Apparel retailers masking price increases

Posted on April 23, 2011 by aviyer2010

A New York Times article (23 April 2011) describes attempts by retailers to carefully choose price increases by type of apparel in an effort to manage the impact of cost increases.  Some of the strategies listed include changing from 50 c endings to 95 c endings or adjusting the price of flipflops by $1 at The Children’s Place,increasing the prices of men’s shirts at Ralph Lauren by $ 6, choosing the price adjustments of socks and T-shirts at American Eagle etc.  Retailers want to recover costs while not shocking customers into cutting back purchases.  Will such selective price adjustments cover up overall price increases and maintain sales ? Will such a strategy increase the price burden on unique apparel offerings and thus, ultimately, increase the risk in the apparel industry ?

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Apple and supply chain capability

Posted on April 23, 2011 by aviyer2010

An article in CNN Money by David Goldman (http://money.cnn.com/2011/04/22/technology/apple_supply_chain/index.htm?hpt=T2) describes how Apple exercises its supply chain power. The author claims that since Apple has five main products (iPad, iPhone,iPod,Mac, AppleTv) and 15 variations total , and that these designs have a large number of common components, the sourcing issues can be focused on a few suppliers. In addition, given the company’s $ 60 billion cash reserves, the company can pay faster and thus get priority delivery. The article claims that such moves decrease availability and thus provide a competitive supply chain advantage in terms of Apple’s ability to deliver products faster and ramp up to meet demand.  Does Apple’s product strategy enable successful supply chain performance ? Is growth and a steady stream of successful new products a key piece of the supplier flexibility ? Are such competitive capabilities sustainable ?

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Swatch sales growth and its component supply impact

Posted on April 23, 2011 by aviyer2010

A New York Times article (April 23,2011) describes the 42 % net profit increase and sales growth at Swatch, the Swiss watch company. The company is rushing to satisfy demand in Asia and expects to add over 2,000 employees in 2011.  But Swatch is both a watch manufacturer as well as a component supplier.  Given demand for components for its watches, the company plans to cut back on its role as a component supplier to watch competitors, thus increasing competitor costs.  But Swatch continues to focus on manufacturing in Switzerland as a way to nurture innovation, as its current CEO Nick Hayek states.  Is cutting back component supply a long run optimal supply chain strategy for Swatch ? Is Nick Hayek’s claim that domestic manufacturing in Switzerland is a key to sustaining innovation in the watch design valid ? What other industries have the kind of problem that Swatch faces in terms of its role as an OEM and a supplier in the same industry ?

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Smithsonian and “Made in America” requirements

Posted on April 22, 2011 by aviyer2010

An article in the Washington Post (http://www.washingtonpost.com/politics/smithsonians-made-in-america-mandate-not-easy-to-achieve/2011/04/13/AFFA2RqD_story.html?utm_source=eMail_OMNow_utm_medium=eMail_utm_campaign=OMNow__2011422) describes the impact of a “Made in America” requirement, spurred by Senator Bernie Sanders and Rep Nick Rahall, to require the Smithsonian to sell only products made in America in its gift shops. The article describes the impact of this policy on distributors who make some of their products in the US and some in China.  Will the $ 9 million in Smithsonian gift shop sales enable an increase in manufacturing jobs generated by trinket sales ? Can such policies, if mandated across all US government purchasing, enable a rejuvenation of US manufacturing ?  Are such US government restrictions the kind that are appropriate in a global supply chain  ?

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The diminishing impact of clusters in global supply chains

Posted on April 17, 2011 by aviyer2010

An article in the Economist (April 16, 2011) describes the diminishing fortunes of clusters in Italy – cotton fabrics, jewelry, brass fittings etc.  Italy has over 100 such clusters, developed around generations of skill development and access to natural resources. Clusters were prized as aiding productivity improvement and innovation by Michael Porter.  But the dwindling fortunes of such agglomerations as their buyers turn to global sources demonstrates their fragility. As individual firms move away from focused industries to a portfolio of products to ensure survival, the question arises: Are clusters too fragile to be justified in a global supply chain ? Is there an alternative grouping of companies with differing skills that may be more appropriate in a global supply chain context than firms with similar skills ?  How should clusters in Italy evolve to survive their current challenges of higher cost and not enough intellectual property to be globally competitive ?

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US Companies ramp up to fill Japanese supplier delivery issues

Posted on April 15, 2011 by aviyer2010

An article in BloombergBusinessweek (April 11-17, 2011, page 18) describes the impact of the Japanese tsunami and consequent supply disruptions. US suppliers such as Microchip Technology claim to be ready to ramp up production to meet demand, with a preference for customers who make 12 weeks of volume commitments.  Dow Chemical’s ability to produce more ingredients for plastic bottles can enable it to get share from idled Japanese chemical plants.  Food manufacturers, like Tyson and Hallmark Fisheries, expect to export more to compensate for local Japanese shortages.  How should companies manage their capabilities during the short window opportunity that Japanese shortages represent ? How should their activities during this period be structured to develop long run goodwill ? Will these sales opportunities be expected to disappear as soon as Japanese suppliers resume their production or is this a long term selling opportunity ? How might export related logistics costs increase, given the damage to Japanese ports ?

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Rail Capacity shortages cause auto shipment delays

Posted on April 14, 2011 by aviyer2010

A Wall Street Journal article (April 13, 2011) describes the impact rail shipment delays on car manufacturer inventories. During the recession, railroads decreased their rail cars and cut their staff. The sudden expansion of car shipments has created a surge that cannot be handled quickly despite route adjustments and rail car speeds.  The resulting delays have the potential to hurt sales at dealerships, and the urgency in getting these cars to the lot is due to the anticipated demand slowdown as gas prices increase. While trucks can move finished cars, their higher cost may cut into margins for manufacturers. Given such supply bottlenecks, how should manufacturers adjust their mode mode mix to keep dealers stocked while managing costs ? Should car inventories be pooled temporarily in field locations to better manage demand and supply ? Could customers be offered incentives to drive their cars from plants to their residential locations ?

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Are manufacturers that hedge against risks more risky ?

Posted on April 14, 2011 by aviyer2010

A Wall Street Journal article (April 13, 2011) describes the worries of manufacturers, such as Caterpillar, Ford, Boeing etc that use hedging instruments to decrease risk. Their concern is whether their banks could now require them to back up any additional risk with cash or assets, thus potentially decreasing their working capital. The manufacturers claim that such requirements will decrease the cash available for capital investments or job creation.  Do manufacturers who buy hedging instruments face greater risks ? Given that most derivatives do not require any collateral, why should manufacturers worry about the behavior of their banks ? Will the government requirement from banks permit signals in advance of any increased manufacturer risk ?

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Price fixing of detergents by manufacturers seeking green solutions

Posted on April 14, 2011 by aviyer2010

A New York Times article (April 13, 2011) describes fines levied on Proctor & Gamble ($ 306 million) and Unilever ($ 104 million euros) for price-fixing to maintain market shares as they worked together in an industry association to implement green initiatives. These included reducing the weight of powdered detergents and reducing waste from the containers – boxes of bags.  The companies were accused of agreements not to decrease prices when the package sizes decreased and agreements to increase prices thereafter.  These details were revealed by Henkel, another competitor in the industry, that reported it to the authorities when they discovered the cartel.  Given this report, should governments more carefully monitor industry efforts to implement green initiatives ? Should any lack of price decreases following packaging reductions be assumed to be the result of illegal coordination or would that be too drastic an assumption ?

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Hospital Penalties for preventable patient infections ?

Posted on April 14, 2011 by aviyer2010

A New York Times article (April 13,2011) describes a study doe by the VA hospital to screen patients for MRSA, require use gloves and gowns and hand washing by care providers.   The study reported a 62 % drop in infections and 45 % drop in MRSA.  The study reports annual infection cost of $ 28 to $ 34 billion.  In short, attention to hygiene detail can significantly decrease costs.  This realization has the potential to cause government agencies to levy penalties for patient infections and refuse payment for re-admissions.  How should hospitals be incented to take steps that decrease costs ? Will a “stick” based policy result in the required procedural changes or could it cause the intended impact of less competition for care for more fragile patients  ? What other approaches align the interests of hospitals and patients ?

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