Fewer car dealers, higher dealer sales, how about the customer

Posted on February 23, 2011 by aviyer2010

A Wall Street Journal article (February 23, 2011) describes growth in demand at car dealerships – the result of the auto recovery but also the elimination of about 20 % of the dealers the last few years and elimination of some model lines by OEMs.  With higher sales per dealership and models, dealers can spend on more overhead to assist customers.  The earlier regime with an excess of dealerships caused brutal price competition, which had to be compensated by tradeoffs in design, lower margins or poor customer service. But is the supply chain now moving to a new equilibrium where customers are better off ?  Will the new supply chain enable US OEMs to compete more effectively with Japanese and Korean automakers whose dealership volumes were more balanced ?

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Sick workers at Apple’s supplier and OEM’s responsibility

Posted on February 23, 2011 by aviyer2010

A New York Times article (February 23, 2011) describes worker complaints at an Apple supplier, Wintek, and their plant in China that uses the n-hexane agent to cleaning glass panels for the Apple iPhone.  The cleaning agent was used for its efficiency but exposure to the agent, a narcotic, causes damage to the nervous system and muscle damage.  Clearly the choice of specific chemicals is a supplier decision, but customers and lawyers hold the OEM, the one with the highest margin in the supply chain, responsible for the overall supply chain conformance to environmental issues both within and outside the plant. This brings up the question – how much of the responsibility should lie with the OEM (Apple in this case) in a global supply chain  – if the local government does not enforce environmental rules ? Should US rules apply worldwide – and if so, does this approach conflict with recent demands by US manufacturers to ease environmental rules in US plants ? Also, it brings up the question, does EPA enforcement of rules in the US make US manufacturing more competitive, by relieving OEMs of the need to monitor US component suppliers ?

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Pepsico’s guaranteed price corn purchases from small farmers in Mexico

Posted on February 23, 2011 by aviyer2010

An article in the International Herald Tribune (February 22, 2011) describes Pepsico’s guaranteed price purchase (upfront) of corn from small farmers in Mexico. The farmers use the contract to buy seeds, fertilizer and equipment. Buying from these farms close to its plants means that Pepsico is shielded from transport costs which fluctuate a lot. The revenues from corn preempt the need to emigrate to the US and reduce the incentive for marijuana production. The higher prices paid means that farmers can save and pay taxes. Sets of farmers in the cooperative even talk about getting a tractor to further improve productivity, the article says.   Are such contracts the norm when entering into developing country markets with fragmented agricultural ownership ? Is a total supply chain view a requirement to justify the contract price i.e., taking into account reduced transport costs, better quality, reliable supply etc ?

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Eliminating a Shared Public database of Injury Report

Posted on February 22, 2011 by aviyer2010

An article in the International Herald Tribune (February 22, 2011) describes an effort by the US Congress to eliminate funding for a shared public database listing all injury reports for products like cribs, strollers etc. But opponents worry that the data will be spurious but cause costs for manufacturers.  Are the benefits of visibility of defects across manufacturers a benefit to the industry by avoiding erroneous designs ? Is the pooled data a benefit to the industry even if some of the data is flawed ? Is this the kind of regulatory reform that the President should seek to eliminate ?  From a consumer’s perspective, is this the shared public data a useful source – just like the hotel reports filed by travelers in TripAdvisor ?

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Choosing the Apple option or the Google option – a quandry for publishers

Posted on February 21, 2011 by aviyer2010

An article in the New York Times (February 21, 2011) summarizes two choices for publishers wanting electronic magazine sales – go through the iTunes store and pay Apple 30 % and get no consumer information, or go through Google and pay 10 % and get all the information they gather. The article points out that when magazines are sold in newstands, the publisher knows nothing about the consumer.  In addition, Apple’s 100 million customers in iTunes are used to paying for content and may, in fact, prefer not to hear from publishers.  Which of these intermediaries should a retailer choose to expand sales ? Is it worth paying an extra 20 % of margin to Apple to have access to a gathering place of consumers with easy click payment ? Will the future be a hybrid of both of these channels, each tuned to a different customer base ?

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Is Apple more like Zara ? How can the ipad be sold for $ 500 ?

Posted on February 21, 2011 by aviyer2010

A article in WIRED magazine (February 21, 2011, Brian X. Chen) asks the question – how can the ipad be sold for $ 500 when other manufacturers cannot attain that price ? The answer suggested is that Apple is, for most part, a vertically integrated company, except for outsourcing the guts of its manufacturing.  It controls the retail store, the iTunes software ecosystem (music, video, books and apps), the hardware and chip design as well as the operating system.   Controlling everything enables elimination of double marginalization and a more streamlined supply chain. The author claims that the sales at WalMart and Bestbuy only enable more buzz and do not contribute to a large volume.  However, owning the prime real estate for the stores is expensive, and vertical integration has its risks – all it needs is a sales stumble to reveal its frailties.  Could one argue that ,given its vertically integrated strategy, survival requires a continual series of exciting products that ramp up demand rapidly and a nimble supply chain ? In short, is Apple more like Zara (the Spanish apparel chain)  in its global supply chain execution ?

 

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New Flu vaccine manufacturing process and impact

Posted on February 20, 2011 by aviyer2010

A New York Times article (February 20, 2011) reports on a faster manufacturing process for flu vaccines – using animal cells vs using chicken eggs. The new manufacturing process is reported to be faster by six weeks and with lower contamination.  The benefit is reported to be a later decision regarding the appropriate vaccines to use in a season (and thus a better fit with flu strains), faster rampup of production and fewer shortages.  The past processes required an earlier decision and thus possible mismatches and shortages. The report matches ideas of Bayesian updates for fashion products and can well decrease costs while improving overall effectiveness.  But the faster approval process in Europe means that Baxter is already selling these vaccines in Europe (see earlier blog).  This suggests an interesting issue for the pharmaceutical industry – will innovations funded by the US end up as products for Europeans and the world before they benefit US consumers ? Given the benefit of decisions closer to the season, and new technologies for manufacturing, will vaccine manufacturers see a benefit to US manufacturing ?

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Energy, Jobs, Salmon, the river and the Environment

Posted on February 20, 2011 by aviyer2010

An article in the New York Times (February 20, 2011) describes a tussle between energy and job creation and the river routes of the salmon along the Columbia river.  Companies in Montana want to bring coal by rail line to the river, then use barges to haul the coal to ports for destinations in China.  The routes will follow the salmon and requires locks to be repaired to enable this traffic.  Oil production equipment is expected to be imported back along the route.  The impact on the salmon is championed by environmental interests in the state of Washington and may require companies in Montana to build while avoiding periods when the fish use the river.  How should the impact of dams on the salmon, the environmentally friendly barge use for exports and the job creation in Montana be balanced ? The alternative transport modes for coal from Montana may well make is uncompetitive in the global arena and thus dampen business – but is that cost more reasonable ? Such discussions will become more of the norm as we balance global supply chain competitiveness and environmental concerns.

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The “value of a human life” and Supply Chain Choices

Posted on February 20, 2011 by aviyer2010

A New York Times article (February 20, 2011) describes estimates of the value of a human life across US government agencies – $ 9.1 million by the EPA, $ 7.9 million by the FDA, $ 6 million by DOT, and a number between 1 and 10 million recommended by the OMB. The impact of these estimates is the justification for specific labels on drugs by the FDA, the need for warning labels on cigarette packages with cancer victim pictures by the FDA, stronger roofs on cars by the DOT etc.  These examples suggest that design choices and associated risk is calculated by using estimates of their value – and thus may be significant. But should this choice of the value of human life be allowed to vary across US government agencies and thus have different effects across industries ? Should it also be allowed to vary across time (moving up or down) and across decisions ? How should private industry supply chains incorporate these estimates into the choices across companies ?

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Rare Earths Supply Challenges

Posted on February 19, 2011 by aviyer2010

A New York Times article (February 19,2011, B5) summarizes a report published by the American Physical Society (http://aps.org/policy/reports/popa-reports/loader.cfm?csModule=security/getfile&PageID=236337) on energy critical materials mainly rare earths (tellurium, gallium. indium, germanium, lithium). They highlight a few issues (a) these rare earths are byproducts of other mining e.g., tellurium (a 30 million volume) is a byproduct of copper ($ 80 billion industry). Thus increased tellurium is unlikely unless better extraction approaches are developed, (b) Mining for rare earths may also bring up radioactive materials such as uranium and thorium, whose concentrations are low so they end up creating environmental issues.  Projecting future demand for these materials in alternate energy devices (batteries and solar cells) suggests the need to find new sources, develop technologies and recycle.  Is there a need for government intervention to resolve the global supply problem ? Will global supply chains of companies adjust to respond using a combination of price signals, outsourcing agreements and R&D to recover and decrease use of these materials ? Is there a strategic need to subsidize these sources in an effort to attain sustainable manufacturing goals ?

 

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