Yuan Appreciation, labor flexibility and back to US manufacturing

Posted on October 7, 2011 by aviyer2010

A Wall Street Journal article (Oct 7, 2011) describes decisons a furniture manufacturer and high end earphone to move production back to the US. The reasons – a 30 % yuan appreciation from 2005 to 2011, US union flexibility and thus lower wages and fewer rules, higher US productivity and lower lead time demands from retailers.  The cost gap with China has thus dropped from 50 % down to 10%.    When can we expect the projected 800,000 manufacturing jobs to return to the US ? Will decreases in fuel prices slow the trend ? Will manufacturing return with more automation and, thus less labor impact, to maintain quality ?

 

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Blocking generics by adding a second score

Posted on October 7, 2011 by aviyer2010

A Wall Street Journal article (Oct 6, 2011) describes a decision by the firm Warner Chilcott, which sells tables for its drug Doryx, which was scheduled to go off patent, to add a second score on the tablet so it can be divided into thirds.  As a result, generics planning to sell the original tablet, which could be divided into halves, could be asked by the FDA to match the tablet, as per the company’s request. The delay may enable the firm to retain its monopoly of the $ 3000 per 180 count bottle market for severe acne.  Should cosmetic changes that do not impact the chemical composition be permitted to be used to block generics ? If dosage is the constraint, should nonscoring packaging solutions that enable dosage control be considered equivalent by the FDA ? What supply chain strategies by the patent holder should be accepted as reasonable in their attempts to deter competition for off patent drugs ?

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Otis decides to return manufacturing to an American plant

Posted on October 7, 2011 by aviyer2010

A Wall Street Journal (Oct 6, 2011) report describes a decision by Otis to move production from Mexico to South Carolina. Reasons cited include (a) 70 % of its customers will be closer to the new plant, (b) Freight and logistics costs lowerd by 17.3 %, (c) Efficiencies from deisgn and production being colocated would generate another 20 % savings, (d) Greater automation will decrease labor’s content of the total cost.   Given changes in US labor and other costs, has US manufacturing closed most of the cost gap with other global loactions ? Are rising fuel prices diminishing most of the cost gains from global manufacturing locations ? Is the attention, and consequent marketing gains, that is derived from this decision sufficient to compensate for any associated cost increases ?

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How should retailers deal with the new “frugal consumer”

Posted on October 5, 2011 by aviyer2010

A Wall Street Journal article (Oct 4, 2011) describes the emergence of the frugal consumer who buys what they need, focus on promotion purchases, avoid premium products, clip coupons and combine shopping trips to save on gas.  The impact of trading down is expected to stress apparel retailers who had to place orders in early spring when the economy was rebounding. These retailers also expected to pass along the increased costs of cotton. Pressure on inventory and on costs is expected to require creative retail solutions. Should retailers focus on specific promotions (buy one and get half off second item) discounts or use discounts linked to their store credit or debit card consumers to retain their loyalty and increase their instore spend ? Will smaller pack sizes and private label sales do the trick ? Or will growth of Dollar stores be the wave of the future ?

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Why are diaper sales dropping and diaper-rash ointment sales increasing ?

Posted on October 5, 2011 by aviyer2010

A Wall Street Journal article (Oct 4, 2011) describes sales decreases of 4 % for Kimberley Clark’s Huggies diapers and 2.5 % for Proctor and Gamble’s Pampers, and a 0.5 % drop in generic diapers. At the same time diaper-rash ointment sales are up 8% and a pediatrician is quoted as saying that cases of diaper rash are up 5-10 %.  Are parents changing diapers less frequently due to the economy and does that explain the phenomenon ? Are decreasing birth rates the reason for the drop in diaper sales ? Are new diapers with “wetness indicators” permitting parents to be proactive in changing diapers and thus decreasing volumes ? Or are parents potty training children earlier to save the estimated $ 1500 per year to keep a child diapered ?

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Sprint guarantees Apple it will take 30 million iPhones ?

Posted on October 5, 2011 by aviyer2010

A Wall Street Journal article (Oct 4, 2011) describes a guarantee by Sprint that it will buy at least 30.5 million iPhones in return for the opportunity to offer those phones on its network.  Such volumes in turn enable Apple to guarantee volumes to its suppliers and thus reserve capacity and lower component costs.  Sprint claims that not having the iPhone was causing customer losses, and that its superior service coupled with the iPhone can enable the company to attract customers back.  Given the different revenue and cost impacts of the volume guarantee, did Sprint have a choice regarding this decision or was it a forgone decision ? Given that future cheaper iPhones could decrease Sprint’s cost, is there a logic in volume (units) commitment rather than a dollars of sales commitment ? Will the Apple demanded volume commitments from phone companies ensure stock pressure on the downstream market and a focus on selling Apple products rather than Android or Microsoft powered phones ?

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Estimating Apple’s potential revenue based on supply chain partner volumes

Posted on October 4, 2011 by aviyer2010

A Bloombergbusinessweek (Sept 12-16, 2011) article describes the Apple company forecast that sales will drop 12 % this quarter. But analysis of Apple’s outsourced supply base consisting og Foxconn, Samsung etc that provide 75 % of Apple’s cost of goods sold, suggests that Apple’s revenue will come it at $ 31.2 billion, in line with a 17 % growth since last quarter. Should markets triangulate a company’s sales based on its supply chain partner companies numbers to estimate potential performance ? Why would Apple underestimate sales – is to to permit the company the option to drop prices to match competitors if necessary ?

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Using cell phone minutes to save cash in Kenya

Posted on October 4, 2011 by aviyer2010

A Bloombergbusinessweek article (Sept 12-18, 2011) describes M-PESA – a service offered by Safaricom – Kenya’s largest cell phone company. The system allows a phone owner to save money in the form of cell phone minutes which can be transferred to another person by texting the minutes which can then be redeemed for cash.  Consultants estimate that 20 % of Safaricom’s Kenyan customers save using phone minutes.  The phone company does not want to focus on the savings for fear it will be treated as a bank with associated regulation. Is the cell phone based microsavings system and associated minute transfer ability permit replacement of cash as a means for trade ? Should phone companies enable ecommerce to offer retail efficiencies and price competition ? Does the small ( $ 13) savings observed suggest the limitation of this business as a means to alleviate poverty ?

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Using Real time truck fleet data to decrease fuel costs

Posted on October 4, 2011 by aviyer2010

An article in Bloombergbusinessweek (Sept 12-18, 2011) describes used by the 10,000 fleet US Xpress trucking company. By adjusting truck temperatures during a driver 10 hour break to be 70 degrees the first two hours and 78-79 degrees after, the company lowered fuel consumption and saved $ 24 million per year. Analysis of driver interactions and data enabled them to improve systems and decrease turnover. Is the value of realtime data to improve cost and delivery performance a competitive imperative for trucking ? How does a company balance the “monitoring” of performance with enabling performance improvement ? When would this detailed monitoring detriorate performanc e?

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Rising leather prices and supply chain impact

Posted on October 2, 2011 by aviyer2010

An article in Bloombergbusinessweek (Sept 19, 2011) describes the surge in leather prices – 21% in 2011 and 43 % in 2010. The reasons (a) decreased beef consumption in response to health concerns and income slowdown and thus reduced cattle production (drops of 20 % in Italy and 13 % in France, (b) higher export duties for leather in India, Chin etc that are trying to protect domestic production, (c) increasing demand for leather luxury goods in China. The combination of lower supply and higher demand has been pushing up prices. The supply chain response has been to offer nonleather material (by Valextra) or move production to lower cost locations like Vietnam. Is the story of leather and the collateral impact of other commodities likely to repeat for other inputs with similar connections ? Given such conditions, why doesn’t retail price increase bring the supply and demand back in line ? Would you anticipate recycling leather from old bags to become a growing trend to increase raw material availability ?

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