Pentagon Procurement opposes mergers

Posted on February 10, 2011 by aviyer2010

A Wall Street Journal article (February 9, 2011) reports that the procurement officials at the Pentagon will oppose mergers of defense suppliers. The belief is that competition has to be maintained to increase the US government’s buying power.  The Pentagon is reported to spend $ 400 billion a year on contracts, this new approach runs counter to the consolidation that was encouraged for many years. Imposition of these antitrust rules will require coordination with the Justice Department and FTC.  With defense spending expected to be flat, an interesting question is – Are more competitors better for component purchases compared to system purchases ? How will future spinoffs and mergers be evaluated to maintain supply chain competitiveness at all levels ?

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GM’s approach to meeting the 35.5 mpg fleet average

Posted on February 8, 2011 by aviyer2010

A Wall Street journal article (February 7,2011) describes a plan by General Motors to offer eAssist – a system consisting of a lithium battery pack and a motor – across all models. This system is expected to increase mpg by 20-25 %.  The main drive to increase mileage efficiency is the upcoming Federal standard of 35.5 mpg across a automakers fleet by 2016.  Unlike GM, Toyota’s approach and that of other automakers seems to be to focus on offering hybrids or plug-ins that boost mileage of specific models to levels higher than 40-45mpg.  While GMs approach would take out the uncertainty of forecasting customer demand for the hybrid models, it may leave sustainability sensitive customers pining for better performance. On the other hand, the approach of other automakers may permit a greener moniker while requiring the flexibility to cater to their uncertain market size.  Which one of these approaches is appropriate ? Would the larger volumes implied by GMs approach enable faster learning and thus cost reduction ? Will cars specifically designed to be hybrids offer much better performance than a bolt on solution ?

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China to Stockpile Rare Earth Metals, should the US do so too ?

Posted on February 8, 2011 by aviyer2010

A Wall Street Journal article (February 7,2011) describes plans by the Chinese Ministry of Land and Resources to build reserves of rare earth metals in order to protect their industries, impact pollution and manage the supply and demand relationship for these commodities.  In response, the article cites Rep Mike Coffman as the author of a bill mandating the US military to build stockpiles and thus ensure US supply chain competitiveness.  Such calls have also appeared in other reports published recently. But another school claims that such efforts will further impact prices in the short run and thus argues against it.  Other countries such as Japan and South  Korea have planned stockpiles.  Should the US government start building up rare earth stockpiles to assist US industry ? Can coordinated stockpiles across countries be counted in to solve the global supply problem ? Or will industrial innovation resolve the problem ?

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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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