Cotton Prices surge 91 % and Rayon Use increases

Posted on January 10, 2011 by aviyer2010

An article in the Wall Street Journal (6 Jan 2011) describes the quandary faced by apparel manufacturers who face cotton price increases of 91 % over the course of the year.  An alternative is another fabric also obtained naturally, from wood pulp, rayon.  Analysts suggest that blends of cotton and rayon have already started appearing, to maintain price points.  Industry experts claim that apparel manufacturers have started quoting prices linked to spot prices of cotton.  Many manufacturers have also started considering moving production to countries with lower manufacturing costs than China- such as Bangladesh, Vietnam and Cambodia, where labor costs are projected to be 22 to 25 % than in China.  Will cotton price changes cause global supply chain adjustments to a level that will change sourcing significantly ? Will these price levels cause more cotton production and thus stabilize the system ?

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Toshiba Chip Plant Power Surge and Impact

Posted on January 10, 2011 by aviyer2010

A Wall Street Journal article (Dec 10, 2010) described a 0.07 second power interruption at Toshiba’s Yokkaichi plant. The level of this power interruption was beyond anything planned for, thus causing a shut down of equipment and a potential 20 % drop in shipments over two months, as reported in the article.  The chips at the plant are used in cameras, cellphones etc and demand for the chips were reported to be surging. How will the supply chain adjust – will prices rise for competitors such as Samsung’s chips or will they hold prices steady to maintain relationships with customers ?  Will customers change designs to use other chips ? What are lessons from this event for the future ? Is excess capacity now justified in this industry as a hedge against such disruptions or will an increased focus on yield improvements be a more competitive alternative ?

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Zazzle.com and Mass Customization

Posted on December 9, 2010 by aviyer2010

A recent Financial Times article (page 14, Dec 8,2010) describes Zazzle.com – an ecommerce company that offers mass customization of products produced on demand. The company creates digital versions of products that customers use to order the physical products.  The article reports that the company offers 34 billion product variants – but these are just digital products until an order for the physical product comes in.  It allows 600,000 individual sellers to create their designs that are sold through the site.  Can the concept be extended from mugs, T-shirts, posters and pens to more sophisticated  products ? After all, Reflect.com was one such site for custom cosmetics that got absorbed back into P&G.   What products would it not work for ? Is there a barrier to entry for such businesses ?

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Reducing Material usage to compensate for rising commodity prices

Posted on December 9, 2010 by aviyer2010

An article in the Financial Times (Page 11, Dec8,2010) discusses the impact of commodity price increases – prices of cotton, copper, agricultural inputs.  It summarizes several options – forward buying of commodities, reducing costs by changing formulations, changing processes, substituting inputs, and price increases.   The examples include Unilever using lemon peel in their mayonnaise formulations to reduce oil required and thus reducing their carbon footprint.  Apparel retailers talk about increased use of viscose in shirts or reducing pack size for cereal manufacturers.  Yet other companies claim that injecting more fashion flair may enable an increase in prices. The danger is that this price inflation may hurt demand – and that would be painful during a downturn.  Have you seen such changes already ? Which of these are being considered in your company ? Will this pressure spur manufacturing innovation ?

 

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Outsourcing Accounting to Sri Lanka

Posted on December 6, 2010 by aviyer2010

A recent New York Times article   (http://www.nytimes.com/2010/11/30/business/global/30lanka.html) describes the growing outsourcing of accounting services to companies in Sri Lanka.  The country has a large number (over 10,000) certified accountants with over 30,000 now enrolled.  Given the high literacy rate, and lower wage rates than India, accounting services are a source of comparative advantage for Sri Lanka, with wages that are about 10 % of the average wages in the US.  Is this source of advantage sustainable ? Will outsourcing tax services and management accounting be easy to decouple from daily operations ?

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Using phone credits to pay

Posted on December 6, 2010 by aviyer2010

Nicholas Kristof in an Op-Ed piece in the New York Times (http://www.nytimes.com/2010/12/05/opinion/05kristof.html?src=un&feedurl=http%3A%2F%2Fjson8.nytimes.com%2Fpages%2Fopinion%2Findex.jsonp) writes about a program by Mercy Corps in Haiti. This NGO will transfer money to people’s phone accounts – the money, in the form of phone talk time, is then used as currency to buy goods and services.  The article describes this “currency” as key to enabling the poor to get money, transfer it safely and use it for procurement or payment.  Amazing that phone talk time is a fungible good and a solution to the money flows required in supply chains for the poor.  How scalable is this solution ? Would be useful in a developed country ? Your thoughts

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India Supply Chain Costs of 12 % of GDP

Posted on October 23, 2010 by aviyer2010

A recent report (http://www.moneylife.in/article/4/8786.html) summarizes the CII report on “Global Competitiveness of Retail Strategies”. It lists India’s supply chain inefficiencies as costing the country over $ 65 billion each year and supply chain costs of 12-13 % as compared to developed country costs of 7-8%.  Supply chains are affected by infrastructure – rail cars, roads, warehouses etc.  Lack of infrastructure capacity, many intermediaries, tax rules etc are all listed as contributing to these costs.

But one would assume that given India’s much heralded software capability, inexpensive cell phone access etc, supply chains could compensate for the infrastructure with information regarding order status. After all, it is really unpredictable supply rather than longer lead times alone that create costs.  Can state of the art information systems, RFID active tags to locate shipments, use of cheaper higher labor content solutions to offer on site delivery etc compensate for the infrastructure issues ? Can high-touch solutions permit customized supply chains that may be a competitive advantage ? After all, courier services at competitive prices have solved the delivery problems in many cities across India. Your comments.

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Caterpillar and Supply Chain Collaboration

Posted on October 22, 2010 by aviyer2010

Bloomberg News (Oct 20,2010) reports on a collaboration between Caterpillar and a supplier, Tenneco, to improve the overall manufacturing process, and decrease overall costs by 20 %.  The article reports plans by Cat’s CEO to leverage suppliers by decreasing the supply base and increase the level of collaboration and “pull 25 % profit from new dollar sales”.   The new Chief Procurement Officer at CAT is Frank Crespo, a veteran in the industry with a background in supply chain collaboration.  His goal is to change the culture at CAT to increase collaboration by shrinking the large supply base and improving coordination with the smaller number of key suppliers. Will collaboration create new opportunities for profitability at Cat, like Honda and Toyota ? Or will it create headaches, like Boeing’s recent experience ?  Should the goal be set as increasing profits or improving customer service ? Is this article an example of “coordination generated supply chain profits” and is 25 % marginal increase feasible ? Your comments welcome.

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Expensive iPad case, free iPad

Posted on October 17, 2010 by aviyer2010

The Oct 11 issue of Bloomberg Businessweek has an interesting story of auctions on Yahoo by companies in Taiwan. Apple currently does not sell the iPaDs in Taiwan. But savvy companies are selling iPad cases for over $ 1000 and proving a free iPad with the purchase. Including sales in countries where Apple has yet to launch the product generates sales of around 8 million units of the product. Should Apple crack down on such sales in unapproved markets ? Is the flexibility of providing the product free make it a legal global supply chain ? Is this another instance of the expected global supply chain leakage depriving a company of targeting its entry timing into new markets ? Your comments are welcome.

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Quidsi, Diapers.com and $ 500 million of diapers

Posted on October 17, 2010 by aviyer2010

Bloomberg Businessweek (Oct 11, 2010) has a story about Quidsi, the holding company that owns Diapers.com and Soap.com. The story reports on how a focus on diapers, with low 5-7 % margins, has enabled the company to build a loyal customer base by offering two day delivery for orders above $ 50. It describes a focus on quantitatively measurable metrics, optimized purchasing or items by SKU, synchronized with probabilistic demand forecasts.   The company hopes to sell 100.000 SKUs as it expands.  Can Quidsi manage its supply chain, with free delivery, to build a sustainable business ? Will the 25,000 SKU Soap.com site require different warehouse management skills than the Diaper.co site ? And can the company create algorithms to position its inventory to coordinate supply with impending demand in local regions ? The success of this second wave of ecommerce companies may tell us how parameters have changed in this today’s landscape ? What is Quidsi doing right that the Webvan’s of the past could not manage ? Your thougts.

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