Several US industries are facing the similar problem of US isolationism policies, especially against Mexico. But I believe that Constellation is the one company that is unique in this problem because it has more than just cost and labor reasons to produce in Mexico – it has long traditions linked to Mexico. Given this context, moving production out probably will lose the charm the brand carries – with a marketing backlash, which is why I disagree with most of the comments above. Constellation’s best bet in the current political environment is to not irk the government and make smaller trade-offs and buy some time – one of them definitely is to not to go all out announcing its factory expansion.
I do like the idea of instead finding newer, profitable markets where Constellation could possibly enter with a higher price point factoring in the additional tax implications of producing in Mexico.
Most thoughts seem to be debating the long-term capital outlook and the capital investment required and opposing the government vehemently. My thought on this was that when government bodies seem to be irrational with some decisions, is it better to figure out certain loopholes or compromises given that the government will not want to look on the logical arguments?
From my basic reading about NAFTA, it claims that at least 62.5 percent of a passenger car or light truck’s net cost must originate in North America. Would it be possible to do some compromises to win government support just like Ford which decided to cancel future plans to build factories in Mexico, which did win praise from the President and in the meanwhile continued to produce its highest selling cars in Mexico – essentially sacrificing the pawn to save the Queen.
In the meanwhile, the companies should also push the government to come up with a plan where the government demonstrates its intentions to help these firms reduce costs in areas where they will be impacted most. All this could just be a method to stall this argument for a few years before one fully finds out the stability of this political setup.
This is an interesting approach that Cooper Tire has taken to completely change the primary source of its products. Maybe they have already tried but my first instinct as Cooper would have been to try and see if the existing rubber trees can be grown in a different geographic location and slightly different climatic conditions. This research and experiment would probably be more stable than actually replacing the entire key raw material in your product that has sustained your company for long.
From my understanding of high-performance rubber, it is extremely critical for the rubber to be natural. With these new experiments, these tests may take longer as rubber testing really needs to last the test of time – as good rubber needs to last a long time and should remain cool even with loads as high as an aircraft.
You raise a valid point around investor’s concerns on large capital outlay for environmental impact efforts, however, there are two questions that seem to come to mind:
1. Aren’t efforts and cost of climate change initiatives a part of mandatory strategy now, which investors don’t really have a choice but to accept?
2. Why do these changes have to be always capitally intensive?
While I may not have answers to the first, I definitely have seen several startups come up with low-cost solutions to counter the effects of climate change that are worth pursuing. These include drone mapping that provides aerial spectroscopy to analyze subsoils suited for certain kind of crops, providing predictive analytics. Further, there are startups that identify crop spoilage 30% earlier than traditional methods. Maybe, Kraft Heinz can actually direct some funds towrads such startup development.
When you asked does it make sense for GE to do it, my only thought was what would be the reason for GE to not do it? They have predominantly not entered into spare parts manufacturing because their core competency is manufacturing and not last-mile distribution, which is exactly what additive manufacturing takes off the table. For example, An aircraft might break down in Houston and the spare parts manufacturing centre would be in Boston. This is extremely expensive because:
– the spare part was increasing inventory cost sitting in Boston
– the transit time to send the part means the flight is parked in Houston for days increasing parking charges and causing loss of revenue since it can’t fly
– Add the costs further of the ripples this one missing link sends across the entire network of flight schedule management
With additive manufacturing, the spare part is just lying as a “design inventory” and can be shipped to the closest 3D printing unit of the site of breakdown.
Long story short, one of the key components of the strategy should be to identify locations in the market which have a higher rate of breakdown and are furthest away from existing manufacturing locations.
Your first question is interesting especially because of the fact that Amazon has much deeper pockets than Fulfillment marketing. Yet, given the state of affairs, Amazon today will own a large wallet share of purchases and hence it is essential to keep in line with the technology upgrades and keep cost low. In upgrading their technology, one thing that they should keep in mind is what fraction of their investment are they doing to better systems and align with the supply chain as against investing in innovation to stay ahead of the curve. One example that comes to mind when you mention the employees entering the same aisle several times was the concept of Chaotic Storage, where products are randomly stored across the warehouse and identified by the unique storage location numbers. This distributes items across the warehouse and optimizes path of employees when looking for a new order without crowding the same aisles.