Transporting wine in bulk in plastic bags from Australia to the UK

Posted on February 9, 2013 by aviyer2010

An article in Bloombergbusinessweek (February 7,2013) describes shipments of Australian wine in 24,000 liter plastic bags that are then packed in the UK. Saving 25 cents per bottle by shipping without the bottle enables the wine to be sold for $5 a bottle despite appreciation of the Australian dollar. Given the transport cost savings for shipment by sea in plastic bags, and the ability to compensate for currency shifts, does this suggest that packaging choice can considered to be a real option? If the price of this savings is a loss of product quality, how should the margin maintenance be traded off against its demand impact ? The article suggests that this shipment mode may only apply for low price products, but are there contexts in which sustainability benefits may justify using such approaches for higher margin products ?

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The impact of drought on corn and the beef supply chain

Posted on February 2, 2013 by aviyer2010

An article in Bloombergbusinessweek (February 4, 2013) describes the impact of the drought on corn yields and thus the beef supply chain. Corn farmers were covered by crop insurance but produce worth billions were destroyed by the drought. The corn that did get to market fetched higher prices. Ranchers cut back herds to compensate for the 60 % rise in hay prices. Feeders – intermediaries who buy calves and fatten them, were squeezed by higher prices for cattle and higher feed prices. Beef processing plants have started cutting capacity to match the lowered cattle available to be processed. Beef prices at retail have started increasing in response. Will the higher beef prices swing the supply chain back to its original state as incentives improve across the supply chain ? Or will weather (rain) be the key to restoring the supply chain back to its earlier strength ? Are the federal crop insurance offerings slowing down or speeding up the supply chain response ?

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Tunnel trade – and the impact of demand and supply of goods on either side

Posted on February 2, 2013 by aviyer2010

An article in Bloombergbusinessweek (February 4, 2013) describes the tunnels (now numbering 500 but up to 1000 at one time) between the Gaza strip and Egypt. Transporting motorcycles, cars, contraband between the two sides enabled owners of these tunnels to charge a premium of $1000 to transport a bike from Egypt. The cost to build a tunnel, estimated at up to $ 250,000, is financed with an upfront payment and a share of the profits associated with goods transported – a revenue sharing contract. But more recent moves by Israel to open the borders has eased the availability of goods, thus lowering the incentive for tunnel trade. What does the efficiency of pricing of tunnel trade say about the predictability of embargoes as a political strategy ? The more recent moves to tax tunnel flows to fund the government in Gaza is claimed to have incented the creation of longer more complex tunnels – capital investments whose payoff is in the illegal movement and thus avoidance of taxes – what does this say about the magnitude of the taxes and projected revenues ?

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Workshare programs to retain skilled workers during downturns and impact

Posted on January 27, 2013 by aviyer2010

An article in Bloombergbusinessweek (January 28, 2013) describes the impact of work share programs that enable access to Federal funds to support a fraction (70 % or so) of a worker’s wages when the employee works at least 40 % or more of usual hours. An example company cited is Saint Gobain, a producer of plastics, whose employees availed of the program by working 70% of usual hours temporarily until the economy improved. Will such rollbacks of working hours supported by Federal support generate the estimated $1.64 for every $1 invested ? Or will it just postpone the hard capacity reduction decisions that are necessary because of the distortion caused by the government subsidy ?

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Quicksourcing – using manufacturing in Tijuana to support design in the US

Posted on January 27, 2013 by aviyer2010

An opinion piece in the New York Times (January 26,2013) by Chris Anderson describes his company, 3D Robotics, that has a factory in San Diego and another in Juarez, 20 minutes away but across the border in Mexico. He describes this choice of manufacturing as quicksourcing, creating a short supply chain that provides flexibility. The benefits are listed as (a) small lot sizes that cover weekly demands, (b) lower risk against use of pirated parts and protection of intellectual property and protection against increasing Chinese labor costs, (c) Faster delivery and (d) ability to make design changes and distribute across the supply chain quickly. Given these benefits, how much higher can Mexican costs be while still being competitive ? For what products will a combination of Mexican engineering and manufacturing beat the production costs in China for similar products ?

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The overturning of E.P.A.’s mandate for biofuel use and associated questions

Posted on January 26, 2013 by aviyer2010

An article in the New York Times (January 26, 2013) describes the overturning of a mandate by the Environmental Protection Agency (EPA) regarding use of “liquids made from woody crops and wastes in car a truck fuels”. But the lack of availability of cellulosic fuel has prevented it incorporation as per the federal mandate. But the mandate itself has provided financial justification for the companies that have built plants to produce cellulosic. If the mandate to create a market is dropped, as the courts say, then will that in turn end the incentive for creation of these biofuels ? Should the government instead subsidize the companies themselves through attractive loan incentives rather than use mandates to stimulate demand for their product ? How should the impact on the environment, an externality that is protected by the government, be communicated back to producers and consumers?

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“Earth’s Balance Sheet” discussion by Nestle

Posted on January 26, 2013 by aviyer2010

A discussion with Nestle’s Jose Lopez (http://www.youtube.com/watch?v=ulB-ETDI2wA) focuses on the idea of the Earth’s balance sheet, a concept described by Solomon Darwin in (http://openinnovation.berkeley.edu/Solomon_Darwin_Balance_Sheet_Earth_Executive_Summary.pdf). The idea is to account for the assets that are removed from the earth and not replenished in order to realize the profits that are generated and services offered. This balance sheet and its contributions by individual supply chains, nations, consumers etc is described as an accounting for the long term impact on the Earth as an entity, just as all the other stakeholders lay claim to a company’s impact. Should each company be required to examine their contribution to the Earth’s balance sheet and be required to be involved in offsetting consumption of assets with equivalent replenishment of other assets or reduction of liabilities ? How should the rules of sovereign nations regarding their individual responsibility with respect to the Earth’s balance sheet be balanced with a company’s goal to maximize shareholder value ? Is the Earth a shareholder to a corporation too ?

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Supply Chain Transparency for apparel by Bruno Pieters in honestby

Posted on January 24, 2013 by aviyer2010

The fashion apparel store (http://www.honestby.com) by Bruno Pieters promises to provide a full description of the supply chain associated with the garment including prices paid at each stage, material details etc. An example look at a 100% silk short sleeved tunic shirt with side slits, sold for 451.73 euros, shows that the cost was 69.14 euros, wholesale markup 200% and retail markup 270 %. The cost in turn is broken down into fabric cost of 11.88 euros, with sewing thread, buttons etc specified along with manufacturing costs of 24 euros. The store believes that this transparency enables customers to understand the product supply chain better and generates demand. Given such transparency, will it generate customer demand or get them to worry about justification of wholesale and retail markups ? Is sourcing information of components necessary for consumers to appreciate the global supply chain associated with their purchase ? Will such details be required of products in the future ?

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Reclothing, Upcycling – the Schmidttakahashi way

Posted on January 24, 2013 by aviyer2010

An article in the Brander (http://www.thebrander.com/article.php?o=391) describes the Berlin based Schmidttakahashi manufacturer of clothing that creates new apparel from used apparel. The donor of the clothing keeps part of the numbered label and can track the garment’s evolution downstream. But the buyer can also learn about the history of the garment from donor stories to generate a life story. New apparel is generated from old that is cleaned and redesigned along with new elements – thus suggesting a piece of art rather than just clothing. Will such story telling enable an increased consumer valuation of recycled content in clothing ? Can such strategies be extended to other recycled content used in products – and if so, can technology, such as QR codes enable the stories to be updated over time and thus add to the attributes of a product ? How should global supply chains respond to such opportunities ?

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The promise for US gas exports in the future and current plans – a dream or a likely outcome

Posted on January 21, 2013 by aviyer2010

An article in the New York Times (January 4, 2013) describes worries that the promise of US natural gas exports may falter. Currently, US natural gas prices are reported to be $3.30 per thousand cubic feet, while prices in Asia for the same volume are over $15. But the rising demand for natural gas and the rapidly improving technology suggest that other countries will also start fracking initiatives and thus develop their own sources of supply closer to demand. If global prices dropped to $ 6, the export market economics would vanish. A US terminal for exports would cost over $ 100 million and could only be financed with long term purchase agreements. Does the export risk suggest that dreams of vast export volumes are likely to fizzle ? Will exports of natural gas raise domestic prices and decrease incentives for growth in domestic US production of chemicals and plastics ? Should the focus be on exporting fracking technology and chemicals rather than exporting gas ?

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