This is a tough one. I agree with Anton in the sense it’s not easy to break up the individual component manufacturers for the iPhone. Logistically, it’ll be a nightmare for Apple. Additionally, shifting a portion of the supplier base to the U.S. could create negative PR in the Asian countries, thereby (potentially) deterring Asian consumers from purchasing Apple products. Apple has to be prepared to manage this reaction. In a time where local companies are being favored by consumers over American companies (Didi for Uber, Alibaba for Amazon, Samsung for Apple), Apple needs to proceed with caution. Countries like China are not just an important part of the Apple supply chain, they are a critical part of the demand story. To put things in perspective, Smartphone penetration in China is ~50% vs. ~70% in the US. All in all, this is a complicated balancing act for Apple – it’ll be interesting to see how things play out.
Great read. There’s an argument to be made that companies like Samasource are allowing their U.S. clients to allocate capital more productively, while elevating the labor opportunities in emerging economies. This in turn creates:
1) the means for U.S. companies to innovate and highlight the next frontier of jobs
2) the fuel for workers in developing economies to fight poverty
But you’re right, the argument doesn’t jive well given the current isolationist movement. The question I’d ask is whether this movement reflects a lasting shift in the general sentiment of the American public or just a temporary discussion associated with the current political office? The answer to this question also impacts Samasource’s long-term strategy.
Your points around Big Data and AI are valid – there’s no question emerging technologies will eventually displace low/mid-level tasks, but the big question is how fast? And will that time be enough for Samsource to adapt to market forces?
I believe the true adoption (at scale) of Big Data and AI across industries will greatly differ. As such, until society builds trust in these technologies, you will still need low/mid-level workers. While some companies are trying to perfect these emerging technologies, the reality is, there are still others who are trying to automate data entry. I don’t think the demand for Samasource is going anywhere anytime soon.
Without question, Patagonia is a pioneer when it comes to sustainability. The company has been committed to environmentally friendly practices for the past 30 years . And I do believe consumers in today’s world are finally giving such practices equitable importance in their purchasing decisions. There are over 90 million millennials in the U.S. alone, spending ~$600 billion each year . These group of consumers are dedicated to improving our planet — studies show that 45% of millennials stated they could be influenced to support companies that are committed to helping the environment . They are even willing to pay more for sustainable products . Retailers like Patagonia have played a pertinent role in placing importance on sustainable practices, but the next wave of importance will be created by the consumers themselves. I believe the next generation of consumers will generate pull for sustainable products, creating a movement within retail players to uplift their standards.
It is indeed quite surprising to see the adoption of RFID in industries that rely on strong inventory management. It’s scary from the Healthcare perspective because ineffective inventory management can potentially put a patient life at risk. The Healthcare industry is in tremendous need to better manage their resources as cost of care continues to rise . You’re right that operating margins of providers such as Mayo Clinic are strongly threatened (more than ever) and I believe the cost pressures will finally lead to adoption of important technologies such as RFID. We can finally see this happening in Retail.
The Retail industry has been talking about the RFID revolution since the early 2000s . After nearly a decade, things are starting to materialize. Partly what has helped is the cost of RFID has significantly dropped from $1 in 2003 to roughly 10 cents today (at the basic level). And partly because retailers are suffering more than any point in time. I think what creates adoption is when select players embrace the technology and start showing results. For example, Macy’s adopted RFID a couple years ago and has seen results that easily justify the investment — inventory accuracy has improved from 63% to 95% and out-of-stocks have reduced by 50% . In the airline industry, Delta was the first to adopt RFID and they’re also seeing promising results. The company plans to reduce lost baggage by 25% . Other players such as United have followed suit.
I see a similar movement starting in Healthcare, but players like Mayo Clinic have to lead the way. The risk that firms like Mayo take and the results (we hope they achieve) will create the movement within the industry and eventually stabilize as a norm, improving the cost of care in our country.
I echo FD in the sense it’s great to see Ferrero making efforts to improve its PSM (purchasing & supply management) practices via an integrated technological platform. I can see them effectively leverage their global scale and purchasing power to drive tremendous cost savings. It’s clear to me personally that Ferrero made the right move by outsourcing this technology (vs. building their own), so it can focus on its core — making great confectionery products.
The consolidation of their supplier base will be an inevitable result of the integrated PSM practices, putting many farmers out of jobs. NPR wrote an interesting piece on cocoa prices, which are at an all time low (many Ivory Coast farmers are suffering as a result) . This brings me to what’s Ferrero’s corporate social responsibility? Squeezing more out of an industry that’s already suffering could threaten the future viability of cocoa farming. The article spoke about the power of companies like Ferrero can have over regulating bodies — for example, factories are unwilling to pay the high prices set by governments to protect small farmers because they don’t offer high enough profit margins.
Mars, another global manufacturer of confectionery, is helping millions of cocoa farmers improve their operating practices through its Cocoa Development Centers . The company understands that helping farmers thrive will maintain steady production of a resource that’s under threat. I would challenge Ferrero to create similar win-win scenarios from their procurement savings, and reinvest in improving the long-term prospects of cocoa and the people growing it.
So neat to hear about the aspirations of Bext360 (beyond coffee). In general, farmers continue to suffer because their efforts are constrained by regulations and poor infrastructure. Certain countries suffer far more than others — for example, Pakistan’s agriculture accounts for ~20% of the country’s GDP, while employs an astounding 43% of the labor force . This clearly speaks to the efficiency gaps. Most of the world’s coffee is grown by small farmers, many of whom depend on unreliable income (often less than $2 per day) . After having visited coffee farms in Colombia, I can speak to their struggles caused by limited resources and inefficient processes. This creates a large gap between their efforts and payouts. That’s why I like the idea of Bext360 helping create equitable pay for the farmers’ efforts. Given there’s a long tail of small farmers (25 million) who produce 80% of the world’s coffee, their financial well being is important for the future viability of coffee production .
That said, there’s no question that such practices need to be in place to help farmers. The challenge is figuring out the forum of implementation. I believe it’ll be extremely difficult for a Starbucks to implement this technological and infrastructure change to the enormously fragmented base of suppliers. Rather I feel Starbucks should partner with coffee regulating bodies such as the Colombian Coffee Growers Federation, who mission since 1927 has been to ensure coffee growers have transparency around pricing and employ best farming practices in the fields , to bring rigor and transparency around the entire coffee value chain (via help of Bext360). It’ll be more feasible for the federations to lead the change effort, while Starbucks focuses on the resourcing.
You bring up some tough questions. One can assume that sustainability efforts are meaningful to investors only to the extent they affect cash flows and reduce the threat of bad PR. As long as Walmart can position its environmental-friendly investments for the long-run business performance improvement (albeit at the expense of short-term profits), I believe there’s a world in which investors can be convinced.
BCG and MIT Sloan led a study to understand the impact of large-scale sustainability programs – almost 40% of the 2,600 executives interviewed identified sustainability efforts as a source of profit (+23% of last year) . Additionally, companies that set tangible, publicly stated sustainability goals are 5x more likely to improve their financial and environmental performance (compared to firms that set none), according to white paper written by CH2M Mill . I think Walmart should continue to push its sustainability agenda. As highlighted in its 2017 strategic plan, Walmart looks to use international expansion as a key driver of growth . It’s much easier for an operation to “start green” than to “convert to green.” Walmart should use its international strategy as a way to critically evaluate the new supply chains.
I was glad to read in the essay that Walmart leveraged its relationships with suppliers, and got them to commit to reduce the environmental impact of their own operations. They should continue this conversation with more suppliers and hopefully create a movement that only improves the prospects of our environment, but also delivers bottom-line impact.
Very interesting read. I think you open up a question that many brands are struggling with. To answer whether other brands can/should replicate this strategy, we have to go back to why this strategy works for Zara. It works because Zara has accepted a trend following approach (vs. trend setting) and given the pace of trends today, the business model relies on (very) short product life cycles where demand changes quickly. The entire supply chain—from design to manufacturing—has been optimized to be a fast follower.
A brand like Michael Kors has to decide whether it wants to execute its own unique brand identity or follow others. If it’s the former, then longer product lifecycles are inevitable given the time devoted to conception and design. I believe the supply chain strategy adjustment is difficult to execute in isolation of the fundamental strategic direction.
That said, I still believe it’s extremely difficult to replicate Zara’s supply chain strategy, especially for more established businesses within the industry. The process of rewiring the entire organization’s DNA to execute on what Zara has spent years upon years to refine and perfect will be challenging (to say the least). As you alluded to, I do believe the learning curve is too steep to replicate this system with the same unit economics as Zara. It’ll be a while until traditional brands can restock their stores with new designs twice a week.
What a fascinating read. Very well written and engaging. I agree that the single source of truth aspect behind the common ledger can improve production practices and guard against future food outbreaks. I sense this traceability and transparency can also serve as a powerful vehicle to improve overall lead time. Given that Walmart will gain a more granular understanding of time between each part of the food supply chain (e.g., farm to packing house to transportation), it can use this information to compare similar food production operations (e.g., mango farmer A vs. mango farmer B). The comparison will allow Walmart to understand which operations need improvement and why. By improving underperformers, I can see Walmart improving overall lead time, while uplifting quality standards (for the reasons you mentioned).
Now to your implementation point, which is an important one. Given the limited resources from individual farming operations, Walmart will need to heavily invest in setting up the infrastructure to make this technology come to fruition. I can see Walmart leverage their buying power and make this a mandatory process of doing business with them. As a way to maintain and strengthen relationships with their suppliers, I’d like to see Walmart use this technology as a collaboration tool. A tool that leaves farmers in a better position than status quo. A dialogue that’s focused on collective improvement, rather than a policing mechanism will, in my opinion, create faster adoption among key stakeholders in the supply chain. I’d love to hear what others think about the on-the-ground adoption of blockchain.