IRS loses billions

USA Today on 3 August reported that the IRS sent $5 billion in refund checks to identity thieves. If my book goes to a second edition, this will be an example in Chapter 6 of the need for security in money flows (and information). When will we start implementing current technology to stop these security breaches? Sometimes it is all mind boggling.

dollar is getting stronger

Monday's WSJ reports the effects of the stronger dollar on earnings. Even big companies with the resources to manage their currency risk took big hits because of the sudden change in the exchange rate. It should not have been a surprise. The surprise was how long the euro remained strong in the face of the problems in the euro zone. There was a lot of commentary about how the PIIGS needed to be able to devalue their currencies to stay competitive, but couldn't because they used the euro. Well, the euro is getting weaker which accomplishes the same thing (although probably not as much as if they were doing it on their own with their old currencies). The down side from the U.S. point of view is that economies like Germany, which were already competitive, are even stronger. As I emphasize in my book, if you don't manage your currency risk, you are speculating.

Libor Scandal

I mention ethics in the book, and the Libor scandal is a perfect example of what happens when everyone is expected to be a team player. If those involved had been Rotarians, one hopes they would have applied the first of the Four Way Tests and asked, "Is it the truth?" On 15 July, the Boston Globe Magazine had an article entitled, "When we use glorification of the group as an excuse for bad behavior." Were the Libor guys trying to be 'team players?' We also have to know how to judge when the team is engaging in unethical behavior and get out. The Four Way Test is a good place to start (in fact, it may be all one needs).

TV interview

I recently had a TV interview about my book. This blog got a plug along with several other organizations. The link is: http://westfordcat.pegcentral.com/player.php?video=6415d294888aaa180e568a5cdd1c0c84

Lenovo staying in-house

Lenovo is keeping much of their production in-house instead of outsourcing to cheaper venues (of course, they are already in China). As a result, they have greater flexibility--the ability to change rapidly both the volume and product mix of their output. When flooding in Thailand created a shortage of hard drives, they shifted their production mix to models for which drives were available. Maybe we can learn a lesson from them.

finance and bottlenecks

The EU banks have increased capital requirements. As a result the Spanish banks are not lending and Alestis, a major supplier for Airbus, cannot pay its vendors so it is slowing down production. End result: Airbus cannot get the parts it needs for the A320 and A380, both hot sellers at the moment. Alestis is a sound company with long-term contracts with Airbus, but without credit, it cannot finance production of Airbus's parts. Supply chain problems and bottlenecks can originate anywhere. We saw similar things happening in the U.S. a couple of years ago. Suppliers with firm contracts could not get financing to start production. Round and round we go.

The explosion and fire in the German plant making resin for the auto industry has cut off about 50 percent of the supply. This is one more in a series of disasters that have hit the industry--floods in Thailand, tsunamis in Japan and now fire in Germany. To top it all off, the suppliers cannot keep up with the demand for parts. Supply chains can be delicate things; lean supply chains can be super delicate. Firms face the constant trade-off between potential shortages and the costs of holding safety stock inventory.

more supply chain news

Taking some of the heat off the Chinese, the Egyptians reportedly have introduced fake drugs into the U.S. supply chain. These are easy to make fakes which command a high price. Know what you are taking or are being given.

Caterpillar has announced in-sourcing. They are moving production of some of their equipment back to the U.S. to avoid many of the problems I outlined in my book.

Subsidies gone!!!

The U.S. Congress has repealed the subsidies for ethanol production along with the tariffs on ethanol which have kept Brazilian ethanol out of the U.S. market. Brazil makes ethanol from sugar cane instead of corn (maize) and does it much more cheaply that we do in the U.S. A big industry has developed in the U.S. based on these subsidies and tariffs, so this will have a major impact. It is not often that one can write about the repeal of a tariff or subsidy--note the day for you grandchildren!

California SC Transparency Law

The California supply chain transparency law that just took effect will have a major impact on global supply chains. Businesses will have to be able to certify that no human rights abuses took place in the manufacture of their products, no matter where in the supply chain they could occur. No more blindly buying parts and products; you need to know how they were made. Given the complexity of some supply chains (see my book for a reference to AT&T), this could be a real burden.

Supply chain disasters

The recent events in Japan and Thailand have raised the question of how much should firms spend to protect themselves against disasters. A firm can spend millions with no payoff unless there is a disaster. It all boils down to one's risk aversion. Look for this to be debated in the coming years.