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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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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