Intel’s lowered forecasts for chip revenues and supply chain impact

Posted on September 11, 2012 by aviyer2010

An article in the New York Times (September 9,2012) describes Intel’s lowered revenue forecasts as orders from OEMs like HP and Dell soften. The company had bet on sales growth of ultrabooks, which are between tablets and laptops. But OEMs are lowering their inventories to wait for clarity regarding demand, not sure if the tablet market growth will squeeze ultrabook demand. Are lower chip demands a reflection of risk averse OEM behavior in the face of market mix uncertainty regarding the composition of tablets, ultrabooks and laptops ? Or is it the demand slowdown in China ? Or the delays in the introduction of windows 8?

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Apple cuts chip orders to Samsung

Posted on September 11, 2012 by aviyer2010

An article in the New York Times (September 9,2012) claims that Apple has cut orders for memory chips sourced from its long time supplier, Samsung. Current patent disputes regarding the similarity of Samsung’s phone and the iphone have caused friction between the companies. But Samsung has also been a long time reliable chip supplier to Apple and scaled to meet rising iphone sales. Will this supply response hurt the reliability of Apple’s supply base ? Or is Samsung the loser because it can no longer access Apple’s design demands which would help develop its manufacturing prowess for use in its own phones?

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The potential supply chain impact of eliminating agency pricing for ebooks

Posted on September 11, 2012 by aviyer2010

An article in the Wall Street Journal (September 8,2012) describes a settlement by a set of publishers and the department of justice and elimination of the scheme whereby publishers set retail prices and paid a percent of retail price go the retailer of e-books to Apple and their retailers. As a result of the new rules, Amazon.com is expected to discount books significantly. But publishers and authors worry that such price competition will cause drops in author and publisher total revenues if, as they expect, demand volumes do now grow significantly. Will competition across retailers like Apple and Amazon ruin the market for publishers ? Would you expect Apple and Amazon to drop prices significantly, but make money on the hardware hey sell i.e., iPads and Kindles ? How can the supply chain be coordinated in the new environment?

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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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