Barnes & Noble swapping book space for e-readers

Posted on October 29, 2011 by aviyer2010

A Wall Street Journal article (Oct 29, 2011) describes a plan by Barnes & Noble to double the square feet devoted to e-readers to 2000 sq ft in a 26,000 Sq ft store. The space will be freed up by decreasing books titles in stock as well as DVDs and music. The company expects intense competition as Amazon’s Fire becomes available and in response to the 27 % growth in digital books. Earlier changes at the store freed up space for educational toys and games. Are the shifts at Barnes and Noble an inevitable consequence of the competition with Amazon ? Do these  product mix changes suggest a prisoner’s dilemma outcome where Amazon and Barnes & Noble hurt each others profits ? Or is the competition in the e-reader market, and the lower price points, an attempt to take share away from Apple’s iPad, which has more functionality but a higher price ?

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Restructuring the global supply chain at Whirlpool

Posted on October 29, 2011 by aviyer2010

A Wall Street Journal article (Oct 29, 2011) describes the extra capacity held by appliance makers anticipating a demand rebound from 25 % low in the US and a 15 % drop in Europe compared to past levels. But continued sluggish demand has caused Whirlpool to drop expensive or old plants – closing the plants in Fort Smith,  Arkansas and  Neunkrichen, Germany, expanding production in Poland and using capacity in eight other US sites. The consolidation enables Whirlpool to better synergize its Maytag acquisition.  Is this capacity reduction given current demand levels using up the potential benefits of the supply chain capacity option if demands rise ? Should  the remaining plants increase their flexibility to accomodate product mix shifts ? Given the continued rise in steel costs and a reluctance to use price promotions to maintain sales volumes, should Whirlpool move to consolidate its remaining capacity to avail of scale economies ?

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Now Thai floods and Japanese auto supply chain impact

Posted on October 29, 2011 by aviyer2010

A Wall Street Journal article (Oct 29, 2011) describes the impact of flooding in Thailand, which has resulted in two Sony plants deluged, Toyota suppliers impacted, a Honda plant impacted for six months etc. Given the disruption caused by the Japanese earthquake earlier, the floods are expected to further disrupt auto supplies to Japanese OEMs that have increasingly moved to Thailand.  A World Bank study is quoted as claiming increased risk of flooding in Bangkok, Manila and Ho Chi Minh city – all potential low cost locations for auto suppliers.  Should supply chains consider the weather related disruptions in these locations and thus shift production ? Or should they hold inventory to hedge against these disruptions ? Or should the global supply chain maintain some excess capacity to provide a hedge ?  Or will the lower demand in these location mitigate the cost of disruption ?

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Global Trade Financing Squeeze and Supply Chain Impact

Posted on October 29, 2011 by aviyer2010

An article in the Wall Street Jounral (Oct 29, 2011) describes the increase in the margins fior trade finance by a factor of thirty since 2008.  Trade finance provides letters of credit, export loans etc that finance global trade given long lead times.  Of the $ 5 trillion in financing,default rates are low, reported to be less than 3,000 out of 11.4 million transactions. Rates are expected to rise as Basel risk related requirements become more stringent. Given the increased costs to finance global trade, is that significant enough to shift manufacturing locations ? Will captive financing by the potentially larger buyers, sometimes called supply chain finance, replace trade finance sources ? If so, what will be the correspondng supply chain transaction information required to be incorporated into such financing  decisions ?

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The Details in Free Trade Agreements with South Korea

Posted on October 25, 2011 by aviyer2010

An article in BloombergBusinessweek (Oct24-20, 2011, page 30/31) describes details in the free trade agreement with South Korea that define a US made product. For instant hot chocolate, a US made definition requires at least 65 % of the sugar to be purchased from US growers. But for chocolate bars, there is no restriction on the sugar source – even a 100 % foreign sugar source can certify the product American. Similarly, to compensate for last minute auto standards changes, each foreign auto manufacturer is allowed to sell 25,000 cars that do not satisfy Korean safety specifications. Given the complexity of the free trade specifications, and the arbitrary nature of the rules, how should companies design products to avail of the flexibility in these rules ? Given the roles of companies on both sides to adjust the agreements to maximize their benefits, how will it impact assessments of the overall economic benefits to the two countries ? Given that the estimated impact is just $ 15 billion in export revenues, is it really fair to call the US-South Korea agreement a free trade agreement ?

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Apple’s use of supply chain as a strategic weapon

Posted on October 25, 2011 by aviyer2010

A New York Times article (24 Oct 2011) describes Apple’s low price strategy – iPhone 4GS priced at $199, iPads at $499 etc, with competitors barely managing to match prices for similar or lower specification products. The article suggests that this is a shift from the early pricing strategies for the iPhone, whose high prices provided a window for Android operating system based phones to gain market share. Is Apple using volume commitments to enable low costs for itself while driving up costs for competitors ? Is Apple’s volume growth rate and aggressive product introduction incenting suppliers to accept associated rampup costs and risk ? Is the consumer acceptance of frequent product changes enabling Apple’s global supply chain to deliver products at low prices ?  Or is it Apple’s strategy of significant component commonality across all of its products the key to its supply chain success ?

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Increased restructuring and manufacturing’s future

Posted on October 25, 2011 by aviyer2010

An article in the Wall Street journal ( Oct 24, 2011) states that while close to 70% of S&P companies beat earnings,  significant number are focused on restructuring operations. The size of this spend varies from $100 million at Danaher, to $300 million at United Technologies and Honeywell. Restructuring reasons range from capacity reduction to match demand, consolidation of service centers to increased use of technology. Does this structuring suggest an anticipated slower demand or a shift in demand sources ? Is this a case of technology being more effectively deployed to manage global supply chains ? Should one expect a shift in the reliance of technology to deliver services and thus lower overall employment levels globally as productivity increases ?

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Estimating the firm level impact of China Imports

Posted on October 25, 2011 by aviyer2010

An article in the Economist (Oct 15, 2011) describes attempts to understand the impact of imports from China on US jobs.  One study suggests that regions where manufacturers had a greater impact of Chinese imports showed greater job loss and lower wages.  But another study claims that every 10% increase in imports correlated with 12% increase in R&D and 3.2% increase in patent filing. Thus competition seems to push firms to higher value added activities.   Both thus focus on how to adjust skills to be consistent with these changes.  Should importers be required to anticipate these effects and create appropriate solutions or should that remain the individual’s responsibility? Is there a logic to regulate the pace of shifts in imports to provide sufficient time for communities to adjust? How should theTrade Assistance Act be deployed to maximize its benefit to affected communities?

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Cross State Pollution Rules and Impact

Posted on October 25, 2011 by aviyer2010

An article in the Economist (Oct 15,2011) describes the issues surrounding CSAPR or Cross State Air Pollution Rule. The rule by the EPA requires power plants in 28 states to  decrease sulphur dioxide emissions by 27% and nitrogen dioxide by 46% of 2005 levels. The EPA expects these changes to prevent between 13,000 and 34,000 pollution related deaths and generate $120 to $280 billion in health and environmental benefits each year.   But states most affected claim that utilities will shut plants and thus cut jobs.    How should the benefits of pollution reduction be shared with those incurring the costs ?      Should the costs of pollution be imposed as a tax, so that the supply chain impact is borne by polluters? Should technology to decrease pollution be subsidized so that adoption is due to self interest ?

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Strategies to decrease procurement costs – not just a price focus

Posted on October 23, 2011 by aviyer2010

In a talk by Mr Haaije van der Brug, Procurement Manager for Shell in Russia, on October 18, 2011, he described the 40/40/20 practice at Shell. The claim is that cost savings are generated only 20 % of the time through price reductions, but 40 % of the time through adjustment of specifications and 40 % of the time through demand management.  He describes an example involving Shell’s use of standby ships in Sakhalin (Russia). While the cost of the ships were stable and thus difficult to decrease, their fuel use cost $ 5 million annually. This fuel use was driven by the ships circling the island constantly throughout the year. Adjusting their routes to anchor when weather was good enabled cost savings of between $ 0.5 and $ 1 million, without affecting performance. His contention was that one should expect 3 to 5 % cost savings year-on-year through continued focus on such processes.  Do you agree that effective supply chain management i.e., adjustment of demand and specifications for supply significantly dominate prices in improving cost of goods sold ? Should suppliers be incented to discover such savings for appropriate rewards or is the continued right to supply sufficient incentive ? Could there be unintended side effects (such as potential future holdup) from continued specification adjustments to decrease costs from existing suppliers ?

 

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