Egypt Unrest and Supply Chain Impact

Posted on February 1, 2011 by aviyer2010

A Wall Street Journal article (January 31, 2011) analyzes the potential impact of the unrest in Egypt on the global supply chain for oil and cotton.  If the Suez Canal were closed, oil from the Middle East would take 10 more days (and have to travel 6000 more miles) to get to the US, thus driving down stocks and driving up prices. The article claims that a 10 % oil price increase could decrease global GDP by 0.25 % and hurt the nascent US recovery.  World cotton prices are expected to rise to exceed their already record levels if Egypt cotton exports are impacted due to security issues.   But wheat prices in Chicago’s markets were reported to have fallen in anticipation of worries about  Egypt’s ability to pay for its wheat imports, thus affecting US farmers.  These reverberations across the supply chain suggest how closely the global supply chain knits together suppliers across the globe.  But if buyers adjust away from Egypt’s constraints, will they return as things settle down or will the impact on Egypt last a while ? Will retailers further shift away from cotton apparel if they anticipate further cotton price increases ?

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Rising prices in China and Global Supply Chain Impact

Posted on January 31, 2011 by aviyer2010

An article in the International Herald Tribune (30 January 2011) tracks the impact of rising prices in China (“20 to 50 % increases for leather shoes and polo shirts” according to the article) on sourcing decisions and shipping. Wage increases in China to counter inflation, increasing commodity prices as well as appreciation of the renminbi  are cited as reasons for this increase, in addition to a desire to move to higher value added products.  As a result, shipping lines are cited as cancelling 25 % of their sailings.  Buyers have tried to shift production to India and Vietnam, but face infrastructure challenges and capacity constraints.  Factories in China are being moved to the interior to access lower wages but this creates higher transport costs. Will all of these added costs suggest an increase in US manufacturing ? Will China’s move upstream in manufacturing create more pressure on prices for higher end manufacturing products ?  How long will it take for the global supply chain to adjust ?

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Upgradeable Cars – using software to improve performance

Posted on January 30, 2011 by aviyer2010

A New York Times article (January 30, 2011) describes the role of software upgrades to improve car performance. Several trends – cars being held on for longer periods by customers, increased use of computer technology to improve performance of cars, links to web connected applications – all demand the flexibility to update software as the technology or local conditions change.  Upgraded software may enable optimal charging as batteries evolve and local pricing changes, for example.  A key question is who will control the upgrades – the manufacturer or the customer ? Also, how will security of the software be ensured to prevent viruses from affecting the software ? How will the ability to upgrade through software impact demand for new cars ?

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“Windmade” product labels – consumer and product impact

Posted on January 29, 2011 by aviyer2010

An article in the International Herald Tribune (January 28,2011) reports a proposal in the Davos 2011 conference made by clean energy companies to introduce a “Windmade” label consisting of three blue swooshes.  The label will be on products that use wind energy, with standards developed by PriceWaterhouseCoopers.  Lego is the first company to adopt this logo. But other groups, such as the Carbon Trust, also have logos for companies who are working to reduce their carbon footprint.   Would a host of these energy specific labels impact customer preferences ? Should specific forms of energy be identified or should reduction in energy consumption be focused on ? Since the feasibility of wind energy will vary by location (in the US) should SKUs evolve different labels depending on the location of their sales ?

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Apple’s Platform Approach impact on growth

Posted on January 29, 2011 by aviyer2010

An article in the International Herald Tribune (January 28, 2011) describes the 71 % growth in quarterly sales reported by Apple and attributes it to a “platform” approach.  The claim is that Apple software (iTunes, the store and app software) enables developers and media to use the hardware (iPads, iPhones etc) thus creating a growth spiral that increases as sales increase and thus propels growth.  But Google’s approach to creating the Android platform permits open system for hardware developers to leverage (unlike Apple’s closed model).  Which one of these platforms will win out and how do “platform” approaches affect the supply chain ? Does Apple’s outsourced approach to manufacturing (described in an earlier blog) permit the company to react quickly to demand shifts ?

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Are Boeing Dreamliner delays history ?

Posted on January 28, 2011 by aviyer2010

A New York Times article (January 27,2011, B3) quotes executives at Boeing being optimistic that production of Dreamliners can be ramped up significantly over the next three years. The company claims that problems for the first few planes were due to poorly made parts by suppliers, but that the problem was resolved and that the assembly line was now stable.  They also claim that the delays had been built in to plans and that the expectation was that production could ramp up earlier than intended.  Given that Boeing has already generated a three year delay, are such predictions credible ? Can we look at the suppliers to Boeing and their predictions of volume to estimate whether these claims could be achieved ? Shouldn’t the expected issues of new product introduction and supplier impacts have been incorporated into launch plans, or was Boeing compelled to speed up predicted launch to match its competitor, Airbus ?

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Choosing Inventories when Economy Recovery is Uneven

Posted on January 27, 2011 by aviyer2010

A Wall Street Journal article (January 27, 2011, B6) describes the challenges associated with choosing the right level of inventory given uncertainty in the US economic recovery. The article claims that Kimberly Clark managers cut production in the fourth quarter of 2010, but stronger than expected demand meant a potential $ 20 million hit in profits.  Harley Davidson is described as having seen a 20 % increase in revenue in Q4 2010 but dealers cut inventory to its lowest level in many years.  Other companies such as 3 M anticipate increasing demand in Q1 of 2011 and are thus building inventories.  Yet others claim they plan to build up stocks now to hedge against increasing prices.  The building block of supply chains in choice of inventory in the presence of demand uncertainty. Has that decision become more complicated in recent years ? Or is the inventory decision closely linked to firm level risk tolerance ? The overall US inventory levels are increasing – does that suggest a recovery around the corner or continued slowdown ?

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Adjusting the Supply Chain for Girl Scouts Cookies

Posted on January 27, 2011 by aviyer2010

A Wall Street Journal article (January 27,2011) describes changes being made to girl scout cookie supply chains to improve profits. First – variety is being cut to focus on just six SKUs which are estimated to save a penny per box off cookies.  Next, prices have been increased in some areas. Third, the changes are expected to streamline the supply chain and speed up delivery- thus affecting overall profits.  Lost in the changes are some cookies like the Dulce de Leche cookies that were meant to attract Spanish speaking customers.  The Girl scout cookie supply chain adjustments, focusing on the link between variety, delivery, costs and thus profits is a great example of using the supply chain to drive top line and bottom line growth.  Do these changes make sense or could an increase in variety with a simplification of packaging have been an alternative ? Could ecommerce like marketing of girl scout cookies make sense or is the door-to-door sales meant to build confidence and build the image of the organization ?

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Rethinking Federal Regulations and supply chain impact

Posted on January 26, 2011 by aviyer2010

An article in Bloomberg Businessweek( January 24,2011) analyzes a recent statement by President Obama to examine burdensome regulations.  Consider a few regulations and ponder their impact. The Department of Defense plans to rethink outsourcing of maintenance – now critical tasks ill be done in-house. If they are outsourced, the agency has to maintain control.  This is a significant departure from the move to “power-by-the-hour” type of performance based logistics contracts that better align manufacturer and user incentives.  How will this new direction impact uptime, cost and product designs ? But another regulation was welcomed by energy providers (such as Duke Energy) and environmentalists – a Federal cap and trade program. The reason – one rule across the country would be a lot simpler to manage than a hodge-podge of state level rules.  So how should the Federal government pick and choose which rules will help and which hurt the supply chain ? Should immediate employment impact trump long term design benefits ? How much regulation is “good” and helps the overall supply chain ?

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Testing milk for antibiotics – a tussle between farmers and the FDA

Posted on January 26, 2011 by aviyer2010

A New York Times article (January 26, 2011, B1) describes a tussle between the FDA proposal to test milk for a wider range of antibiotics (than the six currently tested) and the diary farmers, who are worried that the associated one week delay for the test results will effectively mean that the milk has to be destroyed.  The reason for the FDA effort is the finding of excessive medication in cows at slaughterhouses – and the associated belief that lack of appropriate processes to treat animals may result in these medicines showing up in the milk produced.  Looked at as a supply chain problem, is it reasonable to worry that if processes are not followed in one stage, then the system may be suspect ? Whose responsibility is it to confirm that processes are being followed – the manufacturer or the certifier ? Given that a lot of milk is consumed by children, is there an added degree of risk aversion that is reasonable, or should we worry about the associated cost impact ?

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