Boeing production rampup and the role of supply chain examiners

Posted on December 30, 2011 by aviyer2010

An article in the Wall Street Journal (Dec 30, 2011) describes Boeing’s backlog of 3,500 airplanes, worth $ 270 billion, and the need to rampup production by 60 % in the next three years to maintain delivery commitments. Competition from Airbus means that delivery delays may lead to lost orders.  Boeing’s 200 supply chain examiners are deployed across the supply chain, at supplier locations, to ensure quality, evaluate design changes in response to supply disruptions and suggest software deployments at suppliers to enable proactive intervention.  Will large OEMs (Original Equipment Manufacturers) now have to play such role in supply chains even with large (70 %) outsourced supply base ? What skills will these supply chain examiners have to possess – both managerial and technical capabilities ? What authority and decision rights will these examiners have – should they act like “the supplier’s CEO” or like the “buyer’s procurement manager” ?

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Lower wages, greater employment and capital investment in the US – a wise choice ?

Posted on December 29, 2011 by aviyer2010

An article in the New York Times (Dec 29, 20110 describes wage decreases of $ 10 to $ 15 per hour for manufacturing jobs in Kentucky – a prerequisite “competitive wage” at which General Electric moved production to Kentucty and invested $ 800 million. US manufacturing wages and benefits per unit of production have dropped by 13.6 % in the last decade, while costs in China have increased. This makes US manufacturing competitive and creates jobs – albeit lower paying jobs. Is this a tradeoff – lower wages but job creation – that manufacturing firms have to make and that US employees have to accept to become globally competitive ? Should state governments attract such jobs with tax breaks to reduce unemployment or should they also append to these lower wages to compensate for their savings in unemployment benefits ? What will be the long run impact of a smaller middle class participation by employees in the manufacturing sector ?

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Indian Reverse Auctions for Solar Power and Impact

Posted on December 29, 2011 by aviyer2010

An article in the New York Times (Dec 29, 2011) describes the reverse auctions run by the Indian government, with solar power providers bidding to win the contract, that decreased costs 30 % compared to the previous year. These lower costs make the target of 20,000 MW by 2020 is attainable. But the bidding process invites global participants, and complaints from local producers are that they need subsidies to be competitive.  Should the lower cost due to reverse auctions be appended with subsidies for local companies ? Should credit be provided more competitively to Indian firsm to level the playing field ? In general, how should development of these energy sources be coupled with generation of local manufacturing capability – would local content requirements for manufacturing be included as part of bid specifications ?

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Mumbai slums and supply chain efficiency

Posted on December 29, 2011 by aviyer2010

An article in the New York Times (Dec 29, 2011) describes the Dharavi slum in Mumbai, India, home to a million people and generating an economic output of close to $ 1 billion. Admist the grime are thriving supply chains that take an order for 2700 custom briefcases by a bank to a supplier, to a leather goods store to a manufacturer in Dharavi, to a home shared by 22 adults,  manufactured by people sitting crosslegged for delivery within two weeks.  Should these slums be demolished, will the associated supply chain efficiency disappear ? Is the competitiveness of the trust, close proximity of labor, can-do spirit of residents and shared governance by the residents key to their global competitiveness ? How much of the “parallel economy” that evades taxes but generates income for many of the poor a reality in merging economies that should be tolerated as they grow ?

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Biofuel Use Mandates, regulation across time and Industry Impact

Posted on December 28, 2011 by aviyer2010

An article in the Wall Street Journal (Dec 28, 2011) describes the Congressional mandate to have 500 million gallons of cellulosic fuel by 2012, the EPA volume set at  8.65 million for 2012, and a plan to reach 16 billion gallons by 2022.  Given that small fraction of the planned output in 2012, and the need to have significant technological development, should the long term mandates be eliminated as unrealistic ? Should the refining industry that cannot satisfy the original mandates, but have to comply with the lower levels, and buy credits from the EPA if they do not comply, be let off the hook ? Will the mandates provide the necessary bank funding and incentives to guarantee a market and thus increase the odds of success for the cellulosic fuel industry ?

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New Chinese rare earth quotas for 2012 and consequences

Posted on December 28, 2011 by aviyer2010

An article in the Wall Street Journal (Dec 28, 2011) describes China’s announcement of separate rare earth metals export quotas for 2012 – light rare earths (used in magnets) will have quotas separate from heavy rare earths (used in high tech and defense).  In addition, mining companies that did not meet environmental standards will be excluded from these quotas.  But prices for several rare earths have dropped this year (60 % drop for lanthanum oxide and 58 % for cerium oxide), and auto companies like Toyota and Renault have announced plans to stop use of rare earth elements in their cars.  What impact do you expect the new China export restrictions to have on the global supply chain for products using rare earth metals ? Is the reduction in export opportunities for noncomplying mines in China a benefit for companies that use rare earth inputs ? Given the large number of new mines in the rest of the world, should on expect rare earth metals prices to continue to decrease and thus enable increased sue of alternative energy sources ?

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Yuan currency swaps and trade with Pakistan, Thailand and Argentina

Posted on December 28, 2011 by aviyer2010

An article in the Sourcing Journal (Dec 28, 2011 news@sourcingjournalonline.com) describes a decision by the Chinese govt to permit yuan currency swaps with Pakistan, Thailand and Argentina. For example, 10 billion yuan were exchanged for 140 billion Pakistan rupees. Thus the yuan can be used for trade and banks can facilitate letters of credit in yuan. How will such currency swaps enable the global supply chain to access Chinese manufacturers and distributors ? Can the terms of these trades reflect a subsidy to source in China ? How should companies in other countries, or with global supply chains not involving these countries, react ?

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Rising US steel prices, global demand trends and supply chain impact

Posted on December 27, 2011 by aviyer2010

An article in the Wall Street Journal (Dec 24, 2011) describes a 25 % rise in steel prices due to increased US demand from automakers and steel pipe demand for natural gas extraction. But as demand in China decreases, and with weak demand in Europe, US imports of steel could cause price drops.  Given the differential demand trends, how should US steel manufacturers react ? What underlying trends can shift these demand patterns and impact the global steel supply chain ?

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The “hourglass economy”, WalMart and “fishing equipment” assortments

Posted on December 25, 2011 by aviyer2010

An interview with Stephen Quinn, Chief Marketing Officer at Walmart, in Fortune (Dec 26,2011) describes the “hourglass economy” in the US in 2011, with a decrease in the size of the middle class, lowered spending capability for the lower percentiles and continued robustness at the top income levels. The impact – the need for a wider assortment with different price points to serve this customer base. WalMart’s experience in the fishing aisle describes the danger in cutting assortments – at some point customers forget the existence of a fishing aisle at the store. What other consequences will the hourglass economy have on retail supply chains ? Given the difficulty in predicting demand in such a context, how should retailers manage margins across the SKUs offered to maintain profitability ?

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Ebooks, publishers and libraries – what is the coordinating contract ?

Posted on December 25, 2011 by aviyer2010

An article in the New York Times (Dec 25, 2011) describes worries by publishers reagrding ebooks sold to libraries. The ease of borrowing, and the absence of a return trip to the library for ebooks, makes the process frictionless and thus may hurt purchases if books from the publisher. The current solutions by publishers, (a) no sales of ebooks to libraries, (b) selll only old ebook titles,(c) a dcision by HarperCollins to restrict ebook borrowing to 26 times before it expires and requires the library to purchase a new copy. Publishers cannot come together to generate industry wide agreements due to antitrust concerns.  How should the ebook supply chain be coordinated across these participants ? Should customers be required to return to the library or deposit location and swipe a physical device to obtain and return ebooks, to simulate the costs for physical book borrowing ?

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