A New Pentagon lab and better gas mileage for cars

Posted on May 19, 2012 by aviyer2010

An article in Bloombergbusinessweek (May 21, 2012) describes a new Pentagon lab in Warren, Michigan to test alternate fuels, improve energy efficiency of parts amd thus improve tank designs. But the same technologies may assist automakers trying to increase their mileage to the madated 54.5 mpg by 2025. The army’s lab aims to improve part designs like radiators, air filters etc that drain energy, recapture wasre heat and convert it to electricity etc. Should such innovations be shared with the industry or be licensed to generate income for the government ? Should the industry be required to share in the costs so as to save taxpayer funds or participate in the research as award grantees ? How should taxpayers be permitted to recover the benefits to industry from the US government sponsored research – should it be a shared free good to improve the environment or otherwise ?

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The ripple effect of auto sales on the supply chain

Posted on May 19, 2012 by aviyer2010

An article in Bloombergbusinessweek (May 21, 2012) describes the growth in auto sales to 2008 levels (14 million) – back to 2008 levels – and its ripple effect across the supply chain. Tooling and ficture manufacturer Apex Tool claims growth, as does fuel system tuneup kit manufacturer 3M, railroads that transport cars, car interior manufacturer Faureica and the credit arm of VW Credit. In short, increased car sales grows the economy $ 2.02 for every $ 1 spent. But the low inventory to sales ratio of 1.9, as agianst a level of 2.4 in 2008, suggests that increased sales will be passed through as increased production to keep pace. Does the low inventory in the auto supply chain suggest increased volatility that has to be borne by supply chain participants ? Given a volatile demand, with low inventory buffers, will margins erode ? Will the impact on restaurants and other services generate an even larger supply chain impact across the economy ?

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Lost opportunity for Pakistan’s textile mills ?

Posted on May 18, 2012 by aviyer2010

An article in Bloombergbusinessweek (April 30,2012) describes Pakistan’s textile industry as one of the world’s largest,employing 20% of the country’s labor and $14 billion in exports. But in the Pakistani city of Faisalabad, that produces 50% of the output, power cuts for days at a time and shortages of natural gas have caused 50% of the power looms and 10% of the spinning mills and fabric printing mills to shut down. Given the opportunity to benefit from textile sourcing moving out of China because of rising wages and the appreciating yuan, these energy issues have dampened growth in Pakistan. Instead, Bangladesh and Cambodia have prospered. Should retailers step in to solve the power problem or just move to another supplying country ? If power disruptions imply the need for expensive generators, should they be provided by the government as a stopgap while power stations come online ? Or should Pakistan’s producers target the higher margin products that can pay the higher rates in return for artisan level production ?

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Dealing with rising prices of “down”

Posted on May 18, 2012 by aviyer2010

An article in the Wall Street Journal (May 8,2012) describes the impact of rising prices of goose down ($12 per pound in 2009 to $28 now) and duck down ($9 to $19). The driver of these price increases range from less farming in China as people move to cities, increased consumption of meat and fish and not duck and geese. Some retailers are switching to more duck down to maintain prices, others are increasing prices 50 to 60%. Yet other retailers are either using synthetics or wool. Will product adjustments be the approach to deal with price increases of down, or are retailers better off passing along higher prices ? Will the substitution of synthetics result in a permanent demand reduction for down, thus lowering prices ? Do you expect production in other countries to increase to compensate for China’s reduced production ?

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Amazon’s fashion plans

Posted on May 18, 2012 by aviyer2010

An article in the New York Times (May 8,2012) describes Amazon.com’s plans to sell more fashion product, with the logic that shipping costs are independent of item price and thus fashion goods offer greater margin. Amazon does not plan to ask for markdown money when items do not sell, it plans to have no returns of leftovers, will pay a wholesale price and decide retail pricing and offers, at times, to take the entire collection. Will Amazon.com’s ability to spend its over $5 billion to improve its website and use analytics to target consumers make it the retailer to beat ? Should fashion manufacturers develop separate assortments and colors for Amazon to protect physical stores ? Will fit and coordination of looks put Amazon at a disadvantage or will it adopt the Zappos (now owned by Amazon) model of flexible returns after trying on many alternatives solve that problem ?

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Target pulls Kindles from its stores in a spat with Amazon

Posted on May 18, 2012 by aviyer2010

An article in the New York Times (May 3,2012) describes a decision by Target to stop selling Amazon’s Kindles in its stores. The article describes worries by Target that “showrooming” – a practice of scanning items in the store to get online discounts (like the Price Check app by Amazon that offered 5% off up to $5 for scanned item and prices from stores) hurts the retailer. But Kindles continue to be sold at other retailers, and the app can be run on any smartphone. Does this decision hurt Target or Amazon, given the relatively small number of units sold by Target ? How can physical stores combat the power of e-tailers, given their inherently larger cost to own and display local inventory ? Target’s letter to vendors recommends that they consider assortments and inventories offered to physical retailers, is it in the self interest of vendors to differentiate between Amazon and Target ?

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Figuring out if Chinese solar panel manufacturers are dumping in the US

Posted on May 18, 2012 by aviyer2010

An article in the New York Times (May 16, 2012) describes possible countries whose cost structure could be used to estimate costs in China. In the past, costs in India i.e., labor, material, rent, electricity have been used as a surrogate. But recent US Commerce department rulings have listed Thailand, Colombia, Ukraine and the Philippines as surrogate cost estimation sources. The US solar industry now demands that costs in Thailand be used to decide if the Chinese solar panels are being dumped. But Chinese manufacturers now demand that the economies of scale of solar panel production suggest that India should be used as a basis. Is there a fair process to estimate costs using other country data and should that country be declared in advance ? Is it reasonable to shift the basis country depending on the product ? How should economies of scale of production be combined with the country’s cost structure in general to determine suitable basis cost structures ?

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Will Exxon Mobil be less competitive by being more transparent ?

Posted on May 18, 2012 by aviyer2010

An article in Bloombergbusinessweek (May 14, 2012) describes efforts by ExxonMobil, among others, to eliminate a 1305 requirement under the Dodd Frank bill requiring timely disclosure of payments to countries when oil is extracted by US corporations. Such data would permit the press and public to, for example, know payments made to the government of Chad, and thus enable demand for it to be used for poverty alleviation rather than guns. Currently governments are opaque in their disclosure of payments received, this law will require the payees to disclose. Since such laws are not required by global competitors, will it make companies like ExxonMobil less competitive ? Should US rules adjust to global standards or should it reflect US preferences ? Will more information alone align incentives for better decisions in the least developed countries or should US laws go even further to do the right thing ?

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Why did Amazon.com decide to provide Harry Potter e-books free ?

Posted on May 18, 2012 by aviyer2010

An article in the Wall Street Journal (May 11,2012) describes a decision by Amazon.com to provide Harry Potter e-books free to libraries, while paying book publishers the wholesale price. The article argues that Amazon will obtain profits from other purchases by customers from their website – shirts or bug spray. The new strategy will also promote use of the Amazon website by library patrons. Could the costs to Amazon be covered by the margins from incidental purchases ? Is this a strategy to expose ecommerce ease of use to a potentially new segment of customers or do you expect that these customers are already ecommerce savvy ? What other loss leader strategies might Amazon consider to compete in the future ?

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Apple’s global supply chain flow choices and tax impact

Posted on May 3, 2012 by aviyer2010

An article in the New York Times (May 2,2012) describes choices made by Apple in the organization of its product flows to avoid taxes. Apple’s distibutors in Germany are called “commissionaires” and do not take possession of inventory. Thus German sales are booked in Singapore and avoid German retail taxes. Similarly, Apple’s Double Irish strategy books patent royalties to its manufacturing location in Ireland, then allocates pat ownership of the Irish location to a subsidiary in the Virgin Islands to avoid taxes, then flows profits through the Netherlands given European treaties. Given these global supply chain flows follow legal means, is Apple’s tax avoidance strategy an effective supply chain practice or something that should be disallowed ? Is the link between global plant location and flows and associated taxes something that will impact plant location decisions ? Is the claim that digital goods flow easily across national borders reason enough to permit such supply chain adjustments ?

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