Expiring Lipitor patent, supply chain impact

Posted on November 26, 2011 by aviyer2010

An article in the Wall Streeat Journal (Nov 22,2011) describes a plan by Pfizer to sell Lipitor (a cholesterol reducing drug) direct to consumers once its patent expires on Nov 30. Health care plans that have contracted to sell Lipitor will be billed geneic prices, thus costing the consumer less, after co-pay than generics.  But this direct selling channel creates a conflict with pharmacists, and potentially lasts 180 days, after which generic prices drop even further.  The reason, big pharma companies need the cash to finance their operations until the next set of drugs cme to market. Do you expect he associated channel conflict to impact sales of Pfizer’s branded products at pharmacists ? Given the steep cliff faced by demands after 180 days, how should Pfizer adjust capacity and inventory ? Given rising demands in China and India, and worries about drug quality, will foreign markets offer demand opportunity as cholesterol levels rise due to changing diets and lower exercise ?

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Cargill – matching global supply and demand of agricultural commodities

Posted on November 20, 2011 by aviyer2010

An article in Fortune (Nov 7, 2011) describes Cargill’s role inmatching global supplies of soyabean, cotton, palm oil, beef and salt from Indonesia, Australia, Argentina and North America to customers. Charter ships are routed to minimize empty miles – as an example, a ship might travel full of soyabeans from Brazil to Shanghai, then move coal from Australia to Japan, get rinsed and return to pick up soyabeans from Brazil. But when supplies of cocoa are unreliable, the company started growing cocoa in Vietnam, to supply markets in India. How should governments determine if Cargill is the creates commodity volatility or merely captilizes from it ? Given its ability to influence global supply, how should regulators ensure farm level negotiating power ? Cargill currently owns no farmland – would you see moving uostream as a way for them to decrease supply volatility ?

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Slower, larger, less polluting but on time ships

Posted on November 20, 2011 by aviyer2010

In an interview with Nils Anderson, CEO of Moller-Maersk, in Fortune (Nov 7,2011), he claims that ships have a 50% on time arrival rate.  His company is now adding larger but slower ships, which will emit 50% less CO2, but have a 95% ontime reliability.  The supply chain impact will thus be larger pipeline inventory, but larger cycle stock.  Is this supply chain tradeoff appropriate from a shipper perspective? Will the lower environmental impact have to be included to justify this choice by shippers ? Does the larger ship capacity decrease the shipowners ability to respond to trade shifts and thus increase risk?

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A closed loop CO2 Supply chain?

Posted on November 20, 2011 by aviyer2010

An article in Fortune (Oct 17,2011) describes the mismatch between demand for CO2, its indequate supply in pure form, but its prevalence in the air.  Demand for CO2 is from soda manufacturers to make bubbles, greenhouse gases to speed plant growth, dry ice manufacturers and liquid CO2 manufacturers. In addition, enhanced oil recovery uses CO2 to extract stranded oil in reservoirs.  Possible supply plans include capturing CO2 from the atmosphere, using chemicals to separate the CO2 and thus generating supply. Will a closed loop solution to recover CO2 dispersed into the air decrease use of new fossil fuels while maintaining industrial activity? Should such technologies be funded by cap and trade agreements? How Should the effluents from such recovery plants be regulated to ensure that the overall supply chain is more benign than current alternatives?

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The impending demise of vertical integration amongst oil companies ?

Posted on November 20, 2011 by aviyer2010

An article in bloombergbusinessweek(14 nov, 2011) describes the conundrum faced by Marathon Oil, whose oilfields in Angola and Norway were not close to its refineries and transportation assets. The result, most of the oil the company refined was purchased from competitors, thus negating the benefits of vertical integration. The company’s decision to only focus on oil drilling, and sell off all its remaining assets, is described as a strategy bein considered by many of its competitors. Will the demise of vertical integration across oil companies unleash sector level efficiencies ? Will the contracting terms across a fragmented supply chain adjust to enable overall cost efficiencies ? Is this a robust strategy or a reaction to the current situation and thus potentially bad for the long run ?

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Making brick and mortar stores like ecommerce sites

Posted on November 20, 2011 by aviyer2010

An article in bloombergbusinessweek (Nov 14, 2011) decribes worries by retailers regrading an increase in informed focused consumers, a decrease in impulse shopping, and steps to compensate. Pacific Sunwear offers iPads to salespeople to assist consumers with possible clothing combinations, with out of stock items seamlessly orded from its website. Brookstone uses iPads to get customers to consider its entire inventory, int the store and the site, to drive sales.  And Old Navy equips its salespeople with iphones to check inventory of any item.  As stores look more weblike, will the number of store shoppers decrease or increase ? Will the costs associated with equipping salespeople with technology generate a sufficient enough rise in productivity to enable lower retail headcount to provide thee required level of service ? Will the web integration, which can enable customers to visualize store configurations the way they perfer, enable a more targeted salesperson interaction and thus higher sales ?

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Rare earth price surge and global supply chain response

Posted on November 20, 2011 by aviyer2010

An article in Fortune (Nov 7, 2011) describes the impact of the 1500 % price increase for rare earth metals from 2009 to 2010, the result of a 50 % cut in Chinese exports of rare earth metals.  With China mining 97 % of the world’s supply, this cut sent prices soaring. The result was a $ 1 billion investment by Molycorp to open up their mines in California, but with newer technology that is more environmentally friendly.   New mines were announced in Australia, Mongolia, Kazakhastan and Afghanistan.  But manufacturers in Japan modified designs to decrease rare earth usage. The result – a projected 13 % reduction in demand when supplies seemed to surge Prices of rare earths are now dropping significantly.  How should the global supply chain react to this price volatility – hold on to the extra capacity or cut it ? Should manufacturers continue to focus on decreased usage as a hedge against supply volatility ? Is this the bullwhip effect in rare earth supply chains ?

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Immigrant networks, trust and supply chain speed

Posted on November 18, 2011 by aviyer2010

An article in the Economist (Nov 19,2011) describes a hypothetical example of a Chinese trader in Indonesia who, seeing a market opportunity for umbrellas, uses his cousin in Shenzhen to quickly source and ship product for sale in Indonesia.  Contract formation and delivery are hastened by trust, suggesting the potential benefit to tapping immigrant networks. Another study describes the role of immigrant Chinese in US firms who speed up the firm’s expansion in China. Are immigrants networks a way to speed up contract formation in a global supply chain? Is there a downside to firms that rely heavily on such relationship contracts? Are there benefits to “arms length” contracting that does not rely on trust based schemes ?

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Global Impact on the US oil pipeline supply chain configuration

Posted on November 18, 2011 by aviyer2010

An article in the New York Times (17 Nov, 2011) describes the ripple effect of decreased Venezuelean crude supply (due to the political stress in Venezuelan-US relations) on capacity utilization at Texas refineries that process heavy crude. The alternative crude source from Canada that reaches Cushing, Oklahoma, faces decreased pipeline capacity to Texas refineries. The large stockpiles of Canadian crude in Cushing has depressed prices. The alternative – buy a pipeline that used to ship from Texas refiniries to Cushing, and reverse flow. But the Canadian pipeline owner expects to add more capacity thus generating excess pipeline capacity from Cushing to Texas refineries.  Why would the Canadian pipeline owner, who ships the crude to Cushing, create excess pipeline capacity to Texas? If this pipeline decreases oil dependency on Middle East sources, should the potential environmental impact of the pipeline route be compared to the current supply route’s impact or be treated in isolation? How robust is this new pipeline supply chain to changes in geopolitical relationships i.e., with Venezuela?

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Ozone regulation, local compliance and manufacturing impact

Posted on November 18, 2011 by aviyer2010

An article in the New York Times (17 Nov, 2011) describes the Federal govt’s decision to retreat from the EPA recommended standard of 70 parts per billion (ppb), a revision of the current 84 ppb rule.  Resistance from manufacturers was based on cost of compliance, estimated by them at $90 billion. State governers worried that regions out of compliance now would create large costs for new plants and existing plants as they tried to comply, thus making them less competitive to firms, and impacting jobs. But are tighter standards that improve the environment and decrease health costs, always bad for manufacturers? How should one estimate the jobs not gnenerated because of poorer air quality? Is retention of manufacturing with poorer environmental standards a competive long run strategy for US manufacturers?

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