Katherine — such an important topic, thank you for covering it so eloquently.
You mentioned a few initiatives, and I wanted to call attention to the fact that one of them could be critical to enabling the other. You mentioned that organizations are exploring new formulations for RUTF. In my opinion, that is also a key step in another initiative you mentioned: diversifying the supply chain to local production. Taking one global RUTF formula and encouraging local production could lead to sub-optimal yields — for example, encouraging peanut production in a location without good peanut conditions would remove reliance on a different geography for that production, but could end up being less efficient overall. If, however, that location could more fruitfully produce chickpeas, or some other ingredient in a new RUTF formula, this problem is mitigated.
One other related topic that we will have to face is the role of GMOs in fighting world hunger. On the surface, it would seem that if GMOs can increase shelf life, boost production (especially in difficult conditions), all at a lower cost, they would be a lever to pull. However, in addition to the moral questions raised, the intertwined incentives of stakeholders agricultural industry could make it difficult to navigate the complicated politics of helping those most in need.
Thanks, Aimmy! Your post raises some key issues.
Your closing question raises an interesting debate, and I’d like to add my perspective. On one hand, it sounds tempting to invest heavily in fulfillment centers — to your points above, this would allow Target to 1) lower its in-store inventory levels but restock before stockouts 2) streamline supplier-to-warehouse logistics, then optimize the SKU assortment of each store and 3) become nimble in its omnichannel approach, as these fulfillment centers could serve both in-store and online orders.
However, while your point is valid that its existing store network causes supply chain complications, this brick-and-mortar presence also one of the only competitive advantages it currently has over online giants such as AMZN. Target will not beat AMZN at its own game of fulfillment centers with quick, cheap last mile delivery. One could argue that Target should leverage it’s brick-and-mortar presence (through initiatives such as in-store pickup for online purchases as you mentioned, especially for items such as clothing), as one of its greatest assets. The key for Target will be to break down these channel walls, and provide a consistent customerbrand experience across its valuable stores and growing site.
Thank you for posting Heejin — this is a great article. I have two broad questions/reactions:
First, I am not convinced that SPEEDFACTORY will lower production costs. Although these factories use fewer materials & lighter transportation/logistics costs, I doubt all of the production can be automated: labor costs are quite high in places like Germany and Atlanta (in addition to the capex that the previous commentor mentioned). My recommendation here is for Adidas to use SPEEDFACTORY for high margin “fashion” items (as opposed to “basics”), for which consumer preferences are hardest to anticipate in long time horizons. However, keeping production of “basics” (e.g. white socks, black logo t-shirts) in Asia is likely the long term equilibrium.
Second, in addition to the supply chain considerations, I would recommend that Adidas leverage this initiative heavily in their marketing. Engaging with customers in the product development process not only allows brands to quickly deliver the best product, it also provides them with a myriad of ways to make the customer feel valued. For example, if a customer designs a custom sneaker, use it as an example on the website and show them how many other customers have purchased their new design.
Jon — very interesting and important post.
I agree with Katherine’s comment, and I would like to add that the strategies taken to de-risk the supply chain could be vary greatly for different types of medical supplies / drugs. One key distinction is between patented drugs, and drugs that are produced by multiple corporations (e.g. generics). For example, Katherine’s suggestion to build out a more distributed supply chain might not be necessary when the drugs being supplied by Baxter are generic (e.g. saline solution). Baxter can work with hospitals and other suppliers to set up contingency plans for these other suppliers to cover a portion of Baxter’s contract if Baxter’s supply chain is disrupted. Baxter can take a small cut for arranging this partnership in advance and designating a preferred “alternate supplier”. Instead of the hospitals scrambling when Baxter cannot fulfill their contract, the hospitals can turn to these designated alternates, which ostensibly are prepared to fill this gap.
Paul — great post, on a topic that is close to “home” for you I am sure.
One topic that you mentioned briefly but allocated less airtime than I expected was the quality issue of domestic Australian production. Digging into one of your sources (4), I noticed that one potential “root cause” of the domestic production issues was “clear lack of a performance based culture”. In my mind, this incentive concept is exactly why the Australian government must entertain the thought of overseas production, or at least use it as a tool in negotiations. Government-owned entities with long-term contracts and little threat of competition often have less incentive to produce high quality outputs. At the very least, the Australian government should include performance incentives in their contract, even perhaps a clause that allows them to shift production overseas if quality issues persist. You asked whether it is acceptable for a government to spend taxpayer dollars on overseas goods, but one might also ask whether it is responsible to buy domestic if that means spending twice the amount of tax payer dollars on military products with quality concerns.
Cycle Time — great post! Most discussions regarding isolationism focus on the companies that manufacture in one country and leverage an international supply chain to sell to consumers in another country. Lost in this conversation is the precarious position that the logistics companies facilitating this international trade are in, given the current climate.
In response to your open question, KCS can also de-risk its operations by identifying their largest American clients that currently manufacture in Mexico and may relocate operations to the United States (e.g. Ford Motors). By deepening these relationships, KCS could put itself in position to retain this business even if manufacturing moves to the States. KCS could go as far as advising these companies on potential US manufacturing locations (that conveniently still fall on the KCS railway line). Although the shipping distances will be shorter and therefore revenue will decrease, retaining these accounts is crucial.