Japan Tsunami and Supply Chain Resilience

Posted on March 21, 2011 by aviyer2010

A New York Times article (March 19, 2011) descibes management of the global supply chain impact of the Japanese tsunami and earthquake and likens it to triage in a hospital.  Apple is quoted as having buffer inventory to compensate for the lead time for 30 % of flash memory chips sourced from Toshiba plants in Japan, but other articles claim that Apple will continue to receive priority supply due to its large volume commitments and prepayment for supply from some vendors.  In addition, with supply sources spread throughout the world – both for supplier plants and supply, global supply chains my be more resilient.  One former Apple manager is quoted as suggesting that the smaller parts sich as microphones, sensors and batteries may be the problem. Others suggest that raw material supply sources – such as damaged chemical plants may have a ripple effect.  Given the evolving disaster – from earthquakes to tsunamis to radiation related shutdowns and port impacts – what aspect of the disaster will be the bottleneck – input supply to suppliers or output flows from supplier plants ? Will shifting of production to other plants, in the US and elsewhere, dampen the US impact of this disaster ? Will innovation driven companies push back their new product introductions to compensate ?

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Recyclebank and consumer incentives to recycle

Posted on March 19, 2011 by aviyer2010

A Wall Street Journal article (March 17, 2011) describes the operation of Recyclebank. The company serves as an interface between consumers and their municipalities by weighing garbage and providing points that can be redeemed by consumers (around $ 150 per year on average) based on their recycle rates.  Municipalities see an impact of 20 to 200 % change in the recycling rates and thus reduced landfill costs – some of these savings are used to pay Recyclebank.  Branded consumer product companies in turn work with the company to reach consumers who are environmentally conscious.  This all makes for an incentive based recycling supply chain. Will such recycling schemes extend beyond household recycling to more proactive consumption elimination ? Will energy companies find a similar scheme to incent consumers to shut off unwanted lights or power down equipment ? Can such schemes incent car drivers to reduce emissions by shutting of engines during idling periods ? How will the supply chain be impacted by such efforts ?

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Brick and Mortar Retailers urge sales tax collection by etailers

Posted on March 18, 2011 by aviyer2010

A Wall Street Journal article (March 17, 2011) describes a move by retailers such as WalMart and Target to force internet merchants to collect sales tax – a much needed source of revenue for struggling states. The move has resulted in Amazon de-listing their affiliates in Illinois and canceling a distribution warehouse in Texas.  A sample of prices for products (branded camera, TV and playstation) suggest that the price advantage for Amazon.com for those  products is the sales tax not collected.  Some states claim that if Amazon.com has a warehouse and the product flows through, then local sales taxes should be collected.  Is it reasonable for etailers to compete based on sales tax not collected (thus leaving the responsibility to consumers during their income tax filings) ? Should ecommerce retailers be forced to collect local sales taxes based on the flow of their product through distribution centers ? What will be the effective source of competitive advantage for etailers i.e., will the consolidation benefits from shipping from the warehouse be sufficient ?

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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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