John H

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On December 1, 2017, John H commented on Trouble Brewing – Beer Imports from South of the Border :

Regarding the question as to whether US consumers would accept a US-made Corona: it is difficult to accept the premise that they would not. I agree that heritage plays an important role in the overall brand – but it would be interesting to see specific evidence that consumers 1) care significantly enough about where a beer is from to change their purchasing decision and 2) if most consumers would even realize that the Corona they are purchasing is now being made in the US. For me personally, I like Corona, do not care where it is manufactured, and would likely be unaware that it was being manufactured in the US in the future. Obviously that is anecdotal, but at minimum management needs to test its hypothesis that its heritage & manufacturing location is inseparable from the purchase decision. Should management choose to continue in Mexico and take the tariff risk, it is unlikely the US consumer will tolerate a cost increase, effectively pricing Corona out of the market (in the absence of other, offsetting cost cuts). Therefore, I believe management has a fiduciary responsibility to its shareholders to consider US manufacturing operations in order to continue to sell its product on a cost-effective basis to such a huge market in the event of a tariff.

Interesting post! I think several of the comments above (and the author as well) have pointed out the challenge of making long term decisions given a volatile US political environment. I agree with the suggestions that Bombardier should strongly consider a US-based manufacturing plant. While it will likely reduce their margins to do so (given presumably higher labor costs, etc.), it assures them a position in a leading market. It is difficult to envision simply opting out of the US market. Given Boeing and Airbus’ global dominance, it seems to me that conceding a top marketplace may even put others at risk, given the global nature of the airline business. Bombardier could think of the incremental costs of operating a plant in the US as a loss-leader of sorts, or put differently, as an insurance policy against political volatility. Given an unpredictable future, perhaps the best strategy is to be as resilient to the volatility as possible and to pay a cost to achieve that resilience.

On December 1, 2017, John H commented on Escaping to Tasmania :

Fascinating article! In addition to the options of moving locations and lobbying for more systemic solutions to climate change, I wonder if the company (and wineries more broadly) would be open to the idea of experimenting with genetically modified grapes for use in winemaking (i.e., the Monsanto road). Let’s assume for a moment that it was possible to produce a grape via this method that was able to meet quality standards in a wider range of temperature conditions (and at higher temperatures). This more resistant grape would enable wine companies to remain where they are, avoiding the capital investment associated with moving, and then potentially moving again. The question would then become – would consumers accept this? Genetically modified food products are highly controversial, but I believe they should be on the table as the wine industry increasingly finds itself challenged by climate change.

On December 1, 2017, John H commented on Planes Can’t Soar in Soaring Temperatures :

I think a further challenge for Emirates to consider is on the customer demand side. Will certain markets and geographies still remain as attractive as temperatures rise? While certain types of travel will likely be inelastic to temperatures (e.g., people returning home to see their families, business travel, etc.), it’s possible that tourism may decline in certain regions of the world as temperatures rise. This would lead to the same number of airlines competing for a diminishing pool of travel, and could compound the revenue challenge the author describes. Emirates may want to examine where the bulk of its routes sit today, and which type of customers are flying – tourists vs. business – and assess whether moving into more northern markets may make sense.

With regard to the author’s question: “What key capabilities and cultural aspects would CemArgos need to adopt? How can gaps be identified and closed?” – I believe a key barrier to achieving a fully digitized supply chain and truly “going further” in this regard is the people the company employs. Often, a company has to ask itself a fundamental question – do I have the right people to execute this initiative? I believe this is often glossed over or thought of as obvious, but I think about the skills that managing this more advanced supply chain would require and I wonder if CemAgros has people with those skillsets. For example, manipulating more complex computer systems to coordinate with suppliers, handling and interpreting large datasets to unearth inefficiences, crafting predictive analytics to optimize processes – and then most critically, ensuring that the front-line workers at each step of the supply chain can actually understand these digitized outputs and that they use it to drive their actions and decision-making. So as CemAgros moves down this road, I think it will be crucial that they not lose sight of this human capital aspect to digitization. Simply implementing digital does not add much value – you need your people to know how to use it.

Nicely written article! One concern that I’d imagine is top of mind at Mahindra is the increasing exposure to cyber risk that their plants will bear as they become increasingly reliant on a digitized supply chain. The author provides several useful recommendations to management regarding making the supply chain less reaction through the use of predictive analytics – and I’d suggest that management should be equally focused on hardening the supply chain process to protect against disruptions from hackers and other malicious software. The company should have contingencies in place to cope with unexpected shutdowns, potentially carry additional inventory in safety stock as a buffer, and possess a robust insurance coverage.

As to the points above on labor, I think there can be a middle ground. Of course the aggregate number of workers is likely to be lower, and the firm cannot bear the entire responsibility of retraining and allocating these workers – that will be a problem for society to figure out. But, at least so far as we know today, humans will still need to be involved in the manufacturing process and to interact with the machines. Therefore I’d suggest Mahindra management should absolutely be focused on a level of re-training sufficient to ensure it has a supply of workers capable of executing these more advanced tasks.