Water Dilema Food or Steel?

Today is Blog Action Day 2010 and Managing Supply Chain Risk is participating with thousands of bloggers from more than 130 countries focused on bringing attention to the world about . . . . . Water.

I ran across an interesting article in Business Week this week talking about the stalemate Global steel giants ArcelorMittal and Posco  are having in developing the steel industry in India because the current land owners, farmers, do not want to be relocated from their farms.  India’s Bitter Choise:  Water for Steel or Food?  Abhishek Shanker looks at the challenges that these organizations, India’s government and the local farmers. 

What is more important, Steel or Food? 

The food supply chain would be damaged by the move and additional funds and resources would be needed to irrigate the new land to produce food.  It’s unknown at this point was additional transportation costs would be incurred in getting the food to market, nor the impact in the harvested amount because of the new location or conditions.  With the expanding population of the world, what impact would there be on a reduction in the crop yields and what hazards do we open ourselves up to?

The steel industry would benefit from gathering iron ore from the largest concentrated deposits in India.  Additional jobs would be created and this would have the opportunity to push India into the #2 spot as a steelmaker.  It would infuse $80 billion into India’s economy and perhaps reduce the steel import need of India because of home made product.

However it’s not just about relocating the farmers.  According to the story , “The 160 million tons of planned steel capacity would consume 640 billion gallons of water a year, based on the average consumption by U.S. steel mills. That’s enough to provide adequate water for drinking and cooking for 133 million people in India over the same period, according to government figures.”   This could have an impact on the availability of water to the countries population. 

If it was your company, what would you do?   How would this affect your reputation and revenue.  These are points to ponder in this fluid situation.

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The Downside of Lean

Can you every be to lean? 

The answer is a resounding Maybe.   It depends on your business model and the tolerance for risk.  Here’s an example.

In a Bloomsberg Businessweek Article  “Low Inventory Angers John Deer Customers“  Shruti Singh reports on the challenges John Deere has faced because of a change in management philosophy.  According to Singh, John Deere opted to shift focus from building inventory to allow for quicker delivery to a build to order model that provides the customer with the product ordered, and reduces inventory and the associated carrying costs.  While this has lead to reduced inventory an working capital tied up in inventory, and increased profits, the flip side is that the low inventory levels do not allow them to capitalize on the strengthening farm economy.   One Deere dealership is quoted as saying they are probably losing at least a half dozen sales per month because of Deere’s inability to delivery.   Let’s face it a farmer who needs to get his crops in in September is not going to wait until the following December for new equipment and will look to other suppliers.

Not only is this a short term loss for Deere, many died in the wool John Deere Green Farmers are now open to other brands such as Caterpillar, Case and New H0lland.  The inventory mis-step also opened the door for loss of market share and an impact on brand reputation.

In my opinion, when the recession began, the Deere organization needed to look at options to make sure the company survived and thrived and minimized short term losses.   They did this by significantly reducing inventory (to an industry low 12.3% of preceding 12 months sales) and focusing on more build to order products.  This move significantly improved the company’s profit picture over their competitors with the lowest decline in profits (52% compared to Caterpillar’s 75%)  and was applauded by some analysts.

This inventory reduction would not have affected them if the ability to ramp up production to meet demand was available, but as it apparently is not.  Additionally, because they were unable to properly forecast the strengthening of the farm economy in time to react, they are left with lengthy delays in production while their competitors are able to provide delivery of product to meet the customer’s needs. 

Overall I think the long term effects on this decision will probably be painful, an an opportunity for their competitors to take market share and convert the John Deere Greenies to a competitors color.

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DOT Bans Texting While Driving

On January 26th U.S. Transportation Secretary Ray LaHood announced that effective immediately commercial truckers and bus drivers are prohibited from sending texts while operating a vehicle.   This stand comes after a number of studies have identified texting and cell phone usage while operating a vehicle has contributed to many accidents and deaths. 

The decision is based on an existing Federal Regulation that focuses on driver distraction.  A $2750 fine. 

There has been an increased focus on distracted driving from both the commercial as well as civilian population.  Oprah has highlighted it on her talk show, a number of states have banned the use of cell phones and texting while driving and a significant PR push has been put into place to curb this issue.

If your organization owns a fleet, be sure your drivers are complying with the regulations.  Being caught has greater ramifications than just the fine.  It could affect your insurance premiums, on time delivery, operating authority, and reputation.

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