The Impact of competitors imitating each other

Posted on January 26, 2011 by aviyer2010

A New York times article (January 25, 2011, B1) describes a decision by Sealy to start using a technology prominently advertised by its competitor, Simmons. The technology is a closed coil system used by Simmons, as against the traditional Sealy approach of using coils laced by wire.   Is adoption of a technology, long pioneered by a competitor, a good competitive decision  ? Will Sealy diminish Simmons’s advertising impact or concede that they (Simmons) had a better technology to begin with ? Are suppliers deriving this commonality of product designs ? This article reminds me of a decision a few years ago when Pratt and Whitney (a GE competitor in the jet engine market) decided to offer aftermarket components for GE engines, albeit with a different supply chain implication. But that is another story.

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Food Labeling – Who Decides

Posted on January 25, 2011 by aviyer2010

A New York Times article (January 25,2011, B1) describes competing proposals to label food. The Grocery Manufacturers Association announced a labeling scheme that highlights calories, fats etc but also beneficial nutrients like vitamins, protein etc.  But the Federal government claims that the labels would be confusing and wants to emphasize things consumers should avoid.  The federal Institute of Medicine, focused on decreasing obesity and heart disease, also wants to focus attention on things consumers should avoid. A retailer led initiative, led by WalMart initiative, was announced jointly with the first lady Michelle Obama and claimed that it would focus on labeling that emphasizes healthy foods.  Who should control food labels – the manufacturer, retailer or the federal government ? Should there be a single labeling system or should we let the consumer decide which one they prefer ? How does the demand stimulation impact of labels align with the  consumer protection goal of the government ?

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Global Trade Rules and Remanufactured Products

Posted on January 24, 2011 by aviyer2010

A Wall Street Journal article (January 24, 2011, A3) describes efforts by US manufacturers to press for changes in laws in China, Japan and Brazil that ban or restrict the import of used medical equipment. Manufacturers claim that rising commodity prices and state level legislation requiring takeback has made remanufactured goods less expensive  and thus capable of satisfying demand at lower price points.  The article claims that such trade will enable job creation in the US, with an estimated market size of $ 100 billion and employing around 500,000 people.  Are global rules regarding remanufactured products a bad idea or a risk that countries can choose to avoid ? Will the use of remanufactured products to offer products at different price points make US manufacturers more globally competitive ?

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Apple’s Global Supply Chain Changes

Posted on January 24, 2011 by aviyer2010

A New York Times article (January 24, 2011, B1) describes changes to Apple’s global supply chain orchestrated by the COO, Tim Cook.  It claims that when Apple owned plants in California, Ireland and Singapore, the supply chain had 90 days of inventory. But when Apple shut its plants and outsourced manufacturing to suppliers, inventories dropped to 60 days, then 30 days then just-in-time delivery.  All this when Apple introduced products like the iphone and ipad whose volumes ramped up at an astonishing rate and were difficult to predict.  How did Apple manage to decrease inventories when the supply chain ownership got more fragmented ? Did suppliers absorb the demand risk ? Or did Apple make growth commitments that, because they were realized, ended up with no cost to the firm ?

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Understanding Rare Earths Supply Chains – a DOE Report

Posted on January 23, 2011 by aviyer2010

For supply chain managers interested in rare earth supply chains, a DOE report, available at  http://www.energy.gov/news/documents/criticalmaterialsstrategy.pdf provides a comprehensive summary. Currently, 97 % of the world’s rare earth metals are sourced from China. A few highlights of the report (a) Rare earth metals are abundant in the earth, the main constraint is the cost of recovery and the small market size.  In addition, approval of permits to mine rare earths in the US takes 7 to 10 years, while the process is completed in 1 to 2 years in Australia, (b) Often, R&D results in material substitution – the report highlights GE’s focus on reducing rhenium in jet engines and a blog (see earlier post) that summarizes Toyota’s efforts to eliminate rare earths from electric motors.  (c) Diplomatic collaboration to reduce individual nations and their interest in restricting supply and boosting national stockpiles using the WTO or other forums.  The report stresses that global supply chain managers may need to evolve a variety of skills to maintain steady supply. But how do we train managers to develop such skills ? Will these supply issues have to be resolved by individual companies or by trade groups or by government interventions or by collaborative teams ? More importantly, will national interests restrict the growth of alternate energy and thus slow down sustainability initiatives ?

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Rising Prices for Coffee, Cotton and Cocoa

Posted on January 22, 2011 by aviyer2010

A Wall Street Journal article (January 22, 2011) describes rising prices for commodities such as coffee, cotton and cocoa. Reasons for this estimated price increase, as reflected by rising prices of futures, are global.  Significant rainfall in Colombia is expected to impact the arabica bean harvest – thus decreasing global supply and increasing prices.  Political instability in the Ivory Coast is causing worries about cocoa bean supply, thus impacting cocoa prices. And a surge in imports of cotton by China, a reported 86 % rise in 2010 over last year, along with lower harvests in Pakistan, are estimated to drive up cotton prices.  How will the market react to these projections ? Will demand be diverted to other fibers, will new coffee growers join the market and will increased cocoa production from other sources impact the market ? Or will retail prices for these commodities rise and thus create inflationary pressures in many markets, further increasing global political turmoil ?

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Choices for Dollar Tree as Commodity prices rise

Posted on January 22, 2011 by aviyer2010

An article in the Wall Street Journal (January 22,2011) describes the dilemma faced by Dollar Tree – a retailer that charges one dollar for products.  Dollar Tree provides an interesting example of a retailer for whom retail price is not a choice variable – but assortment and pack sizes are. When prices for commodities declined, the company responded by increasing pack sizes – the article quotes prices for 50 common items as 28 % lower than WalMart.  But what if prices rise, as they are now.  Can pack sizes be decreased when SKUs come in standard sizes ? Should items be dropped to maintain profitability ? Or should margins be sacrificed in the short run to maintain sales volume ?

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China Control of Rare Earth Mines

Posted on January 21, 2011 by aviyer2010

A New York Times article (January 21,2011, page B1) describes the takeover of 11  districts in China that have rare earth deposits.  This increased control will let the government be more strategic regarding exports of rare earths but also reduce illegal mining. The article claims that 50 % of rare earth supply is from illegal production with acids and materials disposed off in waterways and that this supply will be controlled.  However, control of exports through quotas is banned by the W.T.O. and industry experts are worried that more control of the supply chain will permit Chinese officials to further control sales of these metals that are crucial for the alternate energy industry.  Is it reasonable to expect that greater supply chain control will decrease available rare earths ? Is the benefit of reducing illegal mining greater than the potential cost due to strategic actions by governments ? How should companies who make batteries or smartphones react to such potential supply disruptions and associated price surges ?

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Flexible Outfits – Swiss Army Knife like transformations

Posted on January 20, 2011 by aviyer2010

An article in the New York Times (January 20, 2011, E2) describes designers like Donna Karan, JNBY and Calvin Tran who have developed designs that can be worn as “a poncho, a dress, a kimono or a hooded cape” as Mr Tran is quoted in the article. The article mentions that while these designs are versatile, they lack the “hangar appeal” because their success requires the customer to drape or fold to achieve the look. Will such versatile designs, that permit customers to leverage their spend over a wider assortment of looks, become the trend in these frugal times ?  Or will the “hangar look” tradeoff doom such designs to niche markets ?

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WalMart and Healthy Food

Posted on January 20, 2011 by aviyer2010

A New York Times article (January 20, 2011, B1) described WalMart’s announcement to lower salt, fat and  sugars in packaged foods and decrease prices of fruits and vegetables over the next five years. Specifically the company plans to reduce sodium by 25 % and added sugars by 10 % by 2015. The foods affected include rice, soups, beans, salad dressings and chips – all sold under WalMart private label brands.  The article claims that WalMart will hold prices and decrease their own margins, with increased demand permitting them to maintain profits.  Will unilateral action by a large retailer cause consumers to adjust their food preferences ? Will the proposed reduction of fruit and vegetable costs by $ 1 billion a year come from reduced retailer margins, leveraging of volumes with suppliers  or increased demand at the lower price points ? Will such a strategy provide additional competitiveness to WalMart ?

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