Health care waste in the US estimated at $750 billion

Posted on September 11, 2012 by aviyer2010

A report released by the Institute for Medicine in September 2012, titled “Best Health Care at lower Cost:The Path to Continuously Learning Health Care in America” , suggests that the US health care system had 30% of wasted expense or $750 billion in 2009. The report points to specialization of expertise and thus fragmented care coupled with the need to customize treatment as creating complexity. It suggests that the combination of improved computing, collaboration across the supply chain and improved organizational capabilities could enable reduction of this waste. But how should all the experts be incented to consider overall supply chain costs ? Should the be a system of tokens that reallocates costs back to providers if additional downstream costs are incurred to treat patients ? Will the savings enable expansion of coverage or increased profits to participants or both ? Will the Federal government need to play the role of a traffic cop with the data to enable coordination or can private coordinating company roles be designed to reap these benefits ?

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The high cost impact of choices made for the GM Volt hybrid vehicle

Posted on September 10, 2012 by aviyer2010

An article by Reuters (September 10, 2012, http://www.reuters.com/article/2012/09/10/us-generalmotors-autos-volt-idUSBRE88904J20120910) describes General Motors as losing $ 49,000 on each Volt it builds. The costs are due to developmnt and tooling costs, number of unique parts in the battery pack and motor as well as cost penalties by suppliers for low volumes below thresholds. While the federal tax credit of $ 7500 helps, it is far from the $ 75000 it costs. So while GM incents customers with lease rates of $ 199 per month to grow volumes, it continues to drain the coffers. Should GM plan its hybrids like Boeing – using a program accounting approach to spread costs over a longer duration ? Is this initial cash drain a necessary part of new technology introduction i.e., should be be considered as an investment to learn about technologies that may dominate the industry int he future and impact all car models ? Or should GM shift to more standard components to lower costs now, even if it sacrifices performance ?

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Protocol Diversity slows wireless home energy management

Posted on September 7, 2012 by aviyer2010

An article in the New York Times (September 5, 2012) describes the slow adoption of software controlled wireless technologies to manage home energy usage and blames it on protocol diversity. Protocols refer to the codes used by devices to communicate, with several proprietary standards. Fears of piracy and a desire to create closed systems consisting of their own devices have discouraged standards. But those incompatible standards also prevent communications between appliances and other energy consuming devices. Should the industry force a common standard, and if so, how can it prevent hacking and malware from entering into such systems ? Should penalties for violation be increased or should management of energy be outsourced to third parties, such a home security monitoring agencies ?

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The reported 8471 % markup for drugs in the US

Posted on September 7, 2012 by aviyer2010

A report released on July 25, 2012 by staff in the US Senate committee on Commerce, Science and Transportation, examined the gray market for prescription drugs and why hospitals are forced to pay extremely high prices for some drugs. One example focuses on the drug Fluorouracil, a chemotherapy drug that was sold to a pharmacy by the distributor, resold into the gray market and made its way through several distributors, each adding its own markup, until the retail markup was 8471 %. In the presence of supply shortages, hospitals are forced to pay such prices. Most of these drugs are generic with few producers given the low margins during earlier years. Given that supply shortages will generate such creative supply chains, what should the US government do to assist ? Will margin guarantees incent manufacturers to maintain capacity ? Should distributors be barred from reselling to other distributors ? Or should margins be regulated ?

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Too few countries producing staple crops and associated risk

Posted on September 7, 2012 by aviyer2010

An article in the New York Times (September 7,2012) describes food price increases of 10% from June to July 2012, corn and wheat price increases of 25% and soybean price increases of 17%. The reason – drought in the US impacted corn, droughts in Russia and Ukraine impacted wheat and that in Brazil impacted soybean harvests. The United Nations warns that staple crops are grown by few countries efficiently, who now supply the world. They thus claim a higher risk of drought and other weather related issues impacting food supply, raising prices and decreasing access to food for the poor. Is efficient production by a few countries increasing food supply risk ? Should deliberate intervention by the UN and local governments be a strategy to diversify food supply? Will the risk increase as the impact of climate change becomes more significant ?

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Civil disobedience, Rare earth processing and supply chains

Posted on September 7, 2012 by aviyer2010

An article in the New York Times (September 6, 2012) describes plans by two NGOs in Malaysia, Himpunan Hijau and Save Malaysia Stop Lynas, to protest a plan by Lynas, a materials processor, to start rare earth processing in a plant near the port of Kuantan. Lynas planned to ship raw material, unprocessed minerals, from Australia, and process it to get rare earths in Malaysia. Opponents worry about the radioactive contaminants released. But Lynas claims it will convert byproducts into material for roads and buildings and export them. The reason for rare earth demand is its use in the growing market for smartphones and alternate energy sources. Should the worries about the planned plant capacity be considered as part of the risk of supply that will reflect itself in higher prices for rare earths ? Is the plan to process and export all output and byproducts a reasonable compromise by Lynas ? If the Malaysia Atomic Energy Agency grants permission to operate, does that solve supply uncertainties ? Who are the NGOs representing and what evidence is reasonable to solve their anxieties e.g., will online readings of plant radioactivity resolve this issue ?

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China slowdown and supply uncertainty for outsourcers

Posted on September 7, 2012 by aviyer2010

An opinion piece in the Wall Street Journal (September 7, 2012) describes supply issues faced by US companies that outsource manufacturing to plants in China. Some companies face demands for more money to buy raw materials, others find the company disappearing overnight etc. The remedy suggested is closer oversight of the plants with physical on-site visits, adding an insurance coverage for transactions or securing guarantees from the plants foreign owner, if appropriate. Should supply risk be considered an added cost to outsourcing to China, that would diminish the benefit of the wage gap ? Is there a role for risk management firms to establish oversight services to guard against supply surprises ? Given the added oversight of the Chinese government and laws to increase wage rates, should suppliers expect the future of manufacturing in China to be both uncertain and more expensive to coordinate ? Is insourcing now more likely to be an optimal strategy for US manufacturers ?

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The Cheesecake Factory and 2.5 % food waste

Posted on September 5, 2012 by aviyer2010

An article by Atul Gawande in the New Yorker (August 13, 2012) describes the processes used at the Cheesecake Factory restaurant to decrease its food waste to under 2.5 %. These include guest forecasting – which estimates the demand each day based on historical data at the level of individual items. New items are introduced with specific plans regarding production along with other items. Buying in bulk but synchronized to demand prevents wasted product. Given the over 308 items on the menu, forecasting enables a the delicate balance between supply and demand. Can the lessons from the Cheesecake Factory be used to decrease waste in the health care industry ? Can the make to order strategy of individual meals be the secret to decreased waste ? Can the lessons from the Cheescake factory be used by families to decrease wasted food – estimated to be over 25 % ?

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The impact of incompatible fast charge plugs on electric vehicle growth

Posted on September 5, 2012 by aviyer2010

An article in the New York Times (August 31, 2012) describes two incompatible fast charging plugs – one standard, CHAdeMO, developed by Nissan, Mitusbishi and others, with separate prongs for slow and fast charges, installed in over 1,500 chargers. The other, developed by Detroit’s automakers and German automakers, with a combined plug for slow and fast charge. Should the simplicity of a single plug demand a new standard that could make charging difficult for existing vehicles ? Will the incompatibility of these alternate standards diminish the rate of growth of electric vehicles ? Will there be a benefit from a single government standard for electric vehicle plugs ?

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Volkswagen (VW) and its Modular Transverse Matrix strategy for part commonality

Posted on September 3, 2012 by aviyer2010

An article in Fortune (July 23, 2012) describes VW’s plan to standardize the 60 % of a car model’s cost – the front axle, heating, air conditioning etc across 40 car models and thus seven million units. The projected savings in development costs is 20 %, part costs saved is estimated to be 20 % and production time saved is estimated to be 30 %, thus suggesting a “$ 3 billion in annual savings or $ 500 a car”. But worries about the flip side of standardization is that these models become commodities, potentially losing their brand premiums. Will the current growth in sales and profitability be fleeting, and be followed by a longer term loss in market positioning as consumers become unwilling to pay the premiums associated with some models ? Will the supplier benefit to standardization drop margins for spare parts ? Will such standardization increase the flexibility for VW to expand globally or become its Achilles heel ?

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