Lending plants to get OEMs back on track after the Japanese earthquake

Posted on September 3, 2012 by aviyer2010

A report published by the Congressional Research Service (“The Motor Vehicle Supply Chain: Effects of the Japanese Earthquake and Tsunami” by Bill Canis, May 23, 2011) describes an example in which Denso, a Tier 1 supplier to Toyota, decided to suspend production of automotive air conditioners at one of its plants. Denso lent the plant to a smaller Toyota supplier, Fujikura Rubber, whose plant was severely damaged, thus starving Toyota of much needed parts. How should supplier plants be structured to enable such capacity sharing? Given that these are independent companies, how does Toyota manage to enable sharing of the individual company and supply chain wide benefits from such schemes? Given the vulnerability caused by the concentration of production by small suppliers, how should the larger OEMs protect their supply chains while fostering the innovation offered by such suppliers ?

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40 % of US food produced is wasted – what is the impact ?

Posted on September 3, 2012 by aviyer2010

A paper produced by NRDC called “Wasted: How America Is Losing Up to 40 Percent of Its Food from Farm to Fork to Landfill”, suggests that 40 % of US food produced or $ 165 billion of value is wasted. This wasted food generates 25 % of methane emissions, but also wastes the water and energy required to cultivate and process the food. The study estimated that reducing waste just 15 % could feed 25 million citizens. How should the supply chain participants, all the way to the customer, be incented to reduce this waste ? Should manufacturers change pack sizes to reduce waste, and if so, how can this be coordinated? How should consumers be alerted to the cost associated with the wasted food and how to balance it against the convenience of disposal ?

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Planning for Greece exiting the euro

Posted on September 3, 2012 by aviyer2010

An article in the New York Times (September 3, 2012) describes plans by US companies in the event of an announcement that Greece will exit the euro and move back to the drachma. Some of them include sending employees into Greece on trains with 50,000 euros in cash to pay employees, requiring buyers in Greece to pay in advance, lowering the amount of cash in Greek accounts, having accounts in the new currency ready to operate etc. But the scenarios also include one country (Greece) exiting the euro, multiple countries exiting at the same time and the eurozone collapsing as a whole. Will such detailed planning hasten the drop of Greece from the euro, by suggesting a smooth exit with minimal impact? Given the estimated higher costs to manage supply chains in Greece, will prices start rising to cover these costs and thus further slow down recovery ? Will the physical movement of cash into Greece mean the need for banks to worry about inventories of cash outside their normal locations ?

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Robots and the new US manufacturing competitiveness

Posted on September 2, 2012 by aviyer2010

An article in the New York Times (August 18, 2012) describes a solar panel plant in San Francisco that uses a significant amount of robots and few people, a Philips plant in the Netherlands that uses 10 % of the labor as its plant in China with most of the work done by robots and a grocery distributor, C & C Wholesale Grocers, that uses robots to efficiently store and retrieve products. The question then is, if US manufacturing returns with a significant use of robots instead of labor, will that be an acceptable alternative even if it is the only competitive choice for companies ? Will the supplier base required to service all these robots and program them generate sufficient jobs to compensate for the smaller workforce at the plant ? Will the skills required for this new manufacturing be those that can be acquired by the displaced plant workforce or will it be done at a distance, at an efficient global location ?

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Shift to territorial tax regime, or reduce environmental regulations to grow US manufacturing ?

Posted on September 2, 2012 by aviyer2010

An article in the Wall Street Journal (August 29, 2012) describes recommendations by manufacturers to the US government to enable growth in US manufacturing. Some recommend reducing environmental laws and thus decrease costs for US production – but this will impact the health of US consumers and thus increase helath care costs. Is this an acceptable compromise ? Others suggest moving to a territorial tax regime that would require US companies to pay taxes only on their US income and not their worldwide income. But will this cause manufacturers to become more competitive and thus increase US employment or provide them the incentive to move more manufacturing out of the US ? Another suggestion is to decrease US corporate taxes but also eliminate various tax credits to compensate. Will this approach enable sufficient tax income to pay for roads and education required by manufacturers ?

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Indonesian illegal tin mining and the smartphone and tablet connection

Posted on September 2, 2012 by aviyer2010

An article in Bloombergbusinessweek (August 23, 2012) describes the dangerous conditions faced by miners at illegal mines in Indonesia, with demand and price increased riven by the collateral impact of bans against “conflict materials” in the Congo. With the tin content in 16 iPads being greater than that in a car, growing demand for smartphones and tablets has driven up demand for tin solder. But efforts to control illegal mining by Indonesian authorities is criticized by the “Solder Products Value Council” – an industry supplier group – as being the reason behind price spikes. How much should end product manufacturers, such as Apple and Samsung, be held responsible for the supplier work conditions and regulatory compliance? Are the price increases associated with legal environmentally friendly mining practices a desirable feature that will incent material usage reduction by OEMs? Should tracking of material to the source be a requirement that should be permitted to be demanded by customers and NGOs for global supply chains ?

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Making shoes for the world in Ethiopia ?

Posted on September 2, 2012 by aviyer2010

An article in the Economist (June 9, 2012) describes demand for $2 shoes in Ethiopia, as protection against injuries, worms etc that affect bare feet. The population of Ethiopia is expect to double by 2040, chronic hunger impacts fewer Ethiopians and leather is plentiful thanks to a large livestock population. Labor costs are low and handicraft is a generations old skill. So a Chinese company, Huajian Shoes, expects to invest $2 billion to make shoes for a global market. Will poor infrastructure prevent Ethiopia from producing for the world ? Can a focus on Ethiopian traditional craft capability justify it as a global source of vegan friendly shoes ? Does the growing domestic market justify the country as production site, along with its low wages, lower than China ?

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Manufacturing hubs with entire supply chains in Ohio to be competitive

Posted on September 2, 2012 by aviyer2010

An article in Fortune (June 11, 2012) describes a plan proposed by Mark Kwamme to create Manufacturing hubs consisting of entire supply chains to compensate for higher labor costs. The goal is to reduce logistics costs and thus decrease overall costs. Whirlpool’s CEO agrees with this strategy as enabling US manufacturing competitiveness. Will supply chains consisting of the capability to make most of the components of a product be the key to become globally competitive in manufacturing ? Should Ohio invest state funds to enable such competitiveness ? Is there a positive externality to such supply chains that justifies state intervention ?

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Moving production to the US despite lower Chinese manufacturing costs

Posted on September 2, 2012 by aviyer2010

An article in Bloombergbusinessweek (June 25, 2012) describes several examples of companies that moved production to the US from China, despite up to 30% lower Chinese manufacturing costs. For Lightsaver, the 30% lower manufacturing costs were compensated by costs of coordination and quality issues, making US manufacturing 2 to 5% cheaper. For Ultra Green Packaging, intellectual property concerns caused the move back to the US. For Unilife, a maker of syringes preloaded with medicine, moving to the US ensured lower costs to ensure FDA compliance. Given these examples, how much should costs in China drop below US costs to justify making products there ? Will manufacturing in China be for their markets or will intellectual property concerns justify importing to satisfy Chinese demand ? Are these moves to the US the result of dropping US wages too ?

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Should natural gas filling stations be subsidized ?

Posted on September 2, 2012 by aviyer2010

An article in the New York Times (June 21, 2012) describes the abundant availability and low prices of natural gas, even though it could provide a cheaper, less polluting alternative to oil if available widely. A move to enable natural gas distribution through tax breaks for infrastructure was opposed by the chemical industry which feared it would cause high input prices. Should higher gas prices be treated as a cost increase to chemical companies and thus not be improved ? Should consumers be encouraged to fill gas containers from their gas pipes with subsidies on the equipment ? How should the government balance social goals and individual impact ?

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