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Supply Chain by the Numbers

- June 6, 2013

  Supply Chain by the Numbers for Week of June 6, 2013

Contract Manufacturers Operate on Tiny Margins; Yet Another Low Cost Country Factory Disaster; Yuan Continues to Rise in Value - but Still Not Enough; Record Ship Scrapping - but More Container Ships Coming



Amazingly to us, the operating margins at Taiwanese contract manufacturer Pegatron, which is taking share of Apple's manufacturing business from Foxconn, as the latter company is losing its monopoly on making Apple's mobile products. That meager Pegatron margin comes on $7.4 billion in revenue in 2012. Giant Foxconn, with more than $27 billion in sales, doesn't do a whole lot better, with an operating margin of just 1.7% last year. Those numbers show just how cut throat the global contract manufacturing market is. Apple, by the way, had an operating margin of 32% over the past year.




Latest toll of the number of dead in China after an explosion at a poultry plant in the country's Jilin province. This is the latest is a string of factory disasters in low cost countries recently, notably tragedies in apparel facilities in Bangladesh, Pakistan and elsewhere. Is the number such disasters actually increasing, or is it just better reporting on such incidents that makes it seem that way? That isn't clear, but more and more questions are being raised as to whether consumers in developed countries are getting their goods on the cheap as a result of dangerous working conditions in global factories.


Number of "megaships" with capacity of more than 10,000 TEU still to be delivered to ocean container carriers in 2013, according to Drewry Shipping Consultants, as the ships keep coming despite soft global demand. The industry will try to counter by scrapping an estimated 450,000 TEU in 2013, according to Alphaliner, a level that would surpass the record 381,000 TEU capacity axed in 2009. Most of the scrapped ships will be in the 3000-5000 TEU range - small and inefficient by today's megaship standards. Still with all that, new supply will again likely exceed capacity taken out of the system - and keep rates low.



About the number of Chinese Yuan that one US dollar would have got you this week, a record low, as the Chinese currency continues to rise against the Greenback. The Yuan has gain about 1.5% against the dollar so far this year, and about 8% since 2010, a partial factor in the US' growing competitiveness in manufacturing versus China. Still, many believe the Yuan needs to rise a lot more, with renewed action in the US Senate this week to pass a bill requiring the Commerce Department to investigate if currency manipulation by China is a form of subsidization, against which the US could level duties on Chinese imports.


Oct. 3, 2008

There are valid reasons for both the DC and DSD distribution models, but neither should determine the store assortment, which depends on the consumer.

The Distribution Center model makes sense when you have many prepackaged products which are continuously replenished and require little in-store servicing. With the facility justified, you can also add seasonal and holiday 'in and out' products which can share the distribution network.

The key is to manage the time supply of inventory in the warehouse and distribute it efficiently.

The Direct Store Delivery model can be implemented purely as a distribution method or also allow the manufacturer to manage some of the in-store merchandizing.

I do not see any advantage of using DSD simply to deliver merchandise. Although it may help the 'mom and pops' that are on the same route as a large retailer, the DSD model must be more expensive. Once the big drops are removed, it will become more costly to reach the independent retailers but the larger retailer must benefit.

If DSD is used to support in-store merchandising, then you have a different story. The manufacturer's representative can give their products the individual attention that increases their sales. The bad thing is that they can also load up the store with inventory if no one is watching.

Bill Bittner
BWH Consulting


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