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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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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