Refining capacity mismatch and gas price impact

Posted on March 6, 2012 by aviyer2010

An article in Bloombergbusinessweek (March 5,2012) describes the East coast refining capacity as dependent on Nigerian oil, but the Midwest refineries process higher sulphur content, cheaper Texas crude. Nigerian oil prices fluctuate with MidEast crisis, and thus make East Coast refineries less competitive, thus causing refinery closures. The resulting capacity shortage and transport costs of MidWest gas have all contributed tothe higher gas prices. Will this capacity mismatch get sorted out in few years ? Will future refineries use equipment that can flexibly shift between crude inputs from different global sources, even if startup and operating costs are higher ? Will a planned pipeline to the East Coast resolve these pricing issues faster than current trends ?

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India, China trade flows and market access

Posted on March 6, 2012 by aviyer2010

An article in Bloombergbusinessweek (Feb 27,2012) describes the 43 billion dollars of exports from China to India and the 10 billion exports from India to China. This trade imbalance has resulted in 46 complaints by India to the WTO about Chinese companies.  Does the success of Chinese suppliers suggest a market access issue or just the competitiveness of Chinese companies ? Should the Indian government provide similar assistance to its own companies as it alleges the Chinese givernment does or should it respond by closing its markets to Chinese companies or raise import duties ? Do global supply chains evolve in a balanced manner or should they be expected to evolve in an unbalanced manner across country boundaries ?

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Elpida bankruptcy and supply chain competitiveness

Posted on March 6, 2012 by aviyer2010

An article in the New York Times (Feb 29, 2012) describes the bankruptcy of Elpida, a Japanese DRAM chip manufacturer. Falling PC volumes, competition from South Korean manufacturers have caused prices to drop 85%. With the Japanese govt reluctant to provide additional support and focused more on the impact of last year’s tsunami, Elpida seemed to have few options.  Is this the normal process of global supply chain competition or an exception ? Should the Japanese govt intervene due to a strategic need or is this an expected outcome ? Given that Japanese DRAM component manufacturers had earlier caused the demise of US manufacturers due to their competitiveness, would you expect manufacturing to move further downstream in Japan ?

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GM, Peugeot Alliance

Posted on March 6, 2012 by aviyer2010

An article in the New York Times (Feb 29,2012) describes a decision by General Motors to invest in 7% of Peugeot, creating an alliance. The associated $125 billion spend of the two companies is expected to deliver synergies in the billions, albeit with risks.  Reduction in capacity, common architectures, while maintaining seperate brands – can that deliver the desired synergies ? What are the associated supply chain risks in this alliance ?

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California’s Supply Chain Transparency Act and Enforcement

Posted on March 6, 2012 by aviyer2010

An article in Bloombergbusinessweek (Feb 27,2012) describes the California Supply Chain Transperancy Act requiring retailers with more than $100 million in sales to ensure that their supply chains do not involve slave labor. But  the article reports allegations of slave like conditions for Indonesian laborers aboard Korean fishing trawlers, that sell fish to Australian distributors.  Because the catch is comingled, retailers are unable to track their product back to the trawler.  Should retailers be required to develop tracking systems to guarantee compliance ? Is it sufficient for retailers to sign a contract wih distributors to ensure compliance or should they be required to confirm compliance by monitoring operations ?

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Fastenal’s variety competition

Posted on March 6, 2012 by aviyer2010

An article in Bloombergbusinessweek (Feb 27, 2012) describes the greatest growth compan since 1987 as Fastenal, a distributor of fasteners. Fastenal’s 10,261 pages of fasteners provides the greatest variety of fasteners, available at 2,600 outlets.  Does variety provide a distributor with a competitive advantage in small margin, low cost but high variety items ? Given sourcing flexibility, would service be a barrier to entry for other distributors and enable it to charge a premium ?

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iPad Accessory makers and race to be ready for the new version

Posted on March 6, 2012 by aviyer2010

An article in USA Today (March 6, 2012) describes a race by accessory makers to be ready with products for the new iPad 3, debuting on March 7.  The market for iPad and iPhone accessories is estimated to be $ 2.3 billion, with a market penetration to 90 % of device owners. But the secrecy surrounding the new product and its dimensions, and the large benefit to being first, means that suppliers have to risk creating product inventories in advance of product specifications.  Should Apple maintain such secrecy to create a competitive market for accessories ? Does this approach provide an advantage to Apple created accessories ? What is the correct timing of product information sharing that would be best for the overall supply chain ?

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$ 8 billion in fines but still suppliers

Posted on March 6, 2012 by aviyer2010

An article in USA Today (March 7, 2012) describes the $ 8 billion in fines paid by pharmaceutical companies accused of defrauding Medicare and Medicaid, but with no impact on their supplier status – thanks to them being sole suppliers for many drugs. The “corporate integrity agreements” with government does not impact their supplier status because of their patented drugs which are essential for Medicare patients.  Does their patented drug portfolio reduce the impact of the fines in preventing egregious behavior ? Given patent protection for their drugs, are there other schemes that could impact continued profits for such firms while maintaining required supply ? Should the penalties have been even higher than those imposed, to compensate for the continued supplier status – and the ability to cover the fines with increased product margins ?

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Sustainable chemicals sourcing at P and G

Posted on February 9, 2012 by aviyer2010

An article in the website Sustainable Brands (http://www.sustainablebrands.com/news_and_views/articles/procter-gamble-developing-sustainable-chemicals-biofuel-company) describes Proctor & Gamble’s use of Zeachem, a cellulosic biorefinery manufacturer that uses raw material from poplar and agricultural residues and uses natural bacteria that produce no Co2 during fermentation. The consumer goods company has targeted use of such suppliers with a goal of 100 % renewable sourcing of packaging and chemicals.  Given such independent steps by consumer products manufacturers, is there a role for regulatory mandates regarding emissions in such industries ? Is the driving factor consumer preferences and thus demand protection by these brands ? Will decisions by such large brands act as an externality in spurring more sustainable practices across other industries that do not have a similar consumer demand pull ?

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Mexico’s gain at China’s rising cost expense ?

Posted on February 6, 2012 by aviyer2010

An article in the Wall Street Journal (Feb 6, 2012) describes data that trains and trucks carried 9 % more freight last year from Mexico to the US, while container traffic from Asia dropped 0.2 %. As we have heard before, labor costs will continue to rise in China as the working age population shrinks, raw material costs and energy costs in China are rising to nonsubsidized levels and transport costs are increasing, and the yuan has appreciated 30 % in the past few years, thus providing an opportunity to bring manufacturing closer to the US.  Will concerns about security in Mexico dampen the current enthusiasm to move production to Mexico ?  What changes in the maquiladora region will reassure US consumers that environmental and workplace concerns are being addressed in Mexico ? Does Mexico have a strong enough engineering base to support a significant growth in manufacturing or will that be a constraint ?

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