An article in the Wall Street Journal titled “China’s Stock and Ore for Copper Prices” (November 22,2013) describes the over two months of copper concentrate (crushed copper ore) in inventory at China’s new smelters as against the usual two to three weeks of supply. But will this raw material inventory at the new Chinese smelters mean no price increases for copper if manufacturing picks up in China ? Are the purchases to fill raw material inventory masking the demand decline in the past ? Will the new production capacity for copper further create price drops for copper in the future ?
Posted in Global Contexts, Operations Management, Supply Chain Issues
Tagged Capacity, China, Copper, Cost, Global, Growth, Inventory, manufacturing, Supply Chain
An article in the New York Times titled “That ‘Made in the USA’ Premium (December 1,2013) describes the growth in US manufacturing of higher end apparel but the continued difficulty in domestic production of lower cost items. It cites production in New York of women’s clothing sold at Saks and Bloomingdale’s but overseas production for items by the same designers that are sold at JC Penneys. With US labor costs 40% higher than China, retail prices have to increase up to 20% more for domestic manufacturing. Competing on speed of response by US manufacturers is matched by air freight offered by Chinese competitors. Should US manufacturers compete by emphasizing quality, rather than production source alone, to justify the higher prices ? Should the guarantee of production environments and ethical practices be emphasized as a reason for US production ? How should volume retailers like WalMart enable US manufacturing while also serving customer interests ?
An article in Bloombergbusinessweek (December 9,2013) titled “Why Amazon’s Going Up in the Air”, describes the announcement of plans to use drones to deliver individual items to customers within 30 minutes of placing their order. The range of these drones, carrying up to 5 lbs and travelling 10 miles from Amazon’s distribution center, would help Amazon’s competitiveness in the last mile to the customer. Current deliveries by Amazon’s own trucks face empty return miles and restricted to delivering its parcels, thus hurting competitiveness compared to UPS, FedEx and USPS. Will Amazon’s announcement itself drive down costs for drones and make their use economical ? Will customers be convinced to pay for the cost for such deliveries and will their costs beat the delivery offered using couriers ?
An article in the New York Times titled “An Offer from Amazon to its Most Bitter Rivals” (November 7,2013) describes an offer by Amazon to independent bookstores to sell Kindles in return for one of two options – a 6% price discount and 10% share of revenues purchased on the Kindle or a 9% one time product discount. Given the opportunity to obtain a commission from future sales of e-books, and the dwindling sales in store, should independent bookstores treat this as a new product and thus take the offer ? Will the visibility of patrons to these bookstores enable Amazon to further expand its market and drive out the independent bookstores ? Will facilitating sales on the Kindle enable the bookstores to maintain their customers and thus survive ?
Posted in Operations Management, Service Operations, Supply Chain Issues
Tagged bookstores, Collaboration, competition, Consumers, Cost, disruption, ebooks, Ecommerce, Kindle, Supply Chain
An article in Fortune magazine titled “Painful Prescription” (October 28,2013) describes a traditional pharmacy benefit manager (PBM), Express Scripts and a transparent PBM, Envision Pharmaceutical Services. Transparent PBMs charge a fixed fee for processing prescriptions while traditional PBMs make money on the spread between their purchase and selling prices, often profiting from sales of generics, whose prices are not standardized. Clients such as Meridian Health Systems, which discovered the margins charged by Express Scripts because it was both a provider and a user of the company, claim that their costs increased when they switched to Express Scripts. Should companies shift to transparent PBMs, who charge a fixed fee, as a means to reduce overall costs ? Will the purchasing volumes of the large PBMs, along with automation of order filling, suggest that traditional PBMs will end up being the distributors of choice in the long run ? Will the Affordable Care Act’s requirement, that participating PBMs have to declare their manufacturer rebates and margins, reduce margins in this industry ?
Posted in Service Operations, Supply Chain Issues
Tagged Consumers, Cost, Margins, PBM, pharmaceuticals, regulation, Service, Suppliers, Supply Chain, transparent
An article in the New York Times titled “Power plants try burning wood with coal to cut carbon emissions” (November 4, 2013), describes the use of sawdust and wood chunks along with coal to reduce carbon emissions in US power plants. While wood continues to create emissions, forests that are grown to compensate for the wood harvested remove carbon dioxide which nets out the emissions. Thus, burning wood with coal enables power plants to reduce their emissions. But the inconsistent as well as low availability of wood diminishes the economics of such options. These options are less effective for older plants, which may benefit from being replaced by gas fired alternatives, but may be more suitable to younger plants. Should power plants be permitted to net out the emissions of burning wood with reductions in carbon dioxide from new forest growth ? Should mixed burning be encouraged or discouraged, given the need to reduce emissions altogether ? How should plant operating costs be balanced against environmental impact ?
An article in the Financial Times titled “France retailers battle restrictive opening hours (November 4,2013) describes rules that permit garden centers, furniture and food stores to be open until 1 pm on Sundays but does not permit do-it-yourself and department stores similar options without special approval. Sephora, a cosmetics retailer, has to shut their Champs Elysees store by 9 pm, while the Monoprix, a food and fashion store, can be open until midnight on weekdays. Sephora claims to sell 20% of its volume between 9 pm and midnight, but some union leaders claim that the option to purchase perfumes late at night is not a social necessity. Should rules across products be required to be consistent to enable more effective competition ? Should the focus of these decisions be consumer preferences or the welfare of union employees or overall economic benefit ? Will such inconsistent operating hours benefit or hurt the consumer ?