Auto supply shortages in the US and impact

Posted on September 3, 2013 by aviyer2010

An article in the Wall Street Journal (September 3,2013) describes supply constraints faced by US auto dealers for cars made by Nissan, Ford, Toyota and Honda. Dealers report having significantly lower inventories, one car instead of the normal 15 in one case, with just enough to satisfy demand. Reasons provided include a reluctance by automakers to build up inventory, a reduction in customer sales incentives, planned transition to newer models etc. But will a reduction in inventory also imply giving us sales and thus market share ? Will making consumers wait for new cars become the norm in the US ? Will a strategy of pruning inventories and thus sales incentives increase manufacturer profits ?

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“Disruption clauses” by Mississippi barge operators in contracts with shippers

Posted on August 26, 2013 by aviyer2010

An article in the Wall Street Journal (August 27, 2013) describes the worries of barge operators on the Mississippi river who have been hurt by floods and the drought. The new disruption clauses shift the cost of delays and the impact of high or low water levels to the shipper. This in turn may cause shippers to compensate with buffers that increase overall costs. Will such contract demands by barge operators shift volume to other modes such as rail ? Will alternate contracts that get shippers to commit volumes across multiple years become the norm for the barge industry ? Given the volume of US grain exports that use the Mississippi river, should the US government cover the barge owner costs associated with the uncertainties caused by climate changes ?

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Will consumers pay a premium for ethical transparent supply chains ?

Posted on August 26, 2013 by aviyer2010

An article in CNN (http://www.cnn.com/2013/08/26/living/aj-zady-ethical-fashion/index.html?hpt=hp_c3) describes two companies, Small Trades and Zady.com, who focus on providing all details of their supply chain – from the factory location to the employee sewing the apparel. The hope is that fashion conscious consumers would be willing to pay $50 for a Small Trades cotton shirt in order to know how the product was made, analogous to the premium for food tracking from farm to table. Will such a focus on supply chain transparency be rewarded with associated higher retail prices ? Can technology help with enabling the consumer to track the product in its journey along the supply chain ? Will the growth of consumer interest in ethical supply chains make domestic sourcing more competitive, will it increase the monitoring of global manufacturing or increase ownership of manufacturing by designers and retailers ?

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Growing food in the backyard to combat the rising cost of imports in Jamaica

Posted on August 3, 2013 by aviyer2010

An article in the New York Times (August 3, 2013) describes the growing cost of food imports, exceeding a billion dollars for Jamaica, and the response. The local population is encouraged to grow in their backyard, including grocery stores and schools, with seeds provided to encourage adoption. The result is that 79% of the potato crop in Jamaica is grown locally now, up from 20% a few years ago. But will the water needs and associated cost for backyard farming continue to make it a competitive alternative to imported food ? Will the excess food in developed countries and cost decreases drown out the local initiatives ? Will Jamaica’s efforts to focus on the sustainable production of local food enable it to command a price premium to support it production ?

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Are there lessons to be learned from the manufacturing of the Pagani Huayra automobile ?

Posted on August 1, 2013 by aviyer2010

An article in the New York Times (July 26, 2013) describes the $1.3 million Pagani Huayra, produced one at a time with an annual volume of 20 vehicles and a life time run of 125 cars. Each car’s engine is assembled by a team of workers working one at a time. The individual vehicles are tested and tracked with every component traceable to a specific employee. For repairs, vehicles are fixed by a repair person flown to the site of the owner or the car is flown back to the plant in Italy. Are there lessons from this manufacturing, a craft and science mix that is reputed to recreate the philosophy of Leonardo da Vinci, for other products ? Will Italian competitiveness in manufacturing require a move to such niche manufacturing, and, if so, will it survive the challenge of globalization ? More importantly, will growth worldwide create a large enough demand for niche goods for it to become economical to revert to one piece custom manufacturing ?

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A deeper Jacksonville port to accommodate larger ships through the Panama Canal

Posted on July 27, 2013 by aviyer2010

An article in the New York Times (July 27, 2013) describes a move to increase the depth of the Jacksonville port from 40 to 47 inches, through dredging, to accommodate the larger ships that will be passing through the Panama Canal. But the goods brought in then need a rail hub to move them to inland locations. So Jacksonville is also planning to expand their rail terminal to enable efficient flow. Given competition from other ports and rail hubs, how should the return on investment from Jacksonville’s expansion be computed ? How much of the resulting supply chain cost reduction for shippers and retailers should be recovered to finance these infrastructure costs ? Given mature markets in the US for several imported goods, is this a zero sum game across port operators ? Will lower import costs reduce the incentive for US sourcing and thus make domestic manufacturers and US factory workers worse off ?

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Shipping HP computers by rail from China to the Netherlands

Posted on July 21, 2013 by aviyer2010

An article in the New York Times (July 21, 2013) describes Hewlett Packard’s shipment of computers, produced in Chongqing to Oostrum in the Netherlands. The trip takes 21 days, compared to 5 weeks by sea, and is cheaper than air shipments (which would cost seven times as much and generate 30 times the pollution of rail). This new rail link, called the new Silk Road, passes from China to Kazakhstan to the west to Europe. Trains from China to the West carry tires, shoes and clothes, while trains back to China carry electronics, auto parts, medical equipment and cars. The expectation is that flows on the rail link will permit Chinese plants to have low cost logistics access to Western markets and thus remain competitive despite labor cost increases. Will the presence of such rail options permit countries along the rail line the opportunity to offer competitive manufacturing, that provides even further cost reductions ? How should logistics managers best leverage the rail to coordinate product markets i.e., outbound to the customer along with inbound from China ? As more product moves along the rail, what products will shift to use the sea option to replace these products ?

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Will shuffling aluminum ingots between warehouses increase commodity prices ?

Posted on July 21, 2013 by aviyer2010

An article in the New York Times (July 21, 2013) claims that commodity traders, who have purchased large stocks of aluminum ingots, but are required to ship out from warehouses at a rate of 3,000 tons. But these traders are claimed to own several warehouses in Detroit and ship between these warehouses while maintaining their hold on inventories, thus reducing the amount available quickly and, given storage charges permitted, increasing the price by 0.1 cent per aluminum can or $5 billion over three years. The article claims that delays in shipment, and thus storage chargers, have increased from 1.5 months to 16 months. What metrics should the London Metals Exchange be required to impose to prevent such price changes due to delays ? Should the premiums that are charged for all aluminum sold on the spot market be permitted to be based on delays in Detroit even if the metal does not pass through those warehouses, as is the case currently ?

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Inconsistent responses across governments to the Dreamliner beacon fire

Posted on July 20, 2013 by aviyer2010

An article in the New York Times (July 20, 2013) describes inconsistencies between the British aerospace authority’s proposal to request that beacon batteries be disabled vs the US FAA’s plan to inspect these batteries vs the Japanese authorities plans to waive (temporarily) the requirement for airplanes to have beacon transmitters. All this is in response to the fire on an Ethiopian Airlines 787 Dreamliner caused, apparently, by a beacon transmitter’s battery. Given these different directives, how should airplanes that fly international routes operate their equipment to comply ? What is the jurisdiction of these different authorities when airplanes takeoff from one authority’s country and land in another ? Should the IATA demand that the different aerospace authorities coordinate their decisions to provide consistent proposals or should that be the role of the airplane manufacturer to enable such coordination ?

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Will the US govt proposal to the Bangladesh govt improve garment factory conditions

Posted on July 20, 2013 by aviyer2010

An article in the New York Times (July 20, 2013) describes a proposal by the US govt to Bangladesh for the country to regain its suspended trade privileges with the US. The plan includes creation of a public database of all garment factories, public reporting of violations, inspector names, penalties assessed and corrective action. It requires easing constraints on union formation and a hotline for anonymous reporting of code violations. It also requires the Bangladesh govt to impose greater penalties on garment manufacturers who violate safety or labor laws including suspension of their export privileges. Will such a system reduce costs or risk for US and European retailers who manufacture in Bangladesh ? Will such steps make manufacturing in Bangladesh uncompetitive with other global choices ? Given such steps planned to be taken by Bangladesh, should US and European retailers be required to commit to maintain a certain manufacturing volume (e.g., the current level) if the country complies with US demands ?

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