Japanese Tsunami and Supply Chain Disruptions

Posted on March 17, 2011 by aviyer2010

A New York Times article (March 17, 2011) describes the Japanese earthquake and tsunami and its consequent impact on electricity supply, ports, manufacturing plants and the global supply chain.  It describes Texas Instruments as claiming that one of its Japanese plants will be down until July. General Motors claims that the Chevy Volt gets one of its components from Japan and will thus be impacted.  Ports in Japan may be out of service at varying degrees for up to six months.  How significant will this tsunami’s impact be on industries across the globe ? How will individual industries and their global supply chain resilience reshuffle supply locations and manufacturing ? Will these disruptions result in a rapid increase in US domestic manufacturing to compensate ?

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The Projected Impact of New Kidney Allocation Rules

Posted on March 9, 2011 by aviyer2010

An Op-Ed piece in the New York Times (Friedman Ross and Hippen, March 5, 2011) contests the impact of new kidney allocation rules that would provide preference to allocate the organs of young donors to young recipients.  The authors suggests such a rule may decrease the available organs. The logic of their argument is that currently, young recipients create an incentive for donors to donate their organs.  Once the younger donors are ensured priority, the authors argue that organ donations may decrease. They also argue that the success of a transplant is difficult to predict, hence the allocation based on age may not work as intended. The impact of fewer organs overall is to hurt patients.  How significant an impact are young patients in incenting organ donation ? Should poor forecast accuracy of organ allocation imply that this seemingly improved rule be abandoned ?

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New Rare earth supply chain

Posted on March 9, 2011 by aviyer2010

An article in the International Herald Tribune (March 8, 2011) describes a new rare earth supply chain.  The ore is mined in Australia and concentrated (2/3 of the dirt removed) before it is put in sealed bags inside steel containers on trucks to the port.   These containers are sent by large ships to Singapore, then transported by small ships to the Malaysian port of Kuantan.  The ore is trucked to a plant that will process it using sulfuric acid to dissolve the rare earths. The waste is mixed with lime put in storage pools until they are diluted to a low level of radioactive residue.  This residue is disposed off in road beds or used to build artificial reefs.  When fully operational, the plant expects to meet 33 % of the world demand for rare earths (excluding China).  Given the complex supply chain for rare earths, how high will prices have to remain for this source to be globally competitive ? Will existence of this supply source prevent the anticipated rare earth material shortage ? Who should be responsible for the associated radioactive residues – the OEMs who will use the rare earths or the producing company ?

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Rebound or Backfire Effects of Energy Efficiency Mandates across the supply chain

Posted on March 8, 2011 by aviyer2010

A New York Times article (March 8, 2011) describes the impact of energy efficiency mandates across products. Front loading washers, a response to energy efficient washer mandates, are observed to result in dirtier clothes and perhaps, as a consequence multiple washes. More efficient steel production is linked to more steel production and thus more energy consumption.  The article raises the question – Can energy efficiency mandates end up creating greater energy usage ? Will the energy efficiency related money saved be spent on other goods that end up having a greater energy use if the mandates are not uniform across the supply chain ? Will coal consumption increase if, as in Jevons paradox, steam engines become more efficient in their coal usage ? In short, should efficiency mandates be accompanied by other schemes – such penalties for consumption across the supply chain so that the excess funds are not used to increase energy impacts ?

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Recycling Cell Phones and Supply Chain Impact

Posted on March 6, 2011 by aviyer2010

A Wall Street Journal article (March 5, 2011) describes the growing used cell phone recycling industry.   Consumers preferring old models so they do not heave to learn new features, or desiring a lower cost phone, seem to flock to these recycled phones.  Companies like Recellular claim that 75 % of the recycled phones are  reconditioned and sold, while the remaining are broken down and salvaged for plastic or parts of metals.   But phone makers, in an effort to preserve their markets, have shifted to more frequent software upgrades that lock out old phones, or, as the recyclers allege, control their suppliers tightly to reduce availability of parts for repair of old phones.  At the same time, availability of new cheap phones from China threatens this refurbished market.  From an environmental standpoint, reuse of old beats the creation of new, or does it ? Will purchase of used phone become more like the used car market – a routine event ? Will the pressure on commodity prices get cell phone manufacturers to get into the act themselves ?

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Amazon’s Subscribe and Save Pricing and Supply Chain Impact

Posted on March 6, 2011 by aviyer2010

An article in the New York Times (March 5, 2011) describes Amazon’s Subscribe and Save service in which consumers get 15 % off and no shipping for committing to deliveries of select products with a certain frequency .  The article claims that manufacturers join Amazon in providing discounts because they like this consumer commitment to consumption.  So inventory gets built up by consumers and could potentially influence their consumption. But such programs do not exist in physical stores that can only incent consumsers using volume discounts for each purchase.  It got me thinking  How much can Amazon.com, the manufacturer and retailer save across the supply chain with consumer commitment to a steady rate of consumption for specific products ? Can the consumer commitment be used to smooth out deliveries, given that the replenishment window accuracy is a week ? How will these schemes be replicated by physical stores  – will it be printed coupons at checkout and an email reminder or will consumers be prompted to buy products when they enter the store and record their loyalty cards ? Are these bulk packages delivered by Amazon.com less or more environmentally friendly than driving to retail stores and picking up product with less packaging ?

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Electronic Component Suppliers for the iPad but OEMs too

Posted on March 4, 2011 by aviyer2010

A Wall Street journal article (March 4, 2011) describes an interesting global supply chain issue for electronic component suppliers like Toshiba, Samsung and LG Display (they supply memory chips or screens). These companies supply components used by Apple for their iPad.  But these same suppliers also have their own tablets that compete with the iPad. As the sales of the iPad increase, these suppliers get component margins but loose the larger OEM margins for their own products.  Of course Apple controls the software used in its products, while the suppliers who produce tablets use Google’s Android operating system environment. How will the interests of each of these suppliers and Apple impact the tablets offered, their availability and pricing ?  Will this result in Apple getting lower component prices and the supplier competing at the low end of the tablet market ? How will the learning from Apple’s specifications enable competitive tablet creation by these suppliers ? Should Apple break up its global supply chain to minimize its future competition from current suppliers ?

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Eliminating the ban on Mexican trucks crossing the US border

Posted on March 4, 2011 by aviyer2010

A Wall Street Journal article (March 4, 2011) describes the announcement of the end of the 20 year ban  on Mexican truckers driving across the US border (the ban was a violation of the Nafta agreement). That ban has resulted in Mexico imposing punitive tariffs on pork, sun tan lotion, vegetables, construction equipment etc being imported into Mexico from the US, thus hurting those industries. The US government claims that US products will now  be more competitive in Mexico and thus expand business opportunities. Mexican trucks would be required to carry electronic recorders to ensure that they only did cross border traffic and not domestic (within US) carriage.  Clearly this will also decrease transport costs and delivery lead times for cross border flows.  Will the lower lead times and transport costs increase manufacturing in Mexico to serve the US market or increase sales of US produced goods in Mexico ? Will the lower margins on cross border traffic increase domestic US transport costs as trucking companies try to cover their overall costs ? Will this closer integration move manufacturing from China back into the Nafta region ?

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Shrinking Retail Store Sizes

Posted on March 3, 2011 by aviyer2010

A Wall Street Journal article (March 3, 2011) describes a move by Best Buy, Staples and WalMart to move to smaller stores with a smaller range of SKUs. The article suggests that the very large selection of SKUs at Amazon.com has made it impossible to compete on variety alone, and the ability to get small deliveries t stores effectively has increased small store efficiency. The hybrid retail store and website combination enables variety while requiring a smaller physical store size.  Thus Gap, Bestbuy, Staples, HomeDepot seem to be moving towards smaller focused stores with a lower but focused variety. Is this optimal for all retail products ? Will focused customer offerings enable a higher profitability than a portfolio attracting diverse customers ? What overhead and service levels will make such stores profitable ?

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Green Score for Jeans based on Supply Chain Evaluation

Posted on March 2, 2011 by aviyer2010

A New York Times article (March 2, 2011) describes an effort to catalog the environmental impact of every step in the global supply chain of apparel, from cotton growth, to fabric, to dyes, textile manufacturing, packaging, shipping, retail through to the consumer. The factors considered include water, land, waste, chemicals, greenhouse gases impact and labor practices.  The goal is to roll all of these measures across the supply chain into one score. Should supply chains focus on providing one score that summarizes these impacts or should there be a performance score across separate categories like the nutrition list for cereal ? How will such metrics impact retail competitiveness of the supply chain used for production ? Should consumer recycling of the used product, or the frequency of washes and type of detergent used, be included in this overall supply chains score ?

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