Private Equity Efficiency Improvement and the Toyota Production System

Posted on May 2, 2012 by aviyer2010

An article in Bloombergbusinessweek (April 26, 2012) describes the efficiency improvement generated by a private equity firm Monomoy Capital Partners. Examples include reducing forklift times by 10 minutes, finding lost inventory, streamlining operations etc. The company claims to runs kaizens repeatedly to extract improvements. Visual management through reduced inventory, one piece flow etc all release efficiencies that the firm extracts and thus reduces the headcount required to run operations. Does the role of private equity in releasing value using the Toyota Production system suggest its value creation role for ailing manufacturing firms ? If so much value exists to be released, can it be acheived without the need for private equity firms to take over ? Does the article suggest the need for finance curricula to incorporate the basics of operations management to release value for firms ?

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Possible reasons for Microsoft to invest in the Nook – Barnes & Noble’s ereader

Posted on May 1, 2012 by aviyer2010

An announcement of Microsoft’s investment in the Nook, Barnes & Noble’s ereader, was described in an article in the New York Times (May 1, 2012). But there are many possible reasons for this investment. Does the use of the Microsoft Windows software enable the Nook to compete more effectively with the Kindle, which used Google’s Android operating system. Does the Nook enable Windows to push its Windows 8 out to more ereaders and tablets and thus compete with Google more effectively?. Or is the funding of the Nook by Microsoft, a way for Barnes & Noble to compete in the books market with Amazon ? Or is the real possible goal for Barnes & Noble to get in the textbook market and compete against Apple for publisher attention ? Or will Microsoft be getting into the hardware business of ereaders to compete wit Apple ?

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Oversupply of steel pipe in the supply chain ?

Posted on May 1, 2012 by aviyer2010

An article in the Wall Street Journal (May 1, 2012) describes a plant expansion by Timken in Ohio and a new plant in Texas to be opened by Tianjan Pipe, both focused on steel production for pipe used by the energy sector. But as gas prices fall, prices of steel pipes etc used by the energy industry are leveling off and associated warehouse inventories are increasing. Will the low gas prices impact industry expansion and create a glut of steel pipe, just when new plants are coming online ? Or will the continued high prices for petroleum encourage oil drilling and sustain demand for steel pipe ? Will imports of cheaper steel, discounted by 15 % below US prices, dampen demand for US steel ?

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Harmonizing trade regulations and supply chain impact

Posted on May 1, 2012 by aviyer2010

In an article in the Wall Street Journal (May 1,2012) Cass Sunstein, administrator of the White House Office of Information and Regulatory Affairs, describes steps taken by the US government to harmonize regulations across countries to reduce costs. Examples cited include standardized labeling of chemicals (estimated to save US manufacturers $475 million annually), recognition of “organic” labels between the US and Europe and standardized vehicle emissions recognition with Canada. Will the cost of this standardization always be reduced costs for US manufacturers ? How should these standards be negotiated i.e., should they be done by trade associations or the US government ? Should the US government just focus on cost reduction for both countries, or consider the US employment benefit of unique regulations that foster local manufacturing ?

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Rising palladium prices and drivers

Posted on May 1, 2012 by aviyer2010

An article in the Wall Street Journal (April 25, 2012) describes rising prices of palladium, a metal used in gasoline car exhausts. It is the sister metal of platinum, used in diesel car exhausts. Rising sales in the US and China have driven up demand for palladium, while weak sales in Europe have flattened platinum demand. Russia has indicated that sales of palladium from its stockpiles will be decreased, thus potentially shrinking supply. The resultant 2 % rise in palladium prices has resulted in a forecasted rise in prices per ounce from $ 665 to $ 1000 by 2013. Given these different drives of palladium prices, are the forecasted price increases credible ? During past palladium crises, technological innovation decreased demand for palladium in car exhaust systems – would you expect a similar impact this time ? Will the planned Chinese vehicle emissions standards (thus requiring more palladium content in cars), which will boost palladium demand in China, further push up palladium prices or would you expect the regulation to be delayed given current conditions ?

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Delta Airlines going upstream to save costs – are there risks ?

Posted on May 1, 2012 by aviyer2010

An article in CNNMoney (http://money.cnn.com/2012/04/30/news/companies/delta-oil-refinery/index.htm?hpt=hp_t2) reports on a plan by Delta Airlines to buy the Trainer oil refinery in Philadelphia to produce jet fuel. The claim is that the purchase of the refinery for $ 150 million will allow Delta to reduce its costs of jet fuel by $ 300 million annually. Getting the shuttered plant to product jet fuel will require changes in its product mix, trading of products at the plant with other oil companies, exposure to input prices etc. Delta is an airline that has not operated refineries. Do you think that vertical integration by Delta i.e., owning a refinery will permit the firm to lower its supply chain costs ? Will the control of a dedicated refinery provide better cost control than buying products in the market that is spread across many customers and competing manufacturers ? If new technologies emerge that can improve production yields, will it be more difficult for Delta to justify upgrading than other companies that are diversified both upstream and downstream ?

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The “Swissness” of watches made in Switzerland

Posted on April 28, 2012 by aviyer2010

An article in the New York Times (April 28, 2012) describes plans to change the current “Swiss-made” labeling requiring 50 % of the value of movement to be made in Switzerland, with new 80% requirement. Swiass watches account for 3 % of the units but 50 % of the $40 billion watch market. But Swatch dominates the Swiss movement manufacturing and has announced plans to cut supply of components (described in earlier blogs). In addition, luxury watch sales in China are booming. So is this new law an attempt to protect the Swiss watch industry or enable further dominance by Swatch ? Will increasing the need for smaller players to invest in capital equipment in Switzerland enable the industry to become more globally competitive or will it increase costs and cause a fall in variety and thus competitiveness ? Will such Swissness constraints hurt the opportunity to sell in China or will it increase the benefit given the new Chinese consumers need for genuine luxury products ?

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McDonalds and their supply chain visibilty strategy

Posted on April 26, 2012 by aviyer2010

An article in Bloombergbusinessweek(April 23, 2012) describes pressures on McDonalds to identify its food supply chain. Chipotle focuses on its meat being obtained from pen free and cage free organic cources and vegetables from farms within 350 miles. Five Guys Burgers focuses on locations of farms growing their potatoes. But McDonalds serves 9 million lbs of fries a day. Will McDonalds benefit from such a supply chain visibility strategy given its volume ? Should an alternate strategy that computes sustainable supply chains be adopted – highlighting the importance of volume on economies of scale and efficient processing ?

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The global garbage supply chain

Posted on April 26, 2012 by aviyer2010

An essay in the Wall Street Journal (April 18,2012) describes computers as the top export from China to the US, and garbage as America’s greatest export to China. With Americans generating 7 lbs of garbage per person per day, New York City alone generates 12,000 tons of garbage that has to be trucked over 300 miles to landfills. Should solutions like those in Los Angeles, where a garbage mountain generates gas that can be used for power generation be considered the solution ? Or should new plasma technologies that convert garbage by shrinking it 99% be subsidized to provide the answer ? Or will it require reduced packaging and less disposable product designs to get ourselves out of the garbage trap ?

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An alternate plan to rescue the US Postal Service

Posted on April 26, 2012 by aviyer2010

An article in the Wall Street Journal (April 17,2012) provides an alternative to the current plan to shut post offices and decase delivery days. The Pistal workers union suggests increasing stamp prices, providing delivery services for pharmaceutical delivery etc as ways to boost revenues. They also suggest that cutting services will get them into a spiral that will make them less competitive. Should the postal service, that has the lowest rates across the world, be permitted to set prices in line with world rates ? Should the postal service be allowed to compete in insurance and local deliveries – last mile service to assist small business go be competitive ? Or should the logic of complete access to all locations, a US Postal service mandate, be reconsidered ?

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