A dollar today is worth more than a dollar tomorrow so it is not surprising that firms would prefer to defer paying suppliers for as long as possible. As the Wall Street Journal tells it, many large firms like Procter & Gamble and DuPont are working to redefine “as long as possible” when it comes accounts payable (P&G, Big Companies Pinch Suppliers on Payments, Apr 16).
What began as a way to preserve cash when markets dried up a few years ago has become a means of freeing up money to fund expansions, buy back stock and support dividend payouts at a time of lackluster sales growth and shrinking profit margins.
P&G is actually late to this game. It currently pays its bills on average within 45 days, faster than the 60 to 100 days that other consumer products makers and large companies in other industries generally take, according to industry experts. The company is looking to move its payment terms to 75 days and recently started negotiations with suppliers, people familiar with the matter said.
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Steven Colbert once set out the following rules for buying electronic gadgets:
- It must cost next to nothing.
- I must never learn why it costs next to nothing.
That gets us to a recent article with the very un-Wall Street Journal headline of “Measuring the Human Cost of an iPad Made in China” (Jun 3). The article focuses on Hon Hai Precision Industry, the Taiwanese electronics manufacturer better known by its trade name Foxconn. Foxconn makes gadgets and gizmos for a wide range of electronics brands and has gotten attention recently for a factory explosion that killed several workers. This after having several workers commit suicide in the past year or so. (See The Global Post‘s series on Silicon Sweatshops.)
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So tablets are the hottest thing in tech right now. Apple has just announced the second coming of the iPad while every other tech firm is trying to get in on the game. The recurring theme in reviews of these tables is that in comparison to the iPad, they seem pricey. It’s a weird world when Apple seems like a bargain.
One possibility is that competitors simply put more into their tablets. A recent Wall Street Journal article reported on a tear down comparing the Motorola Xoom with the most comparable iPad (‘Xooming’ In: Researchers Say Cameras, Display Add to Costs of Motorola Xoom, Mar 1). Here are the findings in graphical form:
And here’s a discussion of what they mean:
So the Xoom (by the way, doesn’t Xoom sound a lot like Zune? who thought that was a good idea?) is a little more expensive in terms of components. As the Journal notes, Motorola claims not to be aiming for the current iPad but the new one. Thus this gap may close some when Apple adds cameras and faster processors. But Apple still plans to charge just under $500 for its base model while the Xoom is basically $800. What gives?
An article on TechRepublic (The one big reason why iPad rivals can’t compete on price, Feb 18) provides an interesting answer: The Apple Store. (more…)
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An interesting story from the Wall Street Journal (Tight Supplies, Tight Partners, Jan 9). Apparently it is not as easy to get your hands on good trash as it use to be. That may not sound line a bad thing — unless, of course, your business depends on recycling that trash into usable products. That is the challenge facing SCA, a Stockholm-based firm, that in the US sells hand towels, toilet paper and napkins made of recycled paper to institutions like schools and restaurants. (Their brand in the US is Tork.) The company is caught in a double whammy. On the one hand, less waste is being produced. On the other, there is increasing competition for the waste stream that is being produced from developing markets.
SCA has taken on this challenge by working more closely with recycling centers. SCA does not own the local facilities that take in collected cardboard and paper. It can, however, offer financing and advice in order to make recycling centers more efficient in processing the paper that comes back.
The company provides the recycling centers with financial backing to buy upgraded equipment and offers consultation on operations and marketing. In return, the recycling centers sell recovered fiber exclusively to SCA. (The recycling centers may sell varieties of recovered paper that SCA doesn’t need to other manufacturers.)
Last fall, SCA increased its investment in a Chicago recycling plant so that it could bring in additional equipment that compresses the paper into bales. SCA is putting together a “multicity arrangement” with other recycling centers, declining to specify where. “We’re organically growing existing partnerships and adding new ones,” says David Knight, director of fiber procurement for SCA’s Americas division, which contributes $2.1 billion of the Stockholm-based parent’s annual sales.
For SCA, close ties with recycling-center owners has meant it can encourage investment in sophisticated equipment upgrades that enable recyclers to process more “dirty” paper, or materials that are more difficult to recycle such as books, envelopes with plastic windows and paper with heavy graphics.
“With supply going down, we have to go deeper and dirtier into the waste stream to get more,” says Mr. Knight. “Forming these relationships allows us to do that.”
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So here is an interesting business model that leads to a nice supply chain contracting story (from Finnish shoe firm pays lifetime royalties, Oct 12, Globe and Mail). Pomarfin, a Finnish shoemaker, was facing increased competition from cheaper firms manufacturing in Asia and was forced to look for ways to differentiate its products. It seemed to find an answer in mass customization.
Not wanting to walk away from its manufacturing roots, Pomarfin decided to compete in the emerging world of mass customization by making made-to-measure shoes for well-off men who hate shopping for shoes and want a perfect fit. Pomarfin envisioned installing a foot scanner in retail stores that sold its shoes. Clerks would scan the customer’s foot, and the image would be uploaded to a server in Pomarfin’s manufacturing plant, which would create and ship the customer a pair of shoes for his unique feet.
Pomarfin named its new made-to-order brand “LeftFoot.” Once a customer scanned his foot with a LeftFoot machine, he could reorder a custom shoe through the website, cutting out the need to visit a retail store.
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A few months ago, I wrote about how Sears Canada has been trying to strong arm its suppliers following the appreciation of the Canadian dollar. Now the Globe and Mail reports that at least one major brand is pulling out of Sears as a consequence (Chanel to quit Sears in dispute over dollar, Jul 22):
Chanel is pulling its high-profile fragrance products from Sears Canada Inc. stores amid an escalating battle over the department store retailer’s efforts to claim a share of suppliers’ savings from the strong Canadian dollar.
Sears spokesman Vincent Power confirmed Chanel will stop shipping products to the retailer, saying the retailer’s discussions with its suppliers over the value of the dollar are aimed at lowering prices for Canadian consumers.
“We feel Sears’ role is to advocate for the customer with suppliers for lower pricing,” Mr. Power said in an e-mail. “We hope suppliers will agree with our request; that may not always happen. Our goal is to engage with suppliers in meaningful discussions that result in benefits for them and our customers.”
And Chanel may not be the only vendor to go:
Other suppliers are considering halting shipments to Sears in a bid to pressure it to drop its demands. Some stopped deliveries but started again after Sears shelved the matter, sources said.
“In four or five cases, people told me they will not ship to Sears until the matter is resolved,” said David Schachter, president of the National Apparel Bureau, which represents fashion suppliers. “The anger level of people who had money deducted is certainly increasing.” …
Sears’ demands for retroactive currency payments have raised eyebrows in the industry because they’re tied to contracts that are already signed and products delivered.
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Supply chains offer an almost unlimited number of points of conflict. Unquestionably, there are opportunities for partners to jointly increase revenue or lower costs. But it is almost always easier for one party to identify ways to lower his costs at the expense of other supply chain members. Even if there are programs that increase the overall pie, there is still the question of how to split the resulting gain. As the Wall Street Journal tells it, there is currently a lot of tension in apparel supply chains as retailers demand more responsiveness from suppliers while suppliers are leery of ramping up capacity without greater commitment from retailers (Tug-of-War in Apparel World, Jul 16).
Tension is rising in the apparel industry, as retailers push garment makers for faster turnaround on smaller orders ahead of the key Christmas holiday season. The old model—where retailers placed orders six to nine months in advance and suppliers ramped up factories to produce high volumes cheaply—has been thrown out the window after a recession that left stores swamped with unsold clothes and idled factories.
To lower the risk of a fashion miss, more retailers and apparel companies are pressing their suppliers to crank out a small order quickly—allowing them to test styles in stores—and then fill re-order requests even faster, a tactic known as chasing, says Josh Green, chief executive of Panjiva, an international trade data service.
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So last year everyone was nervous about a flu pandemic — and with good cause. The H1N1 virus was an unknown protagonist and it was not out the realm of possibility that it could lead to a devastating public health crisis. We now know it didn’t. Yes, some people got sick but the forecasts of overwhelmed hospitals and massive numbers of deaths never really materialized. Hey, we even ended up with some excess vaccines.
The last point has now led to some finger pointing as people go back and examine how various governments handled the crisis. An independent commission in Britain has just released a report evaluating the UK’s response and generally has good things to say except for all those left over vaccines (Swine flu vaccine contracts ‘lacked get out clauses’, Jul 1, BBC). Dame Deifre Hine, the commissions chair, discusses the findings:
Here are the details on the excess vaccines:
More than 30m doses are thought to be left over after one of the manufacturers, GlaxoSmithKline (GSK), refused requests for the contract to be torn up.
The other manufacturer, Baxter, agreed to a “break clause” allowing the government to cancel its order. …
A spokeswoman for GSK said because of the demand at the time for its vaccine from governments across Europe it would not have been “ethical” to offer one country a break clause when others were not able to have all the doses they would have wanted.
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It’s hard to imagine a firm asking its sales force to reign in sales of a new product for which it has high hopes, but that is effectively what McDonald’s is doing with franchisees and its new smoothie offering (McDonald’s Cuts Aggressive Smoothie Promos Ahead of U.S. Launch, Jul 2, Wall Street Journal). Here’s the scoop: The Golden Arches are launching a new smoothie product with the official coming out party scheduled for July 13th. Expect lots of ads. However, before the advertising blitz, they need to load up the supply chain. That means, the stores have the stuff and are capable of selling it. And they may well be excited about selling it because drinks generally have fatter margins and the whole point of this product is to drive traffic at otherwise slow times of the day. But having stores jump the gun is messing up McDonald’s launch plans.
McDonald’s is trying to rein in sales in the two weeks before the company throws the full weight of its national marketing machine behind the product, according to internal company documents. McDonald’s has ordered some stores in the South and Midwest to stop offering free samples in stores and to cut down on tasting events, where trucks offer samples at sporting and other gatherings. Some Southern markets are being told to take down posters and other in-store signage promoting Smoothies, unless they have a “Coming Soon” tag.
Smoothies supplies are “flying out too fast and the supply chain was predicting a catastrophe if they didn’t reel it in some,” said one McDonald’s franchisee who declined to be named because the company forbids store operators from discussing internal matters. …
“In an effort to gear up for the national launch and make sure we’re all aligned and have sufficient supply for our national marketing efforts, we have scaled back a bit on some of the local efforts,” [McDonald's spokeswoman Danya] Proud said.
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Walmart has long been famous for its sophisticated supply chain. Now Businessweek reports that it is looking to take on an even bigger slice of its supply chain’s logistics (Why Wal-Mart Wants to Take the Driver’s Seat, May 27). Walmart has apparently been contacting suppliers proposing that Walmart take greater responsibility for transporting goods in exchange for, of course, a lower price:
The goal: to handle suppliers’ deliveries in instances where Wal-Mart can do the same job for less, then use those savings to reduce prices in stores, Abney says. Wal-Mart believes it has the scale to allow it to ship everything from dog food to lawn chairs more efficiently than the companies that produce the goods. “It has allowed our suppliers to focus on what they do best, manufacturing products for us,” he says. “With lower costs usually comes increased sales.”
Manufacturers would compensate Wal-Mart by giving the retailer lower wholesale prices for the goods it transports. Wal-Mart isn’t saying how much it hopes to save. However, in a slim-margin business such as retailing, even small efficiencies can help the bottom line; in 2009, Wal-Mart trimmed expenses by almost $200 million by packing and scheduling its U.S. truck fleet more efficiently, according to spokesman Lorenzo Lopez.
Until now, suppliers made most deliveries to Wal-Mart’s distribution centers. The retailer then used its fleet of 6,500 trucks and 55,000 trailers to ferry goods between the regional centers and individual stores. Under the new program Wal-Mart will increase its use of contractors, as well as its own vehicles, to pick up products directly from manufacturers’ facilities.
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