Trans-Pacific Partnership (TPP) and Global Supply Chain Impact

Posted on February 15, 2011 by aviyer2010

An article in the International Herald Tribune (14 February 2011) describes the TPP – which involves the Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam (and possibly Japan).  The article describes the possible impact of such a pact on Japan – a 0.5 % growth rate.  An interesting question is how the collection of countries, spatially distributed and diverse in their capabilities, as well as their GDPs, may impact each other.  How might the global supply chain be impacted by the signing of the TPP ? Will it enable manufacturing to be moved from China to some of the countries in the TPP ? Should Japan join, knowing that that would require opening up its agricultural markets ?

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Commodity price increases, margin impact and choices

Posted on February 15, 2011 by aviyer2010

A Wall Street Journal article (14 February 2011) describes the impact of commodity price increases have driven down average operating margins – by $ 500 million for Kraft and $ 1 billion for Proctor & Gamble.  The focus on productivity increases and overhead reduction during the recession generated profits even during a weak economy. But raw material price increases, which have not been passed on in the form of higher prices, will require increased overhead to manage the global supply chain to deliver improved performance.  Will managing the impact of commodity prices require a quick expansion of management ranks and thus overhead ? Will subsidized commodities available for suppliers for some countries (e.g., China) suggest a need to outsource more production ?

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US Manufacturing decreases and possible Innovation Impact

Posted on February 14, 2011 by aviyer2010

A New York Times article (February 12, 2011) describes the drop in employment in US manufacturing – from 11.6 million in 1979 to 8.1 million in 2010, and worries about the consequent impact on innovation.  Some experts suggest that manufacturing spurs innovation – and that the increased in the imported fraction of components in US manufactured products from 17 % in 1997 to 25 % in 2010 will diminish product designs developed by US Engineers.  Susan Houseman from the W.E.Upjohn Insitute is quoted as saying “The big debate today is whether we can continue to be competitive in R&D when we are not making the stuff we innovate”.  Is the decline in US manufacturing a cause for concern for US product innovation ? Can the information regarding products and their performance enable innovation without the experience of manufacturing ?  If US companies own plants abroad as part of a global supply chain, would US innovation still be impacted ?

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Modular Nuclear Reactors and attaining carbon footprint reduction

Posted on February 13, 2011 by aviyer2010

The New York Times (13 February 2011) has an article describing a plan to subsidize design of modular nuclear reactors that can be manufactured in a factory and transported, like modular homes, to replace coal fired power plants at their exiting sites.  Given the high design cost, the Obama administration proposes to spend $ 500 million to subsidize the design costs.  The driver for use of nuclear reactors is a requirement that Federal agencies should reduce their carbon footprint by 28 % by 2020.   The smaller modular reactors will potentially permit faster deployment and with capacities that match local requirements.  Utilities could contract with military bases and Federal research labs to buy power to comply with carbon footprint guidelines in order to finance the reactors.  But security and control considerations for nuclear plants will have to be adjusted  to make the costs affordable.  Is this approach to driving carbon footprint reduction over an aggressive time frame a desirable supply chain strategy ? Should the Federal government subsidize specific technological approaches to attain sustainability metrics ? Will these subsidies enable US exports of these reactors and thus control of the possible collateral global impact (diversion) of nuclear fuel ?

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Dredging the Missisisippi, transport costs and global competitiveness

Posted on February 12, 2011 by aviyer2010

An article in the Wall Street Journal (February 12, 2011) describes the US Army Corps of Engineers claim that they are running short of dredging funds to dredge to the preferred widths and depths.  The impact is that pilots of barges claim loads have to be lighter and travel mainly during daylight, thus increasing river transport costs. Since about 60 % of US agricultural products are shipped through the Mississippi river, the increased transport costs may hurt US competitiveness, thus impacting the US economy.  Is the dredging budget the bottleneck resource for US agricultural competitiveness ? Or would it be cheaper for the Federal government subsidize exports to compensate for this higher transport cost ?

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US Exports and Manufacturing Sector Significance

Posted on February 12, 2011 by aviyer2010

A New York Times article by Floyd Norris (February 12, 2011, B3) describes the composition of US exports in 2010 – with around $ 1 trillion in exports by the manufacturing sector and around $ 0.55 trillion in exports by the services sector.  The US export performance in manufacturing makes the country the second largest manufacturing exporter after China. With President Obama’s goal of doubling US exports by 2013 and the growth in US exports by 16.6 % since 2009 suggesting the country is on track to achieve this goal, the results suggest that US manufacturing will have to be a key ingredient of export growth.    What specific steps will need to be taken to make US manufacturing more globally competitive beyond a weak US currency ? Can the complex global supply chains of OEMs enable quick export growth in response to adjustments in the US regulations ? Will worries about intellectual property leakage hasten the “return Manufacturing to the US” phenomenon ?

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Michigan’s Unit Labeling Retail Law and Supply Chain Impact

Posted on February 12, 2011 by aviyer2010

A Wall Street Journal article (February 11,2011) describes a move to repeal the law in Michigan that requires every unit of product (“every jar of baby food, box of Jell-O and bag of spinach”  according to the article) to have a price label. Only Michigan and Massachusetts have such a law, other states permit prices to be displayed for the SKU.  Retailers complain that compliance costs them $ 2.2 billion a year and that bar codes permit accurate price to be reflected at checkout.   In addition, when prices change several times, labels have to be placed over each other and managed so they do not stick to other items.  But labor groups worry that eliminating this law will cause job loss in stores for pricers.   Does protection of the consumers interests justify these retail level costs ?  Would such price change costs, which might justify fewer price changes, help or hurt average customer retail prices ? Would pricing in states with item level pricing laws hurt customers with lower purchasing power more than others ?

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US Medical Device Approval Delays and Global SUpply Chain Impact

Posted on February 10, 2011 by aviyer2010

A New York Times article (February 10, 2011, B1) describes delays in FDA approval of medical devices and their impact on consumers, manufacturers and jobs.  A few key issues (a) FDA approval requires the manufacturer to show the device is safe and effective in treatment while in Europe the device only has to be shown to be safe, (b) Given the long approval times, some companies may prefer to target markets in Europe and Asia and forgo the US market, (c) Device manufacturing and jobs may shift to demand locations, (d) US patients have the option to travel abroad to get treated. But the FDA claims that the European approach may result in failures and thus patient impact as well as costs in the future.   Should the FDA be required to take into account competitive issues as part of its approval process ? Is the slower but more methodical a better approach for FDA or should the standards be changed to be in sync with regulatory approaches in the rest of the world ? Will loss of cutting edge device manufacturing impact the ability to innovate ?

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“Right to repair” pits independent mechanics against auto manufacturers

Posted on February 10, 2011 by aviyer2010

A Wall Street Journal article (February 10,2011, B6) describes auto manufacturers programming their cars so that when parts are repaired, the software has to be “initialized” – these codes are only available at dealers.  The impact is to require customers to go to dealers rather than independent mechanics for repairs.  Auto manufacturers claim that they are reluctant to provide access to the software to prevent their designs from being used by generic parts makers.  Lawmakers in the Senate and House have been unsuccessful in pushing through “Right to Repair” laws demanding that auto manufacturers share codes. The question for all supply chain is: Is it the customers right to get repairs done anywhere ? Should auto (or other) manufacturers be required to offer codes to all repair personnel ? Does the auto manufacturer have the right to design products so as to protect aftermarket parts ?

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Growing India China Trade Flows

Posted on February 10, 2011 by aviyer2010

An article in the International Herald Tribune (February 9, 2011) describes the growing trade flows between China and India, projected to grow by 62 % by 2015, after growing by a factor of 20 in the last 10 years.  Air cargo takes 6.5 hours from Guanghzou to Mumbai, container ships take 2 weeks, with land routes almost nonexistent.  The growing air cargo traffic has caused FedEx and DHL to add new flights.  But trade flow from China to India seems to be twice the flows in the return trip.  Will these trade links revive a 2000 year history of trade along the Silk Road ? How sustainable will these flows be and how ill they be affected by China’s desire to move further up the global supply chain ? How will India’s weak infrastructure improve to cope with these north-south flows ? Will new supply chains spread north-south enable companies to leverage the service skills in India and the manufacturing prowess of China ?

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