Wage Expectations for 2013

The recovery from the 2008-2009 recession has been tepid at best, and has disappointed many.  Coming out of such deep recessions we have historically seen accelerated growth for several years, which has somewhat softened the pain of recessions and enabled businesses large and small to recover their losses.  This tepid recovery is projected to develop into slower growth long-term, as has been concluded in independent evaluations by a leading economist and a leading money manager, according to the WSJ article “U.S. Stocks: Look Out Below?”  While not the point of the WSJ article, this slower economic growth will directly and necessarily reduce the wealth creation of firms, which will directly and necessarily impact wage expectations for 2013 and beyond.

The first impact that this slower growth will have on wage expectations is through an increased gap between the income earned by the top tier wage-earner and rest of the workforce.  While not desirable for the economy, this will be the logical result of an economic environment that has less opportunity for growth.  This environment will increase the relative value of workers who are able to find opportunities for growth, especially those able to lead the implementation of expansion into new areas of business for company ownership.  The most critical of these will be the CEO’s and company leaders who are able to successfully implement these growth initiatives; the pay of these individuals will therefore increase due to this value that they are bringing to the ownership.

The rest of the workforce, meanwhile, will be pressured from two sides.  The flip side of the previous paragraph is that although the work they do is still important, it is not as critical because the Big Question will not be “How Can We Do This?” but more fundamentally “What Should We Do?”  On the other hand, the slower growth will reduce the availability of jobs and result in a higher unemployment rate.  As a simple matter of supply and demand, this slower demand will necessarily work against salary growth for the bulk of the workforce.

This raises the inevitable question of how wage negotiations must be managed especially with a unionized labor force.  Unionized labor forces in the long term have shown negative impacts to the profitability of a company, although they have been able to “negotiate” lucrative contracts in the short run.  This long-term negative impact has resulted in bankruptcies at GM and Chrysler, and most recently at Hostess.  A concept missed by the unionized labor force is the fact that if the growth in profit does not exceed the increase in value that the labor force provides such as through higher efficiency, the long-run viability of the business is at risk.  From the perspective of the labor force, the workers as a whole and every worker individually must pursue how he can add more value to his work for his employer, and this will be the only way to justify wage increases.

In a low-growth environment, what ideas are there to reduce the income gap?

U.S. Stocks: Look Out Below?
Hostess Preparing For Bankruptcy-Protection Filing
Right to Work Isn’t All It’s Cracked Up to Be

FCPA: Only as Good as a Company’s Internal Controls

Many of us now have to take annual FCPA (Foreign Corrupt Practices Act) training to validate/confirm that we are in compliance with the requirements of the act. Essentially, the FCPA prohibits bribes (which may be acceptable in other cultures) from being paid by US-based companies while conducting business outside of the US. Companies that are well-prepared for this have policies and processes in-place to ensure that not only bribes are not paid, but also that the appearance of a bribe is not paid.

Walmart is not one of those companies.

For months, rumors have been in and out of the news regarding the bribes paid by their Mexican subsidiary in the course of conducting business; primarily around obtaining permits and zoning for new stores. Their shares are down further after NYT published their investigation into the issue. The worst part: it appears as though Walmart shut down the internal investigation as soon as it started to “look bad” so that they would not be obligated to report any wrong-doing.

Was the price worth it?

Sadly, for Walmart: maybe. They have become one of the largest corporations in the world based on volume and cost, often at the expense of the communities around them, their employees, and now, apparently, ethical business practices. The general motto seems to be to move forward with “the plan” (employee benefits, cost of goods, location of stores, etc.) regardless of the cost.

In the short term, this seems to be working. Walmart also has a favorable economy for their business model as low-cost and convenient are two of the most important things to many of today’s consumers. Many households are on such tight budgets that they cannot “make a statement” with their purchases (or lack of purchases): they need to buy their groceries and other goods at the lowest cost possible. So they continue to shop at Walmart despite the less than stellar business practices.

So, the $1MM question: will it continue to work for Walmart?

Maybe, maybe not. I would like to believe not as the price the communities and individuals are paying to the benefit of Walmart cannot be worth it in the long-run. But, commercialism is powerful. If enough people either: (1) read the news and do not care or (2) do not read the news, then Walmart will continue to have customers and sales despite the business practices.

The other unknown is whether Walmart will face fines and/or it’s employees will face jail time. If this happens, then the equation likely changes for Walmart and the need for internal controls and policies will be greater. (Which is the entire point of the legislation: to make it more painful to not comply than to comply.)

Sources:

http://www.nytimes.com/2012/12/18/business/walmart-bribes-teotihuacan.html?hp&_r=0

http://www.nasdaq.com/article/wal-mart-de-mexico-shares-lower-on-renewed-bribery-allegations-20121218-00609#.UNCVjaWmDww

http://www.bloomberg.com/news/2012-12-18/wal-mart-probes-mexico-license-process-as-nyt-reports-bribery.html

 

JIT – Just-in-Time or Just-in-Trouble?

The importance of managing risk through the supply chain has become painfully evident as a result of natural disasters which have occurred in recent months and years. Despite the obvious human cost and tragedy that ensued, catastrophes caused by the earthquakes, tsunamis, flooding, factory explosions and volcanic eruptions have all impacted enterprises who source globally, and who have embraced Lean/JIT practices at least to some degree.

The supply chain effects of these catastrophes have lead to a JIT rethink, but it is clear that many companies have failed to put in place back-up plans to cope with emergencies like the Japanese catastrophe. They were content to place all their eggs in one basket like Japan or China owing to low production costs while ignoring the obvious risks of natural disasters. But even where companies had a disaster-recovery plan in place, room for maneuver depends largely on the nature of the industry.

The production philosophy born on the factory floors of Japanese car companies is a global management practice and has saved companies billions of dollars. The idea behind JIT, or lean manufacturing, is to have the supplies a firm needs at the exact moment that they are needed. Most of the companies, with production systems based on just-in-time inventory management, understand keeping minimum inventory has its risks.

The problem for many global corporations is that they are mesmerized by cheap production costs in disaster-prone countries. They know the natural disaster risks but feel that their infrequent occurrences on a major scale justify the risks. Nature is not the only threat to the supply chain; there are also significant political risks to be considered in many politically unstable countries.

The rising production costs in China will favor a shift of production back to countries concerned to have a more secure source of supply unaffected by natural disasters. There are, however, other reasons favoring a production shift back to regions close to their markets, like flexibility to react to market changes more responsively.

There are number of avenues open to risk mitigation strategies to deal with large scale disruptions of supply chains, including:

–        Challenge suppliers to develop disaster plans so that they can make provisions to move to alternate sites for production, in the event that they are unable to produce product at their main plant.

–        Eliminate sole-source suppliers, and developing the capabilities of additional companies. Having one supplier is probably too few, but having five suppliers is too many in terms of achieving economies of scale.

–        Analyze where suppliers are located, and limiting the number of critical component suppliers that are geographically situated in a risky area.

–        Review insurance policies and consider taking-out contingent business interruption insurance that protects against losses relating to the inability of suppliers to deliver.

Experts have been recommending for years that manufacturers diversify their supply base. After all, recent history is full of examples of widespread supply chain disruptions and their consequences for manufacturers reliant on too few sources, such examples are: attacks to WTC and Hurricane Katrina in USA, flooding in Thailand, factory explosions in Germany, volcanic ash from Iceland and earthquake and tsunami in Japan.

References:

Japanese Earthquake-Tsunami Show Flaws In Just-In-Time

http://nhne-pulse.org/flaws-in-just-in-time-production/

Reducing Risk in The Automotive Supply Chain

http://businesstheory.com/reducing-risk-automotive-supply-chain-2/

Japan’s earthquake must force JIT supply changes

http://logisticswithballs.blogspot.com/2011/04/japans-earthquake-must-force-jit-supply.html

Auto companies relook at just-in-time mantra

http://articles.timesofindia.indiatimes.com/2011-05-18/india-business/29555380_1_shekar-viswanathan-toyota-production-system-tsunami

 Japan One Year Later: What Did Supply Chain Practitioners Learn from the Tsunami?

http://supplychainalmanac.com/2610/japan-one-year-later-what-did-supply-chain-practitioners-learn-from-the-tsunami/

The Google Ceiling

Google has a problem.  Google’s problem is that for all their variety of products, their only revenue stream of consequence is advertising.  And for all of the fancy ideas and products they throw at the market, it appears that unless they can take back the mobile handset market with their Motorola purchase (which they do not appear to be positioning themselves to do), advertising is going to be the primary revenue stream for Google for a long time to come.

Google has a business model problem, and the cornerstone of this problem is the fact that while Google is in the advertising market, it has outgrown the market.  In the early years, their growth was fueled by the rapid growth in electronic commerce, and the fact that traditional advertising was not able to drive electronic commerce.  Since then the market has stabilized and Google is the established leader in electronic advertising, with the traditional channels still maintaining print, outdoor, television and other media channels.  If it can be reasonably assumed that the largest growth in electronic commerce is behind us and that the current landscape will be increasingly more mobile where Google has lower market share, Google has limited potential for continued growth in advertising.

Google’s revenue is almost entirely in advertising, and they don’t appear to be branching out any time soon.

For all its searching (and finding) adjacent markets, it appears they only make halfhearted attempts at monetizing these markets.  Take for example the ability to perform mathematics and graphing functions through their search engine.  Before Google entered, WolframAlpha provided this capability through free trials followed by premium memberships which have additional flexibility and capabilities.  However, Google appears to have entered only for the purpose of  limiting the revenue potential of a minor competitor, if WolframAlpha can even be called this.

Meanwhile, Apple and Amazon have established themselves with business models that, while very different from Google, flank and de-position the Google business model.  Apple has built a successful model of obtaining revenue from software, hardware, services, as well as content which Google has not been able to replicate quickly enough.  Not only this, but Apple has clearly been moving away from Google in all elements of their operations, recently even taking Google Maps from their mobile devices – clearly in an effort to eliminate the potential for advertising revenue through popular Apple devices.  Likewise, Amazon has built a successful model entirely based on selling products and online content; if Amazon is the premier internet source for products and content, they also control the advertising of the content and Google is again left out of the picture.

Google needs a 2.0 strategy in order to continue their growth.  This strategy must appreciate, but not limit itself to their advertising market strengths.  This strategy must not simply copy the strategy of Apple, but must provide differentiated value in order to become a significant source of revenue.

A Race Against the Clock, Again, in Package Delivery

In this day in age, technology has allowed people to do this in unbeatable times. With the iPhone you can instantly download and start using an app within seconds. People expect things to be done correctly and instantly. People expect to have access to items within minutes not days. Delivery services are trying to keep up with people’s high demand in quick delivery services. Customers are able to purchases items online in mere meets, but are obligated to wait days to see their new purchases. Companies like Kozmo have attempted to shorten the delivery times, but have failed in doing so. The United States Postal Service has decided to take on this challenge.

The USPS has decided to experiment in same day delivery of online orders within San Francisco. This new type of delivery will be called Metro Post. The way Metro Post will work is that it will pick up goods ordered online from participating retails in the city before 2pm and plans to delivery to homes from 4pm to 8pm. In order for this to be successful, the United States Postal Service Metro Post packages will go through a different processing center by being directly passed between Post Service employees. A flat rate will be charged for any packages less than twenty-five pounds, but the pricing has yet to be released.

 

The USPS is hoping that this faster type of delivery will bring in more income. Other companies have already developed fast delivery options. Last Month, Wal-Mart announced that it will do same day delivery orders in a few cities. In addition, in lower Manhattan Urban Fetch showcases over 10,000 products that can be delivered within an hour. There is no delivery fee from Urban Fetch as long as the order is over $100.  Recent news has shared the United States Postal Service has been experiencing troubling times. Their finances have gone from bad to worse.

 

In class, we have discussed the important of customer satisfaction as well as quality. While faster delivery options would appeal to more clients, it’s important to still provide quality products. When things are rushed, more accidents tend to occur. I’m curious to see if USPS will be able to provide fast delivery that is accurate. When packages are being delivered, they are jostled around. It’s essential that USPS remembers to not only deliver products in a timely manner, but to still deliver them in one piece. Do you think people are becoming too impatient? Do you feel that same day delivery will provide quality work? What suggestions would you give the United States Postal Service in order to make same day delivery be successful? Is there a type of inspection process that would beneficial to the United States Postal Service?

 

http://www.nytimes.com/2012/11/11/technology/online-merchants-again-pursue-same-day-delivery-service.html?ref=technology

787 Dreamliner Debut…finally a dream come true?

Inside the Boeing 787 Dreamliner with CEO Jeff Smisek (video)

After years of production delays and costs overruns, November 4 marked the date for the historic use of the Boeing Dreamliner to finally take flight in North America. With suppliers located all over the world in a large-scale collaboration, delays should have been expected. Originally planned for its first flight in August 2007, problems with excess weight and manufacturing and other problems caused for five delays and the first model was delivered in September 2011. The first commercial flight service was on October 26, 2011. Orders for the plane came in before initial production and these delays have caused many unhappy customers and calls for compensation.

It’s amazing that even with all of the delays, many airline companies have still continued to place orders. This extraordinary airplane has promised features that will supposedly astound not only its passengers but its flight crew and potential customers as well. With Boeing finally delivering on this exulted and greatly advertised product, will this plane meet its high expectations?For many of the people on this historic flight, the answer is yes.

United Airlines is the first airline in North America to operate the use of the Dreamliner with a commercial flight from the George Bush International Airport in Houston to O’Hare Airport in Chicago. United Airlines celebrated this historic event with a ceremonial ribbon cutting attended at the departure gate by its senior level management and the 200-plus passengers.

Many passengers commented on the design of the 219-seat interior plane as well as the tranquil atmosphere they experienced. Many noted the reduced noise from the engines, wings, and landing gears along with many of the other special features of the plane. Many new features include 30% larger windows with adjustable tint windows, spacious storage, dynamic LED lighting, a quieter cabin, and a smoother ride. The plane’s composition produces greater fuel economy, less maintenance, lower cabin pressure, and less time out of service. Attached above is a short video of the interior of the Dreamliner.

Even with the delivery of this one Dreamliner, there is the possibility that Boeing can still face problems with its suppliers which in turn causes further delays with providing its customers finished products. So my question is even with all of these fantastic features of the Dreamliner, does it make up for the years of delayed delivery? With multiple airlines carrying this Dreamliner, what does that mean for the competitive advantage of a company? And with all the past production delays, is it possible that there are still faults with the Dreamliner?

http://www.businessreviewusa.com/business_leaders/united-airlines-debuts-first-boeing-dreamliner

https://hub.united.com/en-us/787-Dreamliner/Pages/Infographic.aspx

 

Black Friday vs. Black Thursday !!!

 

 

It’s that time of the year again Black Friday deals. I never understand why so many people sleep outside all night to get something that is limited to very low number like five or ten pieces and the person there whose number eleven just got nothing but waited all night in cold weather. Last year I decided to try and shop at midnight I went to Macy’s waited in line for about two hours and when we finally got into the store I honestly didn’t find any good deals so I think it was not worth it for me to wait in cold weather for noting. I just wanted to experience it and I did but I don’t think I would repeat it again. Well I found this interesting article that talks about opening as early as 8:00pm on Thursday this year that means Thanksgiving will be cut short for a lot of people. Wal-Mart was the first one to announce that they will be opening as early as 8:00pm this year. And this is when competitors come in to place Sears also announced they will open at 8:00pm. Now Wal-Mart has to worry about their competitors and what they are offering to beat their prices.

Wal-Mart also announced that they will have enough inventory from 10:00-11:00pm for customers to get the same deal as they would get in store online. Now inventory managing will be a big part of this they will have to make sure that inventory will remain available and the numbers of inventory are accurate so that no problems will occur with consumers. Wal-Mart has to make sure that their entire inventory will come on time with correct amount to avoid any problems. The best way to make sure inventory is accurate is to forecast their inventory and make sure the demand numbers are correct. Some customers are already unhappy because they will have to cut their Thanksgiving with family and friends early to go shopping so that’s why inventory has to be done correctly so that customers will be satisfied. But what happens to those poor employees who want to spend some quality time with their family and friends on Thanksgiving Day? Now they have to come to work early but will the quality of employees towards customers be the same? Of course not employees will be unhappy and quality will go down. This is where Wal-Mart and Sears need to work on quality management system so that they will make sure their employees are happy so that customers will be satisfied and happy also. So maybe paying them double on that day will make their employees happier. So opening early is good but Wal-Mart and Sears need to make sure that quality, and inventory is in good shape for customers to be happy and for them to make good profit.

Do you think opening early this year is a good idea? And will quality and inventory be in good shape or will there be a problem?

la-fi-walmart-black-friday-20121108,0,376002.story

la-fi-thanksgiving-shopping-protest-20121110,0,4704988.story

 

American Airlines Expanding…

I’m sure we can all remember a time when American Airlines was going bankrupt and their stock was worth close to nothing.  It has been about ten years now since then and they have continued to grow as a company.  During the past ten years American Airlines used bankruptcy protect to cut costs and allowed almost all of their flying from only five U.S. cities.  This type of management strategy allowed them to survive after September 11th and throughout this decade.  Now, at O’Hare, they have their own terminal for domestic and international departures and international arrivals.  It’s almost hard to imagine they have come this far.

Since they will be exiting bankruptcy protection, they decided to come up with a new management strategy to deal with the upcoming costs and exit bankruptcy.  Even though American has a market leading position on flights between U.S. and Latin America, they need to focus on their weakness with continental Europe and Asia.  They have introduced new flights to Germany, South Korea, and Peru.  Their flight to Germany will be from Chicago to Dusseldorf.  They also plan on introducing some new domestic services (Nicas).  American believes this strategy will increase their departures by 20% over the next five years while they try and exit bankruptcy.

American’s C.C.O. said, “An underlying foundation of the business plan has been to diversify our portfolio of flying and increase our mix of international flying” (Wall Street Journal).  I personally couldn’t agree more with this statement and if I was looking to do this, I would start with the weakest parts of my management strategy.  I would search for the gaps in my market and do whatever I could to bridge those gaps for my consumers.  That seems like the smartest plan to me.  I have begun to wonder if it will cost as much as a regular flight or if they will be trying a new competitive angle.

Do you think the American Airline’s expansion to continental Europe and Asia is a smart management strategy?  How will the addition of these new services affect the price of tickets in the future?

Link:

http://online.wsj.com/article/SB10001424052970203897404578076120029151926.html?KEYWORDS=american+airlines+expansion

 

Hungry? Serving up the Supply Chain

 

Last week, my family and I went to Red Lobster for dinner. I was struck at how efficient they were with everyone playing a different role in the restaurant. I noticed that after every order the servers would go to a computer section to input in the orders at the different tables. I have never given it much thought, but I realized then that that was how the restaurant uses to keep track of its inventories (food or drinks). My sister ordered a lobster, which she asked the server if she could pick it. This got me thinking that the restaurant needed to have an excellent inventory management system and supply chain in order to keep up with orders such as my little sister (you cannot have lobster fresh all year round–and live ones too). So what keep Red Lobster going?

Red lobster is one of the chains of the largest casual-dining company, Darden Restaurants Inc. (“Darden”), in the United States. In the article, the management team at Darden is working to continue its competitive advantage by implementing an automation system on the supply chain. I don’t know how extensive this system is, but Darden believes that the benefits will justify the cost for it. And I think they have a reason to be since they have been an innovator in its industry by having a competitive in its supply chain. The article also mentions that Darden has plans to open a lobster farm in Malaysia among its fish farms throughout the world. This would mean that the company would have more control on the quantity as well as the quality of the lobsters coming in to its restaurants. Furthermore, with the inventory management system at its restaurants, the company would be able to measure how much inventory (food like fishes or lobsters) to each location just as demanded.

Questions to consider: Have you ever been to one of Darden’s chain restaurants? How do you feel? Does the supply chain system that Darden has in place surprise you? How do you feel about Darden being the “McDonald’s” in casual dining? Does Darden have a comparative advantage over its competitors? How so?

 

http://nrn.com/article/darden-making-progress-supply-chain-overhaul

iPad Mini, just one of the newest additions to the Apple familyT

 

The iPad Mini just came out this weekend and as always they had a line waiting outside the door. It is sold for around $329 in stores all around. According to CNET.com, it takes only $188 dollars to manufacture. I found this really interesting because it got me thinking of how much money  they can make off every product. There are differneces between how much it takes to make a 16 gb compared to the 32 gb and 64 gb iPads. It costs another $80 dollars for the iPads with more memory in them. They also sell for $429 for the 32gb and $529 for the 64gb.

The iPad Mini looks great, but is it worth buying is what I have been thinking about. Apple has been known for their superior products and are leading their competitors which is the Google Nexus, Amazon Kindle, and the new Microsoft Surface. I think the product will do very well in today’s market because Apple has a reputation of having great products.  Only Apple has come out with a product of their tablet and making a miniature version of it. I think it is a good idea, but the question is, will it sell to their expectations? They are selling their product over $100 dollars more than their competition, and Apple assumes they can do so because you pay more for quality and a credible name. I believe thats why they are charging a significant amount more than other competitors, but they can do so, don’t you think?

It is unbelievable on how much money Apple is making off of their products. The come out with something new throughout the year every year. They have expanded since they started in ’76 and keep on expanding. The net worth of Apple a decade ago was $10 billion and the net worth as of 2012 is close to $500 billions dollars. It is crazy  to think of all that they have done in the last 10 years. I feel as though Apple is just getting bigger, they have not peaked and are still in their prime. They are going to have many new products coming out, and for now, it is the iPad Mini

Would you guys feel about the iPad Mini? Do you think you will consider buying it at any time? How do you feel about Apple and their expansion into one of the greatest companies in history?

 

http://news.cnet.com/8301-13579_3-57544850-37/ipad-mini-costs-at-least-$188-to-build-teardown-reveals/