Bringing manufacturing back to the US — and associated profitability

Posted on February 5, 2012 by aviyer2010

An Accenture report titled “Manufacturing’s Secret Shift” reports a survey that shows that 49 % of respondents faced delivery time issues and 46 % faced quality issues associated with outsourced manufacturing.  In addition, 73 % faced material cost increases and 57 %faced transport cost increases between 2007-2010.  As a result 61 % of the respondents claimed to consider onshoring to better match supply locations with demand points. Is this a temporary phenomenon, that will revert back as soon as gas prices decrease, or a deeper supply chain shift ? Given rising demand in India and China, will production in those locations have to expand to satisfy their local markets or would it be optimal to export supply from the US ? When will the newly emerging sourcing locations, such as Vietnam, become the new manufacturing centers ?

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US Demographics in 2020 and supply chain trends

Posted on February 1, 2012 by aviyer2010

An article in the Wall Street Journal by Mills and Ottino (Jan 30, 2012) states that in 2020 the US population will be younger than China and Europe. They present three trends – computing power and its ubiquity, smart manufacturing and use of nanomaterials and cloud computing.  Will the young workers and a culture of risk taking and innovation create a competitive advantage for US manufacturing ? Will the need for sophisticated capability and the role of technology make age a nonissue ? Will getting to this level of technology require proactive government policies regarding research and development – bordering on industrial policy ?

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Boeing Production Rampup and Supplier Chain Role

Posted on February 1, 2012 by aviyer2010

An article in the Economist (Jan 28, 2012) describes Boeing’s efforts to speed up airplane production to respond to its eight year order backlog.  But worries about economic downturn have suppliers worried about order cancellations.  With the large fraction of outsourced manufacturing, production rampup requires supplier investments ahead of orders to keep the assembly plant supplied.  Boeing’s plan – use “examiners” – its own employees who visit suppliers to guarantee supply, a war room to monitor across suppliers, long term agreements for crucial components and insourcing some production.  Given all of these coordination issues and associated costs was the original fraction outsourced nonoptimal ? Given that individual airplanes are customized to airlines, and the risk of order cancellations, is the double booking of capacity claimed in the article an optimal solution to guarantee stable orders to suppliers ? How might a correlated demand shock,like oil price increases, impact the Boeing supply chain ?

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Mongolia’s rapid growth and logistics options

Posted on January 31, 2012 by aviyer2010

An article in the Economist (Jan 21, 2012) describes the rapid growth of Mongolia’s coal mining industry, with output expected to grow from 16 million tons in 2013 to 240 million tons by 2040. Worried about being too dependent on China as a customer, plans are afoot to build rail line to take the coal to Russia and then to Korea and Japan. Other plans include taking the coal to the China-North Korea border and then to South Korea.   Will the abundant supply of coal suggest usage at location to produce electricity or other product that consumers electricity ?  Given the logistical challenges, are estimates of such rapid Mongolian growth merely vaporware ? Given the worries about coal and its pollution impact, will world demand for coal dampen the enthusiasm of the miners over time ?

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Traffic jams in New York City and coordination options

Posted on January 31, 2012 by aviyer2010

An article in the Wall Street Journal (Jan 30, 2012) describes the impact of customer delays on the US economy as $ 100 billion, 0r $ 750 per commuter.  But adding taxis is estimated to increase congestion – the equivalent of adding 40 private cars, as does expanding roads.  One alternative described is congestion pricing – which would incent deliveries to grocers, department stores etc to occur in cheaper off peak hours.  But will congestion pricing have to be preceded by investments in mass transit to convince commuters to switch ? Will the need to deliver at nonstandard hours increase costs for retailers even as it decreases congestion costs ? How should consumers be made to absorb the pollution externality associated with their driving decisions ?  Will changes in the pricing of road access cause higher finished goods inventory, thus driving up working capital requirements ?

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WTO disapproval of China’s use of GATT to justify export controls of metals

Posted on January 31, 2012 by aviyer2010

An article in the New York Times (Jan 30, 2012) describes a decision by the World Trade Organization (WTO) against China’s use of export controls for zinc, bauxite etc t0 incent manufacturers to locate plants within China.  Use of GATT (General Agreements on Tariffs and Trade) to justify these export controls based on scarce resources or environmental reasons were rejected.  China was thus claimed by the WTO to use export controls to distort international trade.  Will rejection of these export controls increase the odds of a similar ruling for rare earth metals ? Should one expect an increased movement of manufacturing out of China or is the location decision only marginally affected by such restrictions ? Given the growing Chinese consumer demand, will the logic of manufacturing in China in a global supply chain be to sell to the Chinese market and not export it out ?

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Supply Chain Coordination issues – Book Publishers, Apple and Amazon

Posted on January 28, 2012 by aviyer2010

An article in Bloombergbusinessweek (Jan 30,2012) describes the conflict between publishers and Amazon.com ebook pricing plans of $ 9.99, the publisher controlled pricing model for sales on Apple’s iPad (termed agency pricing), and the resulting threat to without sales on Amazon.com by Macmillan which caused ebook prices to rise to $ 12.99.  The new threat is Amazon’s plans to start publishing books and competing directly with book publishers.  Is the earlier Macmillan, Apple alliance to drive up prices a collusion in the ebook industry ? Given Amazon’s publishing plans, how will it affect the use of Amazon as a selling channel for publishers ?

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Danish wind energy production surges and the cost of smoothing supply

Posted on January 27, 2012 by aviyer2010

An article in the New York Times (Jan 22, 2012) describes the power surges due to high winds in Denmark and the payment to other countries to take the energy generated.  Surges in wind and the consequent energy generated are part of the risks in alternate energy sources such as wind and the cost associated with Denmark’s plan to generate over 50 % of its energy from wind. Solutions include storing wind energy by pumping water uphill, building connections with other countries, better forecasting of wind patterns and using using the energy to extract hydrogen that can run fuel cells.  How should the overall cost of wind energy be evaluated, given the need to plan for variability of supply ? Will the Danish wind energy generation target effectively increase the cost of power in denmark overall, given these additional surge management costs ? Should industries that can absorb this power by scaling up usage rapidly be targeted by the Danish government to generate a competitive supply chain solution ?

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Economies of scale vs risk in concentrating hard drive production in Thailand

Posted on January 27, 2012 by aviyer2010

An article in the New York Times (Jan 20, 2012) describes the quandry faced by hard drive manufacturers in Thailand whose plants were deluged during the floods.  Slow recovery of manufacturing raises the benefit of concentration of this industry (40-45 % of world production by over 60 companies) in Thailand.  Should the benefit of economies of scale and the supply of skilled workes justify the risks of sourcing in one location ? Should hard drive firms create a portfolio of production sources, albeit at different cost levels, to enable sourcing flexibility ? How should the Thai government react to retain the hard drive industry and reassure manufacturers that the sourcing risk is manageable ?

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Design for repairability for cell phones

Posted on January 25, 2012 by aviyer2010

An article in Sustainable Brands (http://www.sustainablebrands.com/news_and_views/articles/sprint-pushes-phone-makers-design-reparability?utm_source=newsletter&utm_medium=brandsweekly&utm_campaign=january25) describes a push by Sprint to produce environmental standards for design of cell phones, in partnerhsip with Underwriters Labs (UL). The goal is to develop modular designs so that only the specific broken part is replaced.  A phone by Samsung (Replenish) is the first such certified design. Is the incentive for repairable design for the supplier significantly different from the phone carrier ? If, in the limit, phone can be adpated to new network conditions, how will the supplier remain profitable ? Will modular designs encourage new parts suppliers who will drive down phone costs ?

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