SUPPLY CHAIN MANAGEMENT
Full Steam Ahead
How ‘Internet of Things’ could quickly—and dramatically—alter supply chains
If you’re just becoming familiar with the term, "Internet of Things" (IoT), get ready for more of it—and in a hurry. Especially if your job has anything to do with supply chain activities.
IoT refers to what’s being called a revolution of products or devices connected automatically to databases and the internet. Virtually any type of human or organizational activity can be measured, monitored and if intended, perhaps trigger a predetermined action—all without the need to involve people to make the connections and decisions.
Through IoT, for example, a grocery store will be better able to monitor what items fly off store shelves and make plans to avoid running short of the high-demand products. Another example is sensors within a factory’s production line the could shut down operations and alert staff if there’s a problem. "Precision agriculture" can send data from the field to provide real-time recommendations to farmers.
Implications for supply chain management, in particular, could be far-reaching.
"The net effect will be to reduce waste everywhere: in physical flows and logistics in the movement of people and goods; in logical flows and logistics in the movement of ideas and information. Decisions will be made faster and better based on more accurate information. Prior errors in assumption and planning will be winkled out more effectively. Inventory will be reduced, as will the waste associated with the decay that is an intrinsic part of inventory," according to a recent Pew Research report.1
IoT will reach 26 billion devices by 2020, up from 900 million just five years ago, according to an estimate from the Organization for Economic Cooperation and Development. This will increase the amount of data available to supply chain professionals.2 This means IoT has the potential to:
- Broaden the number of locations that will be monitored along every product’s supply chain.
- Deepen manufacturers’ and retailers’ understanding of why, when and how customers want every product.
- Improve marketers’ ability to sell desired products to specific customers exactly when they need or want them.
- Speed up the product cycle, which
will dramatically increase pressure on supply chains to perform faster, more
efficiently and at a lower cost.3
Advice for strategists
Now is the time for organizations’ supply chain strategists to start asking questions and reevaluate models and the makeup of processes, even if estimates on the exploding number of devices connected to IoT in the coming years are slightly off.
"Strategists need to be looking at [IoT’s] potential now" and make plans to adjust their organization’s manufacturing, sourcing, transportation, inventory, billing, financial, design and management systems and practices, said Michael Burkett, managing vice president of Gartner, an IT research and advisory firm, and co-author of a recent report on IoT’s growth and future.4
"Supply chain leaders must design their processes to operate in the digital business world," Burkett wrote. "This includes fulfilling the new expectations of customers and the volatile demands that digital marketing will create."5
Other affected areas
In addition to supply chain activities, Morgan Stanley researchers predict IoT will likely have a positive effect on other industries, including:
- Factory automation—This area could see enhanced efficiency from process monitoring and supervision, remote management and optimization, and optimal energy management.
- Utilities—"Smart meters" to monitor electricity and water use could lead to better resource management.
- Healthcare—Big data could trigger more timely care interventions, especially in conjunction with "smart" medical devices that transmit data.
- Retail—The use of real-time technology could improve inventory management and lower the cost of goods sold.
- Insurance—There could be major changes in business models and profits as auto insurers increasingly use technology to track vehicles.6
The increased information IoT supplies can only mean more benefits, right? Not so fast.
The Federal Trade Commission (FTC) has started asking questions about the implications of organizations gathering and analyzing more data on consumer spending habits and whether businesses will recognize their obligations to consumers.
"Now is the time to ask how companies can provide this burgeoning connectivity—and its considerable benefits—without compromising consumers’ privacy or losing their trust," Julie Brill, FTC commissioner, said in a speech in March.7
"Will consumers know that connected devices are capable of tracking them in new ways, especially when many of these devices have no user interface?" Brill asked. "How will these new sources of data flow into the huge constellation of personal data that already exists? Will companies that, for decades, have manufactured ‘dumb’ appliances and other devices take the steps necessary to keep secure the vast amounts of personal information that their newly smart devices will generate?"8
—Compiled by Mark Edmund, associate editor
- Janna Anderson and Lee Rainie, "The Internet of Things Will Thrive by 2025," Pew Research Internet Project, May 14, 2014, www.pewinternet.org/2014/05/14/internet-of-things.
- Will Green, "‘Internet of Things’ Will Significantly Alter Supply Chains," Supply Management, March 31, 2014, www.supplymanagement.com/news/2014/internet-of-things-will-significantly-alter-supply-chains.
- Jeff Glasnor, "Gartner Report on Internet of Things is Sobering for Supply Chain," Apptricity, April 14, 2014, www.apptricity.com/gartner-report-on-internet-of-things-is-sobering-for-supply-chain.
- Morgan Stanley, "Next Wave of Technology Has Arrived," April 11, 2014, www.morganstanley.com/public/04112014.html.
- Erin Ayers, "Potential Gaps in Coverage From Vast Internet of Things Exposure," Advisen Cyber Risk Network, June 27, 2014, www.cyberrisknetwork.com/2014/06/27/internet-of-things-coverage-gaps.
Who’s Who in Q
NAME: Scott A. Clary.
RESIDENCE: Longwood, FL.
EDUCATION: Doctorate in operations research from the Florida Institute of Technology in Melbourne.
INTRODUCTION TO QUALITY: Clary’s father held a quality role for part of his career in the U.S. Navy. When Clary was a child, his father explained to him what he did, and it left a positive impression. No matter what job function Clary is performing at any given time, quality is always a consideration.
CURRENT JOB: Engineering manager and member of the group technical staff at Lockheed Martin Missiles and Fire Control in Orlando. Clary began working for Lockheed Martin (then Martin Marietta) in 1985 after graduating from the University of Central Florida with a bachelor’s degree in mechanical engineering.
OTHER NOTEWORTHY JOBS: In addition to his full-time job at Lockheed Martin Missiles and Fire Control, Clary is an adjunct professor and the virtual site curriculum manager for operations research at Florida Institute of Technology. He teaches graduate-level courses in operations research, systems engineering, reliability, mathematics, project management, and productivity measurement and improvement.
ASQ ACTIVITIES: Clary is a participating member of the ASQ Orlando Section and active in the ASQ Reliability Division and Six Sigma Forum. He was a participant in the certified reliability engineer exam review workshop in 2012 and 2013. Clary is also an ASQ-certified Six Sigma Black Belt, reliability engineer and manager of quality/organizational excellence.
ACTIVITIES/ACHIEVEMENTS: Clary served as a Malcolm Baldrige National Quality Award examiner in 2013-2014. He has been an Accreditation Board for Engineering and Technology college program evaluator for mechanical engineering since 2004 and a Grand Awards judge at the International Science and Engineering Fair since 2003.
PUBLISHED WORKS: Building a Better Product Despite Competing Objectives: A Characterization of Product and Process Improvement Techniques (UMI Press, 2001).
RECENT HONORS: Clary was part of the 2013 class of ASQ fellows. He is also certified as an expert systems engineering professional by the International Council on Systems Engineering, and as a certified project management professional by the Project Management Institute.
FAVORITE WAYS TO RELAX: Clary enjoys traveling with friends and family to popular U.S. destinations such as Las Vegas, San Diego, New York City and San Francisco.
QUALITY QUOTE: The quality of our lives is directly related to the quality in our lives.
Honda, Mercedes-Benz Lead in Perceived Quality Ratings
More consumers perceive that Honda and Mercedes-Benz deliver the highest-quality vehicles, according to a recent study.
Honda received the highest ratings among mainstream brands, followed by Toyota and Volkswagen. Mercedes-Benz received the highest ratings among premium brands, followed by Lexus and BMW.
European automakers netted six of the top seven premium brand spots. The mix was a bit more varied among mainstream brands. While three of the top four spots were held by Japanese automakers (Honda, Toyota and Subaru), domestic brands GMC, Ford and Buick were all among the next tier.
The brand perception of quality study was conducted by Automotive Lease Guide (ALG), the analytics division of TrueCar.
"When consumers buy a car, brand perception directly impacts how quickly the vehicle will depreciate," said Larry Dominique, president of ALG and executive vice president at TrueCar. "Many consumers lack any real experience with the brand, so there is often a gulf between perception and reality. When deciding on a car purchase, consumers need to consider more than just build quality—they need to consider how the brand is perceived in the marketplace."
Hospitals Using Technology to Better Connect, Reduce Errors
Hospitals are using IT to better connect disparate care providers, according to the latest "Most Wired Survey" conducted by Hospitals and Health Networks, the flagship publication of the American Hospital Association.
Most-wired hospitals—those that meet a set of rigorous criteria across four operational categories—are using IT to reduce the likelihood of medical errors. For instance, 67% of high-ranking hospitals share critical patient information electronically with specialists and other care providers. Among the IT-savvy hospitals, 81% of medications are matched to the patient, nurse and order via bar code technology at the bedside.
"Hospitals, their clinicians and their communities are doing tremendous work to enhance their IT systems in ways that support care and delivery improvement, and patient engagement goals," said Rich Umbdenstock, president and CEO of the American Hospital Association.
To read more results from the survey, visit www.hhnmag.com.
Date in Quality History
QP looks back on an event or person that made a difference in the history of quality.
Aug. 20, 1987
The Malcolm Baldrige National Quality Award was signed into law on this date.
The award is presented annually to organizations that demonstrate quality and performance excellence. The Baldrige award was designed to raise awareness of quality management and recognize U.S. organizations that have implemented successful quality management systems.
The award is named for Malcolm Baldrige, secretary of commerce from 1981 to 1987. During the time he led the department, Baldrige’s managerial excellence contributed to long-term improvement in efficiency and effectiveness of government.
- National Institute of Standards and Technology, www.nist.gov.
New Members Named to Baldrige Advisory Panel
Several appointments have been recently made to the Baldrige Program’s Board of Overseers.
Rulon Stacey was appointed by U.S. Secretary of Commerce Penny Pritzker as the board’s chair. Stacey is president and CEO of Fairview Health Services in Minnesota. He oversees a system encompassing hundreds of primary and specialty care clinics, five community hospitals and the University of Minnesota Medical Center in Fairview.
In addition, three new overseers were named to the board:
- Reatha Clark King, chairman of the board of the National Association of Corporate Directors, which is based in Minnesota.
- Julie A. Furst-Bowe, chancellor of Southern Illinois University Edwardsville.
- Robert F. Pence, president and CEO of Freese and Nichols Inc. in Fort Worth, TX.
Pritzker also reappointed Bryan Bushick to a second term on the board. Bushick is founder and principal of Falcon Health Solutions LLC in Durham, NC.
To see the complete roster of board members, visit www.nist.gov/baldrige/community/overseers.cfm.
Poll: Reduce Hospital Readmissions to Save Money
Reducing hospital readmissions should be the No. 1 priority to help healthcare organizations lower costs, according to a new ASQ poll of U.S. healthcare quality improvement professionals.
According to the online poll of more than 300 ASQ members in the healthcare quality profession, respondents said that, in addition to reducing readmissions, their top priorities would include:
- Maximizing efficiency of existing clinical resources (staff and units).
- Implementing patient care coordination programs.
- Redesigning the healthcare delivery model to include alternatives to physician delivery of primary care, such as nurse practitioner primary caregivers.
- Improving data and analytics related to return on investment of medical products and technology.
Healthcare organizations face serious hurdles as they try to implement these changes, however. Survey respondents ranked the following operational challenges by level of difficulty:
- Medicaid and Medicare funding.
- A model of reimbursement that favors sick care over health maintenance.
- The Affordable Care Act and its effect on how healthcare organizations set prices.
- Lower reimbursement from health insurance exchanges.
- Fragmented, uncoordinated patient care.
"Controlling the high cost of healthcare is a complex undertaking due to its many moving parts," said Joseph Fortuna, immediate past chair of ASQ’s Healthcare Division. "Many healthcare professionals are responding daily to incentives, educational experiences and performance measurements that are frequently counterintuitive to true cost reduction and quality improvement."
Experts surveyed agreed healthcare organizations should consider the following ways to cut costs and reduce waste:
- Increase the use of quality and process engineers in healthcare settings.
- Focus more on lean management principles.
- Implement mandatory process improvement training for healthcare professionals.
- Create financial incentives to deliver more efficient care.
Other possible cost-cutting solutions suggested by respondents include:
- Better implementation, distribution and acceptance of preventive medicine to keep patients healthy longer, thus reducing demand.
- Use of integrated healthcare records to decrease errors and streamline the patient care process.
- Collaboration and integration across service lines and departments, especially with purchasing and technology.
- Use of process improvement and quality management systems and tools, such as lean Six Sigma, the Malcolm Baldrige National Quality Award criteria and ISO 9001, to improve and standardize clinical, cultural, financial and operational quality.
- Establishment of a material requirements planning system for production planning and inventory control, elimination of stockpiling of supplies in departments and establishment of a routine of just-in-time ordering using lean principles.
For more information about the survey, visit www.asq.org/media-room/press-releases/2014/20140710-healthcare-costs-poll.html.
More Restaurant Patrons Show Their Satisfaction With Small Chains
Small restaurant chains are satisfying their customers more, while the largest restaurant chains’ customer satisfaction scores seem to be deteriorating, according to a recent report released by the American Customer Satisfaction Index (ACSI).
ACSI data show Americans ate out an average of four meals per week last year, representing a 60% increase since the end of the Great Recession.
Also, they are happier with their restaurant dining experiences: Customer satisfaction with full-service restaurants is up 1.2% to an ACSI score of 82 on a scale of 100, holding a slim lead over fast-food establishments (80).
Customer satisfaction with smaller restaurant chains is up 2% to an ACSI score of 83, the best in the full-service category. Meanwhile, all of the largest chains experienced drops in customer satisfaction. Customer satisfaction with limited-service restaurants is steady at an ACSI score of 80.
This marks the third straight year fast-food restaurants have maintained their highest-ever level of customer satisfaction.
"Price has always been a strong point for fast food, but fast, casual restaurants have been improving quality and service at such a brisk pace that customer satisfaction with fast food is nearly as high as with dine-in restaurants," said David VanAmburg, ACSI’s director.
For more information about the report, visit www.theacsi.org/news-and-resources/press-releases/press-2014.
Communication, Accountability Keys to Change Management
Communication and accountability are just two of the best practices that leading organizations adopt to set the stage for, manage and sustain change, according to a recent study.
The study, written by American Productivity and Quality Center and Grant Thornton LLP, identified 12 best practices across six areas: leadership, frameworks, governance, engagement, measurement and continuous improvement. The top three best practices were:
- Combine communication and engagement plans to create buy-in and overcome barriers to change. To ensure adoption and move employees through a change journey, an organization’s core and implementation teams must identify and address the common barriers to change through aggressive communication and engagement tactics.
- Ensure executives are accountable for the transformational change. Executive leadership and senior management are often the impetus for transformational change. Just being the impetus, however, is not enough to drive change within an organization. Often, executives at best-practice organizations are also accountable for the transformational change.
- Leverage top-down communications to set the groundwork for transformational change. To initiate change, senior management must communicate the current state and the need for change in a way that reaches all employees. The message must be something all employees can comprehend and rally around.
"We have found that successful organizational change begins and ends with individuals," said Chris Jacobs of Grant Thornton. "Organizations need to spend time influencing and molding individual behavior in a way that builds the foundation for lasting, successful transformation."
Visit http://tinyurl.com/q2v6el6 to read the report.
THE ANSI-ASQ National Accreditation Board (ACLASS) and FQS have signed the Asia-Pacific Laboratory Accreditation Cooperation mutual recognition arrangement (MRA) for proficiency testing. ACLASS and FQS are among eight initial signatories of the MRA for proficiency testing. ACLASS and FQS are also MRA signatories for calibration and testing, inspection and reference material producers. For more information, visit www.aclasscorp.com.
THE AMERICAN SOCIETY for Nondestructive Testing’s (ASNT) certification management council is looking for qualified individuals to serve three-year terms as full or associate members. The council is responsible for the development and management of ASNT’s certification programs. For more information on the requirements, visit http://tinyurl.com/oc53axs.
ORGANIZATIONS WITH a commitment to excellence collectively demonstrate better stock market performance than any of the popular stock indexes, according to new research by Excellence Canada, a nonprofit quality organization. The value of an investment in publicly traded companies that were recognized with Canada Awards for Excellence earlier this year yielded a return 2.1 times greater than the value of the same investment in the Standard and Poor’s/Toronto Stock Exchange composite index during the same period. To access the report, visit http://tinyurl.com/l2ogrea.
AWARDS DEADLINE The deadline to submit nominations for ASQ medals is Oct. 1. A variety of medals recognize individuals for their leadership and contributions in service, executive leadership and social responsibility, and for distinguished careers and specialty contributions. There are also awards for written works about quality. For more information, visit http://asq.org/about-asq/awards/index.html.
NEW CASE STUDIES ASQ’s Knowledge Center has released two new case studies. The first describes a define, measure, analyze, improve and control project involving a U.S. Army contractor working to improve vehicle inspection standards. This case study can be found at http://asq.org/2014/06/six-sigma/uniform-inspection-standards.pdf. The second describes a North Carolina school district’s continuous improvement journey using the Baldrige Criteria for Performance Excellence to address staff turnover and budget cuts. Find this case study at http://asq.org/2014/07/baldrige-program/ISS-overcomes-budget-cuts-to-fuel-improvement.pdf.
BOOK RELEASES ASQ Quality Press has released two new books: Continuous Permanent Improvement shares the experiences and results of organizations that have derived substantial and sustained business results by focusing on continuous permanent improvement; Process Improvement Simplified offers a method to implement successful process improvement. For more information, visit http://asq.org/quality-press.
TEAM FORMS DUE Teams interested in participating in next year’s ASQ International Team Excellence Award process have until Sept. 8 to submit forms to signal their intentions to take part in the activities. For more information, visit http://asq.org/wcqi/team-award/timeline-2014-15.aspx.