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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The impact of HR 2245 “Preserving Access to Life Saving Medications Act 2011”

Posted on December 25, 2011 by aviyer2010

Bill HR 2245 plans to require drug manufacturers to notify the Federal govt, 6 months in advance, of potential shortages. Shortages are defined as situations where the total supply is less than observed demand. The Federal govt is then required to work with manufacturers to identify alternate sources or alternate drugs. Given the significant role of drug distributors, and lack of supply chain visibility regarding stockpiles, how should drug manufacturers comply ? Given the role of retail prices in impacting supply, and pressures from HMOs to decrease drug costs, should the govt be required to mainain price floors to mantain manufacturer incentives for supply ? Should the FDA be required to manage production shutdowns and rampups in a timely manner to ensure drug availability ?

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The global supply chain for Michael Kors and impact

Posted on December 24, 2011 by aviyer2010

An article in the New York Times (Dec 20, 2011) describes Michael Kors Holding, an apparel company that generates 95 % of its revenues in the US and Canada, makes its apparel in Asia, and is incorporated in the British Virgin Islands. The result significant tax savings – estimated across all US multinationals to generate $ 1.375 trillion in cash overseas. Should this global supply chain be celebrated as effective management or a deceptive unfair outcome ? Should companies be mandated to pay a sales tax collected on their revenues (by the Federal government) rather than permit incorporation to decide tax consequences – and what would be the associated impact ? Would you expect changes in the income tax collection regime (through restrictions on global supply chains) to increase prices for US consumers ?

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Planning the impact of fog, snow and rain at UPS to prevent delivery delays

Posted on December 23, 2011 by aviyer2010

A Wall Street Journal article (Dec 23, 2011) describes the 120 million packages delivered by UPS in the week of Dec 25, with late shipments creating costs between $5 and $ 30. UPS claims that its monitoring of the weather and rerouting have saved 1 million packages and $ 20 million in revenues.  One main concern is fog – which usually rolls in about the time that the cargo planes land.  Should delivery guarantees to customers be linked to weather to decrease the costs faced by express delivery companies  ? Given the differential impacts of weather across trucks and airplanes – how should the transport modes be changed to compensate for weather patterns ? Should pricing for delivery across modes be adjusted by time of year and weather pattern to better reflect delivery costs ?

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Business Class seat comfort based airline competition and supply chain impact

Posted on December 23, 2011 by aviyer2010

An article in Bloombergbusinessweek (Dec 19,2011) describes airline competition to attract business class passengers, who pay 3 to 10 times the economy fare, are 15 % of the seats but 50% of the flight revenue.Business class seats, with new features, are at the center of this competition, and, at 300 lbs, are three times the weight of economy class. This customization of seats by airline has three impacts (a) increased weight which decreases fuel efficiency, (b) increased testing to satisfy airworthiness which takes a three year seat design time and (c) delays due to specialized wiring, which creates production delivery delays. Should airplane manufacturers force seat standards to improve operational and cost performance ? Should suppliers offer features as options installed after airplane delivery ? Given the costs to serve business class passengers, do they really contribute to 50% of the profits too?

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Reverse Logistics – managing the US Army withdrawal from Iraq

Posted on December 23, 2011 by aviyer2010

An article in Bloombergbusinessweek (Dec 19, 2011) describes the management of the ramp down in Iraq, with 2 million items to be accounted for removal. The choices (1) donate to Iraq,(2) ship back to the US Army for use, (3) Ship back to the US for sale to state and county governments to save local costs, (4) Dispose as waste.  Given that the original cost was borne by the US taxpayer, what should be the goal in determining the optimal route for items ? Given the high shipping costs, should those cost be recovered during sale of items, or should it be considered as the logistics cost of deployment ? Should some items be dismantled and just useful parts shipped (e.g. Engines and gearboxes) ?

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The “internet of things” and supply chain impact

Posted on December 23, 2011 by aviyer2010

An article in the Wall Street Journal (Dec 18, 2011) describes the role of smart sensors and cameras using real time information to impact health care, energy and water conservation and transportation. A GE project uses cameras in hospital rooms to alert physician or nurses hn steps in routine car are skipped, thus saving costs and improving health care. An IBM project monitors potential mudslides due to heavy rain and proactively evacuates. Another project monitors water use at homes and advises customers how to save 7 % of their water use. What potential role can such sensors play in fragmented supply chains, where decisions by one company impact costs aced by the other? How should OEMs encourage use of such sensors across supply chains to improve sustainability ? How should equipment manufacturer standards be managed to ease integration of smart devices ?

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Reducing design elements to improve supply chain performance at Lego

Posted on December 23, 2011 by aviyer2010

An article in Bloombergbusinessweek (Dec 19,2011) describes Lego’s decision to outsource themeparks, sell the entertainment division and decrease the number of design elements available to designers from 12,900 to 7,000. The company describes each new element as creating both mold costs and global supply chain costs, with designers now required to be more creative using fewer elements. How does product variety add to global supply chain complexity ? Is there a point at which the variety level is too low to be competitive, thus decreasing revenues ? Since Lego is a toy brand, is this risk of decreasing variety higher than in other sectors ?

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