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Very interesting look at Boeing!

I think the decision whether to replace Boeing’s Chinese and Japanese suppliers really depends on two key factors. First, Boeing needs to assess the cost and feasibility of building a state of the art, automated production facility domestically. Second, Boeing needs to assess the significance of recent increases in protectionist policies in the United States and globally. The challenge for Boeing is how to mitigate perceived future risk by insulating their supply chain from receding globalization. You describe a market to supply Boeing, but considering the strict quality controls and testing requirements in the aviation industry, there is a large frictional cost associated with switching suppliers. These frictional costs would be further exacerbated by an increase in protectionist policies. Whether Boeing could produce these parts domestically using increased automation remains unproven. On the other hand, Boeing would be able to assume the risk of domestic production if it thought the probability of the US engaging in a hypothetical trade war was high. What isn’t hypothetical, is increased price sensitivity for airplanes brought on by new entrants to the market. Given their current situation and the risks they are facing, I feel their best strategy would be to continue to use their suppliers in China and Japan.

I completely agree that the overall issue facing Tesla is price. People around the world (debatably in the US) seem to be embracing renewables, but monetizing their embrace has been difficult. Tesla needs to show that their system will save money to ensure large scale adoption. Two issues that are slowing the economic progress of the household battery are regional differences in how electricity is sold, and the variability of li-ion battery raw materials. The United States contains both regulated and deregulated markets that differ in the ability of an individual to sell power back to the grid. Even if Tesla could decrease the cost of their batteries they still need to push regulators to establish an environment to promote a smarter grid that contains small scale batteries. Second, the price of cobalt, a main raw material has increased nearly 200% since July of 2016. Hopefully people will increasingly pressure politicians to create the regulations needed to support a power grid with integrated storage capacity. As Tesla produces more batteries and demand increases for Cobalt, supply will become increasingly stable and prices will decrease. Once those two things happen, Tesla will have a sound argument for the average American household to adopt these batteries.

On November 30, 2017, SRose commented on Amazon – In Prime position for the last mile :

You bring up an excellent point about Amazon starting to inch closer to competing with the logistics industry. If history tells us anything, betting against Amazon in any industry would be silly. I believe the logistics industry is a difficult target because the incumbents have a global reach and very low margins. What Amazon has is human capital that the logistics industry cannot match. If the projections remain accurate that drone delivery could reduce costs by 50%, then whoever owns that technology would dominate the industry. From a technology standpoint, there are few companies in a better position to create the technology and deep enough pockets to dismantle the current regulatory environment. However, there is no guarantee that even Amazon can convince the public that their privacy and security concerns are worth a couple of dollars off their next Amazon delivery. In the meantime, I would expect Amazon to move forward with bulk logistics (potentially getting into air freight), but until they are able to overcome their drone systems, the incumbents may be able to slow Amazon’s progress into the logistics industry.

On November 30, 2017, SRose commented on CMA CGM: digitalization in the container shipping industry :

The commercial shipping industry is a difficult space to innovate within. It is an area that is affected by so many external factors which makes it difficult to implement unilateral changes that have a lasting impact. To address your first question, the idea of attempting to stay ahead of competitors is a real challenge for CMA CGA. Automating ports is a huge undertaking that requires enormous amounts of resources and conflicts with many stakeholders. The idea that CMA could spend enough money on technology to better compete is only partially true. I agree with your assessment that they should invest in technology that will transform the way they schedule shipments and design routes, but investing in other technology that will increase their fixed costs is dangerous in the shipping industry. During downturns in the global economy or during periods of shipping oversupply, it’s the companies with the least overhead that survive. Like the construction industry, minimizing fixed costs is key to weathering downturns. CMA CGA should continue to improve their operations with technology, but they should do it intelligently and try to minimize their overhead. Though port automation would make global supply chains more efficient, that sort of capital expenditure needs to be done by host nation governments.

First, I would like to respond to the recommendation to reopen the plant in Wolverhampton, UK based on the Brexit vote. More than likely, the UK will attempt to create additional trading opportunities outside of the Eurozone market. This would lead me to believe that importing tires into the UK market should get easier as they progress through their Brexit talks.
I agree that increasing protectionist policies by the US will strain Goodyear’s ability to meet global demand. If the Trump administration does push America into a trade war with other members of the OECD, Goodyear’s most successful strategy would be to diversify production across international borders. Considering Goodyear already has “48 manufacturing facilities in 21 countries” they seem to be in position to maintain profitability in an economy marked by increased protectionist policies. Rather than make dramatic changes to their operations, they should take a regional approach to production and attempt to produce their tires as close to their end consumers as possible.

While I agree with Philips’ goal of reducing waste and creating a more sustainable economy, I’m skeptical on the true environmental benefits. Because they now need to repurpose old equipment, they are incurring additional environmental costs associated with the transportation. Further, you mentioned Philips needed to build new manufacturing facilities near their customers to repurpose the old equipment. The net effect on the environment of creating the building materials, constructing the building, and operating the facility would take so long to recoup in terms of environmental benefits that I am skeptical that this circular supply chain would outperforms other forms of environmental protection. Given the upfront environmental costs of implementing a circular supply chain for a single company, it would seem counterproductive if multiple companies set up similar facilities in the same geographic areas. As additional companies adopt this sort of supply chain, significant regulatory progress would need to be made to prevent duplication of effort, allowing some of the benefits to be unlocked.