Apple’s public release of its supplier audit and impact

Posted on January 17, 2012 by aviyer2010

An article in the Wall Street Journal (Jan 16, 2012) describes Apple’s decision to publicly release its supplier audit. The report includes 229 audits in China and problems with 112 locations and requires suppliers to (a) improve conditions at plants, (b) drop screening of employees for pregnancy and (c) pay back wages to employees who were not paid based on Apple’s policies. Should global OEMs  be required to reveal both their suppliers as well as their audit information ? Is it reasonable for customers to demand such detail regarding the manufacturing of products they purchase ? Should global supply chains require conditions that are beyond the expectations in the countries they are located in ?  Given the impact of Apple’s public release of negative supplier information on the supplier’s demand, is this Apple’s prerogative ?

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Momentum Accounting and supply chain impact

Posted on January 17, 2012 by aviyer2010

An article in the Wall Street Journal (Sept 27, 2011) described a “momentum accounting” decision by Diamond Foods to pay walnut growers about 25 cents a pound or more. The company described it as an attempt to maintain profitability of its walnut suppliers. But is that payment part of the leftover payment for the previous year or an early payment for the next year. The belief that the correction to pulling the payment earlier would decrease stated profits and thus dampen the company’s share price (which dropped significantly by the end of the year), even diminishing its ability to buy Pringles from P&G. Should company payments to suppliers be permitted to consider a multi-period perspective as in this case or be forced to be a cash flow perspective ? Given that Diamond Foods purchased 40 % of the walnuts in California, should its actions be constrained to protect supplier interests or should it be free to sign its contracts any way feasible ?

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The Berry Amendment for US Army sourcing and global supply chain impact

Posted on January 15, 2012 by aviyer2010

An article in Bloombergbusinessweek (Jan 16,2012) describes the impact of the Berry Amendment, a 1941 amendment requiring self sufficiency of Army supplies.  A current plan to have combat clothing made of silk to reduce the impact of IEDs (improvised explosive devices), runs afoul of this law because of the difficulty in finding domestic suppliers of silk garments. Should the current exception, which permits imports from Ireland, a necessary alternative ? Should adherence to the law, and thus a need to find alternative specifications that can be domestically sourced, even at the cost of reduced effectiveness be the acceptable solution ? Should the Berry Amendment be dropped as an out of date requirement in today’s global supply chain ?

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From China to Cambodia – shifts in the global apparel supply chain

Posted on January 14, 2012 by aviyer2010

An article in Bloombergbusinessweek (Jan 16,2012) describes the impact of the rising yuan, environmental rule enforcement and rising wages (18 to 20% annually the past three years) driving manufacturing to locations out of China – such as Cambodia. With weekly wages that are 4 to 6 times lower, production is reported to have increased 35 % this year alone. But the lack of an apparel supply chain in Cambodia implies that all components, including thread and needles have to be imported. Will the new global apparel supply chain keep higher end apparel in China and move basics to Cambodia ? Will capital investments in Cambodia remain low, enabling suppliers to move to, e.g., Myanmar, if it opens up ? Should manufacturers in Cambodia be held t0 the strict environmental compliance expected in the US to placate end consumers ?

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Using the GSP program with Egypt to import duty free to the US

Posted on January 11, 2012 by aviyer2010

An article covering a speech by US officials (http://thedailynewsegypt.com/trade/us-trade-officials-urge-egypt-to-utilize-gsp-program.html) describes Egypt’s GSP (Generalized System of Preferences) program with the US. Exporters can apply to have their products listed under GSP and thus export duty free to the US. Current duty free items include chemicals, marbles and some carpets but do not include apparel, footwear, luggage and handbags. How should Egypt’s access to GSP be incorporated into a global apparel supply chain ? How should the recent unrest in Egypt, and associated worries about supply disruption, be balanced with the benefits of a duty free import regime ? How should a US buyer use the GSP opportunities with countries around Egypt to develop a  supply chain strategy ?

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Global Apparel Sourcing Trends

Posted on January 11, 2012 by aviyer2010

An article in Sourcing online (http://www.sourcingjournalonline.com/wheres-and-whys-2012-apparel-sourcing-trends) describes rising labor costs in China and its impact. The article cites lead time, flexibility and variety as issues to consider in sourcing. Vietnam benefits from being close to mills in China, Bangladesh has low labor costs, while Honduras and Nicaragua benefit from being close to the US, thus saving three to four weeks in lead time. On the other hand Mauritius and countries in Africa benefit from free trade agreements with the US.  How should all these factors be incorporated into a global sourcing decision, given that unforecasted shocks (such as the changes in Egypt) can shift sourcing outcomes ? Should sourcing be framed as a hedged China plus four countries strategy as stated in the article ? Given cotton price fluctuatations, which seem to have settled now, should sourcing of commodity raw material be shifted to a contract with farmers to ensure supply or should one use cotton futures to ensure pricing stability?

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Solarthermal approach to store solar energy and supply chain impact

Posted on January 10, 2012 by aviyer2010

An article in the New York Times (Jan 4, 2012) describes solarthermal techonolgy- using  salt to store the heat generated from solar energy, with release of this heat to create electricity at a later time.The resulting heat can be used to generate electricity over a wider time interval, thus saving expensive electricity generating capacity. Electricity can be generated when prices are ideal. It also helps solar power to become a backup source during peak times, replacing coal powered peaking plants.  Is the system benefit of 4 c per kwh, in a current power cost of 11 c per kwh, sufficient to justify the 5 % additional capital costs  ? Will solarthermal storage make alternate energy mandates easier to comply ?

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Free ecommerce shipping, online sales, supply chain impact

Posted on January 10, 2012 by aviyer2010

An article in the New York Times (Jan 4, 2012) describes the 15 % growth in ecommerce sales this year compared to last year. 92% of the online sites offered free shipping and retruns. The resulting surge caused FedEx to add 20,000 people and UPS to add 55,000 people. But return rates are expected  to increase 7.7% over last year.  Since shipping individual units is expensive, compared to customer pickup at stores, who will bear the associated increased costs in the supply chain ? Since ease of returns may increase return rates over brick and mortar stores, how will the cost to manage returns impact overall supply chain costs ? Should one expect the savings from elimination of physical stores and associated personnel to maintain sales levels and overall profitability ?

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FDA restrictions on some antibiotics use in agriculture

Posted on January 10, 2012 by aviyer2010

An article in the New York Times (Jan 4, 2012) describes FDA plans to restrict use of cephalasporins in agriculture. These antibiotics are used to treat strep and bronchitis and by surgeons. But they are also used on animals, with the resultant meat consumption creating bacteria resistant to these antibiotics. Farmers may face higher costs but the greater good is served. How should the FDA balance these competing interests ? How much risk or evidence standard should be used to balance such supply chain impacts ?

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Real time analytics and Schwan food sales growth

Posted on January 10, 2012 by aviyer2010

An article in the Wall Street Journal (Jan 4,2012) describes Schwan Foods network of        6,000 home delivery drivers and their use of real time data analytics. Operasolutions, an analytic consulting company, mines purchase patterns to identify a genetic twin of a customer i.e., similar purchase patterns and  uses that data to recommend products. Similarly, when purchase within a category drops, discounts or recommendations from other categories can maintain spend patterns. The suggestions are sent in real time to driver handheld devices and have improved revenues between 3 and 4 %. Does the observed impact of real time analytics reasonable to expect in other contexts ? Should the goal be to maintain spends or move customers to higher margin items ? Should these recommendation services be charged for separately i.e., separate from the product costs  ?

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