How Does Globalization Affect Resources?

Danielle Beurteaux

How do our global and very interconnected markets effect resource volatility?

The evidence points to increasing resource volatility as globalization grows, including in agricultural products. “The globalized world increases the pressure on resources, making even basic food volatile, and especially increasing the pressure on energy and metals,” says Kai Goerlich, SAP’s Idea Director, who led the research.

This research is based on World Bank data and converted into 2010 U.S. dollars for consistency. This is part one of a two-part series.

Top 10 resources and trends

1. Cotton

The top cotton-producing countries are India, China, and the U.S.

The cotton world had a bit of a shock last year when news came out that China was about to unload its massive cotton reserves, which sent prices down. But China didn’t actually flood the cotton market, and cotton production has also decreased somewhat, both of which reversed the price decrease.

The USDA also reports that production levels have recently decreased, particularly in West Africa. Demand from Pakistan increased because its own crop was damaged by pests – good news for India, which increased exports to Pakistan to make up the shortfall.

2. Maize

Maize, aka corn, makes up about a third of global cereal production, according to the World Bank. Maize production has increased over the past 20-odd years, mostly due to its increase as a crop in Asia. The Asian, Canadian, and Australian markets have had an effect on the U.S. Notwithstanding that areas of America’s Midwest are still known as the “breadbasket,” U.S. maize production is actually on a downward trend. It will be interesting to see if the Trans-Pacific Partnership, once (or if) signed will change that development.

3. Platinum

Platinum might be known to consumers mostly for jewelry, but the primary market for this metal is automotive. The majority of platinum comes from South Africa; Russia is the second largest producer. The World Platinum Investment Council is predicting that the metal’s market deficit will decrease this year because of the increased availability of recycled metals and less demand. However, others think the deficit is permanent and predict that platinum will return to its historical price above gold. Much of this depends on demand from global industry, particularly in China.

Here’s an example of the global nature of resources: South African mine workers’ union contracts expire in June. Labor disruptions would, obviously, affect the availability and price of platinum worldwide.

4. Crude oil

It was only recently that the price for crude oil fell yet again due to high inventories, global output, and less demand. What a difference a raging fire can make. The fire in Fort McMurray, Alberta, which began on May 1, has forced the evacuation of the town and the major oil producers have halted or shut down production. This sent crude oil prices back up to almost $50 a barrel, from $26 earlier in the year. Canada is the U.S.’s major supplier of oil.

5. Sawnwood

As with other wood products, there has been an increase in sawnwood production and demand recently, the biggest since the economic downturn post-2008, according to the UN’s Food and Agriculture Organization. There has been an increase in production in some European countries, in part because of recent wind storms that knocked down trees. Also, Europe is slowly reforesting, most dramatically in Ireland with a 52% increase in forested lands.

6. Lead

Lead is a valuable ore that is relatively simple to mine and has a high value, with a global market of approximately $15 billion. While production has slowed somewhat, it’s interesting to note that what’s referred to as the “secondary production,” which includes recyclables, is now almost at par with mined lead. In the U.S., most lead production comes from secondary production, and most of it is used for lead-acid batteries. And even though global stocks and production are decreasing, the price per ton is, too. One reason for that is the search and adoption of alternatives that are more environmentally friendly.

7. Sorghum

Sorghum is grain used mostly for livestock feed and ethanol products. The U.S. is the biggest sorghum producer, followed by Mexico and Nigeria.  Its benefits are that it’s relatively drought- and disease-resistant. But that hasn’t stopped the global sorghum market from experiencing a downturn in demand, driven mostly by China for animal feed. China was responsible for almost 80% of U.S. sorghum exports in 2014-2015. But now it looks like China’s government wants to import less and is using up some of its own stockpiles instead.

8. Sugar

A sweet tooth is about to get more expensive. There’s more sugar demand than supply for the first time in five years. This is good news for sugar producers; the price of sugar recently fell to below production cost. Weather conditions, particularly El Niño, have been a problem in decreasing sugar supply. The EU recently surveyed member states’ opinions on raising sugar supplies because the stockpile is heading to dangerous lows, with potential shortages as soon as this summer.

9. Meat and chicken

The world’s appetite for meat continues to grow. Again, China is driving consumption of chicken, sheep, and pigs, and Brazil takes the top slot for beef. Here’s some interesting data from the OECD about global meat consumption: yet again, China’s economic outlook and tastes are shaping global markets. A Chinese company recently purchased Brazil’s largest soybean producer – soybean is used as animal feed. The Australian government recently blocked the sale of a cattle station conglomerate to Dahang Australia, which is mostly controlled by the Shanghai Pengxin Group. The sale was for 2.5% of Australia’s agriculture land and 185,000 cattle.

10. Tea

It’s been a tough year for some tea producers. Assam, the state in India famed for its teas, has been affected by heavy rains and cool temperatures, which will have an negative effect on the “second flush” (second growth) teas. India is the world’s second largest tea producer (China is the largest; Kenya is third), and most of it is grown on Assam’s tea plantations. Heavy rainfalls, dry periods, and pests are all making tea growing a challenge. Tea is actually the second most popular drink worldwide – the first is water. As noted in this U.N. Food and Agriculture Organization report, tea is pretty picky about growing conditions, and there are only a few areas in the world where it grows well. Overall, tea production, exports, and consumption all grew, and the FAO predicts this trend will continue. However, climate change is a top concern of tea producers and could be the biggest challenge to established producing regions.

Industries are realizing the advantages of the Internet of Things and digital transformation at different speeds and on different scales. IDC reveals how in The Internet of Things and Digital Transformation: A Tale of Four Industries.

For more insight on digital transformation, join us at SAPPHIRE NOW and attend the session “Build Resilience into Digital Supply Networks by Using Live Business.”

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How To Conquer The Future Of Aerospace

Danielle Homer

In our recent episode of S.M.A.C. Talk Technology Podcast, Brian Fanzo and Daniel Newman discussed the future development and potential of the aerospace industry. Their guest, Torsten Welte, is a leader in SAP’s aerospace defense industry business unit. He works with a wide range of satellite, spacecraft, aircraft, and defense companies. Here’s an overview of what they discussed.

Unifying diversity

The aerospace industry unifies a very diverse range of interests. These range from the customer-focused needs of commercial aerospace, to the high levels of precision required in spacecraft, to the solid reliability required of defense systems. One aspect where these diverse interests are unified is in supply chain transparency.

New companies are bringing a wide range of new technology to the cockpit and cabin. These new products are also deepening the divide between the different sectors of the aerospace industry by increasing the specialization in each sector. However, the use of common standards and platforms are making it easier for these diverse systems to interconnect and work together for a common good. There’s been an increased interest in the industry. Nations are discussing manned missions to Mars, added flights to more points in Asia, and the need for higher security in defense.

Increased use of blockchain

One unifying theme is the use of blockchain to improve security and transparency in the system. As new technologies have come into the market, there’s been a related increase in the use of blockchain. Of the diverse areas within aerospace, the defense industry has especially embraced the security technology. This is because blockchain allows only authorized users to view the information and prevents sensitive information leaks to the outside world. But blockchain also has its place in commercial aerospace as new technologies and products need to be authenticated. This helps prevent fraud issues for export or shipping documentation.

Technologies such as blockchain are helping improve security. There is strong demand for pilots, mechanics, and other workers necessary to the flight line. Increased demand for smaller planes is hitting the supply chain hard and causing shortages. At the same time, there’s been an increased need for security measures in the nearly 17 years following the 9/11 attacks. Blockchain helps transcend these often opposing demands of maintaining security while increasing production to create a better overall commercial aerospace industry.

Rapid ramp-up of small-plane demand

But why has blockchain become so popular for supply chain transparency? The industry has seen a general downturn on the production of larger planes. At the same time, there’s incredible demand for smaller planes, especially in Asia. Torsten says, “a couple years ago, Boeing and Airbus, 737 or A320, created somewhere around 30 a month … And jumping now to a target of 60 a month.”

This growing market has created a demand for accountability and transparency. As new companies enter the market, they’re introducing new technology that may have its own issues. Blockchain can act as an authentication point to help prevent fraud. This helps ensure that the entire system works together securely. It covers everything from the supply chain to operations. The challenge is having these diverse systems work together in a unified system.

Long-term aerospace changes

Even as the industry has grown more diverse, common goals have brought it closer together. The expectation of a manned mission to Mars over the next few decades is driving long-term change in the industry. There was a push for space flight and a moon landing in the 1950s and 1960s. That same excitement over the possibilities of space exploration is driving improvement and change.

New programs, research, effort, and vision are focusing not only national aerospace efforts but international efforts as well. The advent of digitization is making it possible for people from around the world to contribute to the overall mission. This effort is creating changes closer to home. International experts can now communicate effectively. The industry as a whole is emerging with improvements. This is leading to improved flight technology, overall quality, and similar areas of interest to the entire industry.

The impact of customer experience

Customer experience has become a serious driver for many industries over the past few years. As digitization has marched forward, unspoken customer expectations have increased. The experience across multiple carriers and systems should be seamless – if your last flight had certain amenities, you should be able to enjoy those same amenities on the connecting flight. It doesn’t matter whether it’s the same carrier or a completely different service.

Changes in technology are providing differences in lighting, communications, and many other areas. Other sectors of the travel industry, such as cruise lines, are using Big Data to create an artificial-intelligence-like digital environment. This could be implemented in commercial aerospace to determine a customer’s preferences and past purchasing history, allowing available options to be customized to that individual. In turn, the interface provides the customer with a superior experience that meets or exceeds their needs. With these tools to create a better overall experience, compensation payments and outright refunds are reduced dramatically.

The aerospace industry has been at the cutting edge of technology for the past several decades. At the same time, it is currently scrambling to keep up with the demands of digitization. Internet of Things technology, Big Data, connectivity, supercomputing, and artificial intelligence are changing the way the industry operates. And as Torsten states in the podcast, “technology is the enabler.” New options and customized possibilities are providing a better user experience. Technologies such as blockchain enable better accountability and security for your business. But how do you combine these new technologies into a single cohesive system? Discover more in the S.M.A.C. Talk Technology Podcast.

Hear the full episode here. Learn how to bring new technologies and services together to power digital transformation by downloading The IoT Imperative for Discrete Manufacturers: Automotive, Aerospace and Defense, High Tech, and Industrial Machinery. Explore how to bring Industry 4.0 insights into your business today by reading Industry 4.0: What’s Next?

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Danielle Homer

About Danielle Homer

Danielle Homer is a Solution and Product Marketing Specialist at SAP. After receiving her master’s degree in Innovation Management and Entrepreneurship, her affinity for innovation has led her to the exciting industries of A&D and High Tech to help customers transform and expand their business.

How Manufacturers Can Personalize At Scale

Anurag Gupta

A decade ago, I was a design engineer at a truck manufacturer. The company’s USP (unique selling point) was its customer-centricity rather than being the lowest cost manufacturer. At that time, an order was secured to supply twelve customized trucks to the mining industry – more power, and ruggedness and a thermal shield in the underbody. There was about a month-long negotiation with the customer and internal feasibility check to ensure that commitment could definitely be delivered while meeting target margins.

A talented design engineer, though a slight introvert, led the personalization project from the front, realizing the value to all stakeholders. He personally drove close collaboration with procurement and manufacturing. For the next two months, he became integral to the assembly line and was seen moving along with each work-in-progress truck, continuously guiding the workers on modified parts and manufacturing steps. For about a year, he was the go-to person for any service issues or guidance on similar orders. Then he, along with his accumulated knowledge, left for a bigger role. After that, every such decision led to long cross-department meetings. The value, as well as the effort of delivering personalized products, was immense.

Returning to the present, customers (and people in general) are becoming more mindful of their needs and aspirations and what completes them. They are ready to spend a little more to get these things, but they want the same responsiveness and ordering experience as they experience with mass products. They also want guidance to create their own version with real-time compatibility and compliance checks. The personalization fulfillment is slowly leading to machine learning-driven intelligent configuration and Industry 4.0-driven on-demand production, sometimes using manufacturing-as-a-service or 3D printing.

This is not just the way to the customer’s heart but also their wallet. There are typically three steps to a personalized-products-at-scale business model:

  1. Design management of a personalized product by R&D and synchronization with downstream activities
  1. Customize products online with intelligent suggestions, compliance checks, and price quotes
  1. Manufacturing of the product with minimal human intervention and adding to downstream communication

In this first blog of the series, I will cover the first topic in detail, using the example of a motorbike (the same principles apply to more complex products).

To enable personalization, R&D, in collaboration with other departments, creates an intelligent super BOM or master BOM with these key features:

  1. Consolidate all options: Create a single multidisciplinary product definition encompassing mechanical, electrical, electronic, and software aspects of the product. All parts and software across all the supported variants are listed in the super BOM.
  1. Restrict personalization levels: For each part, assembly, and software, precise values of various parameters are mentioned to provide a selection threshold to the customer—e.g., diameter of the tires, width of the handle, etc. Compatibility between parts, products, ecosystems, and software is included in the super BOM.
  1. Check compliance: Run a real-time check for the material, product, and market.
  1. Estimate price: Pricing of various features, considering part costs, assembly costs, product lifecycle stage, markup, current response, etc.
  1. Commit lead times: Strategic sourcing agreements with vendors for supply of customized parts, along with their price, quality, and lead time.
  1. Guide manufacturing: Production engineering for all possible variants is available for all possible variants with the ability to manufacture via Industry 4.0 processes. Production engineering includes manufacturing steps and routings (workstation and assembly line allocations). Assembly steps and lines for different product types may differ.
  1. Design for 3D printing: In cases where 3D manufacturing is used for complex shapes, the ability to control mechanical, electrical and other properties at each point of the part and merge multiple parts will simplify assembly. This is where machine learning-based real-time simulations and recommendations can help deliver better products.
  1. Maintain digital twin for service/continuous product improvement: Leverage end-to-end traceable and complete data of every personalized product (as designed, built, delivered, maintained, etc.), genealogy (source, quality, lot, etc.), usage (ambient conditions, work hours), break down data, performance data, etc., to generate patterns and improve service and product design.
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Embark on your personalization journey

Has your R&D organization created a road map to support personalization? Start a discussion with your team about the current and desired state of R&D processes using the framework with this white paper.

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About Anurag Gupta, Global Industry Value Engineering, SAP

Anurag Gupta is a principal consultant at SAP. As part of the Digital Transformation Office, Anurag helps business executives design their digital transformation journey to generate strategic value. His expertize lies in manufacturing, R&D, and engineering lines of business and the discrete manufacturing industry.

The Blockchain Solution

By Gil Perez, Tom Raftery, Hans Thalbauer, Dan Wellers, and Fawn Fitter

In 2013, several UK supermarket chains discovered that products they were selling as beef were actually made at least partly—and in some cases, entirely—from horsemeat. The resulting uproar led to a series of product recalls, prompted stricter food testing, and spurred the European food industry to take a closer look at how unlabeled or mislabeled ingredients were finding their way into the food chain.

By 2020, a scandal like this will be eminently preventable.

The separation between bovine and equine will become immutable with Internet of Things (IoT) sensors, which will track the provenance and identity of every animal from stall to store, adding the data to a blockchain that anyone can check but no one can alter.

Food processing companies will be able to use that blockchain to confirm and label the contents of their products accordingly—down to the specific farms and animals represented in every individual package. That level of detail may be too much information for shoppers, but they will at least be able to trust that their meatballs come from the appropriate species.

The Spine of Digitalization

Keeping food safer and more traceable is just the beginning, however. Improvements in the supply chain, which have been incremental for decades despite billions of dollars of technology investments, are about to go exponential. Emerging technologies are converging to transform the supply chain from tactical to strategic, from an easily replicable commodity to a new source of competitive differentiation.

You may already be thinking about how to take advantage of blockchain technology, which makes data and transactions immutable, transparent, and verifiable (see “What Is Blockchain and How Does It Work?”). That will be a powerful tool to boost supply chain speed and efficiency—always a worthy goal, but hardly a disruptive one.

However, if you think of blockchain as the spine of digitalization and technologies such as AI, the IoT, 3D printing, autonomous vehicles, and drones as the limbs, you have a powerful supply chain body that can leapfrog ahead of its competition.

What Is Blockchain and How Does It Work?

Here’s why blockchain technology is critical to transforming the supply chain.

Blockchain is essentially a sequential, distributed ledger of transactions that is constantly updated on a global network of computers. The ownership and history of a transaction is embedded in the blockchain at the transaction’s earliest stages and verified at every subsequent stage.

A blockchain network uses vast amounts of computing power to encrypt the ledger as it’s being written. This makes it possible for every computer in the network to verify the transactions safely and transparently. The more organizations that participate in the ledger, the more complex and secure the encryption becomes, making it increasingly tamperproof.

Why does blockchain matter for the supply chain?

  • It enables the safe exchange of value without a central verifying partner, which makes transactions faster and less expensive.
  • It dramatically simplifies recordkeeping by establishing a single, authoritative view of the truth across all parties.
  • It builds a secure, immutable history and chain of custody as different parties handle the items being shipped, and it updates the relevant documentation.
  • By doing these things, blockchain allows companies to create smart contracts based on programmable business logic, which can execute themselves autonomously and thereby save time and money by reducing friction and intermediaries.

Hints of the Future

In the mid-1990s, when the World Wide Web was in its infancy, we had no idea that the internet would become so large and pervasive, nor that we’d find a way to carry it all in our pockets on small slabs of glass.

But we could tell that it had vast potential.

Today, with the combination of emerging technologies that promise to turbocharge digital transformation, we’re just beginning to see how we might turn the supply chain into a source of competitive advantage (see “What’s the Magic Combination?”).

What’s the Magic Combination?

Those who focus on blockchain in isolation will miss out on a much bigger supply chain opportunity.

Many experts believe emerging technologies will work with blockchain to digitalize the supply chain and create new business models:

  • Blockchain will provide the foundation of automated trust for all parties in the supply chain.
  • The IoT will link objects—from tiny devices to large machines—and generate data about status, locations, and transactions that will be recorded on the blockchain.
  • 3D printing will extend the supply chain to the customer’s doorstep with hyperlocal manufacturing of parts and products with IoT sensors built into the items and/or their packaging. Every manufactured object will be smart, connected, and able to communicate so that it can be tracked and traced as needed.
  • Big Data management tools will process all the information streaming in around the clock from IoT sensors.
  • AI and machine learning will analyze this enormous amount of data to reveal patterns and enable true predictability in every area of the supply chain.

Combining these technologies with powerful analytics tools to predict trends will make lack of visibility into the supply chain a thing of the past. Organizations will be able to examine a single machine across its entire lifecycle and identify areas where they can improve performance and increase return on investment. They’ll be able to follow and monitor every component of a product, from design through delivery and service. They’ll be able to trigger and track automated actions between and among partners and customers to provide customized transactions in real time based on real data.

After decades of talk about markets of one, companies will finally have the power to create them—at scale and profitably.

Amazon, for example, is becoming as much a logistics company as a retailer. Its ordering and delivery systems are so streamlined that its customers can launch and complete a same-day transaction with a push of a single IP-enabled button or a word to its ever-attentive AI device, Alexa. And this level of experimentation and innovation is bubbling up across industries.

Consider manufacturing, where the IoT is transforming automation inside already highly automated factories. Machine-to-machine communication is enabling robots to set up, provision, and unload equipment quickly and accurately with minimal human intervention. Meanwhile, sensors across the factory floor are already capable of gathering such information as how often each machine needs maintenance or how much raw material to order given current production trends.

Once they harvest enough data, businesses will be able to feed it through machine learning algorithms to identify trends that forecast future outcomes. At that point, the supply chain will start to become both automated and predictive. We’ll begin to see business models that include proactively scheduling maintenance, replacing parts just before they’re likely to break, and automatically ordering materials and initiating customer shipments.

Italian train operator Trenitalia, for example, has put IoT sensors on its locomotives and passenger cars and is using analytics and in-memory computing to gauge the health of its trains in real time, according to an article in Computer Weekly. “It is now possible to affordably collect huge amounts of data from hundreds of sensors in a single train, analyse that data in real time and detect problems before they actually happen,” Trenitalia’s CIO Danilo Gismondi told Computer Weekly.

Blockchain allows all the critical steps of the supply chain to go electronic and become irrefutably verifiable by all the critical parties within minutes: the seller and buyer, banks, logistics carriers, and import and export officials.

The project, which is scheduled to be completed in 2018, will change Trenitalia’s business model, allowing it to schedule more trips and make each one more profitable. The railway company will be able to better plan parts inventories and determine which lines are consistently performing poorly and need upgrades. The new system will save €100 million a year, according to ARC Advisory Group.

New business models continue to evolve as 3D printers become more sophisticated and affordable, making it possible to move the end of the supply chain closer to the customer. Companies can design parts and products in materials ranging from carbon fiber to chocolate and then print those items in their warehouse, at a conveniently located third-party vendor, or even on the client’s premises.

In addition to minimizing their shipping expenses and reducing fulfillment time, companies will be able to offer more personalized or customized items affordably in small quantities. For example, clothing retailer Ministry of Supply recently installed a 3D printer at its Boston store that enables it to make an article of clothing to a customer’s specifications in under 90 minutes, according to an article in Forbes.

This kind of highly distributed manufacturing has potential across many industries. It could even create a market for secure manufacturing for highly regulated sectors, allowing a manufacturer to transmit encrypted templates to printers in tightly protected locations, for example.

Meanwhile, organizations are investigating ways of using blockchain technology to authenticate, track and trace, automate, and otherwise manage transactions and interactions, both internally and within their vendor and customer networks. The ability to collect data, record it on the blockchain for immediate verification, and make that trustworthy data available for any application delivers indisputable value in any business context. The supply chain will be no exception.

Blockchain Is the Change Driver

The supply chain is configured as we know it today because it’s impossible to create a contract that accounts for every possible contingency. Consider cross-border financial transfers, which are so complex and must meet so many regulations that they require a tremendous number of intermediaries to plug the gaps: lawyers, accountants, customer service reps, warehouse operators, bankers, and more. By reducing that complexity, blockchain technology makes intermediaries less necessary—a transformation that is revolutionary even when measured only in cost savings.

“If you’re selling 100 items a minute, 24 hours a day, reducing the cost of the supply chain by just $1 per item saves you more than $52.5 million a year,” notes Dirk Lonser, SAP go-to-market leader at DXC Technology, an IT services company. “By replacing manual processes and multiple peer-to-peer connections through fax or e-mail with a single medium where everyone can exchange verified information instantaneously, blockchain will boost profit margins exponentially without raising prices or even increasing individual productivity.”

But the potential for blockchain extends far beyond cost cutting and streamlining, says Irfan Khan, CEO of supply chain management consulting and systems integration firm Bristlecone, a Mahindra Group company. It will give companies ways to differentiate.

“Blockchain will let enterprises more accurately trace faulty parts or products from end users back to factories for recalls,” Khan says. “It will streamline supplier onboarding, contracting, and management by creating an integrated platform that the company’s entire network can access in real time. It will give vendors secure, transparent visibility into inventory 24×7. And at a time when counterfeiting is a real concern in multiple industries, it will make it easy for both retailers and customers to check product authenticity.”

Blockchain allows all the critical steps of the supply chain to go electronic and become irrefutably verifiable by all the critical parties within minutes: the seller and buyer, banks, logistics carriers, and import and export officials. Although the key parts of the process remain the same as in today’s analog supply chain, performing them electronically with blockchain technology shortens each stage from hours or days to seconds while eliminating reams of wasteful paperwork. With goods moving that quickly, companies have ample room for designing new business models around manufacturing, service, and delivery.

Challenges on the Path to Adoption

For all this to work, however, the data on the blockchain must be correct from the beginning. The pills, produce, or parts on the delivery truck need to be the same as the items listed on the manifest at the loading dock. Every use case assumes that the data is accurate—and that will only happen when everything that’s manufactured is smart, connected, and able to self-verify automatically with the help of machine learning tuned to detect errors and potential fraud.

Companies are already seeing the possibilities of applying this bundle of emerging technologies to the supply chain. IDC projects that by 2021, at least 25% of Forbes Global 2000 (G2000) companies will use blockchain services as a foundation for digital trust at scale; 30% of top global manufacturers and retailers will do so by 2020. IDC also predicts that by 2020, up to 10% of pilot and production blockchain-distributed ledgers will incorporate data from IoT sensors.

Despite IDC’s optimism, though, the biggest barrier to adoption is the early stage level of enterprise use cases, particularly around blockchain. Currently, the sole significant enterprise blockchain production system is the virtual currency Bitcoin, which has unfortunately been tainted by its associations with speculation, dubious financial transactions, and the so-called dark web.

The technology is still in a sufficiently early stage that there’s significant uncertainty about its ability to handle the massive amounts of data a global enterprise supply chain generates daily. Never mind that it’s completely unregulated, with no global standard. There’s also a critical global shortage of experts who can explain emerging technologies like blockchain, the IoT, and machine learning to nontechnology industries and educate organizations in how the technologies can improve their supply chain processes. Finally, there is concern about how blockchain’s complex algorithms gobble computing power—and electricity (see “Blockchain Blackouts”).

Blockchain Blackouts

Blockchain is a power glutton. Can technology mediate the issue?

A major concern today is the enormous carbon footprint of the networks creating and solving the algorithmic problems that keep blockchains secure. Although virtual currency enthusiasts claim the problem is overstated, Michael Reed, head of blockchain technology for Intel, has been widely quoted as saying that the energy demands of blockchains are a significant drain on the world’s electricity resources.

Indeed, Wired magazine has estimated that by July 2019, the Bitcoin network alone will require more energy than the entire United States currently uses and that by February 2020 it will use as much electricity as the entire world does today.

Still, computing power is becoming more energy efficient by the day and sticking with paperwork will become too slow, so experts—Intel’s Reed among them—consider this a solvable problem.

“We don’t know yet what the market will adopt. In a decade, it might be status quo or best practice, or it could be the next Betamax, a great technology for which there was no demand,” Lonser says. “Even highly regulated industries that need greater transparency in the entire supply chain are moving fairly slowly.”

Blockchain will require acceptance by a critical mass of companies, governments, and other organizations before it displaces paper documentation. It’s a chicken-and-egg issue: multiple companies need to adopt these technologies at the same time so they can build a blockchain to exchange information, yet getting multiple companies to do anything simultaneously is a challenge. Some early initiatives are already underway, though:

  • A London-based startup called Everledger is using blockchain and IoT technology to track the provenance, ownership, and lifecycles of valuable assets. The company began by tracking diamonds from mine to jewelry using roughly 200 different characteristics, with a goal of stopping both the demand for and the supply of “conflict diamonds”—diamonds mined in war zones and sold to finance insurgencies. It has since expanded to cover wine, artwork, and other high-value items to prevent fraud and verify authenticity.
  • In September 2017, SAP announced the creation of its SAP Leonardo Blockchain Co-Innovation program, a group of 27 enterprise customers interested in co-innovating around blockchain and creating business buy-in. The diverse group of participants includes management and technology services companies Capgemini and Deloitte, cosmetics company Natura Cosméticos S.A., and Moog Inc., a manufacturer of precision motion control systems.
  • Two of Europe’s largest shipping ports—Rotterdam and Antwerp—are working on blockchain projects to streamline interaction with port customers. The Antwerp terminal authority says eliminating paperwork could cut the costs of container transport by as much as 50%.
  • The Chinese online shopping behemoth Alibaba is experimenting with blockchain to verify the authenticity of food products and catch counterfeits before they endanger people’s health and lives.
  • Technology and transportation executives have teamed up to create the Blockchain in Transport Alliance (BiTA), a forum for developing blockchain standards and education for the freight industry.

It’s likely that the first blockchain-based enterprise supply chain use case will emerge in the next year among companies that see it as an opportunity to bolster their legal compliance and improve business processes. Once that happens, expect others to follow.

Customers Will Expect Change

It’s only a matter of time before the supply chain becomes a competitive driver. The question for today’s enterprises is how to prepare for the shift. Customers are going to expect constant, granular visibility into their transactions and faster, more customized service every step of the way. Organizations will need to be ready to meet those expectations.

If organizations have manual business processes that could never be automated before, now is the time to see if it’s possible. Organizations that have made initial investments in emerging technologies are looking at how their pilot projects are paying off and where they might extend to the supply chain. They are starting to think creatively about how to combine technologies to offer a product, service, or business model not possible before.

A manufacturer will load a self-driving truck with a 3D printer capable of creating a customer’s ordered item en route to delivering it. A vendor will capture the market for a socially responsible product by allowing its customers to track the product’s production and verify that none of its subcontractors use slave labor. And a supermarket chain will win over customers by persuading them that their choice of supermarket is also a choice between being certain of what’s in their food and simply hoping that what’s on the label matches what’s inside.

At that point, a smart supply chain won’t just be a competitive edge. It will become a competitive necessity. D!


About the Authors

Gil Perez is Senior Vice President, Internet of Things and Digital Supply Chain, at SAP.

Tom Raftery is Global Vice President, Futurist, and Internet of Things Evangelist, at SAP.

Hans Thalbauer is Senior Vice President, Internet of Things and Digital Supply Chain, at SAP.

Dan Wellers is Global Lead, Digital Futures, at SAP.

Fawn Fitter is a freelance writer specializing in business and technology.

Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.

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CEO Priorities And Challenges In The Digital World

Dr. Chakib Bouhdary

Digital transformation is here, and it is moving fast. Companies are starting to realize the enormous power of digital technologies like artificial intelligence (AI), Internet of things (IoT) and blockchain. These technologies will drive massive opportunities—and threats—for every company, and they will impact all aspects of business, including the business model. In fact, business velocity has never been this fast, yet it will never be this slow again.

To move quickly, companies need to be clear on what they want to achieve through digital transformation and understand the possible roadblocks. Based on my meetings with customer executives across regions and industries, I have learned that CEOs often have the same three priorities and face the same three challenges:

1. Customer experience – No longer defined by omnichannel and personalized marketing.

Not surprisingly, 92 percent of digital leaders focus on customer experience. However, this is no longer just about omnichannel and personalized marketing – it is about the total customer experience. Businesses are realizing that they need to reimagine their value proposition and orchestrate changes across the value chain – from the first point of interaction to manufacturing, to shipment, to service – and be able to deliver the total customer experience. In some cases, it will even be necessary to change the core product or service itself.

2. Step change in productivity – Transform productivity and cost structure through digital technologies.

Businesses have been using technology to achieve growth for decades, but by combining emerging technologies, they can now achieve a significant productivity boost and reduce costs. For this to happen, companies must first identify the scenarios that will drive significant change in productivity, prioritize them based on value, and then determine the right technologies and solutions. Both Mckinsey and Boston Consulting Group expect a 15 to 30 percent improvement in productivity through digital advancements – blowing the doors off business-as-usual and its incremental productivity growth of 1 to 2 percent.

3. Employee engagement – Fostering a culture of innovation should be at the core of any business.

Companies are looking to create an environment that encourages creativity and innovation. Leaders are attracting the needed talent and building the right skill sets. Additionally, they aim for ways to attract a diverse workforce, improve collaborations, and empower employees – because engaged employees are crucial in order to achieve the best results. This Gallup study reveals that approximately 85 percent of employees worldwide are performing below their potential due to engagement issues.

As CEOs work towards achieving these three desired outcomes, they face some critical challenges that they must address. I define the top three challenges as follows: run vs. innovate, corporate cholesterol, and digital transformation roadmap.

1. Run vs. innovate – To be successful you must prioritize the future.

The foremost challenge that CEOs are facing is how they can keep running current profitable businesses while investing in future innovations. Quite often these two conflict as most executives mistakenly prioritize the first and spend much less time on the latter. This must change. CEOs and their management teams need to spend more time thinking about what digital is for them, discuss new ideas, and reimagine the future. According to Gartner, approximately 50 percent of boards are pushing their CEOs to make progress on digital. Although this is a promising sign, digital must become a priority on every CEOs agenda.

2. Corporate cholesterol – Do not let company culture get in the way of change.

The older the company is, the more stuck it likely is with policies, procedures, layers of management, and risk averseness. When a company’s own processes get in the way of change, that is what I call “corporate cholesterol.” CEOs need to change the culture, encourage cross-team collaborations, and bring in more diverse thinking to reduce the cholesterol levels. In fact, both Mckinsey and Capgemini conclude that culture is the number-one obstacle to digital effectiveness.

3. Digital transformation roadmap – Digital transformation is a journey without a destination.

Many CEOs struggle with their digital roadmap. Questions like: Where do I start? Can a CDO or another executive run this innovation for me? What is my three- to five-year roadmap? often come up during the conversations. Most companies think that there is a set roadmap, or a silver bullet, for digital transformation, but that is not the case. Digital transformation is a journey without a destination, and each company must start small, acquire the necessary skills and knowledge, and continue to innovate.

It is time to face the digital reality and make it a priority. According to KPMG, 70 percent to 80 percent of CEOs believe that the next three years are more critical for their company than the last fifty. And there is good reason to worry, as 75 percent of S&P 500 companies from 2012 will be replaced by 2027 at the current disruption rate.

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Dr. Chakib Bouhdary

About Dr. Chakib Bouhdary

Dr. Chakib Bouhdary is the Digital Transformation Officer at SAP. Chakib spearheads thought leadership for the SAP digital strategy and advises on the SAP business model, having led its transformation in 2010. He also engages with strategic customers and prospects on digital strategy and chairs Executive Digital Exchange (EDX), which is a global community of digital innovation leaders. Follow Chakib on LinkedIn and Twitter