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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Why is the iPad the cheapest of the comparable tablets ?

Posted on March 2, 2011 by aviyer2010

A Wall Street Journal article (March 2, 2011) reports on a note by an analyst, Toni Sacconaghi, at Bernstein Research, on why the Apple iPad is the cheapest of the tablet products offered.  The article claims reasons for this cost advantage (a) Apple’s use of its cash to build up an inventory of components and reserve capacity thereby assuming risk and getting a cost advantage (assuming growth targets are hit), (b) Vertical integration at the retail level by owning several stores – this channel is estimated to sell 33 % of the iPads, (c) The company designs its own chips and get a 20 % cost advantage, (d) Higher margins on the smartphones are used to subsidize or decrease margins on the iPad.   Will prices of the iPad increase as smartphone competition heats up and Apple can no longer generate higher margins in that segment ? Will new generations of the iPad emerge with more varieties to segment the market even more or will they emerge with common designs to leverage choices across phone carriers for the 3G or 4G cell phone and internet access ? If growth of the iPad sales sputter, will the vertical integration and risk absoprtion strategy become a burden on the supply chain ?

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Natural Gas extraction wastewater supply chain

Posted on March 2, 2011 by aviyer2010

A New York Times article (March 1, 2011) describes the supply chain of wastewater that is generated when hydrofracking – a process of injecting water and sand at high pressure to break rock formations and release natural gas.  In Pennsylvania, about 50 % of the wastewater released was recycled, but the methods generate radioactive waste.  Other ways to dispose including use of this water for de-icing. But the melted ice creates runoff that ends in drinking supply.  Current Federal standards exempts this industry wastewater from hazardous waste laws which would have significantly increased disposal costs for Pennsylvania gas extraction companies.  Other approaches to trace – termed manifest systems – which would have required tracking of the water from start to end – have been defeated.  Should the environmental costs for an industry that tries to replace gasoline woth natural gas be subsidized ? Should the tracking of water and thus the ability to understand the environmental impact be a required component of all industries that generate such waste ?  Finally, how should radioactive waste in the ground be traded off for the lower carbon emissions as a result of gasoline being replaced by natural gas and the lower reliance on volatile geographic areas ?

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Overlapping programs and agencies in the US government and streamlining potential

Posted on March 1, 2011 by aviyer2010

A Wall Street Journal article (March 1, 2011) describes a new GAO (General Accounting office) report on overlapping  programs and their responsibilities across US govt agencies. The report lists 80 programs to help disadvantaged people with transport, 80 programs to help economic development, 82 programs to assess teacher quality and 20 programs to help the homeless. Thy also found similar products purchased by different agencies – one example cited is the mine roller to detect improvised explosives – which cost the Marines $ 85 K, and cost the Army between $ 77 K and $ 225 K. The question then is : Will consolidation of these programs and standardization of their policies will save money ? Are the programs more efficient because their requirements are fine tuned to their goals  or do they create unnecessary bureaucracy ? Is there a way to benchmark across common elements in these programs ? Notice that these questions are familiar to operations and supply management professionals who have to grapple with splitting vs pooling capacity on a regular basis.

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Limiting number of times ebooks are issued in libraries

Posted on February 28, 2011 by aviyer2010

A New York Times article (February 28, 2011) describes a move by HarperCollins to limit the number of times an ebook at a library can be issued to customers to 26.   Once this limit is reached, the ebook has to be purchased again.  Intuitively, physical books that are borrowed several times face wear and tear and potential replacement, but ebooks face no such deterioration.  Is it reasonable for publishers to limit the number of times ebooks are issued to level the playing field between ebooks and physical books ? As an alternative, would publishers be better off issuing new versions of ebooks that will require a new purchase because of additional content ? Finally, could ebooks be sold as a time limited content to libraries as an alternative model ?

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New retail outlets for book publishers – apparel, hardware stores

Posted on February 28, 2011 by aviyer2010

A New York Times article (February 28, 2011) describes book publishers use of apparel retailers (Marc Jacobs, Kitson, Urban Outfitters), hardware stores (Lowe’s Pro Bass Shops) as outlets for book sales.  The decline of Borders, and the increased focus on e-books by Barnes and Noble means that publishers need a channel that can showcase their entire line of books that require a “browse and purchase” model.  In addition, unlike bookstores, sales to these new retail channels come with a no return policy, thus improving revenues for the publisher.  But such approaches require a careful matching of book titles to specific customers segment interests.  Will splitting of titles and matching to specific outlets increase sales and decrease logistics costs ? Does the spillover of interest, for example,  in home remodeling by browsing books on remodeling,suggest that hardware retailers may benefit from bundling sales of the books with associated hardware purchases ? Is the relief from the e-channel cannibalization of physical books temporary or is this channel a more natural candidate for physcial books ?

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Commodity Trader Glencore’s role in the global supply chain

Posted on February 27, 2011 by aviyer2010

An article in the International Herald Tribune (February 27, 2011) describes the role of Glencore, a commodity trading company. Glencore provides raw materials supply to OEMs (ArcelorMittal, Sony, Chevron etc) from raw materials suppliers, managing the risk of weather, price changes, piracy risk or political risks.  At times, the firm purchases mines (like Katanga which mines copper and cobalt in the Congo), for others it uses a combination of financial instruments and deals with governments.  Unlike financial markets, Glencore’s deals focus on the logistics of supply reliability of commodities.  The long term contracts for volume with suppliers enable the company to do a virtual break-bulk to supply OEMs with their needs.  Will the importance of companies like Glencore increase as commodity prices become volatile and firms become hesitant to use financial instruments directly ? Does competition in the Glencore type market ensure that the markups are reasonable or does the upstream supply become illiquid and thus drive up prices ? What is the optimal approach for a procurement manager i.e., what fraction of supplies should be contracted with such suppliers ?

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Are Consumers using products longer ? What is the Impact ?

Posted on February 26, 2011 by aviyer2010

A New York Times article (February 26, 2011) provides data suggesting that consumers are waiting longer to replace products – 4.5 months longer for cars, 2 months longer for cellphones and one month longer for laptops.  Some of the reasons are worries about the economy, sustainability concerns etc. Should OEMs be concerned – the article cites Levi Strauss as encouraging consumers to wash jeans less often and thus have them last longer.  What will be the impact on the supply chain if US consumers wait longer to replace products – would this require the development of more durable products or higher prices as demand volumes drop ? Will new product introductions decrease as a result ? Will successive generations of products require more significant technology or attribute changes to be adopted ?

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