P&G’s claim of “win-win” by delaying supplier payments but enabling borrowing at lower rates

Posted on April 27, 2013 by aviyer2010

An article in the Wall Street Journal (April 16.2013) describes a plan by Proctor & Gamble to delay supplier payments beyond 60 days as against the current 45 days, to free up over $2 billion in cash. Suppliers would be permitted to borrow from a bank after 15 days at interest rates that are based on P&G’s borrowing rates. The company claims that the freeing up of this cash for P&G and the consequent access to low borrowing rates, will be win-win for suppliers and the company. But suppliers like Federal Mogul claim that such payment delays by large companies, now becoming more common, hurt supplier margins and may require them to give up on doing business with some of these buyers. Is this shift in payment terms to suppliers a “win-Win” proposition ? Will such agreements benefit suppliers with higher borrowing costs than P&G ? Will product costs have to increase, thus increase Cost-of-Goods sold, to cover the added working capital costs by suppliers ?

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Should patent length vary by industry to spur innovation ?

Posted on April 27, 2013 by aviyer2010

An article in the Wall Street Journal (April 24,2013) describes a proposal to vary patent protection length by industry, rather than the US standard of 17 years. It reports the chairman of Amazon, Jeff Bezos, as suggesting 3 years as the length for the software industry, to incentivize companies to invest their money on innovation rather than patent defense. But shorter patent lengths would also reduce incentives to innovate. How should the optimal patent length be chosen for an industry ? Would differing patent lengths across industries be feasible ? How would global competitiveness of US firms be impacted by changes in the US patent length ?

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The competitive retail supply chain impact of online US sales tax collection requirements

Posted on April 27, 2013 by aviyer2010

An article in the Wall Street Journal (April 22,2013) describes the proposed impact of a Senate bill requiring online retailers to collect sales taxes based on buyer location. The goal is to level the playing field for brick and mortar retailers who are forced to collect local taxes, while online retailers currently do not, with the burden shifting to customers to report and pay it with their income tax filings. But others claim that it hurts smaller online retailers who have to figure out the 9,600 possible tax rules across the country, and increases the burden for online retailers over brick and mortar retailers who only charge the tax based on the retailer’s location. Does the online tax collection requirement discriminate the small online retailer over the age ones ? Does the online tax collection requirement impose a greater burden on online retailers as against brick and mortar retailers ? Should online tax collection requirements be waived for smaller sized retailers, and if so, is that subsidy justifiable ?

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Samsung vs Apple supply chains for successful cell phones

Posted on April 23, 2013 by aviyer2010

An article in Bloombergbusinessweek (April 1,2013) describes Apple’s supply chain strategy which outsources all hardware but controls software access and apps to Samsung’s strategy that produces all hardware but uses the Android open source software. Does producing components for competitors like Apple give Samsung a glimpse into market trends in advance ? Does Samsung’s hardware control enable it to experiment with different models with different screen sizes to choose the best ? Or is it the large capital investment in fabrication facilities that enables the company to be successful in being an original equipment manufacturer (OEM) of cell phones ? Ultimately is vertical integration of hardware or control of software a winning proposition for cell phone market dominance ?

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Are readmission rates a good measure of hospital quality?

Posted on April 23, 2013 by aviyer2010

An article in the New York Times (March 30, 2013) describes the impact of Medicare penalties based on patient admission rates, claiming that such schemes have resulted in decreased rates, from 19% to 17.8% in one year. But others claim that these measures are faulty because they unfairly penalize hospitals treating the sickest patients and those without appropriate after care such as housing, food and compliance with drug regimens. The penalties are set as 1% of hospital payments but are expected to rise to 3% in 2015. Should such disparities in the impact of penalties across hospitals be accepted as part of an effort to get overall cost reduction? Should there be standards regarding expected re-admits by criticality of patient to improve fairness ? Should hospitals be responsible for patient noncompliance ?

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Estimating the impact of new US sulfur limits on fuel on gasoline costs

Posted on April 23, 2013 by aviyer2010

An article in the Wall Street Journal (March 29,2013) describes the differing estimates of the proposed plans to limit sulfur in fuel to under 10 parts per million (ppm) from the current 30 ppm. Petroleum executives claim a price impact of 10 cents a gallon but the Federal government estimates a 1 cent per gallon impact. The difference lies in the government estimates that 95 out of the current 111 plants already comply or can easily be modified, the remaining plants will be given more time. Auto industry executives like the new standard because it is already enforced in California. Should industry estimates based on the largest cost to comply plants drive decisions or should standardization drive decisions ? Or should the benefit of lower sulfur in fuel aiding reduction of tailpipe emissions drive standards?

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Lack of coordination across governmental units and pollution in China

Posted on April 23, 2013 by aviyer2010

An article in the New York Times (March 24,2013) describes pollution levels in Beijing and blames the lack of coordination between the ministries managing the environment and state owned enterprises managing the oil and power. Thus, while the pollution control authorities mandates fuel standards and pollution controls for coal fired plants, those rules are ignored by the corresponding state run agencies that operate them. How should the need for low cost power and attainment of growth goals be coordinated with the public good from lower pollution ? Should downstream users of this power be charged based on their power source using a carbon tax ? How should the consumers preferences be used to impact increased coordination to reduce pollution?

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Why did J.C.Penney’s stable pricing not work ?

Posted on April 23, 2013 by aviyer2010

An article in the New York Times (April 14,2013) describes the consumer experience at retailers such as J.C.Penney and the need to enjoy the sale and anchor the value of product sold. J.C.Penney’s attempt to reduce sale items, reduce average prices and stabilize volumes and thus inventory management was expected to impact performance. But customers could not value the products objectively in the absence of a reference price against which prices we being compares, thus sales dropped. Does this suggest that stable pricing should dropped as a apparel retailing strategy? Is it only suitable for high volume low price items ? Why does it work for WalMart and not J.C.Penney ?

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McDonalds “dual point” service approach and impact

Posted on April 23, 2013 by aviyer2010

An article in the Wall Street Journal (April 11,2013) describes a new “dual point” service system that replaces the single point cashier assisted delivery. Under the new system, customers pay, receive an order number and walk over to the other end to wait for their number to appear on a screen. The order is picked up at that location, with “runners” assisting with sauces and juice boxes, thus freeing up the cashier. Does the reported feeling of better customer service match up with the specific process fragmentation with multiple touch points ? Do you expect such schemes to demand careful calibration of employees as demand levels change to maintain performance ? Will such fragmented systems assist with compensating for employee turnover, estimated at 60% across the fast food industry ?

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Natural gas use by the US trucking industry – how fast can it happen ?

Posted on April 23, 2013 by aviyer2010

An article in the New York Times (April 22, 2013) describes the growing use of natural gas in the US trucks, with the industry consuming over 3 million gallons of diesel fuel daily. Natural gas use is estimated to cut costs 30 to 40% per mile, saving $1.50 per gallon currently. But, with natural gas trucks being more expensive, federal taxes (12.5% excise tax) hit harder on these trucks and thus serve as a disincentive. If US exports of natural gas grow, then domestic prices may rise. But retailers and shippers like WalMart and Nike, like the associated carbon footprint of natural gas and thus may drive demand for its use. How should an engine manufacturer like Cummins plan for adoption of natural gas in US trucks ? How should individual transport companies plan their deployment i.e., should it be adjusted to avail of tax credits and subsidies by state to minimize overall costs ? How should investments in natural gas filling stations unfold to make them economically justified and should the state and Federal government lead by committing to its use in their vehicles ?

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