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The U.S. Congress has repealed the subsidies for ethanol production along with the tariffs on ethanol which have kept Brazilian ethanol out of the U.S. market.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.

Exports

Exports are still just over 20 percent of U.S. GDP, much smaller than export driven economies such as Germany and Korea. We all want to export, but someone has to import--unless we just dump stuff in the ocean. We depend upon the banks to lubricate trade, and the current crisis in Europe (and around the world, for that matter) is gumming up the works.