London’s port expansion and volume aspirations

Posted on June 12, 2013 by aviyer2010

A video in the Financial Times (June 11, 2013) describes the expansion of London’s port by Dubai based DP World. The new port is claimed to be the largest logistics park in Europe and appropriate for the UK, given that 90% of its world trade comes by sea. The 10 year old project is expected to enable competitive logistics for goods coming to Europe from Asia, particularly when combined with the warehousing and value added capability available on site. However, given the expansion at Rotterdam, proposed inland multi-modal ports in Turkey, and other ports across Europe, will this new capacity result in price pressure across all ports due to overcapacity in Europe ? Will the slowing European economy result in decreased trade and thus added pressure ? Will the private ownership of the port impact its success because it alleviates the pressure on the British government to take actions to ensure its profitability ? Will the proposed new airport to handle cargo etc be a necessary component for its success ?

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Shortage of TB drugs in India – a major producer of these drugs

Posted on June 11, 2013 by aviyer2010

An article in the Wall Street Journal (June 6,2013) describes severe shortages of tuberculosis (TB) drugs in India, a country that is a major producer of TB drugs. TB kills a significant number of Indians and the government has been providing free treatment to eradicate the disease. But the expiration of a UK grant to pay for the drugs, and delays in government issue of required purchase orders, are supposed to have created the observed shortages. But drug manufacturers claim that poor forecasting and erratic orders are the cause of the observed shortages. Also, erratic use of the drug increases the drug resistance of the disease and makes treatment difficult. Low margins, poor supply chain management and poor forecasting are claimed to be causes. Should margins be increased to incent greater availability ? Should the forecasting of requirements be a private industry function with appropriate incentives for more accurate demand estimates ? Should vendor managed inventory contracts be provided to manufacturers to get them to maintain adequate supply ?

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Tracking medicines to prevent counterfeits in the US

Posted on June 11, 2013 by aviyer2010

An article in Bloombergbusinessweek (June 3,2013) describes a plan to install a digital ID on tablet bottles to track them as they move through the supply chain. Individual companies would have to be registered in the Federal licenses and subject their employees to background checks to operate. But others in Congress want tracking of bulk shipments, not individual doses. How should the level of tracking be chosen to minimize counterfeits while managing their impact on costs ? Will more control of pharmacies be necessary to prevent the deaths caused by facilities like the Boston compounding pharmacy ?

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Should the US restrict LNG exports to assist higher margin plastics exports ?

Posted on June 11, 2013 by aviyer2010

An article in Bloombergbusinessweek (June 3,2013) describes efforts by chemical companies like Dow Chemicals to argue against US exports of liquefied natural gas (LNG) given the abundance of natural gas in the US. These chemical companies produce polymers and plastics using natural gas for 10 to 12 cents, while European producers using crude oil face production costs of 50 cents. Preventing access to cheap LNG is supposed to preserve the US cost advantage and enable higher margin plastics exports. Should the LNG exports be blocked to help the competitiveness of the plastics exports? Will the lower US prices be a disincentive for US natural gas producers if exports are blocked ? Or will the new markets serve as a boost for additional exploration and leave the competitiveness of plastics unaffected ?

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Improving airline travel in Europe

Posted on June 11, 2013 by aviyer2010

An article in the Wall Street Journal (June 3,2013) describes the delays in Europe caused by the 37 countries with 63 air traffic control units that do not have a common authority. Improving performance requires coordinating landings and takeoffs with slot availability, but that requires independent authorities to coordinate who have no incentives to do so. The current approach is to invest in technology, but that is expected to result in little benefit in the absence of coordination. How should the benefits of improved performance be shared across the independent units to create the incentive for cooperation ? Should airlines be permitted to pay individual entities in the system to reap the benefits of improvement in the travelling customer’s satisfaction ?

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Palm oil using manufacturer constraints impact Indonesia’s forests

Posted on June 11, 2013 by aviyer2010

An article in Bloombergbusinessweek (June 3,2013) describes sourcing restrictions for palm oil by Nestle, Unilever and Cargill which bans palm oil grown in virgin rain forest land. The impact is a move by the Indonesian government to ban virgin rain forest plantation across the country to preserve palm oil markets. But conflicting local definitions of virgin rain forest land means uncertain sourcing verification. This is also causing manufacturers to move production out of the country to Sub-Saharan African locations with poor enforcement. Is the global supply chain impact of palm oil sourcing beneficial or should palm oil use be reduced to save the rain-forests? Should manufacturers develop standards to define appropriate sourcing or leave it to local governments to develop such definitions ?

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Apple’s 30% commission elimination and price increase

Posted on June 11, 2013 by aviyer2010

An article in the Wall Street Journal (June 10, 2013) describes the Justice department’s claim that Apple’s 30% revenue sharing contract (uniform for all products Apple sells) is a violation of antitrust and uncompetitive. The article claims that when this revenue sharing contract and associated most-favored-nation pricing (i.e., the item cannot be sold by the publisher for a lower price elsewhere) was introduced, Amazon.com had a 90% market share. Elimination of this pricing was supposed to result in lower prices but, instead, increased average prices from $8.20 to $8.85. Does the approval of wholesale pricing, which letters etailers set retail prices and the prevention of revenue sharing seem rational if it results in higher consumer prices ? Since revenue sharing is purported to improve supply chain coordination and thus permit more efficiency, does preventing it make sense ? How should the consumer interest be protected in this space and should the author and publisher’s interests be protected too ?

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Are European manufacturers globally competitive in making premium components or products ?

Posted on May 29, 2013 by aviyer2010

An article in the Financial Times (May 29, 2013) describes a collection of Italian manufacturers – Luxottica for eyewear, Sogefi for premium auto parts and Guala Closures for premium bottle caps that prevent counterfeiting. They compete globally to make premium components and leverage both engineering skills as well as craftsmanship. The claim is that Italians value engineering and the profession attracts a large talent pool unlike other parts of Europe (e.g., UK which is claimed to have banking as the notable profession). Can Italian manufacturers, forced to become lean due to the recessionary climate in Europe, now be competitive enough to battle other locations for premium components or products ? Will the global demand sources in India and China value these products enough to maintain the premium necessary to maintain production in Europe ? Are there location specific production and skill networks that provides a competitive advantage to Italian manufacturing or will the introduction of design software enable a decoupling of design from manufacturing locations?

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US forests to fuel European power plants – a green supply chain ?

Posted on May 29, 2013 by aviyer2010

An article in the Wall Street Journal (May 28, 2013) describes exports of US forest generated pellets to replace coal in European power plants as Europe cuts down on fossil fuel use and tries to decrease emissions of carbon dioxide. But this supply chain also results in new trees being planted in US forests, that can absorb more carbon than mature trees. Is this substitution of wood pellets for coal, and new trees for old, a supply chain that improves the carbon footprint globally ? Given the jobs generated by the logging in the US, should that be included in any calculation of the “consumer welfare” effect of this supply chain ? How should the supply chain be monitored to ensure that “best practice” recommended by the European Union is followed by US loggers ?

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The emerging “internet of things” and opportunities

Posted on May 22, 2013 by aviyer2010

An article in WIRED magazine (June 2013) describes the emerging internet enabled devices across homes, factories, cities etc. They predict three stages – Stage 1 links devices to the internet, Stage 2 enables conditional actions (If-Then actions) between pairs of devices (such as a GPS on a phone alerting its presence to a retailer), Stage 3 would have a network of these internet enabled devices following rules of engagement with each other, autonomously, even enabling a network presence customized to the system’s human occupants. The article claims that these capabilities will unleash new business opportunities to enable efficiency, improve quality of life, reduce environmental impacts etc. How will supply chains leverage such logic to improve their performance ? Will software providers sell homeowners customized software logic to enable different levels of “quality of comfort” with associated monthly costs ? Will devices more to a “pay per use” mode of sales with ownership retained by the manufacturer ?

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