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

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.


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


Reducing Risk in The Automotive Supply Chain


Japan’s earthquake must force JIT supply changes


Auto companies relook at just-in-time mantra


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


11:11 Make a Wish – China’s Cyber Monday

Many may know and participate in the United States huge rush for online shopping after Thanksgiving, also known as Cyber Monday.  However this ranks as the second largest e-commerce event in the world.  In the recent years, an online shopping extravaganza has emerged for China.  It began in the 1990s by college students who did not have a significant other.  As a replacement for Valentines Day, young adults without partners began treating themselves to dinners and gifts.  The concept of the date arose by November 11th or 11-11 which has 4 singles (for singles).  It has now erupted into possibly the busiest online shopping day in the world.

The simple items have now evolved into jewelry, TVs, and even cars.  The event has also spurred the need for different marketing techniques and price cuts.  As the article mentioned, some retailers have promised discounts up to 70 percent off.  The deals are very hard to resist and resemble many aspects of the United States’ Cyber Monday.  Halfway through the day,  approximately $1.6 billion in sales have been accumulated by means of the largest website for online shopping in China, tmall.com.  This amount has surpassed the $1.25 billion that United States online retailers took in last year’s Cyber Monday according to the article’s source comScore, a research firm.

Companies have also had to begin planning and forecasting sales and delivery services months in advance.  Alibaba, the largest Chinese operator of e-commerce, has requested additional lounge chairs and made reservations for rooms in nearby hotels for their employees to take much need breaks and relaxation.  According to the article,  more than 800,000 delivery personal will be working Sunday with the additional 75,000 hired seasonal workers.  And one of the largest companies has even expanded their operating capacity by 50 percent.

Although the idea of a large shopping spree day online in China may be different from the United States, there are many similarities when it comes to the businesses and their preparation.  Do you see a growing trend in online shopping in American or believe that making the trip to the store is necessary?  In my opinion, I believe it matters in the nature of a product to either purchase it from a picture on the screen or physically taking the good off the shelf.


Article Source : http://finance.yahoo.com/news/singles-day-chinas-online-shopping-070856623.html

Walgreens Inventory Management System


As early as 1994, Walgreens has been ahead of its competitors regarding inventory systems. Taking on new technology, which is defined as SIMS technology (strategic inventory management systems), which previously had not been applied to the pharmaceutical sales industry. This early technological approach to dealing with issues of inventory, such as over and under stocking, greatly benefitted Walgreens in the long run. This benefit was able to be transmitted to consumers as well as net profits for Walgreens due to their ability to track their inventory in all facets of its movement. The systems implemented by Walgreens allowed it to eliminate a great deal of its excess as well as virtually eradicate under stocking. However ultimately, what was most significant is what this process allowed Walgreens relative to its consumers. Walgreens, as a result, managed to cut its customer wait-time in half.

Walgreens has been able to use this basis of efficient to expand to over 4000 locations in ten years. Moving from a locally recognized Chicago pharmaceutical retail company to a major corporation, which many argue in large part is associated with its focus on inventory management. Because Walgreens monitors its inventory through every step of its process it is more difficult for anything to be lost in addition this data collecting process, which is becoming more and more utilized allows Walgreens to stay ahead of the curve.

Walgreens has been able to become the company it is today as a result of its constant revising and tireless focus on technological internal opportunities in the inventory and customer care sectors. It is this technological focus that has lead Walgreens to become a major market share holder per the NAICS able to hold it’s own against CVS and RiteAid while acquiring smaller scale pharmaceutical retailers.





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?




Best Buy Boss: Bolster Business By Bettering Bungling Bureaucracy

Just as the title has way too many “B’s”, Best Buy believes it has too many upper-management positions in their organizational structure. With the company’s stock hitting a 10-year low recently, Best Buy believes leadership and organizational roles must be revamped to turn Best Buy back in the right direction.

Best Buy used to be known as the place to go (sometimes the only place) for any and all electronic needs. They had been leaders in the consumer electronics retail industry. Unfortunately, Best Buy has been relatively slow and complacent in terms of evolving and innovating their operations strategy. However, competitors have leap-frogged Best Buy from all angles. The last few years have seen internet retailers like Amazon and other large retail stores like Wal-Mart and Target capitalize on Best Buy falling asleep at the wheel.

Wal-Mart and Target have refined their operations efficiency enough to make them low-cost leaders. This is an essential part of why they can offer lower prices than many other outlets. They positioned themselves in consumer minds as the place to go to save money. Therefore, people figured if they save money at Wal-Mart for everyday items, the same must be for electronics. In addition, consumers also have the convenience factor of buying the electronics from Wal-Mart in that they could buy their groceries and other items there as well.

Amazon is also a big reason for Best Buy’s decline. While Best Buy and other retailers have an online store, Amazon’s specialization in online retailing has Best Buy “against the ropes”. Amazon beats Best Buy through lower prices, higher product variety, fast shipping, and in many states, tax-exempt purchases.

To stabilize the business, Best Buy’s new CEO, Hubert Joly, is condensing the management structure. They are cutting out high positions such as “President of U.S. Business” and “Chief Administrative Officer” organizing the company structure into three divisions. The heads of each division will answer to Joly directly. The reason behind the change is the hope that the company, can make a better connection to its functional-level employees (to be retrained as well) and customers. Best Buy has closed dozens of stores just this year and is reducing store sizes due to lack of in-store demand for certain products. With competitors doing the opposite, Best Buy’s relevancy  to consumers is fading.

It seems part of Best Buy’s sluggishness to be competitive had been a cumbersome organizational structure and the inevitable “bureaucratic red-tape” that hinders decision-making in an organization. In my opinion, this move by the newly appointed CEO is totally necessary for any long-term strategy to keep the company alive. However, I also feel it may be too little, too late for Best Buy to catch-up to its competitors. In the short-term however, I believe Best Buy will regain some traction due to the holiday shopping season and their new offer to customers of matching competitor prices on their items.

Will Best Buy eventually recover and be competitive in the market, or are their days numbered?


Is “Lean Government” the Solution to Economic Problems?

In the last class, we learned about Six Sigma, a methodology that is used to eliminate waste from business activities, while benefiting a company’s financial performance. Six Sigma uses the idea that all activities are processes that can be evaluated with the DMAIC process (define, measure, analyze, improve, and control). By using data analysis methods and focusing on customer knowledge and core processes, companies can reduce defects significantly, with the ideal target being 3.4 defects per million opportunities.

Private companies have been successfully using Six Sigma to improve their methods and reduce costs for years, and even service sector companies, like hospitals, are using Six Sigma to analyze their processes for areas of improvement and greatly reducing treatment times for patients. In class, we discussed Motorola’s introduction of the Six Sigma process and saw examples of how companies like Caterpillar have used Six Sigma to reduce defects and costs. Forbes.com ran an article a few months ago about the expanding types of organizations that are bettering their operations through Six Sigma, such as the Department of Defense and even Iowa’s state government. Looking at these cases, author Kellan Giuda, questions why top government is ignoring the proposition of using Six Sigma to reduce the national deficit in his article “Lean Government Six Sigma? Why Do Politicians Ignore it?”

As everyone is aware, the economic crisis in 2007 and 2008 has caused a lot of criticism on how the U.S. government functions. Because of this many advocacy groups, specifically seen when Newt Gingrich was running for candidacy, are arguing for higher-tier adoption of this system in order to reduce debt. The argument behind this movement is the $2.45 billion saved by the U.S. Military after introducing Six Sigma in 2008 and the Department of Defense’s integration of the system into their operations. Giuda believes that these cases prove that Six Sigma can be beneficial to organizations outside of the private sector, such as government agencies. He argues that this would provide an opportunity for top government officials to undertake the public debt problem head-on and that Lean Six Sigma is a viable solution for the problems the U.S. government faces.

Thousands of companies worldwide embrace Six Sigma as a tactical improvement system and seeing the various types of organizations that are implementing it shows the transferability of the system. Do you think that using Six Sigma would reduce costs in a national government? Would it be difficult to implement?



Cash Strap? Need a Job this Holiday Season?

With the holiday season approaching fast, many major retailers are opening up more jobs in preparation for the high demand of the holidays. Experts estimated about 700,000 new, temporary jobs for this year, which is a slight increase from last year. As the economy is slowly moving out of the recession, many American families are paying back their debts, which give them the extra cash to spend this year. Hence, there is a great outlook for this holiday season for those of you who are looking for a little more income or just taking advantage of the employee discount that most of these retailers offer for their employees.

Looking at previous years numbers, most of these retailers are retaining their seasonal workers well over the holiday season. These temporary, seasonal jobs are turned into full-time positions, which for most workers are a good thing if they are looking for a permanent job. I have started seeing a lot of companies doing this nowadays. Rather than hiring full-time workers right from the start, companies would look into their pool of temporary workers first before hiring outside workers for any new positions. I’ve had a taste of this through the internships I have had done in the past. Most of the firms that I want to work for usually hire from their pools of interns and offer little to no position to those who have not worked an internship at their firm.

We’ve talked about forecasting in class, and this article ties in with this topic. With the increase in demand for goods and services this holiday season, major retailers are hiring more workers to meet this demand. Some even go as far as to open temporary stores, i.e. Toys “R” Us, in anticipation for the busy holiday rush. I think that this is a good boost for the economy as it may opens more, new jobs in the future for some people. Also, for companies, this is a smart move because they do not have to deal with making enough revenue to cover for the fix costs that come with permanent stores throughout the year. They can just rent a store for three to four months just in time for the holiday demand.

Questions to consider: Are you looking for a job? Would you be interested in becoming a seasonal worker? How are these companies handling their forecasts? What are the pro and cons of the increase in jobs during the holiday season?



It’s Not Just Any Other Travel Website

When searching for airplane tickets online, have you ever noticed the same exact flight having a different price on each travel site? Well, flight fox.com has come up with a way for travelers to get the absolute lowest airfare. Two men, Todd Sullivan and Lauren McLeod, founded this company in Mountain View, California. Todd Sullivan states that there are two types of airfare researchers, one being an “expert”. Members will need to apply in order to be experts. These applicants need to only show they are capable of finding low and good fares. Another type of researchers are “flight hackers”. These people “enjoy the sport of fare-hunting”.

To become apart of this traveler community, Flight fox requires the flyer to enter he or she’s destination and where they will be traveling from, as well as desired itinerary and preferences (connected flights, direct flight, where you would like to sit in the plane, etc.). If someone needs to travel with a pet or surfboard, there is an option for that. This results in a competition between the researchers (anyone apart of Flightfox) to find flights according to the specifications of the traveler.





Whoever ends up finding the cheapest fare that best complies with the traveler’s preferences will receive ” seventy-five percent of the finder’s fee that the traveler pays Flightfox when setting up the competition”. This allows for members to have an incentive and further motivation to look for these flights. In addition, it’s a new hobby people can start enjoying. Most people utilize a computer at least once a day, especially when there is down time. Now, you can earn a few bucks during that down time.

I believe this is a wonderful idea. There are many airplanes and websites that not everyone knows about and this site gives the opportunity to contribute such information and help others out, while at the same time having a possibility to win some money! One thing I am skeptical about is that prices of tickets can vary every day. One day, it can be the cheapest price you find and the next it can increase by sometimes a hundred dollars each way, so I wonder if the information given by the researcher is one hundred percent true or if the researcher needs to constantly update the information.

What are your opinions about this article? Would you consider using this site when it comes time to planning a trip, why or why not?

For the complete article: http://www.nytimes.com/2012/09/30/technology/flightfox-lets-the-crowd-find-the-best-airfares.html?ref=technology.

A Gamble for P&G

Since the inception of the Procter and Gamble (P&G) corporation, the company has provided households alike with brands such as Gillette, and Tide. In the wake of the financial meltdown the company’s has witnessed loss of profit as well as the loss in market-share. Many factors contribute to the loss, yet the company still allows for Robert McDonald, Chairman and CEO to remain at the helm of the company after three years of little improvement.

In February, McDonald announced the company’s first cost cutting strategy, calling for a plan that would save $10 Billion dollars over the next four years, at the expense of cutting some 4000 workers and focusing on the company’s top 40 most profitable market shares. McDonald also announced that the company would be buying back stocks in hope to increase the market price. Large stockholders view McDonald’s action as either too little or too late.

In July, William Ackman, of Pershing Square Capital, who controls $1.8 Billion dollars of P&G stock issued a 75 page complaint of McDonald’s tenure at the as Chairman and CEO, criticizing his leadership, all while pressuring the P&G’s board to force the resignation of McDonald. Since Ackman’s public complaint the board has cut McDonald’s and other P&G executives salaries by 6%, in addition to cutting their performance bonuses. The actions resulted in the stock of the company 12% jump, ending this week at a 52-week high.

McDonald is not the only problem for P&G, but can anyone blame Ackman for compiling such a report about the man who is controls the future of his investment? P & G in recent years has mis-forecasted earnings three times, as well many new product launch’s have been delayed. McDonald alongside the other executives seemed to have missed the cyclical component in their forecasting. The company continued producing large number of their high-end products, causing customers to jump ship and buy the more basic items. In example of this is P&G continued mass-production of high-end tide laundry detergent products. Such products were noticeably more expensive because the detergent had a scent that was more pleasing and a better product design, but the results were the near the same as the store brand, creating customers to cutback and buy the store brand. The company’s strategies in the wake of the recession were not in touch with their customer base and the company continues to be effected by such decisions of the company.

P&G is taking a risk allowing for McDonald to continue as leader, the next few months Ackman will not be the only person closely observing the decisions of the McDonald and his team. For P&G’s sake many hope that McDonald’s financial cost strategies do pay off, but only time will tell the real truth.