Thai floods, hard drive price increases and Dell Impact

Posted on November 18, 2011 by aviyer2010

An article in the New York Times (Nov 16, 2011) describes hard drive prices rising from $10 to $25 due the Thai floods, and their impact on Toshiba and Western Digital plants in Thailand. Earlier reports suggested that around 25% of world capacity for hard drives were impacted by the floods and that recovery may take a few months.  But dropping memory prices may prevent PC price increases, at a time when sales in the US are sluggish for Dell. Should Dell increase component inventories to hedge against supply risk? Will delayed hard drive availability hasten the adoption of the cloud based netbooks ? Should Dell move to solid state drives as a product feature change to drive share ?

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Crashing rare earth prices and impact

Posted on November 18, 2011 by aviyer2010

An article in the New York Times (Nov 15,2011) describes the 67% drop in prices for several rare earths including neodymium, cerium etc.  The rapid price increase in recent years was caused by China, which produces 97% of the world’s supply of rare earths, imposing quotas and export taxes for rare earths, thus cutting exported supply by about 50%. The results was a rush to locate in China to gain access to supply. Should companies revert back to decisions as before the manipulated price surge? Should alternate sources of world supply, justified at the high rare earth prices, continue to be developed or abandoned ? What global supply chain strategy will provide manufacturers more control over their profitability?

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Topitop – the “Andean Zara” in Peru ?

Posted on November 16, 2011 by aviyer2010

A Wall Street Journal article (nov 14, 2011) describes the growth in the middle class from 41% to 51% of the population in the last decade in Latin America.  Defined as people earning 45 % to 70% of the per capita, the middle class grew even as per capita incomes grew from $7000 to $11,000. Tipitop sells to one out of three Peruvians, has a design to retail cycle time of 45 days, produces in small lots, is fashionable and low priced.  Targeting locations that are accessible to the new middle class has been key to their success.  Should strategies to tap into this owing Latin American middle class be different than other regions? Will exports by these fast response manufacturers provide a competitive alternative as costs rise in China ? Given different income levels across Latin American countries, how will transport links impact emerging supply chains in the region ? Do you see currency union in the region as a reasonable next step to enable trade?

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In Alabama -conflict between competitive agricultural products and strict immigration laws

Posted on November 16, 2011 by aviyer2010

An article in bloombergbusinessweek (Nov 14,2011) describes the impact of stricter immigration laws in Alabama – the near disappearance of workers from Guatemala who worked in the tomato fields and fish processing plants.  Given retail competition from importers who pay low wages abroad, domestic manufacturers can only afford fo pay minimum wage, expect backbreaking performance and skip medical benefits. but such jobs are then shunned by unemployed US workers, thus pressurizing domestic manufacturers.  Sould Alabama ease immigration law enforcement, thus enabling local manufacturing ? Should farmers switch to more automated picking and associated crops ? Should the state subsidize some of the labor costs and make agriculture more productive ?

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Borders bookstore operations and its trajectory to extinction

Posted on November 16, 2011 by aviyer2010

An article in bloombergbusinessweek (nov14, 2011) describes supply chain choices by Borders bookstores in its path to extinction. The company’s origins and growth were fueled by careful title sales tracking and inventory management, but its merger with Waldenbooks created an unwieldy inventory system that could not integrate the stores. Locations in less than prime locations, close to Barnes & Noble locations, hurt store traffic.  The large SKU selection, more than 140,000 titles, wasn’t considered by customers as significant. The company’s use of cash to buyback stock eliminated the cash cushion required to pay publishers in advance of retail sales, and got it to run out of cash.  Do you accept these operational choices as the cause of the company’s extinction? Could these choices be perceived as prisoners dilemma choices i.e., forced by the success of Amazon and Barnes & Noble?  Given the statement by the article that many stores remained profitable and recorded growth until the end, do you agree with the thesis that smaller bookstores will be the new trend i.e., back to the past?

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Global steel demand and Arcelormittal’s capacity adjustment

Posted on November 16, 2011 by aviyer2010

An article in bloombergbusinessweek (nov 14, 2011) describes the impact of the doubling of steel capacity in china from 2005 to 2010, the consequent global exports at cut rate prices of supply in excess of chinese demand, and its impact. Arcelormittal, the world’s largest steel producer has idled plants in Germany, Luxemborg, France, Spain and Poland, shut down plants in Leige, Belgium, cut production in the US and postponed expansion in India. This capacity reduction is expected to hold steel prices.  The article claims that Arcelormittal could rampup when demand returns, thus capture share. Does arcelormittals slack capacity provide a valuable real option for the company? Given cost rends would shutting plants in western europe be a better capcity choice? Given the dumping of chinese steel on world markets what would you anticipate will be the long run capacity choice for Arcelormittal?

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Apple’s supply chain strategy – more insights

Posted on November 7, 2011 by aviyer2010

An article in bloombergbusinessweek (Nov 7,2011) describes Apple’s plans to invest $ 7.1 billion in its supply chain and commit $ 2.4 billion in prepayments to suppliers. It describes Apple’s decisions to buy such large volumes of high-end drills that competitors had to wait six months for supply. Similarly, Apple’s decision to buy up all of the available air freight during Christmas impacted the flexibility of other players. Other strategies include detailed accounting of material, labor costs and profit margins for supplier quotes.  Do you agree with the claim that operations and supply chain strategies constitute a key reason that Apple can provide new products at prices that the competition cannot meet ? Are Apple’s strategies sustainable ? How important is continued customer demand across product versions and design changes in ensuring success of Apple’s cited strategies ?  Given the benefits of Apple’s cash reserves, is it a better use of the cash than returning it to shareholders as dividends ?

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US auto jobs growth and supply chain impact

Posted on November 7, 2011 by aviyer2010

An article in bloombergbusinessweek (Nov 7,2011) describes growing employment in the us auto industry, projected to be 88,000 by 2015. The reasons – a 10 % sales increase this year, production to rebuild inventory lost due to the earthquake in japan and floods in thailand, the weak dollar compared to he yen and euro, rising wages in china and india.  can mqnufacturing be the engine to pull US emplyment back, given its multipiler effect on the economy ? Are these shifts temporary responses, or will they be sufficiently stable to help housing etc to grow and flourish? Will US manufacturing assist exports too ?

 

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Fair trade usa vs fair trade international – flexibility or selling out ?

Posted on November 7, 2011 by aviyer2010

An article in bloombergbusinessweek (Nov 7,2011) describes a decision by the Fair Trade USA group to break away from Fair Trade International and enable growth of large OEMs and retailers. This requires permitting fair trade labels on chocolate bars that use fair trade cocoa but not fair trade sugar, certifying large growers and nit just small growers etc. The benefit is growth of the fair trade label, at the expense of purity of the label. Should the Fair Trade Label be restrictred to products that use only fair trade certified inputs? Should a focus on small growers, who cannot supply the large volumes required by retailers, be relaxed to enable growth ? More importantly, should one accept that labels evolve to their pure certification and accept intermediate stages of certification of inputs ?

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US Natural gas production and the return of manufacturing ?

Posted on November 6, 2011 by aviyer2010

An article in Bloombergbusinessweek (Nov 7, 2011) describes the rise of shale gas extraction, suing fracking, and the US becoming the world’s largest natural gas producer. With natural gas becoming a low priced energy alternative to coal, with lower greenhouse gas emissions and less mercury etc, manufacturers using significant energy are considering moving overseas production back to the US. Dow Chemicals plant expansions in Lousiana and Texas is used as an example, along with other plastic and steel manufacturers.  Will the rising natural gas production be a stimulus to bring back manifacturing to the US ? Do the lower environmental footprint and lower costs justify shifting to US production even if labor costs are higher ? Should the potential environmental costs for shale gas extraction be balanced against its role as an alternative to coal when determining energy source choices ?

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