EXTRA CREDIT POSTS

Extra credit posts:
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Targeting James Bond

A friend of mine found an interesting new product, "The world's most expensive vodka" http://money.cnn.com/2005/06/15/news/funny/vodka.reut/index.htm. (see her blog for further discussion: http://wilsonmarketing.blogspot.com/2005_06_01_wilsonmarketing_archive.html#111903293382734521.

I think some other interesting products in this market segment are the world's most expensive wines (http://www.forbes.com/2003/11/19/cx_np_1119feat.html). Some examples:
**Chateau Lafite 1787 sold at Christie's London in 1985 for $160,000.
**Jeroboam (5 liters) Chateau Mouton-Rothschild 1945--sold at Christie's London in 1997 for $114,614.
**A 1775 Sherry from the Massandra collection, sold at Sotheby's London in 2001 for $43,500.
**A bottle of 1784 Chateau d'Yquem sold at Christie's London in 1986 for $56,588.
**Most expensive American - Screaming Eagle 1994 sold at Christie's Los Angeles in 2000 for $3,833 per bottle.

Other products for the ubber rich:
Most expensive paintings (http://www.answers.com/topic/list-of-most-expensive-paintings):
**Garçon à la pipe by Pablo Picasso
Sold for $104.1 million on May 4, 2004 at Sotheby's, New York (time value: $106,910,700.00)

Most expensive hotel suites (http://travel.discovery.com/fansites/worldsbest/xpensivesuite/xpensivesuite1.html)
**Presidential Suite, The Plaza Location: New York, New York Luxury Trademark: A wine cellar, library and hotel staff at disposal. One night's stay is $15,000.

Though I am more likely to be targeting one of the market segments that consumes these products: it's still fun to look at what is there.
-JP

TOPIC POST - SUPPLY CHAIN - SO EFFICIENT is SO WEAK

SUPPLY CHAINS THAT ARE SO EFFICIENT THEY ARE SO WEAK

It seems that a lot of what we do these days with logistics and supply chain management is to 'lean' the system: cut away the excess and redundancy for maximal efficiency. What is often times forgotten is that this strips away the strength that occurs with redundancy and maximal back-up systems. The concept of efficiency leading to supply chain risk is described in "Supply Chain Risk: Deal With It" by David Stauffer: http://hbswk.hbs.edu/pubitem.jhtml?id=3442&t=operations. The risk that occurs with loss of redundancy and 'excess' can be illustrated by events post 9/11.

The unpredictable occurrence of the terrorist attacks and the international environment that rose in response to it are chief examples of the need for redundancy in the supply chain. The Stauffer article points out that the very mechanisms that make 'just in time' delivery so efficient and effective will lead to riskiness and vulnerability. The stockpiles of inventory that used to be common place have been trimmed down, this has led to a loss of 'slack' in the delivery system. Now, the smallest disruption whether it be intentional such as a terrorist attack or a shipping dock strike, or unintentional like a earthquake or tsunami - the disruption can cause massive trauma to the delivery system. There now is no excess 'slack' of inventory to tide over disruptions in the system.

These illustrations are reminders that although supply chain management is often focused on efficiency; the importance of redundancy should not be forgotten. Indeed, a possible balance may be to maximize efficiency and deliberately build in maximally and independently redundant system. For example, a labor dispute closing down California's dock system several years ago (http://www.themilitant.com/2002/6632/index.shtml) cost billions in disrupted supply lines. Events such as that need to be planned into companies' supply chains. There needs to be a 'Plan B' for occurrences that can hurt and potentially cripple a company.

So, lean down - But don't get anorexic.

-JP

REFERRING BLOG - TOYOTA PRIUS PRODUCT

This is a commentary on a description of the Toyota Prius Product at http://huangxd.blogspot.com/2005/06/toyota-prius-product-marketing.html.

The Prius is a technologically complex product that is the third generation of hybrid cars. The first had a driving force powered primarily by the electric motor. The second had a driving force powered primarily by the combustion motor. The Prius is the 3rd generation and is powered by a combination of electric and combustion motors.

The complex and specialized technology was initially developed almost entirely in house to expedite introduction, but then quickly outsourced key components to third party manufacturers (see Hybrid supply chain: growing group of suppliers contribute parts and technology to the Japanese hybrid fleet: http://www.findarticles.com/p/articles/mi_m3012/is_5_184/ai_n6047838).

As mentioned in a prior blog (http://jasonypark.blogspot.com/2005/06/team-toyota-post-placing-prius.html), the Prius was a distinctly new technology platform that required the development of a new supply chain. Toyota initially and to some extent still maintains significant in house component production of essential electric motor parts and battery modules. Over time, Denso Corp. (http://www.denso.co.jp/en/) has been relied on to produce more and more of the Prius' other electronic components. Indeed, the battery module of the Prius is produced by a consortia titled "Panasonic EV Energy Co.": http://www.peve.panasonic.co.jp/e_top.html. This is a joint venture between:
- Toyota
- Matsushita Electric Industrial Co.
- Matsushita Battery Industrial Co.

Panasonic EV Energy Co. is of particular note because it supplies the critical battery module to several hybrid vehicles including Toyotas as well as several Hondas.

These supplier relationships are critical for these specialized components because of their technology intensive nature. Companies that do not have a relationship with a consortia are falling behind - an example of this is Nissan which does not benefit from the Panasonic EV Energy batteries and will likely need to develop alternative relationships in order to compete in the rising hybrid market.

As much as the 'engine' of most personal computers are Intel processors, it may also be the case that future cars will have a 'Panasonic Inside' Logo slapped on their hood to indicate their powerplant.

-JP.

TEAM TOYOTA POST: PLACING THE PRIUS

The Toyota Prius is a hybrid car that was launched in the US in 2000. It was technologically significant because it contained many new technologies that had not completely matured. In addition, it was launched into a market where the segment had not yet been proven and the distribution network was difficult to plan.

"This Prius is an industry sputnik," says Jim Sanfillippo, executive vice president of Automotive Marketing Consultants Inc., Warren, Mich. - Wall Street Journal, June 26, 2003.

TECHNOLOGIC HURDLES TO DISTRIBUTION
The Prius falls into a class of cars designed to lead to independence from gasoline(http://www.sopheon.com/inknowvations_200412.asp). Less than five years ago, the major automotive manufacturers put forth their vision of the next generation of gasoline-free or low gasoline utilizing vehicles would be. In one extreme was GM's proposal for a hydrogen based car. This car would use hydrogen fuel cells and would be available in 2010. A huge advantage to this type of car would be that its complete indepence from gasoline. Unfortunately, the technology was so immature that it was predicted to take a decade to develop and would require a new distribution network for hydrogen fuel. In the other extreme was Toyota's proposal for a hybrid based system that would use gasoline, but with higher efficiency by coupling to an electric motor. Although this in not as innovative as the hydrogen cars, the Prius was able to quickly come to the market and did not need to rely on the development of a distribution network for fuel that hydrogen cars will require. Thus far, the Prius has already penetrated the market and is in fact selling well.

SUPPLY CHAIN DISTRIBUTION TO DEALERSHIPS
In addition, although Toyota has had a long presence in the U.S. with a great deal of marketing success, the novelty of the Prius made consumer response somewhat unpredictable (http://hbswk.hbs.edu/tools/print_item.jhtml?id=4435&t=entrepreneurship).
Because of the novelty of the hybrid model, Toyota decided not to follow past strategies in distribution of this new car to thedealer networks. Instead, Toyota decided to develop a centralized inventory. Dealers would take orders from consumers and then have the Prius delivered to the dealership.

This centralized distribution network resulted in higher transportaion costs, but allowed for customization and increased efficiency of the distribution. Although 20/20 hindsight would correctly predict higher sales in a techie environment such as Northern California - this was not guaranteed with the initial product launch. Indeed, pre-launch, total number of toyotas sold were 7% Northern California and 20% Southeast US. The Prius in 2002 sold 25% Northern CA and only 6% Southeast US. Thus, if Toyota had only followed historic trends they would have had a glut in the Southeast and an inability to meet demand in Northern CA.

This may become another classic example of adapting supply chain to fit new needs (see previous blog: http://jasonypark.blogspot.com/2005/06/topic-presentation-supply-chain.html).

REFERING POST: Developing World Marketing Opportunities

I see a very interesting international market theme between two presentation in the Wharton Marketing class that I am taking. The first was about the Proctor and Gamble (http://www.pg.com/main.jhtml) product PUR, (see blog: http://horanmktg.blogspot.com/2005_05_01_horanmktg_archive.html#11173260923765764 for more detailed information.) The second was about soap in india (http://www.hll.com/; see blog: http://clareleinweber.blogspot.com/2005/06/presentation-post-place-fortune-at.html). With these business ventures into marketing to the third world I feel several gut reactions: the first one is the 'that's great!' response - a feeling that corporations are paying attention to some of the poorest populations of the world. The second response I feel is 'why did they do that?'; this feeling is a bit more complicated because I cannot believe that a company with shareholders would go into a venture that does not yield profit.

I remember a management class in undergrad where the case study of Merck distributing the drug ivermectin to treat subsaharan populations with river blindness. This program manufactures and distributes at the drug company's own expense! I know this program has grown (see: http://www.mja.com.au/public/issues/179_11_011203/tay10553_fm.html) and for the longest time I thought this was an incredible example of corporate goodwill. However, I recently spoke with some industry insiders that had the impression that the ONLY reason the program was run and has survived is because of the profitability of the secondary use of ivermectin: heartworm treatment in pets!

I have not seen anything to substantiate this rumor - but it seems to make more sense to my cynical nature.

Thus, to go back to the two presentations on PUR and soap: I think that these things should be taken with a grain a salt in terms of the humanitarian nature of the projects. I believe that these markets will be enormous and that there will be tremendous fortunes to be made in finding products that can be fit into these third world markets. I do not know if there needs to be a humanitarian subtext - as long as no one gets harmed - finding out what someone needs/wants and selling it to them seems like a pretty good plan (http://www.whartonsp.com/articles/article.asp?p=328198&f1=rss&rl=1).

TOPIC PRESENTATION: SUPPLY CHAIN MANAGEMENT

"Adapt Your Supply Chain - or DIE"!
(Commentary on article by Hau L. Lee: http://hbswk.hbs.edu/tools/print_item.jhtml?id=4435&t=entrepreneurship)

Prof Lee of Stanford Graduate School of Business proposes that the fluid nature of the new economy requires great companies to constantly, dynamically adapt their supply networks to their changing markets or strategies. I think this dynamic environment leads to high complexity that is best penetrated by professional logistics and supply chain management companies. Because of the complexity of shipping large quantities of raw materials and finished goods over large distances and international borders, professional companies such as UPS, DHL, Fedex, Ryder serve a unique role as supply chain providers for other companies.

Prof Lee posits that a key tactic of supply chain management is to anticipate changes in the supply chain due to economic, political, social , demographic or technological change and adapt. Forms of adaptation include "relocate facilities, chang[ing] sources of suppliers, and if possible outsource manufacturing." Prof Lee cites several key examples of companies that have successfully utilized adaptive supply change management. A prime example would be HP's production and distribution of ink-jet printers. In its first stage of production and distribution, HP set up R&D and production in Vancouver, Washington to serve the national market. As worldwide demand grew, HP second stage was to set up separate production facilities in Europe and Asia. As printer manufacturing matured and became cheaper, HP entered its third stage and completely outsourced production to vendors.

Prof. Lee's Advice:
1. Spot the trend - track economic changes in developing countries to anticipate new markets and possible opportunities for outsourcing. In addition, focus on the consumer needs to prevent extremes of under and overproduction.
2. Change supply networks - constantly develop new suppliers that add value to current suppliers. Use intermediaries in unknown or new parts of the world. Have designers incorporate design features with the supply chain in mind (e.g., design products with common components, ensure components and processes are identical).

UPS Supply Chain Solutions (SCS) (http://www.ups-scs.com/) is a subsidiary of UPS, Inc. that can execute the dynamic supply chains described by Prof Lee. SCS can "encompass every step in producing a product or service and getting it to customers" ( Salter, C. Suprise Package, Fast Company (2004) 79: 62-66: http://www.fastcompany.com/magazine/79/ups.html). In 2004, SCS was 8% of UPS's total business. Although this is not a large portion of a company with greater than $30 billion in revenue, it is the fastest growing division of UPS. SCS has greater than 700 locations worldwide; greater than twenty companies have acquired to expand services. The potential growth of this division can be seen in a trend noted by Northeastern University Prof Bob Lieb: in 1991, 38% of companies used third-party logistics; by 2003, the percentage was 82.

SCS President Bob Stoffel states that UPS-SCS encompasses everything from "your warehouse group, your planning group, your distribution group, your technology group (Salter, C. 2004). In the Fast Company article, an interesting observation is made that SCS does for companies what UPS has been doing for years in its package delivery services. The same services that enabled UPS to track and ship goods and materials throughout the world are the now being put to the use of other companies.

I personally believe that logistics/supply chain management companies such as SCS will continue to be key drivers of a global network of any company. Additionally, these service providers will quicken the pace of competition by providing ready made global distribution networks for regional firms.

Intro Part 2B! Blog to the bloggers from a blogger.

As I mentioned before, I've started this blog as part of an exercise for a Marketing Class <http://mktg411-011-s1.blogspot.com/>. I will be using this site as a platform technology in studying marketing of Toyota. In the coming weeks, look here for fascinating discussions and commentaries on a pathologist's perspective on blogging (though, no guarantees).

Intro Blog Part 2!

Well, well, well this blogging is pretty tricky for a novice such as myself! I forgot to introduce myself in the last post, but this is how it goes: I am a Pathology resident at the Hospital of the University of Pennsylvania <http://www.uphs.upenn.edu/path/>. Somewhere along in my training I realized there I needed to know a lot more about managing money and people in order to do my job right - so here I am preparing to write a blog on Toyota for a Marketing Class!

Off into Bloggingdom!

As I post my first blog, I am recalling how I felt with my first e-mail (circa 1994!). I have the same sense of curiosity and skepticism. So, I guess I'll see how it goes.

These baby steps into a space of the web that is new to me is quite exciting.