Vertical integration in the US global pharmacy supply chain and impact

Posted on May 22, 2013 by aviyer2010

An article in the Wall Street Journal (May 21, 2013) describes an alliance between Walgreens, Alliance Boots and AmerisourceBergen to consolidate their global purchasing of generic and branded pharmaceuticals and sell them through their US Walgreens retail stores and AllianceBoots European stores. The article claims that such consolidation of purchasing will enable better prices from manufacturers and lower logistics costs. But it also suggests that while it will increase retail availability it may not lower retail prices paid by consumers. Given the competitiveness of US retail, would it be optimal for Walgreens to increase margins and not lower prices to gain market share ? Given that one retailer has moved in this direction, would other distributors and retailers also be expected to form such vertically integrated supply chains to compete ? How should manufacturers respond to such supply chain changes to maintain their profitability ?

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Sustainable metrics at REI and associated insights

Posted on May 21, 2013 by aviyer2010

An article by Kevin Hagen (http://www.sustainablebrands.com/news_and_views/articles/what-i-learned-about-sustainability-rei-part-2-metrics-over-intuition?utm_source=newsletter&utm_medium=businessweekly&utm_campaign=may20) describes REI’s tracking of greenhouse gas emissions in 2011. The company realized that while 10 % of these emissions were caused by transportation of its products, 15 % were the result of employee commutes to work at the company and its stores. This caused a realization that increased gas prices would play a role in employee retention and that moves to reduce individual commutes had to be framed more as a risk management strategy rather than just as something that would be good to do. Do you expect similar results for other retailers (grocery, apparel etc) ? If so, would it suggest a greater investment in public transportation by companies as they seek to reduce their collective carbon footprints ?

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Cadmium in Chinese rice – what should a consumer do ?

Posted on May 20, 2013 by aviyer2010

An article in the New York Times (May 20, 2013) describes the problem of ‘cadmium rice” – a report that claims that 44 % of the rice tested had twice the level of cadmium (0.4 milligrams per kilogram) as considered acceptable. Chinese consumers were asked to avoid consuming food from one region but to diversify their food sources. The sources of cadmium are claimed to be zinc mining and chemical wastes/ But demand for cadmium is driven by its use in batteries that are driven by the demand for cell phones and other electronics. How much of the cost of cleaning up the environment to guarantee safe food should be borne by the consumer of the electronics products that use the metals ? Is diversification of food sources by rice consumers the solution to this problem or should the brands of rice with high cadmium levels be banned and destroyed, even if it increases food prices ? What safeguards should be implemented by battery manufacturers and users to ensure compliance with environmental laws ?

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Can outsourced manufacturing compliance to agreements be crowdsourced ?

Posted on May 20, 2013 by aviyer2010

An article in Bloombergbusinessweek (May 20, 2013) describes companies such as LaborVoices and LaborLink that permit employees at manufacturing plants abroad to call in anonymously to report about working conditions. The companies then follow up to verify complaints and thus claim to provide a more objective monitoring of compliance to commitments to retailers or brands. These companies claim that the rampant use of cell phones across the world makes it easier for employees to report abuse. Will such crowdsourced input and monitoring provide an audit of compliance that is superior to the current auditor driven approaches ? Is there the possibility of manipulation of such reports by competitors seeking to malign the reputations of contract winners ? How can real time monitoring of facilities or sensors be harnessed to assist in ensuring ethically managed global supply chains ?

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The economics of the $6.75 shirt in Bangladesh

Posted on May 18, 2013 by aviyer2010

In an article in the Wall Street Journal (May 16, 2013), a manufacturer, Rubana Haq, describes the producer margins in a $6.75 shirt he manufactures. He claims that it costs $4.75 to buy the cotton cloth and $1 for the labels and other components specified by the manufacturer, leaving $1 for wages for employees, credit costs for the manufacturer for the raw material, penalties for delays or errors as well as profit margin. Thus, increases in minimum wages in Bangladesh, if not translated into higher prices, would squeeze the estimated 25 cent margin for Bangladesh manufacturers, making it uncompetitive for them to make clothing. Given these economics, what responses should one expect from retailers so that ignoring maintenance or abusive working conditions are not the norm ? Should retailers be expected to guarantee a reasonable margin to prevent unintended consequences of their procurement ? Should retailers be responsible for buying and delivering raw material to reduce credit costs and make the supply chain competitive or should that be the responsibility of the Bangladesh government and banking system to provide credit facilities ?

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Software to track detailed flows from prescriptions to drug usage at the patient level

Posted on May 17, 2013 by aviyer2010

An article in the New York Times (May 16,2013) describes software that uses insurance records, claims etc to track individual drug prescriptions from doctors to patients to pharmacies, including refills, albeit without patient identifiers. But the data does include details such as income and ethnicity. Pharmaceutical companies claim that this helps them target potential demand sources, offer more efficient alternatives, identify interactions across doctors based on patient and other flows to target market their products etc. But is the data so refined that individual patient histories will now become available to pharmaceutical companies and if so, is there an implied worry ? Will more targeted marketing lower pharmaceutical company costs and thus lower drug costs and help the patient ? More generally, is there a benefit to the supply chain as a whole (costs or efficacy) if detailed usage data becomes available ?

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Cambodia’s shoe factory collapse, with Japanese owners, shipping to Asian markets

Posted on May 17, 2013 by aviyer2010

An article in the Wall Street Journal (May 16,2013) describes the collapse of a building producing shoes in Cambodia for Asics, a Japanese brand, that ships primarly to Asian markets. The factory moved its production from China to Cambodia to prevent the quality and delivery issues in China. The new plant was designed to provide consistent quality, and use global labor practices. But a mezzanine floor, built on top of working employees, apparently was overloaded with inventory of cartons and paper and caused it to collapse, causing three deaths. Since a lot of the manufacturing in Cambodia is destined fro South Korean and Chinese customers, will the supply chain have the need to follow ethical practices similar to that demanded by Western consumers ? Will global supply chain configurations be expected to split based on the destination markets or will branded manufacturers be impacted by manufacturing accidents regardless of the product’s selling destination ? Should there be a worldwide commitment to ethical manufacturing, perhaps led by a United Nations like standards forming committee, or is it better left to trade associations and individual manufacturers ?

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Sharing costs for inspection and dispute resolution in Bangladesh

Posted on May 15, 2013 by aviyer2010

An article in the Wall Street Journal (May 13, 2013) describes an agreement between European and Canadian retailers to create a board to oversee factory inspections, resolve disputes and ensure compliance with wage standards in Bangladesh. The costs to a retailer are limited to $2.5 million over five years. But the cost to operate the board will be divided among retailers proportional to their volume of production in Bangladesh. In a parallel move, the Bangladesh government is raising the minimum wage for the apparel industry. Will these moves, which will protect workers but make Bangladesh a more expensive production location, maintain the country as a competitive production source ? Should companies be required to share their production experiences in a common database to pre-empt such disasters ? Given that Cambodia has already raised its wages to be significantly higher than Bangladesh, does this enable Bangladesh to remain competitive vis-a-vis India, China and Cambodia ?

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Ecommerce in Nigeria – motorcycles, tuk tuks and vans to deliver goods and collect funds

Posted on May 15, 2013 by aviyer2010

An article in the Financial Times (May 14, 2013) describes ecommerce companies in Nigeria like Konga.com and Jumia.com, that permit internet ordering of goods, delivery to the customer and collection of money on delivery. Given worries about fraud, Nigerians prefer to pay on delivery. But given the lack of reliable delivery, ecommerce companies are creating their own delivery systems using motorcycles, vans or tuk tuks. The competitiveness of ecommerce is heightened by the high retail real estate costs in cities like Lagos, even as the size of the middle class grows. Can companies like Amazon extend their capabilities to develop affiliates in Nigeria or is the ecommerce supply chain in Nigeria different ? Would you expect the evolution of professional couriers who will deliver and collect funds for many ecommerce companies or would you expect private courier services to remain the norm ? How should branded manufacturers react to this new channel ?

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Should Quirky open retail stores ?

Posted on May 14, 2013 by aviyer2010

An article in Forbes (May 27,2013) features “Quirky” (http://www.quirky.com/) – an online new product development company that uses crowdsourcing to take product suggestions to develop and manufacture products for sale at retailers. Quirky starts with ideas from inventors, then chooses those to focus on, then uses the community of designers to improve the product, then launch the product and market the product to retailers. The inventor is given 42% of the royalty (which is 10% of revenue), the remaining is shared by the community that helped create the product. But the rate of new products being developed is three a week and the retail pipeline cannot handle this output. So the company is planning to launch retail stores to bring products to market. Is this foray into retail an appropriate supply chain initiative for Quirky, or should the company slow down its product development to match market needs ? Given the push model of product development without a market evaluation of volume and pricing, are products that are “cool” more likely to be developed than products that have a market need ? Or is this the future of product development ?

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