Can consumers force retailers to develop ethical supply chains for products?

Posted on May 12, 2013 by aviyer2010

In a discussion in the Sunday Review of the New York Times (May 12, 2013), Professor Jerry Davis suggested that consumers can demand from retailers that they develop ethical supply chains, following the deaths of employees manufacturing clothing in Bangladesh. One reader remarks that public action against grapes, to protest farm worker treatment in the 1960s, reduced demand by 10 to 15 % but forced changes in conditions. Others suggest that consumers reward companies that commit to improving conditions in countries like Bangladesh rather than just move their production elsewhere. Will change come from consumer action and withholding demand from products without any supply chain oversight? How can retailers and manufacturers who demonstrate their role in improving worker conditions be rewarded by consumers – through demand increases or by a willingness to accept higher prices ? Will consumer choice be the decisive element in improving worker conditions or will company reputations require such actions by their own management ?

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Fair Trade clothing ?

Posted on May 10, 2013 by aviyer2010

An article in the New York Times (May 8, 2013) describes a movement to inform consumers about the supply chain used to produce apparel – termed Fair Trade clothing. This is to convince consumers that the clothing was produced by workers facing humane working conditions and is in response to the recent reports of fires and building collapses and tragic deaths of employees in Bangladesh and Pakistan. One company, Everlane, that produces its clothing in Los Angeles, CA, plans to provide cost breakdowns and photographs of working conditions for its supply chain. Nordstrom plans to provide details regarding working conditions for its producers. But such efforts may result in higher costs – and a question whether consumers would be willing to pay higher costs. Will the chain of custody and assurance of supply chain conditions be part of apparel attributes to be competitive ? Will such efforts justify local sourcing to enable effective oversight ? How far back in the supply chain should this visibility extend – should it include the farm (for cotton) and associated pesticide and worker deployment too ? Will certification of ethical supply chains happen at the company level or will there be a need for non-profits or governments to play such a role ?

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Fair Trade smartphones ?

Posted on May 10, 2013 by aviyer2010

An article in the Financial Times (May 9, 2013) describes a Dutch company, Fairphone, that intends to create a smartphone using a “Fair Trade” supply chain. This means the phone is recyclable, can be repaired, the supply chain will minimize frequent design changes, minimize order changes etc. The hope is to create better working conditions for employees etc. If consumers sign up to buy the 325 euro Fairphone, then the spotlight will be on the supply chain and its practices to ensure that it delivers on the Fair Trade claim. Will a spotlight on the supply chain enable consumer demand generation ? Will the current focus on worker suicides at Foxconn, recycling issues for electronics etc build a consumer desire for such supply chain monitoring ? How might Fairphone assure consumers of their Fairtrade claims ?

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Does the hospital penalty for “excessive” re-admits improve service quality ?

Posted on May 6, 2013 by aviyer2010

An article in the Wall Street Journal (May 5, 2013) discusses the impact of the Affordable Care Act’s penalties for hospitals with excessive re-admits within 30 days, set at 1% in 2013 and going up to 3% in 2015. But the article claims that a) studies show that only 25% of the re-admits are preventable, b) the penalties will incent hospitals not to admit critical patients, c) hospitals servicing low-income patients have a 30% higher likelihood of re-admits within 30 days. Given these issues, is a focus on this metric of performance detrimental to patient health ? Should the focus be on providing “best practice” solutions that can decrease re-admits rather than penalties ? How should strategies to improve health care results while decreasing costs be justified or analyzed for their odds of being successful before they are implemented ?

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The competitive response to Apple’s decision to change its device connectivity

Posted on May 6, 2013 by aviyer2010

An article in the New York Times (May 6,2013) describes the accessory supplier’s response to Apple’s decision to change the connection for its devices. The new connection decision by Apple makes all existing accessories obsolete, with no advance notification provided to suppliers. But Apple’s devices can also connect via bluetooth, and accessory suppliers are switching to that mode of connectivity. But this makes switching to other manufacturers, such as Samsung, easier as the connectivity via bluetooth is standard across different platforms. It also enables accessory makers to avoid paying royalties to Apple for the connectivity hardware licensing. Did Apple’s decision to switch connectors thus end up hurting its competitiveness by lowering the barriers for customers to switch devices ? Will the availability of easier methods to use speakers and other existing accessories end up helping Apple’s growth ? Will suppliers end up being better off, as will customers, as accessory prices drop due to standardization across devices ?

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Shifting manufacturing from China to other parts of Asia as costs rise

Posted on May 6, 2013 by aviyer2010

An article in the Wall Street Journal (May 1,2013) describes decisions by Coach to reduce its manufacturing in China to 50% in 2015 (from 80% in 2011), by Crocs to reduce its footwear manufacturing to 65% this year from 80% in 2011 and by Uniqlo to source 60% in China soon. Rising wages in China and better prices in other locations such as Vietnam and India are claimed to be the reason. Are such sourcing choices, that diversify supply bases across Asia, while increasing coordination costs, justified ? With recent mishaps in Bangladesh, will the risk associated with sourcing in emerging locations with poor standards require more oversight, thus increasing costs overall ? What new roles will retailers have to assume to ensure an ethical supply chain ?

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Importing garbage to produce energy in Oslo

Posted on May 6, 2013 by aviyer2010

An article in the New York Times (May 1,2013) describes the city of Oslo’s success in using garbage, with recyclable content removed, to generate heat and electricity. With half the city and all schools supplied by garbage generated energy, supply sources have required importing garbage from England, Ireland and Sweden. British landfill taxes also justify garbage exports to Norway. Does importing garbage to generate energy to save fossil fuel use in Oslo justify this supply chain ? Would a focus on reducing energy use be more justified than importing garbage ? Given Norway’s exports of oil and gas, and its coal reserves, does this energy generation approach make long term economic sense ?

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Differing manufacturer responses to the Bangladesh factory collapse

Posted on May 6, 2013 by aviyer2010

An article in the New York Times. (May 1,2013) describes the differing public stances by manufacturers. Bennetton, the Children’s Place and Cato Corporation distanced their link to the plant they used as a source, claiming their garments were not on the premises during the building collapse. But Primark and Loblaw admitted their suppliers were at the location and promised to help the workers impacted. They also urged others using the same source to help in covering relief costs. Given the risks associated with finding low cost sources, are these differing stances justified ? How should ethical supply sources, that do not sacrifice worker safety, be developed efficiently ? Should manufacturers be permitted to collaborate to develop such sources or should this be orchestrated by governments or non-profits ?

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Slower growth, higher margins as Amazon.com plays middleman

Posted on April 28, 2013 by aviyer2010

An article in the Wall Street Journal (April 26,2013) describes Amazon.com’s growth as lowing, from 34% last year to 22% for the same quarter this year, while margins increased by 33% to 26.6%. The author claims the slowdown is the result of the growth difficulties given the company’s current size. But the increased margins reflect the company’s role in enabling sales from third party sellers, for which only the portion of the margin collected by Amazon is recorded as sales. But these transactions generate a greater margin than Amazon’s own shipments. Will Amazon’s future role be more like ebay – enabling commerce rather than initiating the sales by carrying its own inventory ? Will the barrier to entry for competitors (to Amazon) be lower if Amazon’s merchant role decreases ? How important will future Amazon devices like the Kindle, possible setup boxes for delivering content etc be in it future growth ?

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Steel manufacturer’s competitive response to falling steel prices

Posted on April 27, 2013 by aviyer2010

An article in the Wall Street Journal (April 27, 2013) describes the decline in steel prices and the response by steel manufacturers. ThyssenKrupp is claimed to offer to pay freight costs to maintain market share. Further price discounts of 5 to 8 % are reported, including waiver of fees for higher grade products. Other steps include buyouts of capacity and its elimination to better match supply to demand. But customers of such steel claim that they face contract prices for steel, signed last year, and thus will not benefit. Given the glut of steel capacity, will the rush to maintain share further worsen steel industry woes? Once buyers shift transport costs to suppliers, can third party logistics providers enable efficiency in shipments ? Will this shift in responsibility for transport have to be accompanied by vendor managed inventory contracts to enable overall cost reduction ?

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