Justin Warner

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On November 30, 2017, Justin Warner commented on Siemens’ choice on Brexit Island :

Interesting problem and a tough question. I think Siemens has three (potentially competing) interests in deciding how to set up its supply chain: economic competitiveness, maintaining access to supplies and other key inputs (and thus greater reliability for customers), and better matching of revenues and costs to make profits more predictable (and thus greater reliability for investors).

What strikes me the most is that what the “ideal” supply chain for Siemens should look like to address these priorities will depend pretty strongly on the outcomes of the Brexit talks. Given that, I would argue that Siemens should use less costly and less permanent measures (e.g., medium-term contracts, hedges) in the near-term to try to reduce the immediate impact of the outcome of the Brexit talks while using a wait-and-see approach for more costly or irreversible decisions, like the locations of plants, until there is greater political clarity.

Economic competitiveness: As you pointed out, I’m intrigued by the improved export competitiveness of the UK with a weaker pound. That said, the discount on the pound may itself be a product of uncertainty caused by Brexit rather than any real change in macroeconomic fundamentals [1]. Once the terms of Brexit are made clear, regardless of the outcome, uncertainty will subside and the pound may rise. Making costly changes in the supply chain may not be worth it if the pound were to recover. Instead, investigating what a more flexible supply chain might look like – one where Siemens can more nimbly shift production across UK vs European facilities based on macroeconomic opportunities – might be a way to prepare for succeeding in a ‘hard’ Brexit world without yet committing to it.

Access to supplies and inputs: In the near-term, if a breakdown in trade talks break would create meaningful supply disruptions, Siemens could hedge through greater WIP inventory levels, creating local buffers of key inputs and sub-assemblies which could become blocked from entering the UK. Since Siemens already has good demand visibility from customer orders for the next three years, the company could be fairly precise in the additional holding costs it should be willing to accept.

Revenue and cost matching: While I was originally intrigued by the idea of using currency hedges in a big way to help mitigate the long-term costs of foreign currency changes, I found an article that made a compelling argument that this can negatively impact expected profits, since the well-hedged firm is less able to take advantage of short-term currency advantages in pricing and costs [2]. Given the commercial opportunities which could be presented in a post-Brexit world, I would look to put in place project-level hedges which lock in FX for the duration of specific customer projects. This would give Siemens the predictability needed to meet the obligations of a particular contract while reserving flexibility to pursue future projects in different ways as the macro environment changes.

[1] Reason for a Pound fall after Brexit: https://www.economicshelp.org/blog/21011/economics/why-would-pound-sterling-fall-after-brexit/
[2] Argument against hedging by matching costs and revenues: http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6622.1996.tb00301.x/abstract

On November 30, 2017, Justin Warner commented on Healthcare – Where Supply Chain Digitalization is Life or Death :

This is really interesting context to think about inventory management. On the one hand, demand for particular procedures is probably relatively consistent over time – I can’t imagine there being much seasonality or demand spikes for most non-elective, life-saving procedures – so unpredictable swings in demand are probably less pronounced than in other industries. On the other, stock-outs are often a matter of life or death, not just a lost sale [1]. I’d be interested to see how significant inventory holding costs really are. As healthcare providers continue to consolidate, I’d imagine that holding costs will become less significant as provider networks can better share inventory between hospitals under the same umbrella.

Since consolidation of providers and purchasing organizations should address some of the costliness of holding inventory, I think digital has a much bigger role to play in transitioning systems from fee-for-service models to value-based care. I’ve included a few links below describing some of these models and the various technologies required for their implementation [2] [3]. In particular, developing consistent standards for information sharing, linking costs to outcomes, providing visibility to payors is going to be needed for commercial payors to make any kind of meaningful transition [4]. That said, the Department of Health and Human Services previously committed to transitioning 50% of its payments to value-based approaches by 2018, so the need to engage is both immediate and significant [2].

In the meantime, I wonder if there is a bigger role insurers can play in motivating hospitals to work invest in supply chain digitization – for example, by subsidizing some of the costs of implementing digital technologies such as the RFID tags you mentioned, in return to trimming reimbursement levels across the board (thus rewarding technologically forward-looking hospitals while punishing those that remain complacent). I fear that many hospitals (especially non-profit ones) are too risk averse and budget conscious to be motivated to put real dollars into digital investment without payor pressure.

[1] Challenges in digital-enabled JIT buying at hospitals: http://www.healthcarefinancenews.com/news/hospitals-turn-just-time-buying-control-supply-chain-costs
[2] Overview of emerging models in value-based care: https://revcycleintelligence.com/features/what-is-value-based-care-what-it-means-for-providers
[3] Role of digital technologies in value-based care: http://www.ropesgray.com/~/media/files/event-media-library/teleconferences/Transition-to-Value-Based-Health-Care-Digital-Health-May-2017-Teleconference-Slides.pdf
[4] Meeting the data challenge in [value-based] healthcare (BCG): https://www.bcg.com/publications/2011/health-care-payers-providers-biopharma-improving-health-care-value-data-challenge.aspx

On November 30, 2017, Justin Warner commented on Economic Protectionism: A Weed Choking Monsanto’s Supply Chain? :

Super interesting article! It’s right at the intersection of several issues I care a lot about. I actually see this as two separate (but somewhat related) issues: economic protectionism (e.g., tariffs) and intellectual property rights regimes.

Economic protectionism: For Monsanto’s product-based product lines, economic protectionism actually benefits the company since higher prices for farm outputs supports greater profitability for the inputs like fertilizers that Monsanto provides. To the extent that such protectionism increases in other countries around the world (thus improving the ability to pay of farmers for investing in inputs like fertilizers), this could actually improve the market for Monsanto’s products, assuming that local alternatives (e.g., domestic fertilizer companies) do not exist which local governments would otherwise seek to protect. This may not be true for higher innovation countries like India where local alternatives exist but could be true to selling into the least developed countries.

Intellectual property: There is pretty big debate right now in the development community about what role IP rights play in development. An interesting lit review by RAND argues that there is a dual-effect: for the poorest countries, imposing stringent IP protection of Western countries prevents countries from ‘catching up’; however, as income increases and capabilities develop, IP protection incentivizes investment in R&D necessary for further development [1]. In general, the direction that the conversation seems to be moving is that Western countries should relax their expectations and constraints on poor countries, trading off near-term profits for greater ‘catch up’ and poverty reduction [2].

For Monsanto, what I think this means is that selling IP into middle income countries in transition (e.g., Argentina) is going to be challenging because the temptation for companies to steal IP is too high until countries create more robust IP regimes. Creating partnerships or joint ventures with locally owned seed companies in middle income could help create incentives for governments to support IP rights sooner since it will be protecting companies at home rather than just foreign corporations. Selling IP into the least developed countries, however, I think poses fewer risks to Monsanto since the ability of local firms to reverse engineer the IP is much lower. There are also many viable partners in the form of donors and NGOs – such as the Gates Foundation-funded Alliance for an Agricultural Revolution in Africa (AGRA) – which have programs for aggregating and connecting local seed companies to improved crop varieties [3]. The market opportunity for Monsanto to operate with credible partners like Gates, which governments of poor countries are hesitant to offend by stealing IP, could be substantial.

[1] RAND lit review on IP in developing countries: https://www.rand.org/content/dam/rand/pubs/technical_reports/2010/RAND_TR804.pdf
[2] Commentary on report from Commission on Intellectual Property Rights (by UK’s DFID): https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1124098/
[3] Overview of the AGRA’s Program for Africa’s Seed Systems (PASS): https://reliefweb.int/sites/reliefweb.int/files/resources/agrapassreporthires.pdf

On November 30, 2017, Justin Warner commented on CEDIAM: a fruit processor sees its future in banking :

Loved reading about this. I’m a big believer that improving agriculture-sector performance needs to come from productivity at the farm, which I think does a far better job explaining differences in farmer incomes between rich and poor countries, and capital investment is the way to get there (I spoke to this a bit in my article). That said, it’s not clear to me who is best-suited to drive such investment and, to your point, it’s not clear that actors like CEDIAM have the right incentives to do so.

What’s striking to me is how long these inefficient production systems have been in place without the technological catch-up we would expect if off-takers could really internalize the benefits of improved productivity at the farm. This might imply that it really just doesn’t make economic sense to prioritize capital investment at the farm over other areas of the supply chain, or off-takers may simply perceive these projects as too risky given the lack of demonstrable successes. If I were in CEDIAM’s shoes, I might wonder how I’m actually going to internalize the benefits of more efficient farmers. Export-oriented food crops like mangos could be a good candidate for investment, since the crop isn’t just going to be consumed by the farmer and the local community, but non-food cash crops or crops where there is a single local off-taker might be even better for the benefits to stay internalized.

Looking at these types of settings, there may already be examples of this being done well which CEDIAM could learn from, or there could be real business opportunity to start something that’s never been done before. Apart from off-takers, I also see opportunity for independent finance organizations and manufacturers of capital goods to develop creative structures for communities of farmers to pool capital and collectively leverage capital goods which could not be used economically by a single smallholder (think John Deere sells a tractor which is owned by a collective). Separately, there’s some good evidence of medium/large-scale farmers providing mechanization services for hire in Bangladesh or professional service enterprises in China [1]. Applying these to a West African context might take some modification – a paper by the IFPRI talks about how these types of rental markets could be adapted profitably in Ghana [2].

[1] Mechanization in Ghana: Emerging demand and alternative supply models, paper in Food Policy journal: http://www.sciencedirect.com/science/article/pii/S0306919214000876
[2] Economics of Tractor Ownership with Applications in Ghana, report by the International Food Policy Research Institute (IFPRI): http://ebrary.ifpri.org/cdm/ref/collection/p15738coll2/id/128492

On November 30, 2017, Justin Warner commented on Can Egypt Weather the Next Round of High Wheat Prices? :

Super interesting observation on the impact of climate change on social unrest – many have made similar connections between climate change, poor agriculture productivity, and the Syrian civil war [1].

The most salient contrast I see to the situation in Egypt — where farmers are the ones enjoying subsidies – is what many land-rich countries in Sub-Saharan Africa have gone through post-independence: government-controlled marketing boards, which have monopolies over domestic purchasing of specific agricultural goods, systematically pay below-market prices to farmers, extracting value to be used for big development projects and subsidies to the urban-industrial sector [2]. Some countries have gradually liberalized and devolved power to smaller political units like states (e.g., Nigeria), but I’m not sure there is a good playbook for building political will to take away a subsidy people have come to rely on, especially when those people form a powerful political block (e.g., corn and sugar farmers in the United States). That said, it looks like Egypt has recently slashed its wheat subsidies to try to fight corruption (although it is still subsidizing the retail price of bread for end-consumers) – time will tell what kind of impact this might have [3][4]. Realistically, I’d expect that farmers will respond to shifting production away from low-priced wheat to more profitable cash crops, potentially exacerbating Egypt’s food security problems.

Balancing mitigation and adaptation is an even tougher question – I don’t think it’s possible to choose just one. On one hand, it would be hypocritical for Western nations to demand poor countries to choose to cleanest path to industrialization while they themselves failed to do so. On the other hand, if the entire world consumed as much energy per capita with the same carbon intensity as the United States, no amount of adaptation will prevent truly catastrophic environmental impact. The most exciting mechanisms I’ve seen are based on making . Generalist multilateral structures like the Green Climate Fund have failed to deliver on their promises because due to lack of accountability, inconsistent commitment (Donald Trump has called the GCF a scheme to redistribute wealth from rich to poor countries [5]), and clarity of purpose; however, more focused bilateral arrangements delivering targeted technology transfer like the U.S.-India Clean Energy Finance (USICEF) initiative seem promising [6]. An additional challenge here is intellectual property rights, as Western companies are reticent to share latest technologies freely without compensation to the very same low-wage countries that compete with them at home and abroad. Creative policy, trade negotiations, and some moral leadership in the corporate world could have a real role to play.

[1] Recent paper connected climate change to the Syrian Civil War: http://www.pnas.org/content/112/11/3241.abstract
[2] On the origins and functioning of state marketing boards in Nigeria: http://www.tandfonline.com/doi/abs/10.1080/03056248508703647
[3] Quick overview of Egypt’s wheat reform program: https://www.reuters.com/article/ozabs-uk-egypt-wheat-idAFKBN19X1WW-OZABS

On November 30, 2017, Justin Warner commented on The New Healthcare :

Thanks for this – I hadn’t considered telemedicine in the context of the United States before. In the developing world, telemedicine is a super hot topic and has attracted an enormous amount of funding and attention from big donors [1]. On one hand, telemedicine allows healthcare to be delivered into communities which are far too remote and far too poor to support high-quality physicians which are based locally. On the other hand, having telemedicine as a band-aid solution may make it less likely that governments will invest less in healthcare for the poor since international donors have already put in a “good enough” option. Moreover, for many critical health problems, the issue is access to affordable treatment. Between 2011 and 2014, the Gates Foundation funded a project in India to implement a telemedicine program for diagnosing and treating early childhood diarrhea [2]. The big problem: diarrhea is easy to diagnose and even easier to treat with a simple oral rehydration therapy. No amount of investment in telemedicine is going to ensure that treatment is delivered to those that need it most.
That said, this makes me wonder what other problems in healthcare could be solved by a more distributed model of delivery. I love the idea of giving access to top-quality diagnostics and advice for challenging ailments to hard-to-reach populations. But I also wonder whether there is opportunity to use what Mississippi is doing in a more generalized way to change healthcare delivery from a model centered around clinics and hospitals to a model based on the home – say, through Skype-based check-ins on your computer or at a local pharmacy. Beyond the benefits of improved access, maybe it could help reduce costly, unnecessary hospital traffic and facilitate an efficient, more call centerized approached to first-line consultative care. For most, the human connection is central to care, but I wonder how preference for such care is going to change over the coming decade. Insurers could have a big role to play since they may appreciate the cost savings opportunity – most, but not all, states have telehealth coverage in Medicaid [3], but many people still cite lack of coverage as a concern [4].
What isn’t super clear to me is how physicians will react. While the physician community more broadly seems supportive, but providing care to a computer screen is never going to feel as fulfilling as providing face-to-face care, so I wonder whether even junior physicians will be willing to dedicate themselves to teleconference-based work. If you can’t get high quality physicians on board, I worry about the ability to telemedicine to deliver the promised impact.
[1] Overview of current practices and challenges of telehealth in the developing world: https://www.dovepress.com/telehealth-in-the-developing-world-current-status-and-future-prospects-peer-reviewed-fulltext-article-SHTT
[2] Failure of Gates-funded telehealth franchising model to improve childhood diarrhea in rural India: https://sanford.duke.edu/articles/acclaimed-program-fails-improve-health-care-children-rural-india
[3] State coverage of telehealth services: http://www.ncsl.org/research/health/state-coverage-for-telehealth-services.aspx
[4] Great WSJ article on early state and early impacts of telemedicine in the US: https://www.wsj.com/articles/how-telemedicine-is-transforming-health-care-1466993402