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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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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