Tuesday, September 25, 2012

Altruism vs. Price - What will drive future supply chain networks?

In this week's reading, one particular quote from "Future Supply Chain 2016" irked me. Under Industry Trends Reporting Change, the report reads, "Consumers and shoppers will continue to become more demanding and empowered. In fact, they will become active partners in the supply chain and will directly drive product development and replenishment."[1]

When discussing environmentally sustainable practices, cooperative supply chain management, or any other altruistically based actions, I will call that view, at best, overly optimistic. Look at the facts: While American consumers have driven niche markets for environmentally sustainable products such as Seventh Generation paper, the Toyota Prius, and even Ben and Jerry's Ice Cream, price remains the determining factor for customer support.

Example 1. Electric Cars (aka the Chevy Volt). Electric cars save the environment right? Then shouldn't customers be lining up to buy the Volt? Well... A Sept 10 report from  GM indicated that it is still loosing $49,000 on each Volt it builds [2]. Why? The Volt's $40,000 price tag has discouraged consumers from making an environmentally conscious purchase.

Example 2. The Nexus Q. American made (Red, White, AND Blue). In an age where communism and socialism have become popular political slander you would think that Americans would stand in line to buy tech products designed and built in American instead of China. Right? .....Well, no. Granted, the Nexus Q did suffer from design flaws. Still, its primary flaw was that its $299 price tag was up to three times more than similar devices [3]. Americans don't like Chinese socialism but they do like the prices of Chinese made media streaming devices.

Example 3. All Apple Products. Little explanation is needed here. Apple's suppliers (at least Foxconn) are well known for treating their employees poorly, using forced unpaid "intern" labor, which result in employee suicides and now riots [4]. Yet have Americans stopped buying these unethical devices? A valuation of nearly $1 trillion dollars makes me think otherwise.

So will, as  "Future Supply Chain 2016" claims, firms create cooperative and environmentally friendly supply chains in response to consumer demand? I am sure that some will, but those products will remain niche products unless they can compete on price alone. In America, price is King (i.e. Walmart).

Am I wrong on this one? Will a cultural shift be needed to actually "drive" mass product development in the future or is that culture already here?

[1] "Future Supply Chain 2016." Global Commerce Initiative Report, May 2008. Internet; Available at http://www.capgemini.com/m/en/tl/tl_Future_Supply_Chain_2016.pdf

[2] Woodall, Bernie and Paul Lienert and Ben Klayman. "Insight: GM's Volt: The ugly math of low sales, high costs." Reuters. September 10, 2012. Internet; Available at http://www.reuters.com/article/2012/09/10/us-generalmotors-autos-volt-idUSBRE88904J20120910

[3] Markoff, John. "Google Tries Something Retro: Made in the USA." The New York Times, 27 June, 2012. Internet; Available from http://www.nytimes.com/2012/06/28/technology/google-and-others-give-manufacturing-in-the-us-a-try.html?pagewanted=all

[4] Mozur, Paul. "Apple Supplier Foxconn Says Fight at Plant Spread Into Larger Unrest." The Wall Street Journal, September 24, 2012. Internet; Available at http://online.wsj.com/article/SB10000872396390444180004578015170427352146.html?mod=WSJ_hpp_sections_tech

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