care, and God bless.