WalMart’s “Sustainability Index” challenges

Posted on July 30, 2011 by aviyer2010

A Fortune article (July 25, 2011) titled “The Trouble with Green Product Ratings” describes the challenges faced by WalMart as it tried to deliver on its stated goal, two years ago, to provide an index between 1 and 10 for all products.  The main issue was that possible measurements of a product’s supply chain were full of tradeoffs – for example, replacing recyclable packinging with cups made from plants that go into a landfill generated fewer emissions, fixing the feed for cows whose milk went into organic yoghurt was the key to reduce cow burps and the associated methane emissions, switching to organic cotton caused the amount of water used to be significant.  Thus, a recent statement from WalMart just suggests more information for customers to make choices rather than an index.  Should sustainability be described by a series of measurements (like nutrition data) rather than an index ? Should there be a national standard rather than adhoc individual standards ? Should some “bottle bill” like scheme be developed to encourage consumers to care about environmental impact by charging for end of life costs ?

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“Piccolo bello” fims in Italy and regulation

Posted on July 30, 2011 by aviyer2010

A New York Times article (29 July 2011) describes the challenges faced by small Italian firms (“piccolo bello”) which form the backbone of the industry in Padua, Italy.  Firms face the need to work with 10 to 20 different government organizations to start a business, with a new store opening requiring at leat five years of planning and approvals.  The guild system requires firms to outsource payroll checks requiring an outsourced cost of 50 euros a check, beyond the government mandated paperwork and black market and corruption issues.  Successful small firms have resorted to accessing global capacity to survive. Given Italy’s need for growth, is a focus on decreasing regulation the path to success or would it only drive more revenues into the black market ? Is the era of the small firm over, and should mechanisms be evolved to encourage larger firms that can be more easily monitored ?

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Pipeline capacity location and demand-supply matching

Posted on July 30, 2011 by aviyer2010

A Wall Street Journal article (29 July 2011) describes the reduced demand for pipeline capacity from the Midwest and Canadian locations to the Northeast (with capacity reported to drop by 44 %) as increased gas is shipped from the Marcellus shale locations in the Northeast itself.   In West Texas, prices have dropped as more gas is shipped south.  With pipelines being infrastructure assets that cannot be relocated, the pressure to fill the pipe with alternative flows suggests new materials such as NGLs, projected to have demand growth, and which are mixed into fuels or used as ingredients in plastic.   How will these supply-demand mismatches for pipeline capacity across the US be resolved Should the industry move to contracting like the electricity grids to better manage its capacity ? Should the industry move to support consideration of the entire environmental cost of gas generation to maintain its capacity utilization (i.e., focus on the cost of fracking) ? IS there a coordinating role for the Federal government to ensure long term capacity availability ?

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Product package size and associated potential liability

Posted on July 29, 2011 by aviyer2010

A Wall Street Jorunal article (28 July 2011) describes a lawsuit in Las Vegas against generic manufacturers of propofol used in colonoscopy.  The manufacturers sold 50 milliliter bottles that could be used for at least two procedures.  However, labels on the bottles, which match those of branded manufacturers, state that they should be used only once.  Use of leftover drugs across patients caused hepatitis and the lawsuit blamed manufacturers for the larger pack sizes.   While Las Vegas courts agreed with the liability for manufacturers, the US Supreme Court in a related case claimed that generic manufacturers cannot be required to have labels beyond those of branded manufacturers. Is it rational that pack size and its associated “cutting corners” incentive, despite labels be a manufacturer responsibility ? Should monitoring product use and creating designs that will detect errors in use be part of the product designer’s responsibility (poka-yoke designs using a Japanese term) ?

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Boeing design choice for the new 737 and Airbus announcement

Posted on July 29, 2011 by aviyer2010

A Wall Street Journal article (28 July 2011) describes Boeing’s CEO McNerney defending Boeing’s plan to offer an upgraded design for the 737 versus an anticipated new design.   Many in the industry had anticipated a newly designed 737, and this announcement of a retrofit seemed a radical change in plans. Analysts worried that the design choice was a reaction to Airbus’s announcement of upgraded engines for the competing A 320.    How much of the design choice of firms should include a response to competitor choices ? Is it optimal for Boeing to follow Airbus or would sticking to its original design offer a more competitive alternative ? Was there a benefit to Airbus to announce its design and thus preempt a cost prohibitive design race ?

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54.5 mpg by 2025

Posted on July 29, 2011 by aviyer2010

A Wall Street Journal (28 July 2011) describes an agreement between the auto manufacturers and the US government to double the average mileage from 27.3 mpg to 54.5 mpg. Attaining this mileage can involve use of solar panels, battery power, credits for hybrid trucks, use of alternate fuels etc.  The calculus is that savings in fuel will cover the added cost of technologies to attain this fuel efficiency while decreasing environmental impact.  But the details of the regulation provide lower mileage requirements for trucks.  Will the regulation increase the incentive for consumers to drive trucks and thus worsen gasoline consumption ? Given the options to attain this limit without physically improving mileage, will competition result in solutions that do not improve mileage but rely on other cost saving loopholes ? Will attaining this mileage limit require the Federal government to subsidize creation of battery charging stations that are externalities across the industry ? Finally, how will consumer preferences impact manufacturer choices ?

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US Auto supply chain recovery from tsunami related glitches and growth impact

Posted on July 28, 2011 by aviyer2010

A Wall Street Journal article (July 27, 2011) links the impact of the tsunami, and part shortages, on US auto production (a drop of 5.9 %) and thus dampened growth of the US economy in the second quarter 2011 (1.9 %). But as supplt chains recover, firms such as Ford claim to increase production 7.5 %. This production surge, and consequent supply chain impact is expected to potentially increase US growth to 3%, given the auto industry’s projected 6 % share of US total employment.    Is US growth now so closely tied to supply chain adjustments, with few inventory buffers, that it reflects the industry production ?  Given the link between the Japanese tsunami and US growth, will improving supply chain resilience require more dispersed production  ? Should product designs have multiple versions, with associated sourcing, to accomodate such unforseen shocks ?

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Dropping rare earth prices in China and supply chain impact

Posted on July 27, 2011 by aviyer2010

The Wall Street Journal (July 6, 2011) reports that rare earth metal prices in China dropped by as much as 7.2 %, a remarkable change from a short few months when China’s cut in exports created worries of global shortages for inputs to alternate energy products.  With new production sources, such as the Malaysian facility operated by Lynas, expected to come online, and the WTO ruling against China’s curbing of exports, potential easing of supply may account for this drop. But there are environmental concerns about the radioactive waste generated by the Malaysian plant, which might dampen supply.  What does the price drop of rare earth metals tell us about supply issues ? Should plans to stockpile rare earth metals by countries and businesses react to price fluctuations ? Should US regulations be eased to permit new US mining of rare earths to resume ?

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The US and Mexico Truck Transport Agreement

Posted on July 27, 2011 by aviyer2010

A New York Times article (July 6, 2011) summarizes the recent agreement to let Mexican truckers carry loads into US destinations, thus decreasing trade frictions (cost and time delays) at the US-Mexico border.  In turn, this agreement decreases Mexican tariffs on US products and agricultural exports.  Will this deal generate an overall increase in US trade with Mexico and benefit the US consumer ? Will the lower priced Mexican truck labor impact small US trucking firms disporportionately ? How will mixed loads with different US destinations comply with the need to track truck deliveries to prevent their use for commerce between US locations and who, ultimately, will bear the responsibility ?

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JIT workers and Sales Impact

Posted on July 27, 2011 by aviyer2010

A Wall Street Journal article (July 27, 2011) describes the 2009 sales drop of 4.5 % and employment drop of 8.3 % and a ten year growth of 19 % while private sector jobs dropped 2 million.  One concept described is that of treatment of workers as variable cost because they can be hired “just in time”, due to the flexible labor market today.  In addition, the new workers added are often in foreign locations.  What is the point at which the potentially increased productivity of full time workers trump the flexibility of JIT employees ? Are there industries where a flexible labor approach, synched with demand, may increase costs over the long run ? How do we maintain the benefit of “process learning” in the face of an evolving employee pool ?

 

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