Thanks for a great reading! I believe Tesco could take additional actions in its supply chain strategy to minimize the impact of Brexit in its production costs:
1-Now that the trading negotiations results are still unclear, Tesco could leverage its scale to lock into long term contracts with EU suppliers and minimize or mitigate part of the increased tariffs. By committing to buy large quantities in the future, suppliers could be interested in giving additional discounts to Tesco. Suppliers would be interested since shifting very large quantities of their products to other sources might also be very difficult.
2- As you mention, Tesco will definitely have to consider sourcing from domestic suppliers even at a higher cost. In order to minimize potential inefficiencies from domestic supply, Tesco could elaborate training programs for new suppliers. Additionally, committing to large quantities could be again an important lever since this commitment can help suppliers to undertake additional capital investments to make their sourcing more efficient which again in overall would benefit Tesco.
3-To mitigate that all the increased cost goes to the consumers, Tesco can also benefit from UK products that used to be exported to the EU. If these products have lower demand their price will decrease and Tesco could benefit from its scale to offer high discounts to the end consumer.
Very interesting article! The question you raise about how to approach potential employment issues is key for Audi’s success. If Audi does the rollout of its automation process too fast there could be significant risks that could harm production and supply chain operations.
Employees from other plants could see the automation initiative as a threat for their current jobs and seek to create or join labor unions. This at the same time could increase total labor expenditures or diminish the impact of expected efficiencies with automation. More drastic actions that employees could take could be strokes in current plants operating at capacity creating additional production problems.
I believe Audi should focus more on the efficiencies that don’t require lay-offs (as you mention for instance 20% decrease in cycle time) and implement a massive training and relocation program for the jobs that might be at threat. For instance, with automation Audi might not need workers in the line but will need more people in the innovation and R&D departments. Skilled workers with high expertise and experience that receive the appropriate training could be a great add to those teams.
Great article! I believe there are a couple of additional levers that avocado growers in Mexico could do in order to have a more environmental friendly production:
Automation: Avocado production in Mexico still relies in manual procedures and labor is the major production cost. For processes such as irrigation, a manual procedure can lead to water wastage and lower yields in production. Increased investment in order to automate key processes could be a solution and also a lever for cost efficiency.
Coordination between growers: If the rise of avocado prices is a fact, growers will need to further coordinate in order to share best practices and achieve scale to reduce costs. A key cost that could be reduced if more coordination is achieved is the transportation cost (by increasing scale and coordination of routes between suppliers).
Finally, I think it is also very interesting to look at the avocado supply problem with the NAFTA treaty at risk. If NAFTA agreements are modified, probably Mexican exports to the US will have an incremental tariff making avocados even more expensive! There is a great article from another classmate that discusses this topic in further detail: https://digital.hbs.edu/platform-rctom/submission/holy-guacamole-your-super-bowl-snack-is-about-to-get-pricey/#comment-14400 .With these two pressures at the same time the avocado industry is really under threat!
As you mention well, if NAFTA current agreements were modified or suspended, there are implications for Ford’s plants in Mexico. Impacts would be both in the increased production costs and the increased tariffs on the final product. Therefore, I believe the best strategy for Ford is to use its current plants in Mexico to supply other markets than the US. How to do this?
An interesting plan of action is to partner with other car manufactures that don’t have plants in Mexico but have high demand of cars from central and south america, and at the same time have plants in the US. The deal would then be shifting part of Ford’s US production to the other manufactures plants and vice versa, and use Ford’s plants in Mexico only for Mexican demand and international non-US demand (Countries is Latin America And South America).
These are the type of strategies that car manufacturers are implementing with the Brexit. Nissan for instance has important production in the UK, but this January the Nissan Micra became the first Nissan passenger car to be produced in a European Renault plant to face potential impact of Brexit. There is an interesting article from a classmate of another section related to this topic: https://digital.hbs.edu/platform-rctom/submission/nissan-at-the-brexit-poker-table/#comment-14786
As the organization growths and becomes more sophisticated, there are a couple of quick wins that could be achieved through digitalization:
1-Supply planning: In the mid-term, Robin Hood Army could try to get access to its suppliers (restaurants) orders. Based on historical information, Robin Hood could predict the amount of excess food generated in a day by a specific restaurant and target a specific population size. This way the service becomes more personalized and there won’t be people in the communities that are not reached. Predicting the amount of excess food can also determine how many people is required to help serving the food, the type of transportation needed and the impact that restaurant will generate on a specific day.
2-Process standardization through digitalization: As the company expands to other countries, it will be important that general procedures or standards processes are implemented to ensure that the vision of Robin Hood Army is followed and the is no brand image at risk. To do this RH could implement a digital app used by restaurants and the benefactors in each country. Implementing this type of tools can help standardizing the process and at the same time get more data for analytics. Who can finance the App? If restaurants could have access to information such as their daily excess food supply and the amount of people they are helping nourish I think finding funds from big restaurants chains could be achievable.
In addition to all the actions you recommend for the MME I think there are a couple others that could be undertaken:
1-It is key that the ministry focuses in developing a plan B in case the negotiations don’t go as expected. Mexico should start approaching other countries that could be potentially interested in the excess of supply generated by a negative Nafta. By doing this, the MME would have a better picture of which industries will be less and more undermined. This at the same time can help the MME define its priorities at the moment of their negotiation with the US. (e.g. Car manufacturing exports can be shifted to other countries, but some raw material production may not).
2-The MME should launch a comprehensive plan for Mexican companies to integrate their supply chain within Mexico (e.g a company that sources from US products but produces in Mexico). The plan should have tax incentives and subsidies to encourage adoption. This way, more Mexican and non U.S companies could be incentivized to develop new ventures and more investment in the country could partially replace the revenue Gap generated by the Nafta.
As you mention well, there are implications for Nissan both in the increased production costs but also in the increased tariffs on the final product. If I were Gosh I would take additional actions in those 2 dimensions to ensure that the Sunderland plant remains competitive.
Production costs: Nissan should try to increase the amount of domestic inputs. This way it would avoid additional taxes or tariffs on those products. In order to do this, Nissan should do a deep review of the current UK industry to see if the current 40% domestic input can be increased to 60-80%. I see 2 ways of doing this: 1- Find current suppliers in the UK (maybe less cost effective) and work with these suppliers in long term contracts based on volume to achieve efficiencies. Nissan would need to share best practices with these new suppliers to ensure quality and efficiency. 2) Establish JV for domestic production in the UK of parts that are not currently produced. With additional investment in the UK, Nissan could negotiate with the government to reduce the current tax rates or get another type of subsidy that in overall would benefit the company.
Increased tariffs on final product: If increased tariffs are a fact, I believe the best plan of action, as you mention, is to partner with other car manufactures that don’t have plants in the UK but that have plants in the rest of Europe. The deal would then be shifting Nissan’s European production to the other manufactures and vice versa, and use the Sunderland plant only for domestic demand and international non-EU demand (countries such as Costa Rica that the Brexit won’t have any impact).
I think there are 2 questions that you address in this very interesting article and I wanted to add a couple of additional insights:
1- How can Diageo react/hedge to the declining yields and increase in price its main raw materials?
I see two additional actions that Diageo could take in order to hedge against this trend. a) Diageo could increase its use of financial instruments to hedge against the increase in price. For instance, it could buy future contracts on its main raw materials to lock in the prices. That way, Diageo could plan at least how big will the increase in price be and quantify the efficiencies it will have to make to cover the increase in cost. More sophisticated financial hedging strategies could additionally help Diageo, such as more complex financial instruments that pay off when the price of raw materials increase. b) Diageo could further diversify its raw material sourcing. In the short term this might increase the price since less volume is bought from the same suppliers, but in the future, it could be a great source of diversification since it is unclear in which areas of the world climate change will have more or less impact. Therefore, by diversifying now and having established relationships with key suppliers Diageo could be mitigating that in the future one of the suppliers is not able to cover demand.
2-How can Diageo improve the sustainability of its supply chain?
In see three additional levels of action Diageo could undertake. First, it could define standards for its suppliers on the water irrigation processes they use and only buy to the suppliers that meet the standards. Second, Diageo could make their suppliers report this data as public information. This at the same time would generate a competition among suppliers to become more sustainable in their processes. Finally, Diageo could think about vertically integrating (buy crops) to develop pilots and best practices in crop management to share after with suppliers.
In overall, I agree with your proposal of letting the consumers be the designers. The impact on inventory levels, efficiencies and customer knowledge would be significant. However, implementing this approach could have important implications in Zara’s operational model and supply chain:
1-One of Zara’s greatest competitive advantages is its time to market with exclusive designs. By having an application that shows future designs to consumers, Zara would be showing at the same time future potential designs to competitors. While consumers decide which model, they want for their next Zara outfit, competitors could be copying all the models and launching in the market previous to Zara.
2-Another great aspect of Zara is that its designs are appealing to the masses. What would happen to a consumer that voted for a T-shirt model in the App but then because that model was not the most voted is not produced? Probably that person would not come back to Zara since his opinion was not heard. Therefore, with this approach Zara would could be potentially losing and important part of their sales.
3-What if the models that consumers select are more complex in terms of production and have in overall higher average lead times? This could have important implications for Zara in terms of cost (since it would require to source more expensive supplies), production complexity and time to market.
Since it seems very hard to shift the current supply to other countries such as China or Europe, the APEAM should focus in generating cost efficiencies in the avocado production process. Consumer price elasticity has a limit; therefore it is critical that producers are able to absorb a part of the tariff into their production cost. I see three levers for increased cost efficiency:
Automation: Avocado production in Mexico still relies in manual procedures and labor is the major production cost. A key lever for cost efficiency could be automation both in the irrigation process and in the recollection process.
Scale: the APEAM should do a greater effort to unify independent avocado producers to share best practices and generate economies of scale in critical cost items such as Transportation or recollection.
Long term contracts: By leveraging scale in the same way that for transportation costs, the APEAM should look for potential long-term contracts with wholesalers that could mitigate part of the increase tariff. For instance, now when the amount of the tariff is still unknown the APEAM could lock mid/long term contracts for a specified price hedging partially the effect of a new tariff.