Slashing prices lures customers, pummels profits at restaurant chains

on Friday, December 30, 2011

Slashing prices lures customers, pummels profits at restaurant chainsMany struggling restaurant chains are endeavoring to reignite growth as they work to spur Americans to spend more money on food.

The New York Times reports that a number of restaurant chains have been victims of the financial crisis. The U.S. restaurant industry has stagnated in the wake of the recession, and aside from high-end fast food chains such as Panera and Chipotle, growth has all but stalled in the formerly profitable sector.

Sbarro, Perkins, Chevys and Friendly's have all witnessed eroding profit margins and a decline in revenue over the past few years, spurring all four chains to file for bankruptcy protection in 2011. In an effort to drive growth, experts assert such fast food chains are reorganizing spend management and indirect spend, implementing cost reduction programs and working with procurement agencies.

However, for at least some restaurants, it might be too little, too late.

Some chains are barely scraping by, with many posting meager profits barely sufficient to cover food sourcing. Increased competition and a drop in the amount of money Americans are spending on dining out has hurt their profitability, Technomic executive vice president Bob Goldin told The Times.

"There's a lot of walking dead," he said. "A lot of chains, they hang in there and they're hard to kill off."

The weak business environment is affecting formal dining establishments as well. Darden Restaurants, which owns Red Lobster, LongHorn Steakhouse and the Olive Garden, posted weak quarterly results this month. Company executives said while revenue rose 6.1 percent from the same period in 2010, net income plummeted by 28 percent to $54.1 million. Volatile food prices caused a retrench in customer spending, Darden chief executive Clarence Otil said.

"Strong sales growth this quarter at Red Lobster, LongHorn Steakhouse and our Specialty Restaurant Group was offset by below expectation sales results at Olive Garden, pressure on check averages as guests continue to be cautious about spending and unfavourable year-over-year food costs," Otis noted.

Just as retailers have courted customers by slashing prices, so too have many restaurant chains. While such aggressive price-cutting helped drive revenue at many eating establishments - and retailers, for that matter - it eroded profit margins. Restaurants have been loath to close stores, but in its bankruptcy protection filing, Friendlys said it would shutter 63 of its underperforming stores.

Nevertheless, many restaurant chains are confident growth will rebound in 2012, as economists project food prices to stabilize.

"Fortunately, with reduced cost inflation in the second half of this fiscal year, the strong momentum at our other brands enables us to anticipate solid earnings growth for the remainder of the fiscal year even as Olive Garden makes the changes needed to get back on track," Otis affirmed.
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It Pays to Pay – Verizon's New $2 Payment Fee

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Verizon Wireless customers have a lot to grunt about going into the New Year. First, the company has been experiencing technical problems with its new fourth generation, 4G, high speed wireless network. This has caused several service outages this month and has also affected the activation of new phones, which is not good news for the many customers who purchased phones during the holiday season for their loved ones. To add to their frustration, Verizon announced Thursday that starting January 15th, they will be imposing a $2 payment fee for any customer paying their bill by phone or website.

According to Reuters, Verizon Wireless defends its fee by stating that “the fee is designed to address costs incurred by us for only those customers who choose to make one time bill payments in alternate payment channel (online, mobile, telephone) and who choose not to use the other options available to them…”  This statement has done nothing to console outraged customers. Numbers of angry comments flooded the Verizon forum, with one customer saying “I’m getting tired of businesses figuring out ways to get their hands in my pockets.”

But is Verizon really in the wrong?  There are ways to avoid the fees like paying by check, making a payment at the store or enrolling in their AutoPay program. It seems that Verizon may be targeting the fee to customers who cost more money to serve them. Credit and debit cards cost them more money to process every time they make a one-time payment, so they’re adding on the fee to compensate for those extra charges. Verizon is not alone since suppliers add surcharges to help balance out the extra costs for their services.

Although surcharges are not foreign to the overall fee of a supplier’s services, it can be a factor in whether or not they will keep those services or choose to go with another supplier whose fees aren’t as high. A good example would be the airline industry. Almost all airlines now charge a bag fee for all checked bags. Airlines like Southwest who do not charge bag fees have profited from this because customers want to save as much as possible and will tend to go to companies with lower prices.



Companies are pretty good at finding ways to gain back extra costs they have incurred when servicing customers. It’s too early to see how Verizon will be affected by all the negative attention this new fee has gained, but with enough push, the company may be compelled to pull the fees.
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Boeing's Supply Chain Overhaul

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In the wake of Boeing's painfully long delays on filling orders for its new 787 Dreamliner, they have decided to take a closer and more critical look at the production supply chain. In a reactive state for the last few years, Boeing's suppliers have struggled to keep up with production as jet demand surges. According to a Wall Street Journal Article by David Kesmodel, Boeing has hired over 200 engineers and supply chain professionals to assist in the transformation. Boeing will be applying the "stress test" and a number of other critical evaluations regularly to over 1,000 suppliers to see how they perform under various high demand and critical lead time scenarios.

My question is, why are they doing this just now? Some could argue that this is common among companies with plenty of laurels to rest on from hefty government contracts; they were recently awarded a $30 billion contract to supply refueling aircraft to the Air Force. Both Qantas and Virgin Atlantic decided on the Airbus 330 over the 787 based on Boeing's delays, ouch.

While this is a large manufacturing setting with a Fortune 500 company, the same preparation needs to made for a business of any size. You should ask yourself if your suppliers are prepared for critical scenarios. Are your suppliers able to grow with you? Are they adaptable to constantly-changing process and design changes? These are very general questions, but they touch on a subject which I have brought up before: Supply Chain Risk Management. Strategic Sourcing Services from Source One not only identify cost savings and process improvements, but fully evaluate a supplier's ability to grow, change, adapt, and meet customer servicing needs.
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Increasingly competitive market prompts carriers to eye oil sourcing, spend management

on Thursday, December 29, 2011

Increasingly competitive market prompts carriers to eye oil sourcing, spend management 

The airline industry has undergone a consolidation over the past few decades, and with American Airlines' recent bankruptcy filing, that trend looks to continue.

The airline industry has suffered over the past decade, as airline companies have had to endure a number of cataclysmic shocks. The September 11 terrorist attacks prompted a precipitous decline in airline traffic. The resulting shocks to the economy over the next seven years, coupled with volatile energy prices, ate into companies' profits, hurting growth and spurring large carriers to merge or buy competitors.

Oil sourcing helped Southwest to weather the airline crisis better than its counterparts, but even the Dallas, Texas-based airliner has shown weakness over the past few years. Company officials have reentered supplier contract negotiation talks with Boeing, among others.

Southwest recently placed one of the largest jet orders in aviation history with the aeronautics giant, Bloomberg reports. The deal, worth a reported $19 billion, will help Southwest upgrade its aging fleet, but the company is not immune to systemic factors plaguing the airline industry.

NPR reports that in the wake of deregulation in 1978, the airline industry as a whole has lost a substantial amount of money. Though deregulation has helped companies operating in other sectors augment revenue and boost operating margins, it has not – at least thus far – fueled a rise in airliners' earnings performance.

"The industry in aggregate has lost about $60 billion over the 32 years since deregulation," University of California at Berkeley economist Severin Borenstein said.

High barriers to entry and exceedingly high operating costs are hallmarks of the airline industry, according to Borenstein. Indeed, it is difficult for airline officials to effectively prepare for volatile energy prices because of the precipitous price swings witnessed over the past 12 years. It is less of a science and more of an art to predict demand, gauge oil prices and entice customers, experts say.

The so-called legacy airlines, which include holdovers Delta, American Airlines, United and Continental, have fared particularly poorly in the wake of deregulation, according to an analysis Borenstein conducted. American Airlines famously filed for bankruptcy in late November, and other legacy airlines have done so in the past – some twice.

Low-cost airlines such as JetBlue and Southwest have an advantage over their higher-cost competitors, as many are relatively new and are therefore not constrained by many of the variables affecting their legacy counterparts. Borenstein noted low-cost carriers "get much more productivity out of their workers," as their "jobs are defined more broadly and their workers tend to be able to cover more of the work load."

Union workers at legacy airlines vehemently deny such claims, but Borenstein and many other economists note the troubles plaguing airliners are similar to those that contributed to the downfall of the U.S. manufacturing sector: in automaking, competitors increasingly entered the sector who were able to offer superior products at a cheaper price, winning market share.

Airline carriers are also notoriously poor at supply chain management. For example, after Delta merged with Northwest Airlines, company executives struggled to integrate the two carriers' varied operations systems. Some consumers, fed up with the airline's inefficiency, opted to fly instead on the company's competitors.

Experts assert the ongoing consolidation among airliners could negatively impact consumers, especially those who travel on less popular routes. American Airlines is expected to end service between some of its unpopular destinations. Business and leisure travelers will also feel the pinch as the company could increase prices and fees to offset mounting expenses.

Nevertheless, unless American Airlines - and many other airline carriers - successfully overhaul spend management and implement business cost reduction initiatives, they will likely continue to bleed money - and customers.
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How Philadelphia is Doing Their Part to Help Drive You Even Crazier this Holiday Season

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Many people I know that live outside or not far from the city rarely go into it for one main reason – parking. The Philadelphia Parking Authority (PPA) is one of the most hated organizations in the country. A&E even has a hit TV show about them (“Parking Wars”) which is now in its fifth season.

As if the holiday madness wasn’t bad enough, parking in the city presents some big hurdles – completely different signs/rules on every block, not enough, change, broken meters, just to name a few…and that’s if you’re able to find parking at all. You need a Ph.D. to decipher the rules on some of these signs (1hr parking M-W from 9am-4pm, 3hr parking Tu-F 5pm – 9pm, 2hr parking Sa-Su 7am-11am except holidays, No parking W from 1am-7am, No stopping any other time – Tow away zone). What?!

In recent years the wonderful PPA has tried a number of things to help the citizens of the city of Brotherly (and Sisterly) Love. A few years ago they instituted a pre-paid card reading system into the current meters. This allowed people to purchase a card at PPA offices or on-line in set increments - $5, $10, $20, etc. This never truly caught on as the cards were not that easy to get when you needed them, the meters still broke, and they were only installed on certain blocks. So if you bought a card for $20 and then parked on a street with meters that didn’t accept them – you are out of luck. What they tried more recently to “help” us citizens was to install parking payment centers in which you could use cash (dollar bills or change) or even a major credit card to pay. You chose the length of time you wanted, paid, and a piece of paper prints out with how long you have. You would then place it in your curbside windshield. Again, only a certain blocks throughout the city have these. That also eliminated those few times you could get lucky and pull into a spot with cash already in the meter. I am sure them helping us while making more money was no coincidence. Despite (rather because of) these so called improvements, the rates have continuously increased and are now $3.00 an hour in center city.

All of these things deter so many people from coming into the city and spending money. I can’t tell you how many times I had to leave a romantic dinner or in the middle of a great conversation at a bar with friends to have to run a few blocks to feed the meter – just to find that the meter maid had been standing there waiting to write me a ticket.

Well Philadelphia could follow San Francisco and make an improvement that might actually help. San Francisco is planning on launching a new service that allows people to feed their meter using their cell phones. The person will have to download an app and the city will alert drivers via text message that their meters are about to expire. Not only that, but they will have the option to put more money on the meter remotely using their phones! There will be a service fee of $0.45 per transaction. Is it worth $0.45 to not have to leave the restaurant/bar/store in the freezing cold to run a half mile to catch the dying meter? Oh yeah.

What is the PPA doing for us this holiday season? Free metered parking on January 1st and 2nd. Thanks.
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How damage from March's earthquake, tsunami taught Nissan invaluable lessons

on Wednesday, December 28, 2011

How damage from March's earthquake, tsunami taught Nissan invaluable lessonsThe 9.0-magnitude earthquake and tsunami that devastated Japan in March taught Nissan some valuable lessons about its electric vehicle model, the Leaf, The New York Times reports.

Japanese carmakers were significantly impacted by the natural disasters, as the majority of the nation's automobile manufacturing plants are located in the hard-hit Northeast. Nissan officials affirmed that its production facilities were walloped by the tsunami and earthquake, but none of the electric vehicles caught fire.

Moreover, the cars' batteries remained fully intact. Nissan uses hundreds of individual battery packs to power the Leaf, and company engineers designed a sophisticated – and multi-layered – encasement that proved pivotal in preventing damage in the wake of the natural disasters.

Nissan North American product safety director Bob Yakushi asserted that how well the Leaf models held up underscores how safe they are for drivers.

"Considering how they were tossed around and crushed, we think that is a very good indication of the safety performance of that vehicle," he said.

The natural disasters prompted Nissan and other Japan-based carmakers to overhaul strategic sourcing and supply chain management, but it also instilled invaluable lessons about their manufacturing and product lineups, experts say. Unlike Nissan's Leaf, General Motors' electric vehicle offering, the Volt, has come under heavy scrutiny for possible fire hazards.

The Volt's battery system is encased in a steel tray, but it has a plastic covering that some safety advocates contend could spark fires. The National Highway Transportation and Safety Administration (NHTSA) acted to investigate such claims, concluding that its testing "had not raised safety concerns about vehicles other than the Chevy Volt."

Plastic is cheaper than steel, and Nissan likely spends more money developing its protective battery technology than some of its competitors. However, GM, which is aggressively seeking to implement business cost reduction measures as it eyes increased profits, might have to change the design of the Volt's battery if the fire hazards prove true.

"Whenever you come out with an alternative vehicle, there will be problems with it," Center for Auto Safety executive director Clarence Ditlow said. "But when you have a significant portion of the company's success in the future based on a particular technology, you want to make sure you get it right, and they didn't. Nissan clearly was ahead of GM in this."
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Walgreens profits sink

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Walgreens profits sinkWalgreens' recently announced first quarter earnings disappointed investors, as the company contends with the fallout from its split with Express Scripts.

The national pharmacy and retail chain suffered through a tough first fiscal quarter, company officials said when announcing earnings this week. Walgreens executives noted that a slow flu season, coupled with its decision to not agree to a new deal with pharmacy management company Express Scripts, fueled a 4 percent drop in quarterly earnings.

Walgreens and Express Scripts were unable to reach an agreement over the rates the latter pays to the former to fill prescriptions, Walgreens chief executive Greg Wasson asserted. The standoff prompted the pharmacy giant to walk away from the bargaining table, but analysts said the move could have far-reaching implications.

Express Scripts is one of the nation's biggest pharmacy management companies. Walgreens could implement a business cost reduction initiative in an effort to improve profitability, but experts said its decision to walk away from the supplier contract negotiation underscored its frustration over what it perceived as unfair reimbursement rates.

"While we remain open to any fair and competitive offer from Express Scripts, we firmly believe that accepting their proposal was not in the best long-term interests of our shareholders," Wasson said.

The company's net income registered $554 million in its latest fiscal quarter. That figure represents a decline from the $580 million it logged in net income during the same period the year prior. Walgreens said revenue grew by 4.7 percent compared to 2010, reaching $18.16 billion. Analysts, however, had projected the company would report $18.24 billion.

The delay of the flu season hurt the company's bottom line. Compared to the same point last year, Walgreens has sold roughly 600,000 fewer flu shots, The Associated Press reports. Wasson affirmed the company does not expect its split with Express Scripts to affect long-term profitability, noting it had expected a difficult first quarter as it dealt with the aftermath.

"The first quarter was expected to be a very challenging one for gross profit dollar growth as we faced comparisons with strong gross profit performances in the first quarter of the two previous years," he said in a statement. "Despite that, we're pleased with important aspects of our business including our record sales of $18.2 billion, the first-quarter record number of prescriptions filled, the continued profitable growth of our front-end business and delivering on our commitment to return cash to our shareholders."
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The Not So Dynamic Duo – Sears and Kmart

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As of yesterday, Sears Holdings, the parent company of Sears and Kmart, announced its plan to close up to 120 stores after experiencing a disappointing holiday shopping season. Overall, sales dropped by 5.2% during the 8 weeks leading up to Christmas day compared to last year. Bloomberg Businessweek reported that “according to the International Council of Shopping Centers, sales in the department-store sector will climb an estimated 4 percent in November and December compared with the same period a year ago.”

This decline in sales has been a steady trend for both retail stores and the results of the holiday shopping season was the final indicator that some action needed to be taken to address the poor performance. A Strategic Sourceror blog from last month also hinted that a move like this was going to take place. Unfortunately, the decision made will lead to several job losses. Many industry analysts believe that the company’s weak sales figures are the result of several issues and challenges:

  • “Sears’ reluctance to invest in stores and service” – The Businessweek article stated that “Sears is spending less than a quarter of the $8 a square foot that retailers typically invest to maintain stores.” This is reflected in the cleanliness of stores, which some customers have complained is not up to par with Target and Wal-Mart.
  • Strong competition – Wal-Mart, Target, Macy’s, Kohl’s, and others all have a strong presence in the department-store sector and experienced an increase in sales this year during the holiday season.
  • Weak economy – The weak economy in general is forcing Sears’ and Kmart’s target market of low- and middle-income shoppers to cut back on spending.
  • Kim Kardashian – In August of this year, Sears launched the Kardashian Kollection, a clothing line developed by Kim and her two sisters, Kourtney and Khloe. Sears had high hopes for this line to help sales significantly; however, it has not met expectations and the promotion of the new line was in parallel with all the drama unfolding from Kim’s divorce from Kris Humphries. Some consumers have even gone as far as signing a petition agreeing to boycott any company that sells Kardashian related merchandise.

Since the merging of Sears and Kmart in 2005, the venture has been an ongoing struggle. Chairman Edward Lampert has been calling the shots along the way and has already reduced costs through the same strategy as the one he has now. He has closed 171 large U.S. stores and cut headcount by about 12 percent.

The Associated Press article stated that Sears “declared that it would no longer prop up ‘marginally performing’ locations.” Therefore, these locations might be the starting point for determining which stores close first. “The company pledged to refocus its efforts on stores that make money.” The news of the closings led to a 27% drop in Sears’ stock which is the lowest since April 2003. The cost reduction strategy to close underperforming stores is “expected to generate $140 million to $170 million in cash as the company sells those stores’ inventory. Selling or subleasing the properties could generate more money.” Businessweek stated that “the chain plans to reduce fixed costs by $100 million to $200 million.”

When it comes to the company’s supply chain, vendors are not limiting orders just yet but they are keeping a close eye on the steps the company is taking to become more financially stable. Gary Balter, an analyst with Credit Suisse Group AG in New York stated to Businessweek that “if vendors are comfortable shipping to them, they (Sears) could go on for years. Their balance sheet is fine, but it’s usually vendors who decide and if they pull the plug, then the company has no choice and they have to file for bankruptcy protection.” More efforts need to be taken besides closing stores and cutting headcount. Hopefully some additional changes are implemented to help further improve Sears' position in the industry in order to prevent more job losses.

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The Greatest Annual Human Migration

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The Annual Chinese New Year (Chunyun - Spring Festival) 15 day celebration has traditionally been marked by red dragon dances, fireworks, clean homes, new clothes, and lavish family meals. Families come together to usher in good luck for the New Year and to sweep out the woes of yester year.

Developments and advancements resulting from the 1970's Chinese Economic Reform have introduced new variables to the "now centuries old" New Year tradition. These variables have created major political, social, and economic challenges for China. Chinese companies have set up manufacturing exports along the southeast Chinese coastline to satisfy foreign demand for “cheap” China made product. Cities like Guangzhou (a key national transportation hub) have more than quadrupled in population over the past 40 years. Foreign demand for China made exports have created job opportunities that attract rural migrants around the country. Rural citizens travel great distances to embark on new opportunities, adventure in city life, and hope for a better future.

China's response to the global demand for “cheap” export goods has fueled the foreign market's hunger for larger profit margins and volume sales. China's challenge is to make as much as possible for as little as possible. The answer lie in low employee wages, little/no employee benefits, and substandard product quality. The scarcity of government labor laws and regulations have given Chinese workers little job protection. Time off from work is limited to the annual national shut down for the Chunyun Festival. This scenario is a recipe for disaster. The resulting mass human migration into a limited resourced transportation system has created a national pandemonium. While China's transportation officials have taken steps to accommodate the large annual influx over the years, it is impossible to control weather related delays, accidents from resulting from overloading vehicles, vehicle break downs, and natural delays in traffic.

As China prepares its resources to accommodate the upcoming 2012 Chunyun of the Dragon on January 23, the foreign world will also “feel” the ramifications of 200 million Chinese workers on holiday. Although the global market has had over 40 years of buying and selling in Asian exports to established “seasonal trends and indicators” to manage procurement effectively, can the Asian export market continue to be reliable and predictable? As the Chinese government responds to its citizens demands for employment reforms and regulations, how will this affect the global markets? Perhaps the market will cross that bridge when it gets there, or perhaps foreign markets can learn from its own industrial revolutionary histories. Perhaps history does repeat itself.

Lixin Fan produced a phenomenal documentary that illustrates the ongoing turmoil’s of a nation in transition from agricultural to industrial. He followed a typical Chinese migrant family through several Chunyun migrations and aired its effects in his documentary “Last Train Home” in 2009. The lesson of our yester years does not need to be swept out the door to invite future good fortune. They can be harvested and gleaned for nuggets of wisdom to build the solid foundations of a global future.
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Plummeting television prices draw shoppers

on Tuesday, December 27, 2011

Plummeting television prices draw shoppers Televisions were some of the hottest-selling products this holiday shopping season, and thanks to fundamental supply and demand principles, prices have dropped precipitously over the past few years.

Stores selling televisions and other electronic products once derived a significant amount of revenue and profits from television sales. Over the past decade, the introduction and subsequent soaring popularity of LCD and other flat screen televisions helped drive a surge in buying, with consumers flocking to stores to take advantage of the latest in high-definition technology.

However, those days are over. Television prices have dropped significantly over the past few years. As sales soared, more manufacturers entered the market segment, affirming the economic axiom of profits attract entry. As opposed to the mid-2000s, when only a handful of companies produced flat screen televisions, scores of companies currently do so, as they endeavor to offset a loss in revenue in other divisions.

The uptick in television manufacturers is squeezing profits not only at such companies, but also at the retailers who sell them, The New York Times reports. Televisions that fetched upward of $6,000 only a few years ago are now selling for less than $2,500, television salesman Ram Lall told The Times.

"We are making less money because the company is forcing us to slash prices," he affirmed.

Televisions have become so cheap to produce over the past few years that companies that produce them have largely squeezed all the profits they can from the production process. In an effort to reignite the segment, some firms have implemented cost reduction programs, while others have contracted with procurement consultants and supply chain management companies.

Consumers are benefiting from the drop in prices, but retail stores and manufacturers are hurting, a set of circumstances that has defined the holiday shopping season and, to an extent, all of 2011. With retailers representing all corners of the shopping spectrum now selling televisions - Wal-Mart, Best Buy, Target and Sears, among others - store executives are mostly limited in their ability to raise prices to offset the squeeze in profits. If one store were to raise prices, shoppers would simply flock to other stores, experts say.

Best Buy announced quarterly earnings earlier in the month, disappointing investors and analysts. Company executives asserted aggressive price reductions had helped fuel revenue growth - albeit slightly - but they conceded such tactics had eroded the company's profits, which sunk 29 percent compared to the same period the year prior.

Nevertheless, though profit growth has lagged, sales have remained relatively robust. This has prompted  firms such as Sony, Toshiba and Panasonic - whose earnings have slumped over the past few years - to overhaul television operations. Drastic times, experts say, call for drastic supply chain consulting measures.

Sony, which has sunk from its heyday as the world's most popular and innovative electronic company, announced this week it would end its partnership with Samsung. The two companies inked a deal in 2004 as they sought to take advantage of the beginning of the boom in television sales, but their LCD joint-venture has become unprofitable for Sony, whose business model differs significantly from Samsung.

Samsung manufactures and sells the electronic components that make up a wide range of electronic products. The company produces critical chips for Apple's iPhone and iPad, among its many strategic agreements, and it will pay Sony nearly $1 billion to assume its stake in the partnership, according to a press release.

With Americans unlikely to ratchet up consumer spending anytime soon, companies are overhauling spend management and indirect spend as they adjust to a consumer climate that has become the new normal.


 
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Gigabit DSL a reality? Yes, Kind of...

on Friday, December 23, 2011

DSL is alive and kicking. Huawei, a global information and communications technology provider, announced last week that they have developed a way to move 1000Mb/s over a single twisted pair. That's right, Gig DSL. But before you get too excited, you should know transmission distance is limited -a familiar concept in the DSL world. Gig speeds can be transmitted only 100 meters before significant degradation. 500Mb/s speeds can be trasnmitted up to 200 meters.


Adding repeaters every 100 meters to extend high speed broadband via copper may not be economocal or practical, but where this breakthrough may siginificantly change things is in bringing fiber to the consumer market. Unlike Verizon's FiOS which required replacement of copper with fiber all the way into the home, providers can now use existing copper to carry the "last feet" of the circuit. That is, run fiber down the road, and copper into homes. This would lead to a significant savings in increasing bandwidth capacity into homes and considerably reduce rollout time.


While news of pumping large amounts of data over a single twisted pair is not new, Huawei's recent announcement is the first announcement of such huge capacity provided by prototype gear. Let's hope this is a step toward making accelerated bandwidth a reality for more Internet users across the globe.
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GM implements cost reduction program in effort to boost margins

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GM implements cost reduction program in effort to boost margins In an effort to implement a cost reduction program, General Motors hired a management consultant, Bloomberg reports.

GM, along with Chrysler and Ford, is a member of the so-called 'Big Three' U.S. automakers. GM battled back from insolvency with the help of financing from the federal government, and its sales have surged over the past few years, prompting company officials to take the firm public once again.

However, GM is still indebted to the government, and it has struggled to repay much of the massive debt it accrued during its decades-long decline. Now, the company will work with outside companies in an effort to fine-tune supply management, establish strategic sourcing best practices and rework spend management.

GM officials are hopeful that by working with an outside procurement agency, the company can increase profit margins. GM, which has not commented publicly about what firms it is working with in its quest to fuel profitability, has been cutting white collar jobs, according to company spokesman Jay Cooney.

Under chief executive Dan Akerson, GM has aggressively pursued an uptick in profit margins, particularly over the past few months. The Detroit-Free Press reports Cooney did concede the automaker – the recipient of $50 billion in total government loans in 2009 – is working to trim jobs across a number of departments as it works to increase competitiveness.

"We are looking to streamline our business, looking for efficiencies, and to this extent, there will be some headcount reductions and it will be on a global basis," Cooney affirmed. "GM is continually seeking ways to improve our operating performance and reduce complexity to deliver a world- class cost structure and profit margins."

In the first nine months of this year, GM reported an operating margin of 5 percent of sales. That figure lags behind a number of its biggest competitors, including Volkswagen and Hyundai. The former posted an operating margin of 7.7 percent of sales, while the latter's financial statements peg the figure at 10 percent.

Akerson and GM chief financial officer Dan Ammann have ardently worked over the past few months to convince company officials that the automaker needs to boost its margins through hard line business cost reduction measures. GM has scrutinized spend management and indirect spend, while eying other possible areas ripe for efficiency improvements.

"The number one challenge has been margins," Jefferies & Co. analyst Peter Nesvold said. "Margins peaked in 2010. It has been down ever since because of vehicle launches and rising materials costs."

GM is using an accounting model to help ascertain how cost-cutting initiatives will impact profit margins and its bottom line, according to Bloomberg. The Detroit, Michigan-based automaker is using a forecast of its fiscal year earnings before interest and tax (EBIT) relative to revenue from Morgan Stanley Investment Banking to measure margins.

Under such a model, if the company posts $150 billion in revenue, it could successfully increase its EBIT by 1 point for every $1.5 billion it logs through its cost reduction initiatives.

The total number of employees working at GM has declined precipitously over the past 12 years. In 1999, the carmaker counted approximately 594,000 workers among its ranks; by 2010 that number had dropped to roughly 202,000, according to the Free Press. Still, the company has added 8,000 workers since then, and now has an employee pool of 210,000.

As it works to catch up with rivals such as Hyundai, GM has its work cut out for it, Morgan Stanley analyst Adam Jonas contended, noting that Hyundai benefits from the weak Korean won and an innovative manufacturing model through which it builds many different cars on only a handful of structures.

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Novel manufacturing technology could revolutionize industries, scientists say

on Thursday, December 22, 2011

Novel manufacturing technology could revolutionize industries, scientists say Businesses are becoming increasingly confident that a new manufacturing technique can increase efficiency and slash costs.

Companies invest significantly in manufacturing research and development. For firms that engineer heavy-duty equipment and machinery, improved production techniques can help drive business cost reduction measures, allowing executives to reorganize spend management and drive profit growth.

For businesses such as General Electric, which specializes in the manufacturing of aeronautics equipment, power transmission systems and energy production facilities, among other items, new manufacturing techniques can greatly boost competitiveness. MIT's Technology Review reports that GE – along with scores of other companies – is betting on three-dimensional printing technology as a means of achieving manufacturing cost reductions.

The production of jet engines is currently a precarious and time-consuming process. GE manufactures engines for airline makers such as Boeing, as well as for defense contractors. The U.S. industrial engineering giant spends a significant amount of resources crafting engine components, as they have to be as light as possible – and also incredibly sturdy - as they are sometimes used for decades.

Moreover, as more airlines are implementing cost reduction initiatives and overhauling oil-sourcing procedures, they are demanding that engines and other mechanisms be as light as possible. This has led to a manufacturing quandary of sorts, pitting GE against rivals in a drive to engineer the Holy Grail of engines, ones that are structurally sound and weigh as little as possible.

GE – and a number of its competitors - reckons it has a solution in 3-D printing. Using laser technology, GE carefully carves out the shape of a fuel injector's cross-section in the first step of the production process. The laser is specifically directed at a cobalt-chrome powder, and as a result of the concentrated heat, the powder fuses into a solid form.

Each subsequent blast of the laser creates one ultrathin layer at a time. Ultimately, the threadlike coatings coalesce to form an injector. In traditional manufacturing practices, technicians at GE sometimes weld together tens of pieces of metal to create an injector. 3-D printer technology, on the other hand, is capable of generating fuel injectors that are less expensive to produce and weigh less.

GE engineer Prabhjot Singh asserted the company is confident that 3-D printers will help revolutionize the production of jet engines, but it could also have wide-ranging applicability.

"There's not a day we don't hear from one of the other divisions at GE interested in using this technology," he said.

Research being carried out elsewhere using 3-D printing systems has also produced tantalizing results. At the University of Virginia, mechanical and aeronautical engineering professor David Sheffler helped students design a replica Rolls-Royce jet engine made of plastic using a 3-D printer.

The students' model engine runs on compressed air instead of jet fuel, but the underlying science is the same. In fact, the replica's turbofan jet runs at the same idle speed as the real engine, according to Popular Mechanics.

"We put a strobe light up to it, and the core was spinning 1500 to 2000 rpm," Sheffler affirmed, noting that 3-D printing helped keep costs low – very low.

In total, the research team at UVA spent approximately $1,800 to engineer their imitation engine. Without 3-D printers, it would not have been possible to produce in an academic setting, Sheffler said.

So what does this all mean? A growing number of scientists contend that 3-D printing could help usher in a new era of manufacturing, helping production companies achieve cost reduction quotas. It could also benefit firms that purchase jet engines – and potentially hosts of other products – from such firms, as prices fall precipitously.

Companies across the globe are in a race against time to develop the most efficient 3-D manufacturing technique, and experts assert it is only a matter of time before it becomes a dominant production method.


 
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U.S. drug shortages driving up healthcare costs

on Wednesday, December 21, 2011

U.S. drug shortages driving up healthcare costs Drug shortages affecting the U.S. healthcare sector are fueling precipitous jumps in the prices of many medications.

Physicians and healthcare providers have become increasingly concerned over the past 24 months about shortages of critically important medications, including those used to treat cancer and other serious illnesses. Hospitals throughout the U.S. have been affected by the shortages, with prestigious institutions such as Massachusetts General Hospital and The Johns Hopkins Hospital not immune to such problems.

Drugs including the cancer treatment Doxil have become so difficult to locate that some healthcare providers are turning toward procurement consultants and secondary sellers as they struggle to ensure they have enough supplies to treat patients. Jenny Morrill has been battling ovarian cancer since 2007 and has witnessed firsthand how dire the drug shortages have become, The New York Times reports.

Morrill asserted that although she had responded well to Doxil during her course of treatment, her physicians encountered myriad obstacles as they sought to purchase the medical treatment.

"She said, 'The good news is that you're doing really well on this drug Doxil,' " Morrill recalled. "The bad news is that we have no Doxil to give you," she said.

Supplies of Doxil ran short last summer after the only facility in the U.S. that manufactures the drug encountered production problems. The effects of such a significant drop in supplies of critical medications have spurred swings in prices, prompting some healthcare providers to offset such hikes in cost by implementing business cost reduction initiatives.

Medication sourcing has become a buzzword among hospitals and other healthcare clinics in the U.S. Some institutions have hired additional employees or tasked current employees with the specific duty of tracking down medications. Exceedingly frustrated by the dearth of critical drugs, physicians assert many of the affected medical treatments have been around for years and are available in generic form.

American Hospital Association policy director Roslyne Schulman contended the medication shortages are unprecedented in scope and duration.

"This is very serious. This is a public health crisis. The shortage cuts across all treatment categories. It affects bread-and-butter drugs that hospitals have depended on for many years," she said.

Hospitals are being forced to use less effective – and often, more expensive – alternatives to drugs affected by the shortage, experts say. This has prompted many healthcare providers to overhaul spend management as they nimbly reallocate resources in their work to procure replacement therapies.

Federal lawmakers have held hearings on the matter, but public health experts assert the shortages will not be easily or quickly solved. Rather, they argue it will take a coordinated effort to help augment supplies and accrue critically important reserves.


 
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AT&T's failed bid for T-Mobile could impact equipment sales at other firms

on Tuesday, December 20, 2011

AT&T's failed bid for T-Mobile could impact equipment sales at other firms AT&T dropped its bid this week for rival telecommunications company T-Mobile USA. The move will have far-reaching consequences, and could impact other businesses.

After running into a regulatory battle with the federal government over its proposed acquisition of T-Mobile, AT&T ultimately decided to abandon the deal. The company argued its purchase of the rival mobile and telecomm provider would benefit consumers, as it would enhance its cellular network in the short-term.

Moreover, AT&T officials asserted the proposed deal would enable the company to avoid the regulatory red tape that many transmission and distribution line projects encounter. By buying T-Mobile, AT&T would have access to its nation-wide cellular tower portfolio, circumventing such issues.

Still, federal regulators were loath to accept the terms of the deal, and the Justice Department issued a report that was highly critical of the merger. The draft report – though not a formal ruling – effectively prompted AT&T to discard plans to absorb T-Mobile.

Reuters reports by abandoning the deal, AT&T also inadvertently affected companies operating in a number of other sectors. Equipment makers, for example, stand to benefit from the government's opposition to the merger. Analysts contended both companies scaled back their spending on coverage networks during the fourth fiscal quarter as they implemented business cost reduction measures as they endeavored to push through the merger.

By reworking spend management and reducing its investment in equipment, AT&T strived to convince lawmakers to approve the deal, according to Jefferies analyst George Notter.

"We believe that AT&T - in recent months - had significantly dialed back Q4 spending in order to apply leverage in its fight with regulators," he said.

The failure of the deal to pass the government's regulatory approval process will benefit equipment makers in the first half of 2012, Notter contended. He said that AT&T is expected to significantly ratchet up investment into such products as it works to expand its network without the use of T-Mobile.

AT&T's strategic sourcing of wireless technologies will benefit some companies directly, and others indirectly. Cisco, F5 and Juniper, for example, are not directly exposed to AT&T wireless expenditures. However, they manufacturers the software that comprises such products, and they are poised to benefit from the failed merger. Other firms that will benefit directly include Ericsson and Alcatel-Lucent, which provide AT&T with 4G base station systems, Barclays Capital analyst Jeff Kvaal said.

Barron's Tech Trader Daily Blog reports that AT&T's decision to abandon its pursuit of T-Mobile prompted a number of analysts – including Morgan Stanley communications equipment analysis Ehud Gelblum - to revise their formerly negative outlooks on equipment makers.

"With the T/TMO deal now officially called off, we believe a major overhang to spending is removed and sentiment in the group could quickly turn positive," Gelblum wrote in a research note. "Therefore … we now believe names exposed to AT&T such as Overweight-rated Juniper Networks, Adtran and Equal Weight-rated Ciena, could rally into earnings as money pours into the sector on the hope that spending resumes sooner than it would have."

While Gelblum is still cautious about prospects for equipment makers, he affirmed the failure of the T-Mobile deal should reinvigorate AT&T's purchasing services, as the company endeavors to increase the efficiency and speed of its 3G and 4G wireless networks.

Still, some experts erred on the side of caution in their assessment of whether AT&T would significantly rework spend management. UBS analyst Nikos Theosopoulos asserted that the $3 billion fee AT&T must pay to T-Mobile as a part of a deal the company brokered with the government could stymie the company's efforts to augment equipment investment.

Nonetheless, he struck an optimistic assessment – albeit one laced with a healthy dose of cynicism – regarding the outlook for equipment makers. He noted investment by both T-Mobile and AT&T had been so limited, it was unlikely it could further drop.

 
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LOW HOLIDAY MARGINS MAY CREATE AN EBENZER SCROOGE OR TWO

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With the unemployment rate at a threatening 8.6% nationally, consumers have still managed to turn out in the usual drones to fill malls and shopping centers this holiday season.  The National Retail Federation has reported an upgrade in their holiday forecast sales figures to rise 3.8% to a staggering $469.1 billion.  A promising retail season always alludes to resurgence in both the economy and employment, but this may not be the case.

Retailers are reporting strong sales figures across the board, though luring holiday shoppers with the motivation of deep price cuts will take a nasty toll on end of year margins.  There is always a mix of trend setting new merchandise flowing off of the shelves for the holiday season, but retails typically use this peak period of consumerism to flush old inventory out of warehouses and prepare to run skinny for their end of year audits.  By making margin concessions to incentivize discount retailers to take large bulk orders for out of season product, the annual averaged margin will ultimately be the one to take a beating.  With the top line shrinking at the end of the year, retailers and wholesalers alike take a scrutinized approach to opportunities existing within their cost structure and bottom line makeup.

A very real and always apparent cost cutting strategy at the beginning of each fiscal year is for companies to turn to layoffs to “trim the fat”.  Little do they know that they might not be cutting fat, but be cutting out the muscle and lifeblood of their organization.  Layoffs within any organization effect more than the employees turning in their badges.  An office environment that is already enduring certain amounts of stress from financial shortcomings could experience an ever greater amount of stress and anxiety from their existing workforce.  With the threat of termination now looming above their heads, employee moral can take a sudden and drastic turn.

Employers do have to make the hard decision when cuts need to be made, but it shouldn’t be at the detriment of their staff.  An easily effected area that so many companies fail to examine is the relationships that they have with external parties.  Companies are too quick to reach into their own pockets to look for holes when services they receive on a daily level may be overpriced and unexamined for decades.  A simple renegotiation of terms or use of market professionals to re-examine supply chain costs can account for massive savings and subsequently eliminate the need to turn to layoffs, and set the stage for long term profitability.  Decreasing margins do have marked effects on any companies overall profitability, but it is the responsibility of business executives to honor the loyalty of their employee base and examine cost savings potential that might be right under their noses.
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Microsoft courts growth in the cloud – first must contend with squeezed profit margins

on Monday, December 19, 2011

Microsoft courts growth in the cloud – first must contend with squeezed profit marginsThe cloud is one of the hottest buzzwords in the business world, and Microsoft is pursuing growth within the emergent industry as it endeavors to compete with Google and Amazon.

The Seattle, Washington-based company is learning, however, that before it profits from the cloud, it will first have to spend significantly. Bloomberg reports that Microsoft's foray into the cloud will likely bolster long-term revenue, but it will initially hurt the company's profit margins.

Microsoft's new cloud service enables companies to host data on its remote servers. Google, Amazon and Apple are all firmly entrenched in cloud technology, and Microsoft is late to the game, but the tech company is expected to become a powerful player within the industry. First, though, shareholders will likely balk as the company spends significantly to develop such a system.

Microsoft will likely have to offset the substantial amount of resources it is putting behind its cloud segment by implementing a business cost reduction program. What's more, the company will have to overhaul spend management and indirect spend as a means of fighting a projected dip in profits.

Microsoft's cloud division – along with a number of other expenses related to its acquisition of Skype and continued investment in the personal computing, search and mobile markets – will likely cause the firm to miss profit estimates for the fiscal 2012 year, according to Goldman Sachs analyst Heather Bellini. Bloomberg reports the crimp in profits could become the new normal for Microsoft, which is accustomed to reporting outsize profit margins.

"Nothing will ever be as high as the old model," Wells Fargo analyst Jason Maynard told the news provider.

Microsoft's profit margins were squeezed in 2011, falling to 22-year low. The company has aggressively courted growth through mergers and acquisitions, and it has spent heavily on its Bing search engine technology. However, while company chief executive Steve Ballmer is confident such moves are positioning the company for long-term success, in the interim they are hurting its profits.

In the past, Microsoft successfully developed its Windows operating system, selling the software to companies, government agencies and computer owners. Its open approach to software enables it to penetrate the personal computing market, and its initial investment into the development of each iteration of the operating system accounted for its largest expense.

Nevertheless, the cloud computing sector is an entirely different beast, and one that requires a substantial amount of money. Microsoft will need to host data and services for customers, and that will require the installation and development of new technologies. Electricity sourcing could help reduce the expenses associated with running cloud computing warehouses, but Microsoft lags behind its competitors in the sphere and will spend heavily – and quickly – in an effort to catch up.

How much, though, will Microsoft need to spend? Estimates vary, but Sanford C. Bernstein analyst Mark Moerdler contends the firm will use between 15 percent and 25 percent of revenue to cover cloud-related costs. Such a figure is 10 percent higher compared to the profit margins accrued on the prepackaged software that historically has been the company's bread-and-butter.

Microsoft, along with nearly all other technology businesses, has faced a challenging year. Flooding earlier in the year in Thailand hurt hard drive production, and the 9.0-magnitude earthquake and subsequent tsunami that battered Japan in March eroded demand in the short-term in the country. A tepid worldwide economy also prompted many businesses and government organizations to scale back new purchases, hurting sales of Windows.

Microsoft is taking a risk by aggressively entering the cloud sector, but investors and executives hope it will ultimately prove to be a successful one.


 
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4G HSPA+ Decoded and cellphones today

on Sunday, December 18, 2011

With the close of 2011 at hand, the 4G network is the latest data network available for wireless devices.

One 4G or Fourth Generation mobile telephony technology is the -HSDPA, HSUPA, HSPA, HSPA+ (High Speed Download/Upload Packet Access + “Evolved”). For the wireless device consumer, the network platform capabilities will dictate which data network it can sync and ultimately, how quickly data can be transferred to or from the wireless 4G device.

T Mobile launched the HSPA+ system in February 2010 to bring wireless user internet speeds that exceed 21 Mbit/s. Essentially, the HSPA is an improved version of the 3G wireless network. To offer a perspective on data transfer by technology, the following chart illustrates the data rate/network:

Year Network Data Speed
3G - 2 Mbit/s
2009 - 4G HSPA+ Release 7 - DL: 28 Mbit/s UL: 11.5 Mbit/s
2010 - 4G HSPA+ Release 8 - DL: 42 Mbit/s UL: 11.5 Mbit/s
2011 - 4G HSPA+ Release 9 - DL: 84 Mbit/s UL: 23 Mbit/s
2012 - 4G HSPA+ Release 10 - DL: 168 Mbit/s UL: 23 Mbit/s
2013+ - 4G HSPA+ Release 11 - 672 Mbit/s

Currently, T Mobile has brought the HSPA+ Release 8 to 152 markets (170 million users) via the the Category 20 Rocket 3.0 USB modem. It plans to launch its first HSPA+ 42 smartphone by year's end.

With the upcoming developments in network improvements, it is important to understand your current or upcoming smart phone's network capabilities. When looking to buy your next smart phone, look for the HSPA+ symbol or ask your store representative if the information is not readily available. This symbol will ensure that the phone/wireless device can "tap" into the latest HSPA+ releases as they are available.
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Amazon's Kindle Fire strategy underscores company's singular approach to driving growth

on Friday, December 16, 2011

Amazon's Kindle Fire strategy underscores company's singular approach to driving growthOnline retail giant Amazon understands that in order to make money it has to spend it. Underscoring that axiom, the Seattle, Washington-based company is losing money on its Kindle Fire tablets – and executives could not be more content.

Amazon chief executive Jeff Bezos has cultivated the company from a tiny startup that analysts said was doomed to fail when it priced its initial public offering in 1997, to a global behemoth and model of effective supply chain management. Under Bezos, Amazon has invested heavily in the development of new technologies and in new facilities and warehouses.

While investors once worried that its business model was unsustainable and that it spent too heavily on new technologies and distribution facilities, Amazon has continually outperformed analysts' expectations. While the retail firm has spent a substantial amount of money over the past decade, its return on investment has been staggering.

Take, for example, its Kindle e-reader. Amazon was one of the first companies to launch such a device when it unveiled the first iteration in 2007. Bezos is notoriously tight-lipped about how much the company spends to create its product offerings, but analysts contended the company was likely losing money on the devices.

Nevertheless, Bezos understood that by placing an Amazon-branded e-reader – and now tablet – into consumers' hands, he was effectively bolstering future revenue. Amazon may have been breaking even or potentially losing money by manufacturing the gadget, but it more than offset such losses by consumers purchasing new books through its online retail store.

That, in a nutshell, is the genius of Bezos. The Kindle has gone on to become the market leader among all e-readers, and Amazon has continually reduced its price. Kindle owners are automatically tied into Amazon's e-commerce site with the device, which makes buying new items as seamless and intuitive as a few clicks on its keyboard.

Analysts assert Amazon is likely losing money with its latest tablet offering, but once again Bezos is more concerned with long-term growth potential than an initial slump in profits. By constantly reevaluating its strategic sourcing and procurement services, Amazon can implement business cost reduction initiatives to help offset the temporary squeeze on its profit margins.

The Kindle Fire will likely prove more lucrative than its predecessor, according to experts, because its tablet users will have access to millions of additional product offerings, including music, video and gaming services. The bread-and-butter of Amazon's business is its core e-commerce site, and by directly delivering content to its customers it is profiting significantly.

Released late this year, the Kindle Fire is selling very well already, Bloomberg reports.  The tablet, which sells for $199 in an attempt to undercut the $499 price tag of the cheapest iPad, has ranked as the best selling product on Amazon's online retail site since it debuted 11 weeks ago. What's more, Amazon executives noted sales of the Kindle Fire have climbed week-over-week for the past three weeks.

Bezos warned investors in October that Amazon could post a drop in fourth quarter earnings because of its aggressive spend management campaign. However, Amazon executives believe the Kindle Fire will more than pay for itself in the long-term, especially as sales accelerate.

An analysis from research group IHS Inc. concluded Amazon is likely losing money on each tablet it sells. On the other hand, Susquehanna Financial Group researchers affirmed that each Kindle Fire would generate on average $384 in revenue for Amazon, underscoring the strength of its online store.

Though Amazon has quickly gained a formidable following, it still has a ways to go before it challenges Apple's dominant iPad. IHS projects Apple to sell 18.6 million tablets in the fourth quarter, giving the company a 66 percent market share. IHS forecasts Amazon's Kindle Fire to control 14 percent of the segment in the quarter.

 
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Fundamental supply and demand principles could fuel a decline in coffee prices over the coming months.

on Thursday, December 15, 2011

Fundamental supply and demand principles could fuel a decline in coffee prices over the coming months. Coffee harvests in Vietnam and Brazil hit record levels this quarter, helping allay supply constraints prompted by surging global demand for the commodity. Moreover, Indonesian coffee farmers are reporting their biggest spike in output in roughly 16 years, bolstering stockpiles.

Meanwhile, worldwide economic uncertainty is affecting demand for coffee. This confluence of an uptick in supplies and a downturn in demand could increase supplies of the coffee bean used in instant beverages and espressos, Bloomberg reports.

Analysts forecast global coffee production could climb more than 2.3 percent this year from 2010, hitting nearly 56 million bags. Coffee prices had risen over the past few years, prompting headaches for food retailers who had to scramble to implement business cost reduction programs to offset the precipitous price jump.

"We have record world production and I'm not optimistic on demand," J. Ganes Consulting president Judith Ganes-Chase affirmed. "We'll probably need to say goodbye to the bull market for a while," she added.

While a drop in coffee prices is positive news for consumers, businesses that previously raised prices to offset the uptick could also benefit, experts say.

On the New York Mercantile Exchange on Thursday, coffee futures declined by 0.11 percent to trade at roughly $2.17 per pound.

 
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Cell Phone Overload

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Today there are approximately 9 states that ban handheld devices while driving and 35 states that ban texting while driving. Recently the National Transportation Safety Board (NTSB) recommended all states ban the use of cell phones all together in vehicles. As John C. Dvorak expressed in his article on PCMag.com, “Presumably, this will eventually mean no radio in the car either. Also, kids and dogs should definitely be verboten.”

We have come out of the dark ages where these devices were big and bulky, consumed high power and networks supported only a few simultaneous conversations. Not to mention that you had to be in your car to use one and there was not push to talk or touch screen options. Today the devices are small, lightweight, mobile, personalized and to your liking. I like many people of the world use my cell phone to communicate with family, friends, and co-workers, conduct business, and enjoy a few fun applications from time to time whenever and wherever I want. Was this not why cell phones were developed?

I understand that texting while driving is just plain senseless, but having a conversation with someone to say hello, let them know you are running late or to review some open items is what keeps people motivated, mostly on-time, and in many cases focused. Think about if you could not let your client know you were running late, or review some last minute details with your partner before the big meeting…you would be speeding, swerving, and all over the road.

Dvorak recommends the NSB come up with a better solution like revert back to something similar to the old car phone model; bigger, easier to manage and less hands on. I agree. Maybe car companies can offer this as an additional add-on like GPS or Satellite radio. Companies will profit and the public will be happy. As Dvorak says “Banning chatter on the phone in the car is not ending by edict. All it will do is create scofflaws further isolating the public from the legal system in negative ways”…and “what do we get instead of a sensible and workable concept? We just get more recommendations for laws against something that everyone does. It's as if we are in the Soviet Union where there is a law against everything. The just-make-it-illegal bureaucrats at the NTSB should be fired immediately for this sort of blatant, unproductive stupidity.”
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How do supply chain management experts FedEx and UPS prepare for the holiday season?

on Wednesday, December 14, 2011

How do supply chain management experts FedEx and UPS prepare for the holiday season? For UPS and FedEx, the month of December is the busiest time of the year. How, though, do they deliver millions of packages across the globe without losing track of them?

It's not easy.

Retailers across the U.S. are endeavoring to attract customers to their ecommerce sites as they work to drive sales. The initiatives are paying off, as online sales have surged year-over-year. According to data from research firm comScore, through the first 42 days of the November to December shopping period this year, online sales have risen 15 percent from 2010, hitting $26.8 billion.

The surge in online orders is positive news for both retail chains and shipping companies. The Los Angeles Times reports that logistics giants FedEx and UPS are weathering the surge in orders, with the former experiencing its busiest day of the year on Monday. FedEx crews moved an estimated 17 million packages in the U.S. on that day alone, according to the company.

Ensuring prompt and accurate deliveries requires nothing short of operational nirvana. At Los Angeles International Airport, the FedEx worldwide shipping hub, the company employs hundreds of employees to handle and process packages on miles upon miles of conveyor belts. FedEx is an innovator in its supply chain management, as the firm's sweeping logistics chain is a striking example of procurement best practices.

On Monday at 1 a.m., 12 FedEx cargo planes filled to the brim with packages sat idle at LAX. Crews were poised to unload the planes, which are mostly Boeing MD 10s and Airbuses, according to the LA Times, before the parcels would move onward in the company's sweeping supply chain. FedEx employees immediately worked to unload the carriers, which contained sealed steel shipping containers that awaited further delineation in the company's sorting warehouse.

Workers rapidly unloaded the individual packages from their steel cases, shifting them onto conveyor belts that directed them to varying packaging stations through Los Angeles county. Each year, FedEx and UPS hire thousands of temporary workers in an effort to more effectively handle the onslaught, and FedEx took on an additional 20,000 employees this year.

FedEx officials project the company to ship more than 260 million packages between Thanksgiving and Christmas, which represents a 12 percent uptick from 2010. To process the millions of boxes, FedEx separates employees into groups tasked with individual duties. For example, some employees work specifically to investigate where packages containing no address labels should be directed, while others unload planes and trucks.

UPS features a similarly expansive supply chain, as the company hired an additional 55,000 workers for the holiday season, according to Mainline Media News. The peak shipping date for UPS will fall on December 22, when the company expects to deliver more than 26 million packages across the globe.

"This is a special time of year for us," UPS spokeswoman Rebecca Treacy-Lenda said. "We take our role of Santa very seriously. It's all hands on deck. We know the importance of all the packages we deliver."

To ensure they do not misplace even a single package, FedEx and UPS invest heavily in advanced technological monitoring devices. Such systems help FedEx not only to track boxes, but also to measure them. This enables the company to leave no space unused when loading packages in its planes and trucks.

With 11 days left until the holiday shipping season ends, it's all hands on deck at UPS and FedEx.


 
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Best Buy's earnings disappoint, as price cuts lure shoppers, batter profits

on Tuesday, December 13, 2011

Best Buy's earnings disappoint, as price cuts lure shoppers, batter profits Consumer products retail chain Best Buy reported disappointing quarterly earnings this week.

Best Buy said that its third quarter net income plummeted 29 percent as it slashed prices on scores of products in an attempt to lure customers to its stores. The retail chain has struggled over the past year to increase earnings amid mounting competition and a tepid economic climate, and the latest financial results underscored its strategy is not resulting in higher profits.

By significantly reducing prices on televisions, video games and smartphones, among other products, Best Buy mimicked a policy other retail chains are employing this holiday season as they work to entice prudent shoppers to spend more money. While such campaigns have helped drive an uptick in revenue at certain chains, they have also prompted many companies to implement business cost reduction campaigns, according to experts.

Such cost reduction initiatives are imperative to the success of the sales campaigns. While reducing item prices helps spur shoppers to visit stores, it also crimps profit margins, and that has prompted store executives to cut costs through improved strategic sourcing and by working with procurement consultants.

With consumers avoiding expensive electronics products, Best Buy suffered, The Associated Press reports. The company's adjusted earnings missed analysts' expectations, and its shares dropped by more than 15 percent following its quarterly financial announcement.

Best Buy chief executive Brian Dunn asserted the Minnesota-based firm had no choice but to increase marketing expenditures and reduce item prices, citing increased competition from Amazon, Target and other retailers.

"We took decisive actions to drive our business," Dunn said in a statement. "These actions, while negatively impacting gross margin, significantly resonated with customers and resulted in improved traffic."

The Wall Street Journal reports that while the sales strategy has worked for other retail chains, Best Buy's core product offerings are expensive electronics products. As a result, the company needed to significantly boost sales to offset the drop in profits from the price reductions.

"Consumers have been value-conscious," Dunn told investors on a conference call. "We purposely planned to take a leadership stance in the marketplace and stepped up our promotional efforts to do so."

Domestic gross margin dropped 1.3 percentage points as a result of its aggressive discounting, according to Dunn. Still, analysts said the sales tactics had successfully increased foot traffic at Best Buy stores. Compared to the same period in 2010, the company's revenue climbed 1.7 percent to $12.09 billion, illustrating how shoppers took advantage of cheaper mobile phones, computers and other electronic gadgets.

"While we think management is more focused on addressing competitive issues through better pricing and labor models, it is not producing enough top-line growth to convince investors that the longer-term challenges have changed all that much," Jefferies analyst Daniel Binder asserted in a note to investors.

Nevertheless, unlike its competitors Best Buy relies heavily on products such as Apple's iPad, which offer less profit potential than other kinds of consumer goods. Moreover, Best Buy does not have the ability to cut prices on goods including clothes, which are cheaper to produce and are often considered high-margin items.

On a positive note, Best Buy said its online revenue jumped 20 percent compared to the third quarter in 2010. Other retailers have also witnessed an uptick in sales through their ecommerce sites, and they have increasingly urged customers to take advantage of online-only deals. The company said sales of tablets and e-readers were robust.


 
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Occupy Wall Street protesters look to block West Coast ports

on Monday, December 12, 2011

Occupy Wall Street protesters look to block West Coast portsAnti-Wall Street protesters, hoping to briefly disrupt a key supply chain of American commerce and re-energize their movement, have planned to attempt to block major ports on the West Coast, Reuters reported.

According to the news source, marching on the proposed ports, from California to Alaska, is a move that looks to call attention to the economic inequalities that exist in the country. Although the protesters are looking to deal with a national problem, workers at the port will have to focus on supply chain management to keep the commerce centers operational.

A plan to shutter multiple ports simultaneously could prove difficult because some of the facilities are in massive complexes, according to Reuters, and the entrances would be difficult for even a large number of demonstrators to block.

The news source reported that the activists aligned with the Occupy Wall Street movement did succeed in shuttering the port of Oakland, California, for several hours. The facility was the fifth busiest commerce center in the country.

Organizers for the movement are also looking to disrupt operations at the combined ports of Los Angeles and Long Beach, along with sites outside of California that include Portland, Anchorage, Seattle, Tacoma and Houston.

"The objective of the day is to shut down the port through mass action," Mike King, a graduate student who acts as a media liaison for Occupy Oakland, told Reuters. "The Occupy movement is attacking the 1 percent at their point of profit."

The news source reported that police in several of these cities were not disclosing their future plans for dealing with the protesters and the possible port closures that may result from their actions.

Oakland port spokesman Isaac Kos-Read noted that the facility is trying to address union and environmental issues that the protesters have brought up as problems with the supply chain management for the site.

"The port empathizes with the issues brought up by the Occupy movement," he told Reuters. "But we have a strategy for inclusive development. Shutting down the port is only going to hurt the people they are trying to help."

The Oakland Tribune reported that local organizations have spoken out against the proposed actions by the protesters, as they noted the shutdown would hurt low-paid truck drivers and blue-collar workers.
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Don't Get Angry, Get Global: Is Angry Birds the Next Disney?

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If you haven't heard of Angry Birds by now, you must be one of the pigs hiding under a rock that a sling-shotted angry bird is about to destroy. But if Rovio, the company that created Angry Birds, executes on its plans, many more people around the globe will hear about them, and Angry Birds will be everywhere.

Angry Birds is currently enjoying its second birthday, and Chief Marketing Officer Peter Vesterbacka, known as the "Mighty Eagle," is celebrating by declaring that he would like the brand and the company to be as big as Disney someday. "Disney is a good role model for us," he said Thursday at Business Insider's Ignition Conference in New York, covered by TheStreet.com. "They're doing a lot of things we want to do."

Rovio sees China as the core of the expansion strategy. Angry Birds has been downloaded 50 million times in China, and Vesterbacka is hoping for 100 million in 2012.

The company is making its money on ancillary merchandising of plush toys and clothing items, and has plans to expand into cookbooks and playground equipment. They are even in pre-production for a 3D movie with 20th Century Fox. Vesterbacka's wife recently made headlines by wearing an Angry Birds-themed gown to an official Finnish state dinner.

Of course, such an explosive brand is a magnet for pirates, especially in the Far East. TheStreet.com reports that "Angry Birds is also the most copied brand in China, Vesterbacka said, but it's something the company has embraced. 'We look at fake Angry Birds products and we pirate the pirates,' he said. 'We make a lot of those into official merchandise -- there's a lot of cool innovation happening there and they're making products we never thought of.' Rovio plans to open its first retail stores in China this year to counter the dozens of unlicensed outlets that have sprung up."

Thus Rovio is hoping to slingshot its brand into fame and success levels currently enjoyed by Disney within ten years. Can they do it, or is it just a passing fad? While everyone from kids to adults to seniors are downloading and enjoying Angry Birds, it remains to be seem if Rovio can monetize the brand. Case in point: Justin Bieber, who was smoking hot just a couple of years ago, is now seen by many of his core audience of young girls as "soooo last year." Can Angry Birds avoid that fate?

While Rovio is currently experiencing exponentially-increasing growth, Angry Birds' sigmoid curve of growth will flatten out eventually. This is the point at which initiatives like a solid strategic sourcing program become essential. While the money is flying farther than an accelerated yellow bird, all is good, but once Rovio starts having trouble clearing their next level of marketing challenges, they will want to look for ways to engage in creative cost reduction to be better able to sustain their growth and profitability. They'll need a black bomb bird to explode the accreting creaky structure of unexamined costs generated by runaway growth, which is hiding several bloated expense pigs. At that point they won't just be angry birds - they will be a powerful global brand.
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Shoppers flock to stores to take advantage of sales, driving up revenue – hurting profit margins

on Friday, December 9, 2011

Shoppers flock to stores to take advantage of sales, driving up revenue – hurting profit margins As stores work to entice customers by offering steep discounts through their online websites, their campaigns are successfully augmenting sales – and squeezing profit margins, Bloomberg reports.

Consumer spending has slowed in the wake of the recession, as the tepid economic climate has prompted many Americans to rein in their disposable income. Retail executives at stores including Sears, J.C. Penney and Target, among others, have worked to spur customers to spend by offering substantial price cuts through their e-commerce stores.

The strategy is working, as stores have reported sharp rises in sales thus far during the holiday shopping season. Still, businesses are struggling to keep profit margins elevated. They are relying on the higher sales to lift overall earnings this year, but they are carefully working to implement business cost reduction initiatives to offset the new pricing structures.

Companies are overhauling spend management and working with procurement consultants as they endeavor to increase profits, according to the news provider. The upward sales trend is encouraging, according to experts, but it is difficult to determine whether they will be successful until after firms report quarterly earnings in the new year.

Stores' strategies this year differ significantly from ones they have employed in the past. Retailers have historically drawn customers to their stores by offering deep discounts, but they would quickly reverse those deals after Black Friday, which is typically the single biggest shopping day of the year. This year, retailers are not only keeping most deals in place, but also expanding upon them both online and in stores.

Experts assert retail chains are improving their supply chain management in an effort to keep profit margins high. Moreover, they are overhauling retail sourcing to help find lower priced goods. They are also contending with rising commodity prices, which are further affecting profit margins.

"Investors expected margins to be down due to inflation, but they didn’t expect margins to be down from more promotions," Bloomberg Industries analyst Poonam Goyal said. "The promotions don’t get deeper necessarily after Black Friday, and to see them at the same level is a bit alarming."

This year, Black Friday weekend sales totaled more than $52.4 billion, according to National Retail Federation data.

 
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Microsoft and GE team to fight healthcare inefficiency

on Thursday, December 8, 2011

Microsoft and GE team to fight healthcare inefficiency Microsoft and General Electric are teaming up to help hospitals and other healthcare providers implement business cost reduction plans and improve efficiency.

The two American conglomerates said recently they would work together to develop a software system that will enable healthcare providers to overhaul spend management and other departments as they seek to benefit from a surge in business. While healthcare providers have been notoriously loath to embrace technology, Microsoft contends time is running out in the race to prevent healthcare costs from reaching unsustainable levels.

"This industry needs a Windows-like platform," Microsoft health solutions group head Peter Neupert said.

By developing such a system, Microsoft and GE stand to revolutionize an industry that is suffering under the weight of financial mismanagement. Through the incorporation of a standardized operating system, hospitals and other healthcare providers could more effectively understand how and where they can improve efficiency and cut costs.

What's more, the creation of such a targeted software system would enable developers to engineer apps addressing specific issues facing healthcare providers. Ultimately, the deal could help address some of the fundamental issues plaguing the sector, experts say.

 
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