Perspectives on Various Issues of Interest

UPS & the Indian Delivery Market - Challenges & Opportunities

An article published on January 25, 2008 by Wall Street Journal’s Bruce Stanley takes a look at the extraordinary challenge of getting a UPS package delivered on the narrow, busy streets of Mumbai, India.

" Sometimes it's difficult to tell the difference between parked vehicles and those that are meant to be moving," says Andy Connelly, the UPS senior vice president in charge of southern Asia. "You could be stuck in traffic and get overtaken by a cow." But Mr. Connelly says it's "absolutely worth the effort," adding, "We pride ourselves on our efficiencies, and we have to rewrite the rulebook" in India.

UPS, FedEx Corp., Deutsche Post AG's DHL and TNT NV are all seeking to offset anemic growth on their home turf by exploiting opportunities in emerging markets. But UPS, of Atlanta, arrived in India after its three big rivals and must grapple with some problems they have already addressed or avoided.

Each year, for two months at a stretch, the airport closes its main runway for repairs for two hours every afternoon. For these two awkward months, the world's largest delivery company must make adjustments, such as reshuffling its schedule so that flights from Hong Kong will arrive a few hours early and depart before each daily runway closure.

Then, the UPS planes have to detour to the Middle East emirate of Dubai for a stopover that lasts just long enough for them to continue, on time, to Cologne, Germany. Each stopover in Dubai costs a few thousand dollars in landing fees. The runway repairs have much less of an impact on FedEx, DHL and TNT, because their flights don't coincide with the closures.

Planes fly in circles "pretty much every day, waiting for permission to land" at Mumbai, where encroaching slums have for years stymied efforts to enlarge the international airport. Given their longer experience in the market, FedEx, DHL and TNT have devised workarounds. TNT secured full control over ground shipments by acquiring a dedicated road-delivery company last year. FedEx, seeking to streamline outbound deliveries from India, operates 16 facilities in different states where it clears goods through customs ahead of time.

UPS estimates that India's domestic express-delivery market was $580 million in 2005, and its international delivery market that year was an additional $390 million. UPS values the China international express industry alone at $4 billion. But demand in India is growing fast: UPS expects the markets for both domestic and international deliveries to more than double by 2010.

Source: Stanley, Bruce,  “UPS Battles Traffic Jams To Gain Ground in India,” Wall Street Journal, January 25, 2008.

Supply Chain Management - The Need for Refined Skills

As companies globalize and outsourcing spreads, supply-chain managers must make decisions involving networks of partners in far-flung corners of the world. Meanwhile, a fierce competitive marketplace is driving companies to collaborate with suppliers to help them develop products more quickly and reduce waste in the supply chain. Technology is also pushing suppliers and clients closer, making it easier to keep tabs on orders and share information. All of which means supply-chain managers are shouldering a lot more responsibility -- and need a new set of skills.

Standard Practice: Traditionally, supply-chain managers have been little more than purchasing officers -- dealing with a handful of familiar suppliers and doing little strategic planning.

Growing Complications: As outsourcing spreads and companies globalize, these managers must deal with suppliers around the world -- and often must work closely with them to help design new products and eliminate waste in the supply chain.

New Approach: Supply-chain managers must develop a new set of skills to meet these challenges, such as immersing themselves in technology, learning the nuances of vital markets around the world and figuring out the best ways to build crucial relationships inside and outside their companies.

Managers must know, for example, the differences in legal and economic environments and trade practices in different countries, and they must have the ability to communicate across cultural barriers. Or, if they can't do all that themselves, they must hire people who can do the job for them.

As the job of supply-chain management gets more complex, managers must be trained to think of overall company strategy -- and shareholder value -- as they do their job. They must resist the temptation to make decisions that satisfy short-term needs at the expense of long-term organizational goals.

Planning, communications, team-building and relationship-management skills are necessary for success. Managers must also learn how to integrate outside suppliers into internal teams -- a critical move as companies and partners collaborate more closely.

Finally, and perhaps most important, supply-chain managers must always keep learning. They must consciously pursue their career development, building knowledge and skills that will enable them to excel and create competitive advantage for their companies.

Source: Giunipero, Larry and Handfield, Robert and Johansen, Douglas, “Buying: Supply-chain managers used to have one main job: purchasing stuff cheaply. They need a whole new skill set now. Wall Street Journal, March 10, 2008.

Store Display Strategy at Borders

Borders, the nation's second-largest book retailer, is sharply increasing the number of titles it displays on shelves with the covers face-out. Because that takes up more room than the traditional spine-out style, the new approach will require a typical Borders superstore to shrink its number of titles by 5% to 10%.

We always had face-out titles on the shelves and on tables, but they were used as punctuation and tended to focus on popular titles," says Anne Kubek, senior vice president of Borders U.S. stores. "Today we're showing the front of books even when we only have two or three copies."

Borders is carrying a heavy debt load and its stock price has been pummeled. Shares of Borders were near the 52-week low of $8.11 and off significantly from the 52-week high of $24.15. It has begun a major restructuring aimed focusing on its U.S. superstores while cutting costs, including closing nearly half of its Waldenbooks outlets and selling off most international operations.

Unlike modern supermarkets, booksellers haven't done enough to make books look attractive on the shelves, says John Deighton, editor of the Journal of Consumer Research.

"Breakfast cereals are not stocked end-of-box out," he says. "You want to your product to be as enticing as possible. It's a little bizarre that it's taken booksellers this long to realize that the point of self-service is to make the product as tempting as possible."

Borders says customers visiting its prototype store said their impression was that more books were available. Even so, its new strategy -- which at a typical superstore will mean a reduction of anywhere from 4,675 to 9,350 titles from the former total of around 93,500 -- could make Borders vulnerable to a marketing campaign from Barnes & Noble that promotes its own vast selection. The average 25,000 square-foot Barnes & Noble superstore stocks approximately 125,000 to 150,000 book titles, and the chain says it has no intention of cutting back.

The Borders push may affect small publishing houses, which can often place a debut novel in Borders because it has such a broad selection. Whether that will be more difficult in the future is unclear, says Alexander Chernev, associate professor of marketing at Northwestern University's Kellogg School of Management in Evanston, Ill. "If Borders carries fewer titles, then they may prefer larger publishers that have more marketing push," he says.

Source: Trachtenberg, Jeffrey, “Borders Tries About-Face on Shelves: Counting on Covers to Sell, Bookseller Changes Display While Cutting Titles Stocked,” Wall Street Journal, March 12, 2008.

Cloud Computing to Streamline Distribution

Using smartphones and cloud computing setup supplied by Antenna Software Coca Cola Enterprises' 12,000 store merchandisers are able to be in constant touch with their managers and with the company's information storehouse. Earlier, these store merchandisers used to pick up instructions at a warehouse in the morning, did their rounds of stores, and checked in again with the supervisor at the end of the day. Today in the new setup, at the end of each stop the store merchandisers complete online surveys that give the company information regarding sales trends and relationships with store managers. Using the survey information and GPS, managers can watch store merchandisers' movements on maps and change their schedules on the fly, depending on the situation. The total driving time of merchandisers has been reduced by 75% since they now drive to the head office once a month rather than daily.

Source: Hamm, S. "Cloud computing's big bang for business," BusinessWeek, June 15, 2009, pp. 42-48.

Mass Production of Chapatis

Haier's Entry into the U.S. Market

Zhang Ruimin, the chief executive of one of China's largest appliance makers, has a plan to build a signature, $2,000 refrigerator in America to capture a bigger slice of the lucrative U.S. market. Mr. Zhang's strategy brought Haier Group closer to its potential customers and avoided the cost of shipping bulky appliances from China. But since it was introduced last year, the new high-end refrigerator has been given a cool reception.

One of China's biggest consumer brands, Haier makes more than twice the number of refrigerators in a year made by Whirlpool Corp. Even though it is the leading seller of compact fridges used in dorm rooms, it is still a mere pipsqueak in the $40 billion U.S. market, where it has been selling mostly lower-cost appliances for years.

Growth overseas is crucial for Haier because profit margins from the company's core products in China -- refrigerators and washing machines -- are razor-thin thanks to increasing foreign competition. That pressure has increased since 2004, when Haier made an unsuccessful attempt to buy Maytag Corp., losing out to Whirlpool.

Haier's rigid, top-down management structure fell flat with American workers accustomed to a less-authoritarian style. By 1999, Haier had become a colossus in China, probably the single best-known appliance brand in the country. It had a reputation for good quality, and surveys of recent college graduates consistently ranked Haier as one of China's most desirable employers. But profit margins were falling, prompting Mr. Zhang to search for growth abroad.

"Haier is at a crossroads" as it attempts to build a dynamic company out of a bureaucratic, formerly state-owned enterprise, said Teng Bingsheng, a professor at the Beijing-based Cheung Kong Graduate School of Business.

Haier's head of its U.S. division, Michael Jemal, acknowledged that the economic downturn has hurt business, but said in an email that U.S. sales have increased year-to-year in all areas. But Haier's U.S. factory in Camden, South Carolina is still running at a loss. Having higher-cost overseas operations to manage has weighed on profit growth. According to unaudited figures from China's Ministry of Information, Haier's 2006 gross profit was $20.3 million, a 32% drop compared with four years ago.

Haier's washing machine without an agitator -- which makes for larger loads and gentler washing -- is 40% cheaper than a similar Whirlpool model. But with the slump in the U.S. housing market, Haier's "timing is tough," says Mr. Torgerson.

Undeterred, Mr. Zhang says he wants to add 10 more overseas plants by 2010. Those who don't become global players "won't survive," he says.

Source: Fong, Mei, “Chinese Refrigerator Maker Finds U.S. Chill,” Wall Street Journal, March 18, 2008.

Burger King Introduces Whopper Bars

Burger King Holdings Inc. unveils a new version of its restaurants this year called the Whopper Bar that will sell a wider variety of its signature hamburger in a hipper setting. The menu and size of the Whopper Bars are smaller than a typical Burger King,

Burger King plans to build Whopper Bars in places like casinos, airports and other venues with limited space. Design plans call for the bars to have chrome, wood, exposed brick and plasma-screen televisions with images to evoke Burger King's flame-broiled motto. Russ Klein, Burger King's president, global marketing, strategy and innovation, said he began thinking about the concept about four years ago when he visited a Burger King in Germany that had knocked out the back of the restaurant and created a bar section. Mr. Klein said the Whopper Bar is akin to McDonald Corp.'s creation of McCafe coffee bars, except that it is built around the chain's signature sandwich.

"It's our way of stepping into the future," Mr. Klein said. The Whopper "is arguably a trademark that is bigger than Burger King itself." That was recently reinforced by an experiment where Burger King told some customers it had gotten rid of the Whopper just to see how they would react. Many customers became upset, and Burger King used the hoax for an ad campaign.

Burger King and several of its direct competitors have been increasing their sales steadily for the past few years, thanks in part to having cheap items, sharper marketing and a slew of new products that expand well beyond hamburgers into chicken, salad, snacks and dessert.

Executives say the trick will be figuring out just how narrow to make the menu. Some are concerned they will irk customers if patrons can't get an item they usually get at Burger King in a Whopper Bar. "I just don't want people to walk away unhappy," said John Schaufelberger, the company's senior vice president, global product marketing and innovation.

Mr. Schaufelberger said Burger King, the nation's No. 2 hamburger chain by sales behind McDonald's Corp., has looked at lattes and cappuccinos but has no plans to put new equipment in the company's U.S. restaurants to offer the drinks despite McDonald's plans to do so. "Suddenly having baristas in the restaurants ... that's just not who our customer is," he said.

Source: Adamy, Janet, “Burger King Whopper To Be Feted,” Wall Street Journal, March 29, 2008.

Shipping with Mega Containers

Container shippers are unleashing a wave of titanic vessels on the oceans during the biggest dip in global trade since World War II. The trend could keep sea freight rates depressed well into 2010. That's good news for their customers, the millions of businesses big and small that import parts and products from overseas. But it's likely to spell pain within the shipping industry itself and could precipitate consolidation as smaller players are pushed out.

Jumbo vessels can result in great economies of scale if shippers can fill their giant holds. The jumbo vessels -- many longer than three football fields -- carry everything from strawberries and tea to iPods and motorcycles, for thousands of customers at once. The economies of scale can be great if shippers can fill their holds.

The MSC Daniela is a glimpse of the future. The size of an aircraft carrier, the ship completed its maiden run from Asia to Europe this month packed with 13,800 containers, or equivalent units, each big enough to contain all the contents of a three-bedroom house.

Thirty-five ships of Daniela's scale are scheduled to hit water in 2009, doubling the number floating today. They'll make up roughly a quarter of the net increase in container capacity on the high seas. The Asian companies that make up 16 of the top 20 container shippers are also ordering the ships, led by China's Cosco Container Lines with 24. By 2013, some 200 ultralarge ships will be in service around the world.

Meanwhile, a ship capable of fitting 22,000 containers has been designed by South Korea's STX Shipbuilding Co.

Shippers are eager to avoid partially filled vessels at almost any cost. "To fill their big boats, these guys will cut their price to any level for customers," said Dirk Visser, an analyst at Dynamar NV, a Dutch consultancy.

With overcapacity and a drop in trade, the bottom recently fell out on shipping rates. The rate for shipping a container from Asia to Europe, the world's busiest trade lane, has fallen to around $300, one-tenth the cost of a year ago, even as some shippers cancel regular runs. Some ships have gone so far as to take containers free. The only cost to the shipper is roughly $500 in fuel and transit fees, which are assessed on all containers.

According to the most recent data available, the U.S., Japan, China and the European Union all suffered 10% declines in exports in November, auguring a bitter 2009 for global trade. Yet shipping companies aren't expected to cancel any orders for new ships, allowing the global fleet to increase by over 12% -- way ahead of expected demand.

Source: Miller, John, “The Mega Containers Invade” Wall Street Journal, January 26, 2009.

Corporate Acquisition & Technology Commitment in Enterprise Software Market

About two-thirds of the 50 top entreprise application software vendors use Java for their applications. The recent acquisition of Sun Microsystems by Oracle raises some important questions about the commitment of several of these competitors to the Java programming language.

A Critical Examination of the "Third World" Myth (Statistics Can Be Interesting)

I am sharing an excellent presentation by Hans Rosling, Professor of International Health at Karolinska Institutet, Sweden. Enjoy!