How many domestic automakers does China need ?

Posted on December 23, 2011 by aviyer2010

An article in Bloombergbusinessweek (Dec 19, 2011) describes China’s auto sector has having 70 automakers with 55 of them accounting for 11 % of sales.  Foreign automakers account for 58% of sales.  The Chinese government plans to further concentrate the domestic automakers so that ten manufacturers account for 90% of the market. If the goal is to create a competitive domestic auto sctor, is this an appropriate step ? Given the vested local interests in job creation, with auto assembly a significant manufacturing base,  how will this concentration be achieved by 2015? Is auto sector concentration a good strategy to create a globally competitive Chinese auto sector ?

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Swatch’s plans to cut back component sales to competitors and supply chain impact

Posted on December 10, 2011 by aviyer2010

A New York Times article (Dec 10, 2011) describes a decision by the Swatch Group to cut back sales (to 85 % of 2010 levels and ultimately to zero) of components to competitors. Buying these components from Swatch had enabled competitors to claim a “Swiss made \” label.  As a result, competitors will be forced  to invest in their own facilities or join consortiums to produce components.  Will this move by Swatch make the Swiss watch  industry more competitive as a whole ?  Since the growing demand for Swiss made products in Asia has driven up demand for Swatch,  is it acceptable for Swatch to use its upstream capacity to satisfy its own demand rather than expanding to prop up competitor component demands ?  If this decision results in a reduction of the number of competitors, is the Swiss watch supply chain better off with this pruned set of watch brands ?

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Balancing Wind, Water energy and salmon interests

Posted on December 10, 2011 by aviyer2010

An article in the New York Times (Dec 7, 2011) describes the coordinating role played by a Federal power agency, Bonneville Power Administration, that was faced with accepting power from hydroelectric and wind sources during stormy weather.  The agency dropped the wind source and accepted hydroelectric sources during surges in supply to prevent buildup of nitrogen gas in water that passes through spillways and that can harm salmon.  As a result, wind companies lost sales and production tax credits.   Wind companies recommend negative pricing i.e., paying consumers to use power. Others recommend enabling consumers to store power in their homes.  How should the competing interests of different energy sources, and their correlated surge in power generation, be accommodated ?   Should manufacturers who can ramp up production during periods of energy surges be incented to assist in solving the supply demand mismatch of energy supply ? Should wind companies regulate their power generation by shutting down some windmills to coordinate input of power i.e., should they have an incentive to stabilize their power supplied to the grid ?

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Used US car batteries, EPA regulation and Mexican pollution

Posted on December 10, 2011 by aviyer2010

An article in the New York Times (Dec 9, 2011) describes the EPA regulation of lead recycling from the 97 % of batteries recycled, the consequent cost impact of these regulations of $ 20 million in capital investments to comply, and the increased exports of used batteries to Mexico – an increase from 6 % (of total volume) in 2007 to 20 % in 2011.  The reason, poor enforcement of pollution laws in Mexico permits 20 times the amount of lead to be released to the environment.  EPA laws govern US plants but permit unlimited exports.  Should battery manufacturers be held responsible for the associated recycling of used batteries ? Should the EPA require documentation of safe recycling of used batteries shipped to Mexico ? Should exports of US used batteries require a certification of compliance of US pollution laws ?

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Toyota’s Supply Chain and Currency and Global Risk Impact

Posted on December 9, 2011 by aviyer2010

An article in the New York Times (Dec 9, 2011) describes Toyota’s announcement of a 54 % profit drop due to the appreciation of the yen and the floods in Thailand. The strong yen affects Toyota more than other automakers since the company has more than 50 % of its capacity in Japan.  In response to the strong yen, the automaker had moved part production to Thailand, but the floods in Thailand, that followed the earthquale and tsunami in Japan disrupted supply. How should Toyota adjust it production to decrease risk while maintaining its commitment to Japanese employees ? Given the related risk in thailand, does it suggest a more globally diverse component supply base or a higher inventory level as the appropriate approach going forward ? Would changes to its global supply chain impact the quality that the company is renowned for ?

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US Canada border delay easing and impact

Posted on December 9, 2011 by aviyer2010

An article in the Wall Street Journal (Dec 8, 2011) describes the US-Canada border delays as costing the Canadian economy $ 15.8 billion.  A new plan is expected to simplify clearance, with goods entering by ship to a US or Canadian port requiring only one clearance at the port of entry for use anywhere in the US or Canada. Will the simplified border crossing create competition across ports in the US and Canada that will reduce overall supply chain costs ? Which industries can be expected to move across borders in response to this change ? How will the “buy American” provisions in many US spending bills be impacted by the simplified trading system ?

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FDA Supplier Shutdown and Cancer Drug shortages

Posted on December 8, 2011 by aviyer2010

An article in the Wall Street Journal (Dec 8, 2011) describes overdue preventive maintenance, quality issues (such as urine in a can in the storage area) not invetsigated enough and excessive defects in some products.  The result – the Bedford, Ohio plant of Ben Venue, a division of Boehriner Ingelheim and a supplier to Johnson & Johnson. The consequence – a shortage of a drug used against ovarian cancer – Doxil.  New patients are not being signed up and existing requirements met by allocation of existing supplies.  Given the different responses of European vs US drug regulatory authorities, with European authorities not recalling Doxil, how should the global supply chain react ? Should J&J be held responsible for appropriate in stock levels and if so, what should that level be targeted to be ? Should the FDA anticipate supply chain impact before shutting down the plant ?

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Managing retail customer queues to decrease dissatisfaction

Posted on December 8, 2011 by aviyer2010

An article in the Wall Street Journal (Dec 8, 2011) describes retail queues and consumer perceptions of waiting time.  While a single queue is mathematically ideal as an approach to decrease average wait times, consumers perceive any waiting time greater than 3 minutes as higher than the real time.  Efforts to alleviate waiting times include handheld scanners for checkout (at Apple), queue busters who prescan items while the customer waits in line (Home Depot)  etc. But should single queues be dropped in favor of separate queues with consumers choosing their line ? Should entertainment (using TV screens), or impulse buy opportunities (Gap, Old Navy) be the way to decrease waiting time perceptions ? Or should more cashiers be added if the line grows beyond a fixed number ?

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US Battery companies “shocked” by low demands and high costs ?

Posted on December 8, 2011 by aviyer2010

An article in the Wall Street Journal (Dec 5, 2011) describes the plight of US battery companies, funded by over $ 2.4 billion in Federal grants, but struggling to win contracts from automakers. In the case of Ener1, low sales of the automaker Think Global generated low demand. For A 123 systems, losing a contract from GM, which went to LG Chem of South Korea, created low demand. The article claims that the close to 20 year lead for foreign battery manufacturers puts their costs at $ 400 per kwh vs the current US manufacturer cost of $ 1000 per kwh.  The key – the learning curve associated with the higher production volumes. Should the US govt strategically source batteries for all of its needs to increase production volumes for US battery companies ? Is the battery industry worth developing domestically to increase the odds of more green supply chains in the US ? Should the battery companies be allowed to fail to permit creative destruction in the industry or sheltered to enable their survival ?

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Eliminating USDA oversight of “fresh” meat labels – a good idea ?

Posted on December 8, 2011 by aviyer2010

An article  in the Wall Street Journal (Dec 7, 2011) describes a proposal by the USDA to eliminate their oversight of claims like “fresh”, “low-fat” or “Italian style” for meats.  The claims will thus rest on the credibility of the producers, thus eliminating 580,000 approvals from the USDA and $ 8.7 million in costs over 10 years.  Is this the kind of regulation that is best suited for elimination, with “caveat emptor” being the operative approach  Since the costs saved from a regulatory perspective per approval are small ($ 15 per approval), is the expectation that the approval time savings would permit a more efficient supply chain, thus making products more affordable ? Can the industry be expected to self regulate “food claims”, thus generating efficiencies by leaving government regulators out ?

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