Could More Efficient Spending = Better Health?

on Tuesday, November 30, 2010

In terms of health care spending, the US is unsurpassed: “We’re #1!”

But in terms of life expectancy, the results are far less impressive.

Researchers at the Mailman School of Public Health at Columbia University compared healthcare results in the US with those in 12 other industrialized nations. The study compared health care expenditures in conjunction with two key statistics: 15-year survival rates for people at 45 years of age and for those at 65. Their work, which was published in the journal Health Services, notes that while all the countries experienced increases in life expectancy rates and health care costs, the US finished last, scoring the lowest in life expectancy increases and the highest in increasing costs.

Surprisingly, the usual suspects – risk factors such as smoking, obesity, homicide and traffic fatalities – may not be to blame. Obesity actually grew more slowly in the US compared to other countries while smoking declined more precipitously. At the same time, rates of homicide and traffic fatalities remained mainly steady.

So what’s left? The researchers suggest spending patterns within the US health care system may be to blame. Does the US spend too much on ancillary activities – such as lobbying, marketing, administrative overhead and medical malpractice insurance – as compared to other countries?

As one of the study’s author /researchers told the New York Times, “In the US, we have a highly inefficient health system that’s taking away financial resources from other lifesaving programs."

At Source One, we recently have seen a rapid increase in demand from Healthcare providers who are looking for ways to reduce and control costs. Many industry leaders already are looking proactively for ways to increase or maintain profitability before the full effects of the Healthcare Reform Bill take place.

If you are involved with procurement for a Healthcare or Life Sciences provider, we can help.
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Toyota to fix nearly 400,000 Prius models after breakdown in supply chain

on Monday, November 29, 2010

Known for its efficient Japanese-style supply chain, car maker Toyota Motor Corp announced that it will fix 378,000 models of its Prius hybrid models in the U.S. after it was discovered that a glitch in its coolant pump could cause the cars to lose power and overheat.

The recall affects Prius models from 2004 to 2007 and represents a breakdown in the company's supply chain. Toyota has not received any reports of accidents or injuries resulting from the faulty pump. However, Toyota fears that the hybrid electric water pump - standard on the Prius - could potentially slow, causing overheating in the engine. If left unfixed, the engine could conceivably power down.

Toyota will pay for the retrofits that will most likely cost the car maker roughly $100 in labor for each Prius fixed at a U.S. dealership. Because of its manufacturing errors, Toyota will face increased costs and a further strain on its supply chain to produce the necessary replacement parts. All the while, the company is focused on meeting demand for its new models as worldwide consumer confidence recovers following the Recession.

The recall could further hurt Toyota's image as a brand devoted to quality. Earlier this year, the company was mired in controversy amid a massive recall following safety concerns in both its Toyota and Lexus brands, although the company was never accused of negligence.
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New farm technology aims to cut costs of water, increase farming efficiency

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One of the biggest issues many farmers face is how to control extraneous business costs, like excess water and fertilizer use. Now, cutting edge technology is using sensors on satellites to optimize water use among farmers, potentially resulting in great cost savings and increases in supply chain efficiency.

Utilizing satellite images and remote sensing data, the new technology - dubbed "Watpro," short for water productivity - measures water productivity in various agricultural crops, highlighting where water is used most economically and where it is wasted. Various variables are taken into account in the calculations, including temperature, solar energy and the amount of green vegetation in an area. Researchers say the findings will enable farmers to better monitor water usage and prevent it from being wasted, effectively maximizing natural resources and cutting costs.

Using this new method, researchers last year analyzed wheat crops from different countries and found that wheat grown in France required less than half the water input it took in Russia, indicating a potential for great cost reductions and supply chain improvements. According to Sander Zwart, Watpro's creator, the system will ensure practices are "developed that assist farmers to save water and optimize water productivity."

Presently, about 70 percent of all surface freshwater is used for farming, an alarming statistic as the U.N. affirms the global population will swell to 9.2 billion in 2050 from 6.9 billion in 2007. Watpro's creators aim to reduce water consumption as a means to improve farming efficiency, reduce costs, and help the environment.
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Toy's popularity causes frenzied demand, supply shortages

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Toy's popularity causes frenzied demand, supply shortages Every year it seems as though there is a new toy fad that grips the nation during the holiday shopping season. Tickle-me Elmo and Ferby filled the position in past years and now, Squinkies are the toy that every kid wants. Because of their skyrocketing popularity, however, the toy's makers cannot keep up with demand, straining their supply chains as they endeavor to maintain production.

A pack of 16 Squinkies costs only $10 and they are collectible, prompting children to load up on the squishy toy characters as if they were priceless. Laura Phillips, senior vice president for toys and seasonal merchandising at Wal-Mart, affirmed that "demand is tight," causing the supply shortages. The toys are manufactured at a 16-person facility in Minnesota.

While other companies reported shortages, Target successfully adjusted its own supply chain to monitor sales of the toy. Once managers saw that they were selling in high numbers consistently, the company "reacted pretty quickly to meet that ongoing demand," Casey Carl, who manages toys and sporting goods products at Target, asserted. However, because of limited manufacturing capacity, there was a 60-day turnaround between when stores placed orders and when they received shipments, leading to supply shortages and lost revenue. To expedite shipping, some companies are paying for air freight delivery, increasing business costs.

Nichols is doing all he can to fill the myriad orders, enjoying the success while it lasts. He is the first person to admit that kids can have short attention spans.
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No Need to Brave the Cold!

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In this age of technology more and more consumers are turning to the internet for their holiday shopping needs. And why not? Considering all of the offers available to shoppers like free shipping, free gifts with purchase and crazy online only sales! I think I personally just deleted about 15 offers in my email for similar offers. Aside from this past weekend of frantic shoppers CNNMoney.com reports that “some 106.9 million Americans plan to shop online on Cyber Monday, compared to 96.5 million last year, the National Retail Foundation (NRF) said”. Another possible advantage to shopping online as opposed to in store is product availability. Last year I went out to Wal-Mart first thing Black Friday morning to get a television. After waiting in line and dealing with the crowds I was unable to get any of the televisions I was looking for. I ended up going home and ordering it online where there were not only plenty in stock but I had the freedom to shop around and compare pricing in the comfort of my own home.

Not only are we seeing more online shopping but more shopping in general this holiday season. Could this be a good sign for the economy? “The average shopper spent $365.34 during Black Friday weekend 2010, compared to $343.31 during the same weekend last year, the NRF said. Total spending for the weekend was $45 billion”. The article goes on to detail that $648 million of that spend was online on Black Friday. This is just another point that goes to show that people are not only shopping more this season, but shopping smarter. Think about the supply chain that is affected by this increase in online shopping. In stores you have your suppliers and their shipping companies that deliver the product along with all of the employees in the stores to aid with sales. The increase of online shopping leads to increased profits and volume for shipping suppliers such as DHL, UPS, and FedEx, not to mention the USPS. Regardless of where you shop this holiday season take a few minutes to consider how you are contributing to the revolving economy and maybe making a difference in our not so distant financial futures.
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Online auction marketplace streamlines supply chain to fill orders quickly

on Wednesday, November 24, 2010

 Online auction marketplace streamlines supply chain to fill orders quicklyAfter Americans stuff themselves full of Thanksgiving dinner, many are then likely to unleash their appetites for a different kind of consumption: consumers will gorge on post-holiday sales, beginning on "Black Friday" and continuing through the duration of the holiday season. How, though, will businesses handle the onslaught of increased traffic amid inventory worries?

Liquidation.com, an online marketplace that sells surplus goods from retailers, specializes in inventory control, buying excess goods from businesses. The company is gearing up for its busiest day of the year, the Tuesday after Thanksgiving, dubbed "Restock Tuesday" by the company. Companies flock to the website to restock their shelves after the busy shopping days that precede it.

Already prepared for the uptick in business, Liquidation.com increased staff at its warehouse locations, each facility optimized to better serve businesses of varying size. Cayce Roy, executive vice president of the online auction house, said that the company's incredibly efficient supply chain allows it to "meet merchants' inventory needs quickly enough to sell before the end of December," a feat few other organizations can duplicate.

Because of rising consumer confidence and spending, the company anticipates that it will close 20 percent more auctions this year than in 2009.
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Tivus and Vestel Group reach supply chain agreement

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Tivus and Vestel Group reach supply chain agreementTivus Inc., a provider of media entertainment technology to the hospitality industry, announced a supply chain agreement with Vestel Group, a European electronics powerhouse, through CVS, its main North American distributor.

The move gives Tivus access to a "dependable supply of customized, top-quality, high-definition televisions," Shiva Prakash, the company's chief executive office and president, affirmed. Prakash further praised the move, declaring that Vestel Group will provide a "critical part in our supply chain," ensuring the continuous deployment of Tivus's advertising technologies to its clients.

Vestel Group is already a leader in manufacturing and distribution in Europe, where the company is based. The company's holdings are quite diverse - its products range from televisions to air conditioners - and it owns more than 20 percent of the market for televisions in Europe. The supply chain agreement gives Tivus the "dependable hardware supplier" it has searched for, according to Prakash and will save the company time and money.

The supply chain agreement will result in a reduction in decreased headaches for Tivus as it can now rely on Vestel Group for uninterrupted inventory output and a reduction in business costs associated with its purchasing of the goods from other sources.
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New Technology Helping (or maybe hurting) Your Holiday Traveling Experience

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According to AAA, the number of Americans traveling for Thanksgiving holiday this year will increase to about 42.2 million travelers, or up 11.4 % from 2009.

Even if you are not one of the many people traveling over the holidays, you probably heard about the new security procedures the TSA has implemented in many major airports involving the full body scanners. There have been a ton of reports in the news about how Americans feel this technology is impeding on their personal privacy. Many have refused to go through the scanners and are then subject to a “vigorous pat-down.” So basically it seems as though Americans are more concerned with their insecurities about security officials seeing an outline of their “muffin tops” than they are about the Jihad currently being unleashed onto the world.

Despite all of the backlash from the public, the TSA and Department of Homeland Security maintains that this level of security is required to preserve a safe level of air travel. Regardless of how you feel about these procedures, Homeland Security officials are at least trying to utilize technology to make traveling in these tough times a little easier. Last month they began testing the latest generation of bottled liquid scanners. They tested all different kinds of liquids - from soda and alcohol to shampoo and lotions. Other versions of liquid scanners have been tested for over a year at airports throughout the world but the technology wasn’t quite there in order for them to be used widespread. This new version uses magnetic resonance to read the liquids' molecular makeup, regardless of what container the liquid is in. In less than 15 seconds, a light at the top of the metal box, which is about the size of a small refrigerator, will flash either red or green indicating it is safe. It is so sensitive it is able to distinguish between different types of sodas and even between red and white wine. If these scanners are successfully implemented it would eliminate the need for travelers to put all of their liquids less than 3.4 ounces into small clear plastic bags and pack any other liquids into their luggage.

Homeland Security has already spent more than $14 million developing the liquid scanners, and the Obama administration has committed tens of millions of dollars to deploy more state-of-the-art equipment to U.S. airports. They hope to have these liquid scanners operational in many major airports within the next two years.

So while the security lines may still be long and you may still have to deal with full body scanners and aggressive pat downs, at least you’ll soon be able to bring those bottles of Pantene Pro-V and Diet Cherry 7-UP on the plane with you.
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Santa Supply Chain

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It's that time of the year again. The perennial running of the consumer bulls known as the holiday shopping season is upon us. We all remember the special toys or gadgets each year that kids simply can't live without; Furbie, Nintendo Wii, and of course the iconic Tickle-Me Elmo. The hot toy for the holidays this year is the XBox Kinect, which offers an interactive controller-free gaming environment for the Xbox 360.

Securing these hot toys and gadgets can often be a serious challenge for Christmas shoppers, but the strain put on a manufacturer's supply chain to meet the holiday demand surge can be an even bigger challenge.

Last week, Microsoft head of gaming Don Mattrick warned consumers that they should buy their Kinect units by Thanksgiving. He also predicted that Microsoft would sell more than 5 million Kinect systems by the end of 2010. Microsoft has also begun expediting shipments via air cargo after the Kinect sold 1 million units in it's first 10 days of being on sale.

The cutting-edge technology that goes into the Xbox Kinect comes from a range of suppliers including Primesense, Marvell Technology, and Texas Instruments to name a few. They are all too happy to be working around the clock producing the chips and sensors that go into the Kinect. Holding a piece of Microsoft's supply chain as a supplier is a cash cow, so it makes you wonder what sort of bending-over-backwards the producers of these components do. These suppliers need to be able to crank up or slow down production on very short notice. Producing much more than the sales projections is risky and is about more than just cash flow; let's not forget that for every holiday hit there is a gigantic flop.(The Apple Newton, anyone?)

As the shopping madness commences, it will be interesting to follow the different steps that Microsoft takes to maximize supply chain efficiency for the Kinect. Now if you will excuse me, I have to go play Atari.
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Chrysler to improve supply chain efficiency by opening plants in Kokomo, Indiana

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Chrysler to improve supply chain efficiency by opening plants in Kokomo, IndianaChrysler, Ford and GM - the so-called "Big Three" of U.S. car makers - were on the verge of collapse just 16 months ago. Now, however, with their restructuring ostensibly working, Chrysler announced that it will open up new manufacturing facilities as it endeavors to increase supply chain efficiency and reduce extraneous business costs.

Chrysler will pour more than $840 million into three new factories that will build a new front-wheel-drive system its engineers have developed. Chrysler asserts that other important parts in its production line are assembled in the area and that investing in facilities there will both save jobs and reduce transportation costs.

Chrysler's investment will ensure that the town of Kokomo, Indiana, where the plants are located, will keep nearly 2,250 jobs. To further streamline its supply chain's efficiency, Chrysler will partner with ZF Group, a German company that will provide design and technology consulting for the new driving system. Once the factories are running, many of the parts critical to Chrysler's cars will be made within a short distance of one another, eliminating shipping costs.

Although the company cut its net third quarter loss to $84 million, Chrysler expects to end this year with a positive cash flow of $500 million.
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BMW forgoes shutting factories as it endeavors to keep its supply chain churning

on Tuesday, November 23, 2010

Another year, another business plan. As worldwide demand for its cars picks up, BMW will shorten the scheduled closing of its factories in an attempt to keep its supply chain churning.

Last year, the world’s largest maker of luxury automobiles, BMW, closed its factories for an extended period as the recession hit and consumers closed their wallets for big ticket items. However, this year demand for its cars, like the 5-series and X1 compact SUV, has skyrocketed. Michael Rebstock, BMW’s spokesman, asserted that the company’s “production capacity is the limiting factor at the moment.” To achieve a more-constant supply, BMW is carefully monitoring both worldwide demand and output from its factories.

After closing for more than three weeks in 2009, BMW factories in Dingolfing and Leipzig will remain open throughout this holiday season as the company endeavors to keep up with demand. Rebstock acknowledged that some factories would shutter their doors for a brief while, conceding that the closings would be necessary, but short-lived. “This year we’re keeping the breaks as short as possible, while last year we kept them as long as possible,” he said.

Through October of this year, BMW has seen its sales increase by more than 13 percent to 1.19 million cars sold.
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Oprah.

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No introduction needed. You’ve heard of her. You’ve watched her. And if you’re a fan of "My Life on the D-List," you’ve witnessed Kathy Griffin poke fun at her. Love her or hate her, Oprah knows how to sell a product. Every year (since ’97), many wait in anticipation for the revealing of “Oprah’s Favorite Things.” This year’s special, two-part episode was dubbed the title “Oprah’s Ultimate Favorite Things” to mark her final season and bring the “bigger is better” theory to a whole new level. Not one, but two audiences went home with a combined total of 45 different products. A studio audience is approximately 275 people. Just imagine footing that bill. I've always wondered what goes on behind the scenes of this particular episode.

What impact does this single episode have on companies' supply chains? How much lead time does a supplier receive before the show airs? Are suppliers compensated for the products they distribute? Or do they donate the products and in turn get the best marketing message ever? I guess that would be a fair tradeoff. I never thought I would find myself relating Oprah to supply chain management, but then again, there is a first for everything.

This year, a Seattle-based company by the name of Beecher's received recognition for having the "world's best" mac & cheese, according to Oprah. Apparently, Oprah's team gave Beecher's about 6 weeks to prepare for an assumed increase in business. A hiccup may likely occur in this company's supply chain as its mac & cheese's main ingredient (the cheese) needs to age for 18 months before preparation. When a once-in-a-lifetime opportunity comes along like this, your company’s supply chain will need to be revamped. Your supplier relationships will be tested and will need to undergo evaluation, especially if you are a regional company like Beecher's that suddenly gets thrown into the national spotlight.
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As commodity prices rise, businesses aim to reduce costs and maintain supply chain efficiency

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As commodity prices rise, businesses aim to reduce costs and maintain supply chain efficiencyDuring the recession, businesses clamored to maintain profits and revenue growth as global demand for their goods plummeted. Now, they have a new problem to contend with: as consumer demand slowly grows, how will companies cope with rising commodity costs?

In the past five months, commodity prices have gained 15 percent in value, driving up business costs and creating supply chain inefficiencies as companies are faced with forcing manufacturers to absorb the costs, switch to higher margin materials or cut labor costs. Nonetheless, consumer spending is rising, albeit at a tepid pace. Robert Plaza, an analyst at Key Private Bank, asserts that realistically, "no industry has pricing power" in this market and that by increasing supply chain efficiency, businesses can best handle this leap in prices.

Business tactics vary amongst companies as they endeavor to achieve cost reductions. Polo Ralph Lauren, for example, has successfully squeezed manufacturers into absorbing the mounting costs, while companies that serve a middle-income demographic will utilize cheaper products, like rayon and polyester, instead of cotton, which has lodged hefty gains this year. Steven Madden, the shoe maker, has shifted production from southern to northern China, where costs are lower.

The Federal Reserve continues to print money, further weakening the dollar and driving speculators towards commodities to hedge their investments. Analysts expect this to continue, placing pressure on companies to reduce their business costs and improve their supply chain efficiency to maintain revenue growth.
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Manufacturing issues plague Johnson & Johnson, disrupting its supply chain

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Industry conglomerate Johnson & Johnson announced that it will voluntarily recall large amounts of two of its most popular medicines, children’s Benadryl and junior-strength Motrin, after breakdowns in its supply chain and manufacturing.

In total, Johnson & Johnson is recalling about 4 million children’s Benadryl packages and 800,000 bottles of junior-strength Motrin tablets from drug stores and its suppliers after fears surfaced that the products were not produced under ideal manufacturing conditions. The medicines were made at a company plant in Fort Washington, Pennsylvania that has since been temporarily shuttered because of the worries.

J&J affirms that the products are safe to use and that they passed the company’s safety and quality testing measures, but erring on the side of caution, J&J announced the recall. A spokesperson for the company affirmed that it "is not a consumer-level recall," emphasizing that consumers do "not have to take any action." J&J has suffered through myriad supply chain problems this year: in June, the company recalled large quantities of Tylenol and Motrin IB amid concerns over a moldy smell. After that recall, its sales of the medicines plunged more than 50 percent as wary consumers shied away from the drugs.

J&J hopes to avoid a similar resurgence in consumer backlash this time around, highlighting that is is a "wholesale and retail level" recall that is precautionary, rather than necessary.
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Tyson Foods works to reduce chicken stocks after supply surplus

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Tyson Foods works to reduce chicken stocks after supply surplus Maker of prepared meats, Tyson Foods Inc., announced that it will sharply reduce chicken production after ideal growing conditions resulted in heavier weights and excess pounds to flood the market.

This past summer, hot weather caused poultry weights to drop, prompting Tyson to purchase extra meat on the market and increase its live supply of chicken as it endeavored to offset the loss. However, beneficial conditions in the fall brought about “more pounds than we intended,” according to Donnie Smith, chief executive of Tyson. Tyson also faces rising costs from its suppliers as corn, a main component of chicken feed, rises and the firm incurs the rising business expenditures.

The supply chain inefficiencies, Smith noted, were a “busted play,” one that Tyson will soon rectify. The company pulled “another play out of the play book, and we’re going to cut production,” Smith asserted, emphasizing the company’s commitment to a streamlined supply chain. The ultimate goal, he affirmed, is to ensure “our inventory is where we want it to be.”

Tyson plans to extend the production cuts into the quarter beginning January 2 and will work with its business units to further reduce business costs.
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The Pony Express

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In these challenging economic times, businesses are continuing to look for ways to reduce costs across all areas of spend. At the same time, there is a fear in considering alternate solutions/suppliers for it may produce poor levels of service, lower standards...or a 'cheap' solution. This is not going to be the case with "super regional" parcel carriers.

Currently, UPS and FedEx dominate the industry with their national and international presence, innovative solutions and technology. What about the costs associated with these services?

Jim Berluti, President & CEO of Eastern Connection, gives thanks to the regional players expressing how they are earning their way up the food chain due to lower costs, enhanced technologies, and network of partners; "thanks to their continued reliance on ground versus air transport, lower operational costs and few accessorial charges, recent reports show that regional services can save shippers up to 40% for express deliveries..thanks to new, deferred product offerings, regional typically save shippers more than 20% for ground shipments compared to nationals".

Although costly marketing campaigns are not their forte, regional carriers invest on better, faster, cheaper ways to ship...offering later pickups, earlier deliveries including next-day ground. They also invest in building partnerships around the country to expand their coverage and service offerings. Berluti describes these relationships as "a modern-day extension of the old Pony Express". Regional carriers use integrated technology, consolidated invoicing, and "real-time delivery information" to make their partnerships as seamless to the customer as if they had one carrier from pick up to delivery destination.

For now UPS and FedEx still have the reign on the international market, but beware as the "super-regional network" makes way taking the industry one coast at a time.
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Verizon FiOS - Fast Just Got Faster

on Monday, November 22, 2010

Need more Internet bandwidth? For businesses and consumers alike, things just got better. Verizon has announced 150 Mbps downstream by 35 Mbps upstream service will available in all of its FiOS territories by the end of the year. Previously FiOS was only available in a maximum of 50/20 Mbps ranging in various tiers down to 15/5 Mbps. The new, faster fiber-to-the-home offering will cost as low as $194.99/month (on a 1 year agreement with voice bundled) compared to $144.99/month for the former premier tier of 50/20 Mbps. Regardless, it's great news for businesses who can potentially increase bandwidth 100-fold and save money versus the cost of an Internet T1.

While additional Internet bandwidth is being made available and competition is being driven by Verizon and others, we are not seeing a reduction in price we have come to expect in the telecommunications world. Instead of replacing some of the slower tiers of service or reducing pricing throughout their offering, Verizon is just adding a tier and adding cost. I am not suggesting that the service is not a tremendous bang for the buck and that providing the bandwidth is cheap, however cost seems to be rising in the telecommunications world where we have seen nothing but falling costs over the past 10 years. The introduction of 4G wireless will certainly be a game changer, but this trend in the broadband world is definitely something worth keeping an eye on.
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Wal-Mart opens new green distribution center that will improve supply chain efficiency

on Friday, November 19, 2010

Wal-Mart opens new green distribution center that will improve supply chain efficiencyWal-Mart Canada recently unveiled a new distribution center. However, this center of logistics is very different from its other North American logistics hubs as it is one of the most energy-efficient facilities of its kind.

In total, the center cost $115 million and will primarily house fresh and frozen foods for Wal-Mart stores in Alberta, Manitoba and Saskatchewan. The building is outfitted with the latest in green technologies: it has LED lighting, hydrogen fuel cell technology, use of solar and wind energy and improved building design. In total, the company estimates it will be 60 percent more energy efficient than its other standard distribution centers, resulting in greater cost savings and improved efficiency in its supply chain.

Wal-mart's senior vice president for supply chain and logistics, Andrew Ellis, praised the company's newest supply hub, asserting that Wal-mart has truly "delivered a state of the art facility." Deepak Obhrai, a local Canadian politician, commended the company for its investment in clean technology, declaring that it is "already saving industries tons of energy and tons of money." The improvements in efficiency that result from decreased energy costs will enable the company to increase its operating margins and potentially reap heftier profits.

Wal-Mart is an industry leader in logistics and supply chain effectiveness, coordinating shipping to its more than 8,000 worldwide stores.
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Japan's supply chain worries ease as China quietly resumes shipping rare earth metals

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Japan's supply chain worries ease as China quietly resumes shipping rare earth metalsChina's unofficial embargo of rare earth metals to Japan seems to have ended. Industry officials reported that for the first time in almost two months, China resumed exports of the crucial minerals to Japan.

Japan's ministry of economy, trade and industry said Friday that out of 27 companies procuring rare earths from China, 16 reported in a survey that it was easier to purchase them. Rare earths are vitally important to myriad industries as they serve as a foundation for all sorts of technologies – from automobiles, smart phones, computers and glass to missiles, sonar systems and rangefinders on tanks. China's withholding the metals wreaked havoc on the supply chains of Japanese businesses, effectively stopping the production of many crucial goods.

The stoppage created a logistical nightmare for many companies as they scrambled to try to secure them from other sources. Currently, some rare earth metals cost nearly ten times as much outside of China as inside. China is the world's leading exporter of rare earth metals and when it reduces exports of the precious commodities, supply chains are greatly affected and business costs rise. A rare earth industry executive told the New York Times that for now, "everything is flowing" smoothly as China's exports have allowed Japanese businesses to resume their normal manufacturing.

China's resumption of shipments may be short-lived, however: the country has cut its rare earth quotas by 40 percent this year and analysts estimate that only about 3,000 to 4,000 tons worth of its quota remain, potentially sparking further shipping stoppages.
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Businesses adapt to higher metals prices, reducing costs and streamlining supply chains

on Thursday, November 18, 2010

Businesses adapt to higher metals prices, reducing costs and streamlining supply chainsSince the beginning of this year, gold rose over 22 percent in value. Speculators are mostly responsible for the upsurge, investing heavily in the metal as the value of the dollar plunges. As gold rockets upwards, what happens to the industries that rely on it?

Presently, jewelers are in quite the precarious situation: many of their items are made using gold bullion which is driving up their costs, but consumers are unwilling to pay more for items as they tighten their wallets during uncertain economic times. For many jewelers, their supply chain has been disrupted by gold shortages and mounting costs, forcing them to not only use less expensive materials like tungsten and silver, but also buy metals in bulk at fixed prices to avoid further price spikes.

The Wall Street Journal reports that a 14 carat gold chain that cost $250 in 2000 now costs $1,000. Jewelers saw their profits decimated during the recession, with sales down 2.7% in 2008 and 1.6% in 2009. To reduce costs, jewelers are funneling cash towards the comparably less expensive metals, like tungsten, silver, and platinum to offset business costs. Moreover, many jewelers are buying gold at locked-in prices – a tactic known as hedging – to prevent future loses. However, if prices fall, businesses take the loss.

Businesses anticipate the continued rise of commodity prices, leading them to trim inefficiencies in their supply chains to offset added costs from purchasing metals.  
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Rolls-Royce to replace Trent 900 engines, exacerbating supply chain disruptions

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Rolls-Royce to replace Trent 900 engines, exacerbating supply chain disruptionsTroubles persist for Rolls-Royce, the British maker of airline engines, as the full extent of its engine troubles emerged this week. Analysts expect the company will have to replace up to half of its engines installed on the Airbus's flagship A380.

Alan Joyce, the chief executive at Qantas, told reporters that as many as 40 of the Rolls-Royce Trent 900 engines used in the A380 would need to be replaced, even though some have already had fixes. The A380 is powered by four engines; Rolls-Royce supplied the engines for Qantas, Singapore Airlines and Lufthansa's superjumbo jets. Rolls-Royce has not released cost estimates associated with the supply chain breakdown, but analysts expect its quarterly profit will be affected by the disruption.

Qantas has suffered greatly from the supply chain setback as its entire fleet of A380s has been grounded since November 4, when a midair explosion in a Trent 900 engine forced one of its planes to make an emergency landing in Singapore. Qantas has rushed to rebook flights and redirect passengers as the travel industry enters its busiest time of the year, resulting in lower profit margins.

Rolls-Royce now finds itself in an undesirable position: because of its manufacturing defects, it must quickly replace engines, while concurrently uphold its brand image of quality.
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Time to eValue8 Your Subject Matter Purchasing Skills?

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For any of you who aren’t phonetic spellers, or a fifteen year old girl texting her “bf”, the alpha--numeric combo above is pronounced “evaluate”. I’m sure you’re asking yourself, “ Where do these darn kids come up with these silly abbreviations?” Apparently they get them from the National Business Coalition on Health.

That’s right. “eValue8” is actually the technical name the NBCH uses for the process by which they evaluate health care purchasing and quality improvement across the nation. It is used to compare transparency, cost, quality, and efficiency of a sample of health plans that represents that represents over 100 million Americans. You can view a full copy of the report by clicking here or catch the highlights in this press release. All kidding about the name aside, the report actually comes up with some pretty interesting data about the current state and future of the Healthcare arena.

While this particular study “identified opportunities to reduce waste, address gaps in care, structure payment reforms and improve consumer engagement” I found that the study, or at least being exposed to it, illustrated a valuable procurement lesson. How does one judge procurement effectiveness without a benchmark? If there is no standard to which the procurement of a given product or service can be compared, how do we measure our effectiveness as purchasers?

The fact of the matter is that some product categories are complicated, some are esoteric , and some are just plain boring. It is impossible for any individual and even most companies as a whole to be a subject matter expert in every category of spend. So, do we wander blindly? Do we low-ball everyone and really “stick it” to the supplier? Do we pour over gigs of data before purchasing a nut or a bolt? The answer, of course, to all of these questions is no. To overcome some of the more elusive product categories we must make use of our resources.

Of the myriad resources every purchasing professional should have at his or her disposal, three of the most important are internal personnel, industry publications, and the supply base itself. Internally, purchasers should diversify their team’s (no matter how small that team is) subject matter knowledge base so that at least one person on the team has at least a tenuous grasp on product specs and the mechanics of the supply base for most of the key purchasing categories.

Industry publications are also a great way to increase subject matter knowledge without breaking the bank. These subscriptions are generally relatively inexpensive, and there are many online and print versions available for even some of the most obscure spend categories. Investing in access to these resources will pay dividends at the negotiation table. There are literally millions of directories for finding these publications online. You can click here to check out a free directory I found.

Believe it or not, your own supply base can supply a wealth of information on any product category if you have the initiative to take an interest in the mechanics of the industry. One thing that is universally true about all salespeople is that they love to talk. A few well placed questions with different suppliers can illuminate some of the more important product or service attributes and help you to establish reasonable goals for pricing.

Healthcare is often considered one of the most complicated, convoluted spend categories organizations face. If resources like eValue8 exist out there for something as arcane as healthcare, there is no excuse to wallow in the darkness of procurement confusion. Make use of the resources you have at hand to increase your organizations overall purchasing competency level. As a first step, it might be a good idea to take a critical look at your purchasing habits for a few items on each end of the “mundane to complicated” spectrum. You may very well find that some categories are not as simple as they seem, and others, not as mysterious.

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Source One offers specialty Strategic Sourcing Services for Healthcare
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Chinese energy rationing drives diesel shortage

on Wednesday, November 17, 2010

China's resurgence as a global superpower has not come without its hitches. Presently, amidst its rapid economic expansion, China is rationing electricity as it rushes to meet the aggressive goals it set for energy reduction, effectively causing a diesel shortage throughout the country.

By cutting electricity to its citizens, China has created a huge shift in demand for energy. Over the last ten years, a burgeoning middle class has emerged in China, one that depends on electricity to power the electronics, cars and other consumer goods it is widely consuming. Furthermore, a building boom, requiring massive amounts of energy, relies on that energy. However, because of the energy cutbacks, the price of diesel has skyrocketed, with refineries at full capacity and supply chain inefficiencies causing country-wide slowdowns in business.

KF Yan, research director at consulting group Cera, told the Financial Times that the "primary reason for the diesel shortage is that they cut power supply to a lot of industries." Fearful of inflationary pressures, the Chinese government has not raised diesel prices. This measure has prompted some businesses and traders to hold onto their diesel stocks in hopes the price will rise, triggering further price escalation.

Because of its energy reduction goals, China stands to hurt its businesses and consumers as energy prices rocket higher.
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GM emerges post-bankruptcy better positioned on cut costs, improved supply chain efficiency

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GM emerges post-bankruptcy better positioned on cut costs, improved supply chain efficiency  General Motors, the American maker of automobiles, is set to file an IPO tomorrow on the U.S. stock market as it continues its post-bankruptcy renaissance. How did GM go from near insolvency to potentially having the largest global IPO in U.S. history? The company asserts that through effective supply chain management and an emphasis on strategic sourcing, it attained profitability.

Paradoxically, GM managed to log massive losses during the boom years of America's car-buying spree – the mid 2000's – while recently it has recorded profits as the industry suffers through a global recession. Newly reported third quarter results show a $2 billion profit from July to September, the company's third consecutive quarterly profit. GM is gambling on demand for cars in China, where it just became the first car company to sell more than two million cars.

GM's chief, Dan Akerson, asserts that the company has cut costs and trimmed its car lineup. As older workers retire, many will be replaced by new ones who will earn substantially less. Because of this cost reduction, GM stands to close the per-car cost gap with Asian carmakers. Moreover, the company's newly designed cars, especially its crossover SUVs, are selling well. After its bankruptcy filing, GM quickly reduced its brand holdings, downsizing to only 4 – Buick, GMC, Chevrolet and Cadillac – once again saving money.

GM hopes its profitability will continue amid global competition and rising commodity costs.
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Boeing, Airbus pressed to deliver new planes – but at what cost?

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Boeing, Airbus pressed to deliver new planes – but at what cost?The world's two largest aircraft makers, Boeing and Airbus, are fierce rivals in the oligopolistic airline manufacturing industry. Recently, airlines have pressured the two companies to produce more fuel-efficient substitutes for their smaller planes.

Airline executives pushed for redesigns of the Airbus A320 and Boeing 737 – small planes that make up roughly 75 percent of fleets at the largest airlines. Michael G. Van de Ven, the chief operating officer at Southwest Airlines, told the New York Times that in terms of fuel economy, they "haven't seen substantial improvements since the 1990s." With ticket prices rises along with the price of oil, the best "thing that you can do to improve the economics in this industry" is to "introduce a new airplane."

However, Airbus and Boeing are hesitant to invest the massive amounts of money – roughly $2 billion for the former and double that for the latter – it will take to develop and test new, more efficient engines for the planes. The companies defend their reluctance to implement new engines as they assert the move would hamper their efforts to design brand new versions of the two planes, potentially offering greater cost and energy savings.

Both airlines are both under intensifying pressure right now to deliver new planes: currently, because of breakdowns in their supple chains, Boeing has delayed its 787 Dreamliner for more than three years, while Airbus has many of its superjumbo jets, the A380, on backorder.
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Through efficient logistics, UPS thrives

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Through efficient logistics, UPS thrivesThis holiday season – stretching from Thanksgiving to Christmas – UPS estimates it will deliver more than 430 million packages to destinations throughout the world. To handle the surge in deliveries UPS plans on hiring more than 50,000 temporary workers.

It is essential that goods reach businesses and consumers on time. UPS understands the role it plays in the logistics chain, allowing companies to ship and receive time-sensitive materials and consumers to get their holiday shopping goods on time. UPS senior vice president of worldwide sales and marketing, Alan Gershenhorn, believes that UPS is at the "heart of logistics for millions of businesses and consumers," as they transport packages "to and from warehouses to boats, planes, trains and delivery vehicles and then to customers' doorsteps around the world."

To achieve a seamless supply chain, UPS allows shippers and receivers to track all packages through its website. Furthermore, UPS has a technologically-advanced label system that permits customers to pay and print wherever is most convenient: whether that is at home, at work or on the go with mobile devices.

Transparency, efficiency and supply chain management – all are attributes of UPS and its superior logistics capabilities. Santa's elves have nothing on the logistics giant.
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Nordstrom surges as inventory control system grows profits

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Nordstrom surges as inventory control system grows profitsNordstrom, the luxury department store, reported upbeat earnings yesterday. Its third quarter profit rose as shoppers bought more and a new inventory control system allowed the company to keep tight control of its supplies.

Nordstrom successfully navigated the recession by offering a variety of merchandise and moving inventory at an incredibly fast clip – roughly 100 percent faster than both Macy's and Saks Inc., two of its competitors. Nordstrom's Q3 profit climbed 43 percent to $119 million – sales increased 11 percent as well. In a statement, Nordstrom asserted that its profits came from selling more items at full price because of its superior inventory monitoring system. The inventory system monitors trends among shoppers and specifically calculates the proper amount of merchandise to be displayed; its online inventory system allows shoppers to look at in-store supplies as well.

Nordstrom's earnings rise comes amidst an economic slowdown that has negatively affected other retail stores in the U.S. Chief financial officer, Michael Koppel, told investors that the company believes there "is still some uncertainty in the current economic environment and we do not anticipate any meaningful change in overall consumer spending over the near term."

Nordstrom effectively moved through the recession and looks to exceed analysts' expectations for full year growth. With the upcoming holiday shopping season about to kick off, the company hopes it can keep its momentum.
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Report recommends ways for hospitals to cut costs, improve patient care

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Report recommends ways for hospitals to cut costs, improve patient careThe historic health care legislation passed this year is intended to drastically cut health care costs – especially those associated with Medicare and Medicaid. However, both programs bleed money and the implementation is proving exceedingly difficult.

The Office of Inspector General for the Department of Health and Human Services commissioned a study to determine whether Medicare beneficiaries receive adequate healthcare and found that one out of every seven of them is harmed as a result of lapses in care. Furthermore, the study concluded that unexpected adverse events in hospitals, like infection or medication errors, added at least $4.4 billion in government health costs and cost 180,000 lives a year.

Nancy Foster, an official at the American Hospital Association, said the study highlighted areas in which hospitals can improve their efficiency to save money and cut back costs. Foster told the New York Times that hospitals “have a ways to go before we are where we want our performance to be.” The report suggested incentivizing hospitals to improve their patient care and cut back on out of control costs.

The study was the largest of its kind and emphasizes the patient care improvements necessary to reduce the soaring costs the health care industry imposes not only on hospitals, but also on the taxpaying public.
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Caterpillar to acquire Bucyrus, expand its mining operations

on Monday, November 15, 2010

Caterpillar to acquire Bucyrus, expand its mining operationsAs countries like China, India and Brazil continue to modernize at a fast clip, their demand for goods like precious metals and energy sources is rising just as quickly. In an effort to capitalize on that demand, Caterpillar Inc. agreed to buy Bucyrus International Inc. as a means to add shovels, draglines and drills to its product lineup.

Investors cheered the news as stocks in both companies rose. The planned merger would be the largest in the construction and mining industry in five years, according to Bloomberg. Caterpillar stands to gain mightily from the deal as commodity prices are forecast to rise. The move also comes on news that Caterpillar plans to invest around $700 million the development of trucks and shovels, crucial to mining.

Caterpillar hopes the move will drive cost reduction and promote greater efficiencies in its supply chain. Jefferies & Co. analyst, Stephen Volkmann, notes in a report that there is little overlap between the two company's products. Volkmann further asserts his bull outlook on the mining industry, affirming that "capital expenditure globally will increase by more than 15 percent in 2011 as commodity prices rise."

The deal helps Caterpillar hedge its holdings amidst an historic homebuilding contraction.
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Rolls-Royce errors hurt airlines

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Rolls-Royce errors hurt airlinesRolls-Royce, maker of jet engines, recently completed a thorough investigation into the explosion of its Trent 900 engine aboard a Qantas Airbus A380 in early November and determined that a specific engine component should be replaced.

Three airlines – Qantas Airlines, Singapore Airlines, and Lufthansa – currently use the Trent 900 to power their A380s. Replacing the parts could prove more difficult than previously imagined as supply shortages will more than likely slow down the process. In total, there are 20 A380s outfitted with Rolls-Royce engines – although each A380 is equipped with four jet engines.

The breakdown in supply chain management will ultimately cost airlines money and cause delays in the delivery of new A380s scheduled for early 2011 as any of those planes already stocked with the Trent 900 will need replacement parts. An airline executive told the New York Times that there "may be enough of a shortage of spares now that engines may have to be taken off aircraft that are still on the production line."

Qantas has been hit hard by the engine troubles: following the midair incident, it grounded its entire fleet of A380s. The plane troubles come as the holiday season, the airline industry's busiest travel time, kicks into high gear.
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Panasonic positions itself in electric car supply chain

on Saturday, November 13, 2010

Panasonic positions itself in electric car supply chainPanasonic Corp. understands the importance of utilizing its resources to extend its influence and factor into other company's supply chains. That is why the president of its battery unit, Naoto Noguchi, is pushing hard into the burgeoning electric car industry, hoping Panasonic can gain a foothold in the market.

The electric car industry is set to take off – both the government and car companies are investing heavily in its success as a means to wean the U.S. off its dependence on foreign oil. Panasonic wants a stake in the billions of potential dollars to be made. Last week, Panasonic announced that it had bought a $30 million stake in electric car maker Tesla Motors Inc., a move that "tightened its supply relationship with the automaker," according to Bloomberg.

Panasonic opened a new plant in Osaka, Japan earlier this year that will produce lithium-ion batteries for electric vehicles. Panasonic said in a statement that it plans to lower production costs and raise the capacity of the batteries as demand increases. Through strategic partnerships with other companies, Panasonic hopes to achieve business cost reduction and a more efficient supply chain.

Panasonic hopes its gamble will pay off: the company says it will spend 300 billion yen over the next three years in clean technology components. Now, consumers must migrate towards them.
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University of Texas saves money through energy efficiency

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University of Texas saves money through energy efficiency With almost 55,000 students, the University of Texas at Austin is bigger than many American cities. It is also a massive consumer of energy. Until recently, the basketball arena wasted money on energy: its director changed that.

The basketball arena, the Frank Erwin Center, used to cost the university $3,500 a day in energy costs. Its director, John Graham, performed an audit and horrified by the results, instituted some policies to decrease energy consumption. That same day, Graham asked employees to turn off unnecessary lights and computers – the bill plummeted $1,000.

Galvanized, Graham committed to lowering energy costs. According to the Texas Tribune, between the years of 2006-2007 and 2008-2009, electricity use fell by 15.4 percent, with chilled water decreasing by 12 percent. He also reduced the time the university spends to cool or heat the arena before a game, from about eight to ten hours to four to six. Graham stresses that the key to cutting energy use and expenditures is information. "If you can't monitor it, there's no way to manage it."

Through his cost saving measures, Graham saved the university money and reduced its environmental footprint. Everything is bigger in Texas – energy savings, apparently, included.
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Notes from a Shopper

on Friday, November 12, 2010

As the holiday season gets closer, it’s time to really start thinking about how to spend those hard earned dollars. Before heading out on your shopping adventure here are a few things to consider.

How much are we spending? - This year analysts are already predicting that the high income Americans will be the big spenders this year while the middle class may continue to watch their wallets. High end retailers like Coach and Gucci are increasing their inventories in preparation for the holidays. For those shoppers who might be looking for more variety Wal-Mart or Best Buy is an option; however these companies are expecting to do a little more work to get the customers to their stores. One online survey that was conducted indicates “respondents with household incomes of less than $50,000 said they'd spend an average of $490.33 this season, down 1.2 percent from last year. Those with household incomes of $50,000 or more said they'd spend 2.9 percent more than in 2009, an average of $942.12”.

Who has the best deals? - The deals are starting early this year. Stores like Kohls and Best Buy are advertising with great deals now instead of waiting until Black Friday or later. It may not be necessary to get up in the wee hours of the morning and wait in line on Black Friday for that new TV or toy. But you may get the best deal on a new computer or lap top on Black Friday according to one article. The article also indicates that since the weather has been seasonable warm, cold weather clothing sales are starting now.

How are we going to pay for this? – Cash or Credit. Analysts indicate people doing their holiday spending may use their credit cards less this season. This year 40% of Americans said that they would not use a credit card this holiday season, according to one article. During these hard times, people are more wary of using credit cards to add to the mounting debt load.

Have fun shopping.
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Cost reduction not an option as supply chain mishaps delay plane

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Cost reduction not an option as supply chain mishaps delay plane Boeing, maker of the long-awaited 787 Dreamliner, announced that an electrical fire onboard forced an emergency landing during a test flight. Boeing plans to deliver the first plane by February of 2011, but analysts doubt the planes will be ready.

Engineered to cut fuel costs through its lightweight carbon composite frame, the Dreamliner has had myriad problems and delays in its tumultuous development. Boeing confirmed that the fire originated in an electronics compartment in the back of the plane, prompting the unexpected landing. Analysts routinely emphasize the breakdowns in the complicated supply chain that led to previous delays. Boeing's executives conceded that suppliers were not carefully vetted and their inefficiency hurt production.

For example, a Rolls-Royce engine designed to power the planes failed in testing at the company plants, causing delays. Furthermore, Alenia Aeronautica, another Boeing supplier, did not deliver the plane's horizontal tails on time. Boeing acknowledged that it has modified many of the parts because of inferior workmanship. Robert Spingarn, an analyst at Credit Suisse, doubts the planes will be ready on time. He told the New York Times that the "aircraft, at this point, is being hand-built."

Currently, Boeing has 847 orders for the plane and hopes that it will catapult the company over Airbus in total sales.
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GM recalls cars with fire risk

on Thursday, November 11, 2010

GM recalls cars with fire risk Fresh from posting a $2 billion profit and amid a successful restructuring, General Motors announced that it will recall thousands of vehicles. The news comes as GM hopes to post its first yearly profit since 2004.

GM announced the recall this morning. The alert affects 13,780 cars from two if its brands, Buick and Cadillac. The Buick Lucerne and the Cadillac DTS are both luxury sedan offerings from the car giant and were recalled on fears that possible steering fluid leaks could cause a loss of steering or potentially start an engine fire.

In a letter to U.S. safety regulators, GM asserted that it investigated claims at the end of the summer that fires had broken out in two of its cars. In its own inquiry, GM found that there was a potential for the power steering line to leak after extended wear. In the recalled cars, the starter could rub the power steering line thin, resulting in a loss of power steering or fire in the engine compartment.

GM has already suffered breakdowns in its supply chain from the engineering error: a plant in Michigan stopped shipping the completed vehicles and reexamined uncompleted cars to test for the problems.
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Apple facing higher costs in its supply chain

on Wednesday, November 10, 2010

Apple facing higher costs in its supply chain  Apple Inc.'s suppliers in Taiwan are concerned that as the local dollar climbs relative to the rest of Asia's currencies, earnings will fall and could potentially lead to higher prices for products. The Taiwanese dollar has increased more than 2.5 percent against the greenback over the past month.

The biggest contract manufacturer of Apple's electronics, Hon Hai Precision Industry Company, would potentially suffer a 0.7 percent reduction in net income if the currency experiences a 1 percent gain in value. Many of the firms in Taiwan are "export-oriented, so if the strong currency continues we might have to think about raising prices," CFO of Apple supplier, Wintek Corp., said in an interview.

The currency shows no signs of depreciating in value against the greenback because of the Fed's move to pour $600 billion into the economy. Wee-Ming Ting, the head of regional fixed income at Pictet Asset Management, said in an interview that there is "still more room for the Taiwan dollar to strengthen." As a result of the currency appreciation, Apple forecast profit that will rise less than analysts expected.

Apple will most likely enter into supplier contact negotiations to keep its profit margins high. However, if the greenback continues to depreciate, the task will be increasingly difficult.
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Retail stores change strategy to adjust to consumers

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Retail stores change strategy to adjust to consumers Retail stores across the U.S. suffered massive sales declines during the recession as consumer spending contracted and inventory surpluses hurt their bottom lines. Now, stores are employing a new strategy - decreasing in size and adapting more quickly to inventory shifts - as the economy picks up.

This change in retail strategy is fueled by a shift in consumer preference towards a less expansive shopping experience and a desire by companies to cut costs. The smaller stores help with a company's bottom line as increased efficiency in supply chain management, decreased rents, and cost reduction in inventory save money.

National upscale retailer, Bloomingdale's, recently opened a store in Santa Monica, California – one that is less than one-eighth the size of its flagship New York City store. The store is only two floors and has neither home nor children's sections, both underperforming departments. Chairman and CEO, Michael Gould, told The New York Times that the Santa Monica store is "turning very quickly" because the size allows the store to "be very specific to a customer and to a marketplace."

The trend towards a smaller, more personalized shopping experience shows no signs of abetting. Chains like Niketown, Anchor Blue, and Charlotte Russe are all embracing the new shopping paradigm.
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Panera thrives as competitors weaken

on Tuesday, November 9, 2010

Panera thrives as competitors weakenThe U.S. restaurant industry has suffered mightily since the recession hit, with sales dropping 2 percent just last year. Panera Bread, however, has come out of the recession in a better position than before it began, hiring more than 4,600 workers, opening 191 new stores, and growing revenue by 24 percent – all since the end of 2007.

In an exclusive interview with Bloomberg Businessweek, Panera's Executive Chairman, Ronald Shaich, explained Panera's growth through a commitment to its long term plan. While competitors pulled back, Panera "did more." Competitors cut costs and employees, while Panera, conversely, "continued to invest in labor . . . and the quality of the food."

Shaich also asserts that the "best time to grow is in a recession," while the worst "is in the boom days." During the boom, Panera reigned in real estate standards. They negotiated with landlords and stores opened in 2009 and 2010 will go "down as some of the highest [return-on-investment] cafes" built.

Panera also successfully implemented better quality foods, like a lettuce program that increased the quality of salads to that of "the Four Seasons." Through its commitment to a higher-quality food, better service, and an adherence to its long term goals, Panera has prospered during the economic downturn.
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Amazon buys Quidsi, gets foothold in baby market

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Amazon buys Quidsi, gets foothold in baby market The world's largest internet retailer, Amazon, has long fought for a place in the competitive world of baby care products. It has taken another course this week by purchasing Quidsi, the parent company of Diapers.com, avoiding a lengthy battle to gain market share.

Organic growth has largely fueled Amazon, but with the acquisition of Quidsi, Amazon aims to gain a dominant market share immediately. It purchased the company for $500 million in cash. Amazon looks to profit mightily from the deal: Jordan Rohan, an analyst at Stifel Nicolaus, tells The New York Times that Quidsi "figured out a combination of specialization and scale," allowing it to "fulfill orders more efficiently than Amazon." Amazon acknowledges that Quidsi has excellent supply chain management and understands the importance of cost reduction.

Quidsi is already a major player in the baby market. It is expected to generate about $300 million in revenue this year – 66 percent higher than 2009. Quidsi will operate independently from Amazon and without management changes, must like what happened when Amazon acquired Zappos.com last year.

Nonetheless, consumers stand to lose on the deal. Prior to the agreement, Amazon competed with Diapers.com by selling diapers at incredibly discounted prices. Many analysts, including Mr. Rohan, expect this to change.
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Chinese government's energy policies lead to diesel shortage

on Monday, November 8, 2010

Chinese government's energy policies lead to diesel shortage Major disruptions in the supply of diesel fuel have forced many businesses in China to grind to a halt as they await governmental moves on the shortage. A combination of factors - including burgeoning demand and governmental rationing - contributed to the shortfall.

The supply shortage is actually the result of other energy rationing the Chinese government imposed. The government instructed businesses to meet energy-saving goals that forced many businesses to buy diesel generators to deal with the power cuts. The move boosted already sky-high demand while exposing the rudimentary tools the Chinese government utilizes to regulate markets.

Companies across the country are experiencing slowdowns as a result of the shortage. One such company, Tianbang Logistics Co., a trucking company, reports that its deliveries have been held up by more than two days at ports in Shanghai while its drivers await fuel in massive lines.

This is not the first time the government has disrupted the economy through its energy policies. Ken Pang, an economist for Citibank, tells the New York Times that the only way to reverse the fuel crisis is to "begin supplying more power."
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Faulty Rolls-Royce engines disrupt Qantas flight schedule

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Faulty Rolls-Royce engines disrupt Qantas flight schedule Rolls-Royce, the maker of airplane engines, says it is homing in on a cause for its engine's breakdown last week on a Qantas airplane. The Trent 900, a signature Rolls-Royce engine, blew up during takeoff and forced an emergency landing. As a result of the incident, Qantas has grounded its entire fleet of Airbus A380s.

Qantas CEO Alan Joyce said the engines are simply "not performing to the parameters you would expect." Qantas's entire 6 plane fleet of A380s has been grounded since last Thursday, causing flight delays and supply chain disruptions. Mr. Joyce affirmed that the fleet of A380s would be grounded for another 72 hours, leaving Qantas at a vulnerable position as worldwide demand for air travel begins to increase.

Qantas is suffering from the effects of the engine breakdowns: it has been forced to change its flight schedules and rotate its fleet. Its stock is down almost 6 percent since the engine mishap last Thursday. Qantas is also leasing planes from British Airways, augmenting its expenses while simultaneously losing money.

Another Qantas flight had to make an emergency landing less than 48 hours later because of unrelated engine issue. Boeing also makes engines for the A380, although not for Qantas: its engines have not had the same problems.
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Target Hits the Green Bull’s-eye

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As I strolled through Target last month to pick up a few random items, I decided to take advantage of the one-stop-shopping experience and hit up the grocery section for baked ziti ingredients. After all, it’s a great dinner to provide for a friend who became a new mommy the previous week! I walked toward the refrigerator/freezer case section (can’t forget the garlic bread!) and caught a glimpse of a few dark cases. I thought to myself “the lights must have burned out” and didn’t think twice about it. To my pleasant surprise the cases lit up one by one as I walked down the aisle in perfect succession! If there was anyone standing by me, they may have heard a low “cooool” uttered as I smiled and continued to shop.

Target hits the green bull’s-eye by installing energy-efficiency initiatives in lighting, refrigeration and HVAC. According to their website, 100 of their stores are currently Energy Star-certified and are working to certify the majority of new and remodeled stores with the Energy Star label. Target has achieved this certification by outfitting the refrigerated cases with LED lights and motion sensors that are designed to illuminate only when a guest walks by (that’s me!). Target is also using low-wattage light fixtures on the sales floor that can reduce a store’s energy cost by about 10%. The energy & climate page of Target’s website also boasts “new light fixtures save more than 110 million kilowatts”. Another initiative that warrants Energy Star-certification is the installation of white roof membranes that reflect sunlight to lower cooling needs and LED lights in exterior signs.

When browsing the web to read up on the matter I came across many other stores that are also hitting the green bull’s-eye: Wal-Mart, Publix, Kroger, Hannaford Supermarket, Whole Foods Market and plenty of others. If you are interested in greening your company, from electrical/light bulbs to cleaning/janitorial supplies, a great first step is a Procurement Sourcing Provider (PSP) – Source One Management Services can help you move toward the green bull’s-eye!

Put a little green in your life as we head into the cooler months, contact us today!
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Component shortages, supply chain woes hit Windows 7 launch

on Friday, November 5, 2010

Component shortages, supply chain woes hit Windows 7 launchIt seems like it's hard for a new smartphone to get off the ground without a supply chain issue these days. This time around, it's the new Windows Phone 7 - regarded by some analysts as Microsoft's last chance to make its mark in a market dominated by Apple, Google and Research in Motion.

Windows Phone 7 is a sleek new operating system which improves on the clunky and obsolete Windows Mobile 6.5; it builds on the minimalist Zune interface and has attracted largely positive reviews. It has already launched in the United Kingdom, and it will soon hit U.S. shores.

Its impact might be muted, though - according to a report in Mobile Today, Orange, the main UK partner of Microsoft, has had to compensate customers with gift cards due to a shortage of the launch devices, the HTC 7 Mozart and the Samsung Omnia 7.

"I was shocked when I heard the news. We are the lead partner for Windows Phone 7," an unnamed Orange manager told MT. "But I believe this is a manufacturer issue on a world-wide scale."

Business Insider speculated that a shortage of components for the touch screens might be to blame; as the magazine states, both Samsung and HTC ran into screen shortages due to supply chain issues. Mobile phone touch screens are compact, fragile and expensive pieces of technology - and they require thousands of components and different raw materials to construct.
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Screening cargo poses logistical nightmare

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Screening cargo poses logistical nightmareThe recent attempted bombing of cargo intended to reach the US exposed gaping holes in the shipping system, garnering cries for improved screening processes. Currently, only about 20 percent of cargo is screened, which poses a major threat to homeland security and creates a supply chain management quandary.

Analysts caution against implementing a new security system right away, noting that the cost of screening all cargo that is transported by air could potentially bankrupt international shipping companies and harm already weakened airlines without providing tangible benefits.

The most effective way to check cargo - swabbing packages individually – is nearly impossible to implement because of the massive delays it would cause in the delivery of consumer goods. Analysts gauge the cost of such measures in the billions of dollars, unfeasible for many developing nations.

Additionally, screening all packages is a logistical nightmare. Presently, more than 50 percent of all cargo that enters the US is carried in passenger planes. Cargo traveling on passenger planes in the US must be checked according to federal law, at a cost of more than $700 million per year. James Halstead, a consultant with Aviation Economics, told ABC News that in a worst case scenario such screening "would stop world trade" if carried out.   
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Manufacturing continues growth, but concerns remain

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October continued the trend of increased manufacturing activity in the US, according to the Institute of Supply Management's just-released Manufacturing Report. The report highlighted the growing yet tepid confidence businesses have in the economy.

October registered as the fifteenth consecutive month of improving manufacturing activity as gains were seen across 14 of 18 industries polled. Nonetheless, the growth was modest for the most part, affirming economists' predictions that the US economy will continue to enjoy slow, steady growth for the foreseeable future.

Manufacturing Continues GrowthThe expansion was seen across a wide array of industries, from computer and electronic products to apparel. Industries including primary metals, machinery and electrical equipment also reported positive gains, signaling a healthy economic outlook. Businesses, however, remain cautiously optimistic, citing the unpredictable commodities markets and irregular consumer purchasing patterns as hurdles to effective supply chain management and strategic sourcing.

Still, certain industries reflect the other side of consumer habits: for example, furniture continued its decline, reflecting consumer hesitance to purchase bigger ticket items for the home. Nonmetallic mineral products, like sand and gravel, also reported a net loss. These products are often utilized in construction, a sector of the economy that is still struggling.
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Better forecasting, cost reductions key to improving supply chain efficiency

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Better forecasting, cost reductions key to improving supply chain efficiencyIn a global economy where raw commodities are growing steadily more expensive and complex supply chains are vulnerable to disruption, better forecasting techniques and cost controls are key to getting a handle on improving corporate logistics. A new study from the Aberdeen Group, a Harte-Hanks Company, has created a prioritized list of best practices for supply chain officers and planners.

The survey of supply chain specialists found that fully 86 percent had recently been asked by management teams to review their supply chains in order to find ways to create a better planning process, while 71 said they'd received requests to improve technology solutions.

"Today, senior management is looking for the supply chain organization to deliver more than just efficiency - it is being asked to deliver innovative cost reduction strategies to help grow their company and present a market strategy differentiator," said Nari Viswanathan, vice president and principal analyst of Supply Chain Management at Aberdeen.

"That's why organizations are increasingly using supply chain planning solutions ... to plan more efficiently and collect input from more stakeholders across the organization."
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