The US Navy’s concern about sole suppliers for defense

Posted on October 2, 2011 by aviyer2010

An article in Bloombergbusinessweek (Sept 5, 2011) describes the worry in the Navy that their sole sourced contract for the Aegis Combat System with Lockheed Martin may not have delivered the best deal. Past contracts to Lockheed have been under the sole source process with no competitive bids. But when competitors like Raytheon have argued that it is capable of competing, the Navy has argued that introducing another company may cause delays.   Will competition be a necessary ingredient for the US government to get effective suppliers who deliver on cost and quality ? Will the threat of using Raytheon be sufficient for Lockheed to offer a more competitive price ? Are “sole supplier” contracts justified for some products that involve intense collaboration between the supplier and the US Navy ?

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Small tractors at John Deere and potential global growth

Posted on October 2, 2011 by aviyer2010

A Bllombergbusinessweek article (Sept 26, 2011) describes plans by John Deere to build small tractors that are more suitable to the 3 acre farms that are typical in India. Given the anticipated large growth in agricultural land that will demand tractors in Indian and China, and Deere’s planned doubling of sales to $ 50 billion by 2018, adjusting product mix to suit demand and price points became a necessity, particularly given Indian domestic competition from Mahindra and Mahindra.  But getting to domestic price points for Deere also means designing the tractor in India, soliciting feedback from Indian customers, and manufacturing it in the plant in Madhya Pradesh, India.  Similar plans are reported for China. Will competing in global markets that already have intense local competition require such local sourcing ? How will the larger margins that Deere normally expects mesh with the lower margins anticipated in India ? What will be Deere’s competitive advantage in India – better management, leveraging of its global design capability, its global supply chain for sourcing or leveraging its brand ?

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How did Amazon manage to price the Kindle Fire for $ 199 ?

Posted on October 1, 2011 by aviyer2010

An article in Bloombergbusinessweek (Oct 3, 2011 edition) suggests that Amazon’s new Fire tablet’s amazing $ 199 price point may be related to its smaller screen but also subsidy from potential margins from sale of toys, diapers and electronics. The smaller hard drive (8 gigs) assumes use of the Amazon cloud service for books, songs etc. The customized Android operating system makes purchases from Amazon easier and thus enables even more purchases from the Amazon ecommerce sites. All of this contributes to the current 50 % growth per quarter upto $ 50 billion in 2011.  Will Amazon’s strategy of subsidizing the input hardware i.e., the tablet, enable the company to compete effectively in the tablet space with Apple ? Could Amazon’s consequent retail sales increases justify this strategy ?  Will Amazon’s low margin and low price strategy, with limited capability, split the tablet market with Apple’s high price and high margin solution with a far greater capability ?

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“Surge and Purge” contractors for defense services

Posted on October 1, 2011 by aviyer2010

A BloombergBusinessweek article (Sept 5, 2011) describes the approach in the Pentagon to use “surge and purge” services offered by CACI International and ManTech International. These companies provide the capability required for the specified time frame and are available on call to respond quickly. Services include bilingual Spanish English teams to assist counter-narcotics operations, software programmers overseas, convoy route analysis in Iraq, preventing cyberattacks for sensitive data etc.  As their roles expand, these companies may face competition from defense manufacturers who also offer services as part of their products. Is the use of such outsourced services an optimal way to manage defense services and costs ? What capability should these “surge and purge” firms have to offer their services profitably ? Is the success of these outsourced firms a function of the current recessionary climate and thus availability of talented employees in the market ? How should the military plan for conditions when the economy improves and such surge capacity is no longer available ?

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The benefit of a public private response during an emergency

Posted on October 1, 2011 by aviyer2010

A BloombergBusinessweek article (Sept 5, 2011) describes how private businesses provided faster and cheaper response compared to the government. Local restaurants provided meals at half the $ 8 price per meal of FEMA rations.  Emergencies in Louisiana now routinely involve industry representatives from food and transportation to orchestrate a fast and cheaper response because industry seems capable of a faster response than government channels alone. Data from retail stores (such as Target) provide a faster read of weather emergency impact than routine channels.  Can private business respond faster and cheaper because their rules of operation are more flexible ? Do businesses have more slack to take advantage of opportunities than the government ? Do businesses subsidize their prices during an emergency to gain customer goodwill and associated marketing benefits ?  Will public private blended solutions be the best approach going forward, and if so, what risks have to be managed for them to continue to succeed ?

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Buying weather contracts to support retail promotions

Posted on October 1, 2011 by aviyer2010

A BloombergBusinessweek article (Sept 5, 2011) article on weather related risk management describes a retail promotion by a parka manufacturer, Weatherproof Garment, that promised promised Macy’s credit card customers reimbursement of the cost of parkas if weather was freezing on Thanksgiving day in 2009. To cover the risk, the CEO purchased derivatives to pay if the temperature dropped below freezing.  The impact was a 11 % sales increase. Is the supply chain retail stimulation and associated cost of risk a profitable approach to sell parkas ? Is the cost to cover supply chain risk be lower using derivatives lower because of the risk pooling across buyers and sellers of these derivatives ? What other weather related supply chain risks are optimally covered using financial instruments ?

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Organizing Chilean rural carpenters into networks to sell sustainable wood furniture

Posted on October 1, 2011 by aviyer2010

A report by the WEF and BCG (http://reports.weforum.org/new-sustainability-champions/#view/new-sustainability-champions/case-studies/florida-ice-farm/) describes a Chilean wood producer Masisa. The company gets wood from pine and eucalyptus farms it owns, which are processed to form wood boards.It organized remote rural carpenters into networks that can access low income buyers, and thus finds markets for its wood. The goal is to grow the network to include 30,000 carpenters by 2013. Is the main network benefit the ready availability of capacity and products for buyers ?  Why is the provision of wood boards to these carpenters a preferred outlet for Masisa ?

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Costa Rican Pepsi bottler’s triple bottom line and growth

Posted on October 1, 2011 by aviyer2010

A report by the World Economic Forum and the Boston Consulting Group (http://reports.weforum.org/new-sustainability-champions/#view/new-sustainability-champions/case-studies/florida-ice-farm/) describes efforts by Floria Ice & Farm, a Pepsi bottler in Costa Rica that links 60 % of CEO pay to the triple bottom line. The impact is to become water neutral by 2012 (offsetting its reduced water usage with efforts to grow the water supply), carbon neutrality by 2017 (using biogas generation, changes to fleet and reforestration) and getting solid waster down to 0.2% and recycle rate of cans to 40 %. Does the success of this company illustrate the incentive impact of tailoring CEO pay to sustainability success ? Did the Costa Rica location make it easier for this company to  attain this success ? Given the significant success in emerging markets, are sustainability efforts easier in resource constrained environments with low labor costs ?

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Broadband access, cellphones and supply chains in Africa

Posted on October 1, 2011 by aviyer2010

An article in CNN Money(http://tech.fortune.cnn.com/2011/09/19/ibm-the-african-revolution-no-one-should-ignore/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+fortunebrainstormtech+%28Fortune+Brainstorm+Tech%29) describes the impact of a $ 250 million undersea fiber optic cable and the growth of cellphones.  Fishermen in Ghana use cellphones to find wholesale prices to choose the best option. Reduced internet costs are expected to boost the use of real time information. As Africa gets connected to the global trade, what impact can we expect on supply chains ? If individual farmers can be connected to global buyers, can the decreased number of middlemen improve supply chain efficiency and the plight of the farmer ? Would the wider access to elearning improve human capital and thus capability for outsourcing to Africa ?

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Indian manufacturer exporting Jaguars from Britain to Asia

Posted on October 1, 2011 by aviyer2010

The Economist (Sept 24, 2011) describes the Halewood plant (near Liverpool) , part of the Jaguar Land Rover plant owned by Tata Motors. Addition of the Land Rover to the plant has increased its manufacturing capacity and associated employment.  But growth in Liverpool has come as part of ownership by an Indian multinational that also exports car kits to India for assembly and exports to China.  Did this supply chain’s success require ownership by a firm based in India to access the required markets ?  Does the change in culture at the Halewood plant – from a confrontational to a collaborative one – suggest that developing country managers have better suited approaches to manufacturing ?  Is the flipping of ownership within a century – from British ownership across the globe to Indian ownership in Liverpool suggest that both physical assets, financing and management are keys to global supply chain success ?

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