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Loved this article! It’s very interesting to see that even athletic shoes are following the trend of fast fashion and are grappling with matching their supply chain to customer demands.

The question I have regarding this operational change is the impact on the rest of Adidas’s supply chain. If Adidas is working to shorten their lead times and move closer to a just in time delivery model, then its customers must also be willing to take less inventory, thus trusting that Adidas can respond quickly enough to any changes in demand. Is this a reasonable expectation? I tend to think not. Stores feel the impact of short supply first and are likely unwilling to take risks with their inventory. In this case, I would expect to see a bullwhip effect traveling back to the producer. For automation of its facilities to have the impact desired, I would recommend Adidas first work to bring the other components of its supply chain up to speed. For instance, its raw material suppliers should expect more frequent orders and the potential for more urgent shipping. Adidas’s distributors and retailers will also need to be comfortable with holding less WIP and requesting orders based only on demand, not inventory management.

The second question I have is, what is Adidas doing to better manage the demand side of the equation. While the ability to produce smaller batches helps Adidas meet customer demands, I think Adidas should also do more to work with retailers and data aggregators to better identify leading indicators of demand shifts. Like in the Barilla case, it profoundly confuses me that the producer would not have sufficiently accurate consumer demand data to avoid supply crunches like the ones that necessitated automation of Adidas’s factories in the first place.

Very apropos article to read after the Marriott case this week! Your article and the comments above touch on two key questions for me.

First, are human interaction and convenience mutually exclusive? Jeff believes human interaction is unnecessary while EMC argues the opposite. Second, to what extent are we as consumers comfortable with sharing our private data? To me, the key factor is the level of awareness we have that we are losing out on either the human touch or ease of transaction. I tend to think that, even if a hotel is fully automated, if it can successfully create the illusion of human interaction, the consumer will be none the wiser.

Something not discussed is how digitization of the hospitality experience affects the user experience over the long term. I would argue that the level to which the industry can “delight” its consumers inevitably declines if the industry continues to rely solely on data collected from past interactions. Once the customer sees a consistent pattern in service, his or her utility from each subsequent interaction will decline as the experiences become predictable and rote. I would take from a lesson we learned in Marketing that we can use all the data we want to inform our decisions, but data in itself cannot innovate. Rather, to consistently attract customers back to its hotels, Marriott and other hotel chains will always need human agents who can identify and test new trends, vet the conclusions drawn from data analytics, and supervise the service provided.

This is an amazing article, John. The optimist in me would also like to believe that Aetna is sufficiently incentivized to publicly acknowledge climate change and the impact on their business. As the healthcare insurer of nearly 47 million people in the US, it makes sense that increasing volatility in weather patterns, air pollution, increasing allergens would all have a significant impact on Aetna’s bottom line [1]. The fact that neither they nor any other insurer discloses a consideration of climate change risks begs two questions.

1. Is Aetna currently feeling the financial impacts of climate change? I would think no for two reasons. First, because it is difficult to suss out the effect of climate change on health from all other factors. Without having much familiarity with actuarial models involved in the calculation of healthcare premia or mortality triangles, I would imagine that Aetna is more focused on variables such as increasing rates of obesity, access to fresh foods, area of residence and other more clearly observable factors than climate change. Second, perhaps because the groups immediately impacted by climate change do not reside in the US. Rather, they are the communities around the forests that are razed, or the families who live closest to refineries and processing plants.

2. What benefit would Aetna expect from publicly acknowledging climate change? Unfortunately, very little. Scott Pruitt, head of the Environmental Protection Agency, has consistently denied that carbon dioxide causes global warming [2]. What hope does an insurer have of convincing an already recalcitrant administration of the secondary and tertiary impacts of climate change if the fundamental idea is already being questioned.

[1] https://www.aetna.com/about-us/aetna-facts-and-subsidiaries.html
[2] https://www.theguardian.com/environment/2017/mar/09/epa-scott-pruitt-carbon-dioxide-global-warming-climate-change

On December 1, 2017, DC commented on Shell’s Evolution from Oil and Gas to Energy :

Great article, Danny! I’m very glad to hear that a major oil and gas producer like Shell is taking climate change seriously. I also agree with you that the current actions leave much to be desired. Shell has a real opportunity to not only become the standard bearer for climate consciousness amongst the majors, but more importantly, to disrupt themselves before they are disrupted by someone else.

I took a quick look at Shell’s operating metrics. Shell operates in more than 70 countries, employs 92,000 people, sold more than 57 million tonnes of liquid natural gas (LNG) in the last year, and produces more than 3.7 million barrels of oil equivalent per day [1]. The impact that they could have by shifting to more sustainable production practices is staggering. Furthermore, the energy economy is inevitably shifting towards renewable, clean energy sources. To avoid being disrupted, Shell can partner with venture capital funds such as the Gates’ Breakthough Energy Fund to provide capital to fund riskier projects that may be outside of their realm of expertise. This is not merely an efficiency change but a strategic one necessary to avoid obsolescence. Shell can also acquire more renewable assets that have become less valuable in the current US political environment. NRG and Elliott Management, for instance, may look to divest its renewable assets in order to improve value for the activist and other investors [2]. Shell is optimally positioned to acquire these assets if they come on the market.

[1] http://www.shell.com/about-us/who-we-are.html
[2] https://www.bloomberg.com/news/articles/2017-05-08/nrg-board-members-said-to-consider-sale-of-entire-renewable-unit

On December 1, 2017, DC commented on United Launch Alliance: Rocket Without an Engine :

Wow! Thanks Curtis for bringing this event and topic to our attention! I see this as two cautionary tales:
First, as we learned in the FuYao Glass case, a producer’s choice of the right supplier is vitally important. In the case you describe here, ULA has not only tied their fate to a competing rocket technology firm but also one in a country with whom the US has a precarious relationship. Hindsight being 20/20, I would have recommended ULA move this technical expertise in house to avoid full dependence on its supplier for this mission critical component. I believe this is a competitive advantage that SpaceX has been able to leverage as it ramped up production of its rockets.
Second, this is one case where I see Section 232 of the Trade Protection Act being extremely useful in preventing issues faced by ULA. Section 232 allows the President of the United States to unilaterally levy tariffs or other trade regulations to protect industries necessary to national defense [1]. Space exploration and supply of our nation’s space stations, I would argue, is vital to our national defense. Had protectionist measures taken place proactively, ULA would never found itself in this position in the first place.

[1] Thomas Biesheuvel and Jonathan Stearns, “How Trump’s ‘Hammer’ on Chinese Steel Could Hit the U.S.,” Bloomberg Politics, August 2, 2017, https://www.bloomberg.com/news/articles/2017-07-11/where-trump-s-war-on-foreign-steel-might-lead-quicktake-q-a, accessed November 2017.

This was a great article, UserError! This is a topic that I’m extremely interested in as well. You’re absolutely right that there are far-reaching implications of protectionism policy well beyond the basic and intermediary materials the regulations are intended to target. The automotive industry is an especially interesting case study due, not only because pass through pricing could transfer any cost burden to consumers, but also to the rapidity of the industry’s response to threats of regulatory changes, rather than actual changes.

It’s somewhat unclear from your article, but it reads like Ford has already taken several reactive measures against impending policy changes. I found it especially interesting that Ford has already moved its production centers for certain car models (though iloveTOM insightfully points out that Ford has several other models that are yet unaccounted for) and that Ford is also contemplating additional capital expenditures in what is already a capital-intensive business. This is also all occurring at a time when analysts project plateaued to declining automobile sales in the US [1]. Regarding all this, my question is, to what extent were these operational practices in place or already contemplated and to what extent has the automotive industry being totally reactive? And to that end, what probability of success do they allocate to these regulatory changes? It would seem rather high if these actions are purely reactive and perhaps the broader market should take that seriousness into consideration if that is the case.

Something that was not mentioned in your article that I thought might be worth contemplating is the role of industry players in determining the policy imposed on them, rather just passively receiving it. In my post on ArcelorMittal and protectionism, I reference a petition by the American Automotive Policy Counsel in which Ford, GM and FCA request the administration moderates its views on broad-stroke tariffs [2]. It seems the collective clout of these and other OEMs can significantly impact the formulation of any new laws and could even negate the requirement for incremental investments.

[1] Nick Carey, “Fitch sees U.S. auto sales for 2018 at 16.8 mln units”, Reuters, November 29, 2017, https://www.reuters.com/article/usa-autos-forecast/fitch-sees-u-s-auto-sales-for-2018-at-16-8-mln-units-idUSL1N1NZ2LS.

[2] American Automotive Policy Council, “United States Investigation Under Section 232 of the Trade Expansion Act of 1962 To Determine the Effects on U.S. National Security of Imports of Steel”, https://www.bis.doc.gov/index.php/232-steel-public-comments/1734-american-automotive-policy-council-public-comment/file, accessed November 2017.