Vertical Integration, Global Supply Chains and reliable power in India

Posted on July 27, 2011 by aviyer2010

The New York Times (July 27, 2011) describes a vertically integrated global supply chain built by the Adani Group – with coal mined in their mines in Indonesia, South Korean manufactured ships transporting it 4,000 miles to their port in Mundra (India) and then on to their power plants to generate electricity. Mining rights and their port in Australia are the future. All this to avoid the unreliable contract execution for Indian coal located 1,000 miles away, transported by a slow and unreliable state owned Railway.  The solution generated by the Adani group to scour the world and tradeoff distance for reliable supply illustrates the seemingly nonintuitive ways that global supply chains can be competitive in developing countries – whose voracious demand for electricity outstrips the available power supply and domestic capacity to plan.  Is this vertical integration globally a repeat of America’s gilded age (as described in the article) and a normal part of development ? Is the supply chain solution of the Adani group now more vulnerable to global risks – a tradeoff from domestic risk ? Give that the source of power remains coal, albeit the better quality coal from Indonesia, should we regard their supply chain as a more environmentally friendly solution compared to the domestic coal alternative ?

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Is US Inshoring of manufacturing and services a trend ?

Posted on June 17, 2011 by aviyer2010

An article in CNN Money (http://money.cnn.com/2011/06/17/news/economy/made_in_usa/index.htm?hpt=hp_t2) asks if the examples of companies inshoring i.e., bringing outsourced activities back to the US, is a long term trend. The articles identifies GE’s appliance plan in Kentucky that will produce refrigerators and water heaters, NCR’s decision to produce ATMs in Columbus, GA, and Carbonite’s decision to move their call center to Maine.  The drivers for these decisions vary from a lowering of the labor cost gap, higher turnover in foreign locations, increased shipping costs and the benefits for innovation to co-locate manufacturing and design.   Do these drivers constitute a long term trend and will that lead to increased domestic US manufacturing ? How will the competitive responses of the foreign locations impact this trend ? Finally, are these the type of jobs that will enable continued US competitiveness ?

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Impact of the DOT delay rule on flight cancellations

Posted on June 13, 2011 by aviyer2010

An article in CNN.com (http://www.cnn.com/2011/TRAVEL/06/13/tarmac.delays.cancellations/index.html?hpt=hp_bn12) describes the impact of the new Department of Transportation rile that penalizes airlines up to $ 27,500 per passenger for ground delays of more than three hours.  The result was a drop in such delays from 693 in 2009-2010 to 20 in 2010-2011. The number of cancelled flights associated with tarmac delays changed from 336 to 387, which seems minor.  But, with the new penalties, the number of flights with a two hour delay dropped from 5328 to 3386. Thus the number of cancelled flights were 11.4 % of the delayed flights as against 6.3 % earlier. The upshot – aggressive cancellation of flights by airlines in advance of impending delays.  The question – is cancelling in advance a benefit to customers ? How should one evaluate the overall system wide benefit of the additional penalties levied by the DOT ?

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China cost advantage for manufacturing to disappear by 2015 ?

Posted on June 8, 2011 by aviyer2010

A report by the Boston Consulting Group (BCG) summarized in Supply Chain Digest (June 6, 2011) describes wage growth in China of 17 % a year (vs 3 % in the US) , increasing appreciation of the Yuan and labor productivity increase of 10 % resulting in a labor cost level in China that will be about 69 % of US costs by 2015. At that level, parts of the US will be the least cost manufacturing location in the developed world. But Mexico may also benefit from such cost appreciation in China. Should companies rethink their China locations now in preparation for such continued cost increases ? Are these reasons beyond cost, such as specific capability and quality or demand destination that would continue to justify China as a manufacturing location ?

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Heavy Equipment monitoring and Energy Savings

Posted on June 1, 2011 by aviyer2010

An article in the Wall Street Journal (June 1, 2011) describes the use of electronic monitoring of heavy equipment (bulldozers, dump trucks etc) to decrease costs.  One contractor claims that his excavators were idling 48 % of the time in use as against an average of 35 % across contractors. Brining the idling in line with the average is estimated to generate savings in fuel, depreciation and operating costs of $ 50 K to $ 100 K per year.   The revenues associated with electronic tracking of fleets is estimated to be $ 2 billion a year.  Manufacturers like Caterpillar claim that such on line tracking can be used to adjust designs of fuel tanks and plan for parts demand.  Should such online tracking and associated savings be monitored by the user or the manufacturer ?  Should the use be “paid” for the data by the manufacturer or is the manufacturer aggregation of average performance across customers the useful data for the user ? Can insurance companies use this data to write better policies for users ?

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Adjusting Apparel features to balance margins with appeal

Posted on May 31, 2011 by aviyer2010

An article in BloombergBusinessweek (May 30, 2011 page 18) describes efforts by designers to balance the needs of designers, who want clothes to be appealing, with manufacturers who want to produce them and maintain margins. This tug-of-war has become even mpre intense as consumers shy away from high prices and commodity prices surge.  Dropping coin  pockets to save a nickel, changing buttoms from shell to imitation pearl, dropping watch pockets, eliminating cuffs and pleats, changing pocket materials – all of these choices are now actively investigated to maintain margins.  How should this balance be managed to maintain brand appeal ? Will adjusting global supply chain sourcing enable margins to be maintained albeit with earlier design commitments ? Would a Zara like quick redesign to reflect market demand be even more appealing in such an environment ?

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Uncoordinated Decisions by the US Energy department and supply chain impact

Posted on May 31, 2011 by aviyer2010

A New York Times article (May 28, 2011) describes one department selling the helium-3 gas as fast as the other department worked to build up stocks, thus creating a shortfall.  The gas is helium-3 that is cited as a “byproduct of the US nuclear weapons program”, as the number of weapons declined, so did the gas produced.  This decline in inventory was kept a secret. Thus, while the gas generation was declining, another division was sponsoring technology that used this gas to detect nuclear weapons smuggling.  The result is a potential shortage in helium-3 thus causing a scramble for new supplies.  Should the focus be to permit sharing of such information, despite the security risks that the information pose ? Should newer technologies be sponsored that use gases other than helium-3, albeit at a higher cost ? Or is the culprit the apparently naive demand estimation method used i.e., counting the telephone logs of requests for material ?

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Publishing vaccine prices paid across the UN system and impact

Posted on May 31, 2011 by aviyer2010

An article in the New York Times (May 27,2011) describes a decision by the United Nations Children’s Fund to list prices paid for vaccines on its website. The goal is to permit price transparency and thus, perhaps, to lower prices paid by all agencies for children’s vaccines.  But to the extent that suppliers work with available budgets would it make sense to permit such price variation, so that supplier costs are covered across all procurements ? Could prices rise for everyone as a result ? Or is the level of global competition not sufficiently high to permit price pressures on suppliers, with price publicity a feasible tool to induce competition ?

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Japan’s Tsunami and global supply chain resilience

Posted on May 31, 2011 by aviyer2010

An article in the International Herald Tribune (May 30, 2011) describes the resilience of companies like STM Microelectronics, that has managed to maintain their global supply chain smoother than expected. A survey of supply chain managers analyzed by the Gartner group suggests that China, US and Germany are top global supply chain countries with Japan being more focused on Japanese companies more dominant in Japanese OEM supply chains.  Will such focused involvement with local OEMs and concentration in electronics and automotive make it easier for Japanese companies to recover ? Will an increased focus on diversified supply chain locations require Japanese suppliers to globalize themselves ? Is the resilience of the global supply chains a lesson in good communications and trust, the role of technology in enabling monitoring and adaptiveness or both ?

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China’s electricity rates and global supply chain impact

Posted on May 26, 2011 by aviyer2010

An article in the International Herald Tribune (25 May 2011) describes the fact that China’s central government has forced lower electricity prices to maintain export competitiveness. But utilities have responded with lower production, thus increasing production costs for factories. A push to lower coal prices charged by coal miners, an input for many electricity producers has caused supply of poorer quality sulphur rich coal and consequent penalties for electricity producers from environmental authorities. A push to use diesel generators by factories will increase their costs, but this is countered by a ban on diesel exports. The pressure on electricity demand in turn comes from generous terms provided to inland rural consumers to buy air conditioners and refrigerators, thus boosting demand but creating unintended consequences. Will all these factors decrease the cost competitiveness of Chinese manufacturers ? Should we expect the environment to suffer as a result ? Or will it end up boosting alternate energy sources in china and provide the cheapest source of green power based manufacturing ?

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