The growing Supply Chain impact of an Intel Chip Flaw

Posted on February 8, 2011 by aviyer2010

An article in the New York Times (February 7,2011, B10) describes the growing impact of a flaw in the Series 6 chipset called Cougar Point which had been shipped in early January.  Once Intel announced the problem – that about 5 % fail over the three to five year lifespan, the impact was felt downstream at OEMs like HP and Dell.  HP claimed this chip had been in products shipped to customers in Europe, Africa and the Middle East, while Dell claimed it impacted some business customers and computers for gamers. Over 0.5 million computers were potentially affected. Intel claims that the corrected chips will be back in full production by April. Getting all these computers back, the chip replaced or refunds issued would cost the supply chain, and thus Intel, over $ 1 billion.    This burgeoning supply chain impact suggests the importance of bottleneck components – how many such components are there in modern global supply chains ? Should designers anticipate such risks while designing products ?

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“Great Green Fleet” from the US Navy and EO 13514

Posted on February 7, 2011 by aviyer2010

An article in the Guardian (http://www.guardian.co.uk/world/2010/apr/20/us-navy-green 20 April 2010) states that fuel costs for the military in war zones is $ 400 per gallon. The Navy will launch its “Great Green Fleet” – a collection of ships, planes and submarines powered by biofuel. With the US military accounting for 80 % of US government fuel consumption, these changes can have a significant impact on government carbon footprint. But a related article by Jim Jubelirer ( http://www.sustainablelifemedia.com/content/column/strategy/green_friends_in_unexpected_places) summarizes an executive order EO 13514 by President Obama that sets specific targets for sustainability by the US government.  If all of these changes get implemented by the US government, will it permit a base demand that can provide break even funds to stimulate sustainable manufacturing in the US supply chain ? Will these Federal standards influence state and local government initiatives if it can be shown that they reduce costs over the long term ? Are we trading off one impact (carbon) for another (new materials and metal demands) ?

 

 

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Book “The Docks” focusing on the Los Angeles port

Posted on February 6, 2011 by aviyer2010

A review of the book “The Docks” by Bill Sharpsteen in the Wall Street Journal (5 February 2011) provides three thought provoking supply chain questions (a) Given the volume of shipments through Los Angeles, and the paucity of security measures, how much trade disruption could be caused if the two million imported containers were impacted by secruity issues at the port ? (b)  Why does the Los Angeles port manage to survive despite being far less productive than other ports around the world ? Should its operations be outsourced to professional (foreign) port managers such as Dubai Ports or Hong Kong operators ? (c) The few shipping lines who operate as oligopolists use their leverage to keep demanding more services at lower costs by playing off ports against each other. Should local governments demand productivity improvements at ports (to match global standards) as an externality to maintain supply chain competitiveness ?

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Retailer Barneys and Designer brand Prada Disagree

Posted on February 6, 2011 by aviyer2010

A Wall Street Journal article (5 February 2011) describes a proposal by Prada to lease space from the Barney’s retail store and manage its inventory and pricing.  This proposal was rejected by the retailer, that prefers to attract customers to its store to find exclusive offerings.  The retailer claims to have reallocated the space to another designer.  This “tussle” (as claimed by the article) brings up the question – Is manufacturer managed retail inventory a bad idea for the retailer ? If a retailer permitted a manufacturer to manage retail inventory for a brand, what coordinating constraints should be added to manage the chain’s customer experience ?

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European Commission Report on Commodities and Raw Materials

Posted on February 4, 2011 by aviyer2010

A recent report from the European Commission on “Tackling the Challenges in Commodity Markets and on Raw Materials” describes a variety of tactics including (a) increasing transparency across the supply chain and coordination with partners to monitor use of mining funds for wars, (b) assist mining in Africa, (c) Urban mining or recycling from urban waste.  However, the details of regulation and enforcement are the responsibility of individual member states.   What is missing from this report is any focus on European stockpiles of rare earths or other minerals that are important for emerging alternate energy industries. Should governments focus on solving such industry “externalities” ? Or should anti-trust rules be relaxed for these materials to permit trade groups to consolidate procurement, like a co-op would, but restricted to small volume but key commodities ?

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Sustainability in an Indian tea cup

Posted on February 4, 2011 by aviyer2010

The BBC has  story (http://news.bbc.co.uk/2/hi/programmes/from_our_own_correspondent/9385244.stm) that focuses on the clay tea disposable tea cups used to serve tea (chai) for 1 rupee in India.  Once a customer drinks tea, the cup is thrown on the ground. With rain and sun, the cup dissipates back to the earth as a sustainable solution. These cups are baked lightly and made in the thousands in workshops in an open shed and dried in the sun, at a rate of eight seconds per cup.  But India’s new customers want plastic cups – non disposable, thus upsetting a supply chain that was sustainable both to the earth and in its ability to enable low cost supply by entrepreneurs.  Should such sustainable solutions be promoted as more suitable for developing economies demanding job creation ? Or will the clay cup disappear just as many technological shifts in the global supply chain ?

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AML, CCC and supply chain competitiveness

Posted on February 3, 2011 by aviyer2010

A report published by the U.S. Chamber of Commerce titled “China’s Drive for Indigenous Innovation” by James McGregor, describes rules regarding the Chinese Compulsory Certification or CCC mark and the Anti-Monopoly  Law or AML in China.  About 20 % of US exports to China are affected by the CCC – compliance requires paying for Chinese inspectors to visit US factories with the anecdote that “every new shade of lipstick or nail polish” has to undergo its own testing and certification.  AML defines market control as one firm with a 50 % share, two firms with a 66 % share or three firms with a 75 % share and demands compulsory licensing of intellectual property by dominant firms to encourage competition. The main question is whether such moves are legitimate efforts to protect Chinese consumers from poor quality goods or preferential treatment of domestic producers ? Is the market share perspective of control appropriate given that China is a growing economy or are they adhoc, given that state owned enterprises are exempt ? How should multinational react to these rules to protect their global supply chains, while serving Chinese consumers ?

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Honda to shift car production to the US

Posted on February 3, 2011 by aviyer2010

An International Herald Tribune article (February 2, 2011) describes Honda’s CFO statement that more of Honda’s CRV production will move to its US plants.  The strong yen has hurt the profitability of producing in Japan, and Honda joins other Japanese automakers, like Nissan and Toyota, in announcing this move.  This is despite the fact that it is an automaker with the least amount of Japanese production exported (30 % vs 53 % by Toyota and 59 % by Nissan per the article).  Is it reasonable to expect continued strength of the Japanese yen and thus shifts in production out of Japan ? Is a strong yen or a weak local Japanese demand the driver for such decisions ?

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Strong Yen causes Nissan to shift global production

Posted on February 2, 2011 by aviyer2010

A Wall Street Journal article (1 February 2011) reports that given the strong yen, Nissan will consider shifting production out of Japan to the US and other markets.  The article claims that a move of one yen (against the dollar) “impacts Nissan’s operating profit by $ 219 million and net income by 70 %”.  But lower Japanese sales are also listed as a reason to restructure production, though Nissan has committed to maintain a Japanese production level of 1 million units.  How will these manufacturing shifts impact the Japanese and US auto supply chains ? What will be the impact on suppliers ? How will the current uncertainty in auto alternate energy technology impact these production decisions ?

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Drug Shortages and Senate Response

Posted on February 2, 2011 by aviyer2010

A Wall Street Journal article (1 February 2011) cites 178 drugs in short supply in 2010, requiring hospitals to scramble to find alternate drugs, new sources of supply etc.  These alternative treatments that ncrease costs or require approvals of untested treatments or new sources of expensive supply.  The industry claims that manufacturing rules and ingredient supply bottlenecks are to blame. But industry consolidation, better enforcement of manufacturing standards and longer approvals times are also listed as culprits. A Senate bill would require manufacturers to “contact the FDA as soon as they sense a supply shortage”, according to the article.  Would such rules align the interests of manufacturers with consumers ? Does it make sense for a manufacturer to offer up a market to a competitor or would pricing changes enable solution of such supply demand mismatches ?  In short, will such shortages require doctors to anticipate supply chain issues when prescribing treatments ?

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