The Jones Act and its impact of shipping between US ports

Posted on January 18, 2014 by aviyer2010

An article in Bloombergbusinessweek titled “Lots of Oil, Not Enough Ships ” (December 16, 2013) describes the Jones Act, a 1920 US law that restricts ships that ply between US ports to be US carriers with a US crew. Given the small number of such ships (32 tankers and 42 barges) and the substantial domestic oil production (8 million barrels per day), shipping from the Gulf Coast to The East Coast costs three times as much as shipping to Canada (which does not have such restrictions). Similarly ships from China cannot stop in Hawaii, they deliver goods to the West Coast and then need a separate trip back to Hawaii. Should the Jones Act and its costs be tolerated given that it creates volume for rail lines and work for US ship owners? Will the increased US oil production, and its need to be distributed, suggest the need for an exception to the. Jones Act for oil, as a starting point? Are there other such old laws that are a detriment to logistics costs?

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Should the US government track the working conditions at its apparel suppliers ?

Posted on December 23, 2013 by aviyer2010

An article in the New York Times titled “Buying Overseas Clothing, US Flouts its own advice” (December 22, 2013) describes the $1.5 billion in clothing purchased by the US government and working conditions at its suppliers. Contracts for clothing for the Marines was being made at a Bangladeshi plan that used child labor. Defense officials blocked plans to require their suppliers to follow recommendations by the labor department regarding factory conditions, claiming that costs would go up by over $500K. Should the US government be required to adhere to supplier audits that guarantee ethical sourcing ? Should the higher cost of such ethical sourcing be accepted as a necessary condition for sourcing ? Should manufacturing locations for all US government purchases be required to be made transparent ?

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Tracking consumers and adjusting inventory locations to improve retail performance

Posted on December 9, 2013 by aviyer2010

An article in the Wall Street Journal titled “Hot at the Mall:Heat Maps to Track Shoppers” (December 9,2013) describes heat sensor technology and cell phone tracking software used by retailers to identify shoppers routes through the store, bottlenecks, and products picked up. One store claims to have moved candles and perfumes from low traffic to high traffic locations, reduced bottlenecks by shifting popular items to less trafficked areas of the store and reduced wait times by getting customers to shop online when queues become long. Another store owners claims to have moved scarves to the back of the store after finding customers congregating there. Can brick and mortar retailers justify such tracking as a necessary competitive response to generate efficiencies to compete with online retail tracking ? Should customers be asked for permission before they are tracked in a store, even if their individual data is masked ? Does the additional information significantly increase privacy concerns over the use of store video for security in the past ?

Posted in competitiveness, consumer, Ecommerce, Operations Management, Service Operations, technology | Tagged , , , , , , , , , | 24 Comments

Retail Inventory of “Doc McStuffins” toys and impact

Posted on December 9, 2013 by aviyer2010

An article in Bloombergbusinessweek titled “This Christmas, Disney’s Doctor is In” (December 9, 2013) describes the quadrupling of retail shelf space for the Disney Toy Doc McStuffins – a toy girl that fixed broken toys, has a medical doctor mother and a stay at home dad. The article reports stores running out of the toy last Christmas, with sales on Ebay of the toy fetching more than double its $10 retail price. But Disney has also added new accessories such as beds, band-aids and checkup kits targeted at boys to boost demand. Does the rising retail inventory suggest that the toy will be the big seller this Christmas or that retailers will push it strongly and thus make it one ? Does the reaction to last year’s demand across retailers suggest a competitive response that may cause them to suffer if the “build and they will not come” outcome prevails ?

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The impact of Airbus’s “asset value guarantees” for the Airbus 340

Posted on December 9, 2013 by aviyer2010

An article in Bloombergbusinessweek titled “Airbus May Need a Plaid Jacket” (December 9,2013) describes asset value guarantees that Airbus provided for buyers of the A 340 – which promised to compensate buyers of resale values were below a specified level. The rise in fuel prices means that A340s cost 30% more in fuel costs compared to newer airplanes like the Boeing 777X and A350. Resale prices for airplanes purchased for $120 million are now around $20 million, but guarantees are for $60 to $70 million. Airbus is thus forced to find new users for the old planes so that its customers can upgrade to A350s. But will the rising flood of A340s drive down their value even further ? Are such asset value guarantees a necessary evil to drive production volumes, and thus cost decreases, for new airplanes ? Will Airbus have to take back the A340s and lease them to users for short term leases as a way to prop up the market ? How will the engine manufacturer, Rolls Royce, which depended on flight miles to recover costs, have to adjust to face these new realities ?

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Apparel factory fire in Prato, Italy

Posted on December 8, 2013 by aviyer2010

An article in the New York Times titled “Deadly Factory Fire Bares Racial Tensions in Italy” (December 8, 2013), describes a fire at an apparel factory in Prato that killed seven Chinese employees. The factory had windows that were blocked by bars and no emergency exits. But reports suggest that Italian companies often use Chinese run factories to reduce costs. Should the local buyers, who contract with these manufacturers that violate or ignore local laws to reduce costs, be held responsible for such operating conditions ? Should greater enforcement, even at the cost of reducing incomes for commercial property owners compensating for a shrinking local apparel industry, be demanded ? Will the survival of the Italian apparel supply chain, albeit run such that costs are lower, be the future for Prato ?

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The potential impact of copper concentrate stockpiles in China on copper prices

Posted on December 7, 2013 by aviyer2010

An article in the Wall Street Journal titled “China’s Stock and Ore for Copper Prices” (November 22,2013) describes the over two months of copper concentrate (crushed copper ore) in inventory at China’s new smelters as against the usual two to three weeks of supply. But will this raw material inventory at the new Chinese smelters mean no price increases for copper if manufacturing picks up in China ? Are the purchases to fill raw material inventory masking the demand decline in the past ? Will the new production capacity for copper further create price drops for copper in the future ?

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Making apparel in the USA and retail prices

Posted on December 7, 2013 by aviyer2010

An article in the New York Times titled “That ‘Made in the USA’ Premium (December 1,2013) describes the growth in US manufacturing of higher end apparel but the continued difficulty in domestic production of lower cost items. It cites production in New York of women’s clothing sold at Saks and Bloomingdale’s but overseas production for items by the same designers that are sold at JC Penneys. With US labor costs 40% higher than China, retail prices have to increase up to 20% more for domestic manufacturing. Competing on speed of response by US manufacturers is matched by air freight offered by Chinese competitors. Should US manufacturers compete by emphasizing quality, rather than production source alone, to justify the higher prices ? Should the guarantee of production environments and ethical practices be emphasized as a reason for US production ? How should volume retailers like WalMart enable US manufacturing while also serving customer interests ?

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Amazon’s drone delivery plans within 30 minutes

Posted on December 7, 2013 by aviyer2010

An article in Bloombergbusinessweek (December 9,2013) titled “Why Amazon’s Going Up in the Air”, describes the announcement of plans to use drones to deliver individual items to customers within 30 minutes of placing their order. The range of these drones, carrying up to 5 lbs and travelling 10 miles from Amazon’s distribution center, would help Amazon’s competitiveness in the last mile to the customer. Current deliveries by Amazon’s own trucks face empty return miles and restricted to delivering its parcels, thus hurting competitiveness compared to UPS, FedEx and USPS. Will Amazon’s announcement itself drive down costs for drones and make their use economical ? Will customers be convinced to pay for the cost for such deliveries and will their costs beat the delivery offered using couriers ?

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Should independent bookstores sell Amazon’s Kindles ?

Posted on November 7, 2013 by aviyer2010

An article in the New York Times titled “An Offer from Amazon to its Most Bitter Rivals” (November 7,2013) describes an offer by Amazon to independent bookstores to sell Kindles in return for one of two options – a 6% price discount and 10% share of revenues purchased on the Kindle or a 9% one time product discount. Given the opportunity to obtain a commission from future sales of e-books, and the dwindling sales in store, should independent bookstores treat this as a new product and thus take the offer ? Will the visibility of patrons to these bookstores enable Amazon to further expand its market and drive out the independent bookstores ? Will facilitating sales on the Kindle enable the bookstores to maintain their customers and thus survive ?

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