AuthorBrian Gallic, RUSCA Blog Committee Over the past decade, Amazon has connected customers with thousands of products from manufacturers with the insurance of on time delivery due to their outstanding supply chain. What started as an online bookstore now dominates the online marketplace with delivery times often less than 48 hours. However, Target made a series of business decisions to try to cut into Amazon’s loyal market. After a surge in spending due to the pandemic Target’s “earnings growth in its past fiscal year that saw annual sales surge to more than $100 billion and they plan to allocate plenty of the added revenue, they tell shareholders they plan on spending between 4 and 5 million dollars in capital spending (O'Neil). Target hopes the capital spending will help with a plethora of supply chain problems from transportation to storage. Their biggest purchase items come in the form of sorting facilities and warehouses. New Jersey natives have something to look forward to as Target plans to build two new warehouses there. The company hopes to hold more products in storage to increase their safety stock. With recent events like the pandemic and the Ukraine Russian war, even experts find difficulty in resolving supply chain bottlenecks. The best example comes in the form of masks, disinfectants and hand sanitizer products. If the company had held large inventories of safety stock in those items during the pandemic, their revenues would spike. These storage units serve another purpose. In the last year Target increased “Same-day businesses, which allow shoppers to pull into a store and pick up goods in minutes or get them delivered within hours, rose 45%, in 2021” (Kumar and Vengopal). This service competes with the aforementioned Amazon’s same day and two day delivery model. If Target wishes to compete with the e-commerce giant they need to offer great prices but also quick and reliable delivery. Besides Amazon, Target faces two other competitors — mom and pop stores and Walmart. Unfortunately, for the former, Target’s large amount of capital spending and the mix of in person locations and online presence makes competition unfair. American consumers are usually willing to shop local but with stock shortages, many local stores lack certain goods and other goods are marked much higher than at Target or Walmart. Jessica Ramirez, retail analyst at Jane Hali & Associates noted that “retailers who have been able to mitigate the supply chain issues and all the headwinds have gained an advantage over mom & pop stores” (Reuters). Walmart Inc. on the other hand poses more of a threat to Target considering the size of the retail corporation. Both retailers have been battling for market dominance in plenty of areas. Target hopes their efforts of supporting their e-commerce channel while stocking shelves with valuable items will set them apart. Target’s efforts seem to be paying dividends as “Walmart Inc.’s e-commerce sales rose 1% year-over-year” in comparison to “Target’s digital sales for the year ending Jan. 29 rose 20.8%” (O'Neil). The jump in Target's ecommerce sales indicates two key factors. First, that their website is effective, and second that they deliver on promises to customers to deliver items quickly even when other retailers are out of stock. SOURCES: https://nypost.com/2022/03/01/target-forecasts-prosperous-2022-with-supply-chain-improvements/ https://www.wsj.com/articles/target-takes-aim-at-logistics-expansion-11646251086 https://www.reuters.com/business/retail-consumer/target-misses-holiday-sales-estimates-warns-more-margin-pain-2022-03-01/ AuthorJames Nichnadowicz, RUSCA Blog Committee There is a new punchline to the classic joke of what is up in the sky: it’s not a bird, it’s not a plane, no, it’s a satellite. In 2021, SpaceX launched over 150 satellites as a part of its Starlink Telecommunications fleet, however it was much to the discontent of NASA and numerous other astronomy researching organizations. The Astrophysical Journal Letters published a study where “researchers examined the effects of Starlink satellites on about 300,000 images taken by an instrument at the Palomar Observatory in Southern California …[b]etween November 2019 and September 2021, they noted a 35-fold increase in the number of corrupted images'' (Aylin Woodward Wall Street Journal). Further, the Federal Communications Commission has approved 12,000 Starlink satellites into orbit, and SpaceX aims to file for approval of more than 40,000 satellites in total for the fleet. These satellites also affect radio astronomy research, as signals transmitted by satellites interfere with radio wave signals from celestial objects and events researchers are trying to record (Woodward). Regulatory bodies in the coming future will likely have to intervene in addition to extra considerations taken by private sphere companies on their orbiting satellites to preserve astronomical research quality. Perhaps an even more pressing and concerning display of regulation, the Federal Trade Commission this past February sued to block Lockheed Martin’s acquisition of Aerojet Rocketdyne. The capital-intensive nature of satellite launching and maintaining has compelled many industry players to integrate their business functions. Lockheed Martin attempted to acquire Aerojet Rocketdyne, the only large independent U.S. rocket engine and motor producer. The FTC’s primary rationale was the preservation of competition in key defense markets, fearing Lockheed Martin’s acquisition would lead to even greater consolidation (Cameron, Kendall). Lockheed Martin however raised numerous contentions to the FTC about the deal’s ability to be an improvement for the industry and even “offered a series of guarantees to continue supplying Aerojet equipment to other defense contractors” (Cameron, Kendall). Lockheed Martin also stipulated that its acquisition of Aerojet Rocketdyne could lead to massive advancements in hypersonic missile capabilities. Although these technologies are of utmost importance to national security, the FTC did not see Lockheed Martin’s objections sufficient enough to stop the anti-trust suit. Lockheed Martin has given up its attempt to acquire Aerojet Rocketdyne, however the rocket engine supplier is attracting ample attention from private equity investors and other smaller defense companies. Ultimately, space exploration and its research offshoots are becoming exponentially more functional to society’s needs; the capital-intensive nature of this industry coupled with its great capability to harm the public could prove in the coming decades one of the greatest emerging conflicts of the ever-present paradigm: finding the balance between private industry freedom and regulation for protection of the public sphere. SOURCES: https://www.wsj.com/articles/spacexs-plans-to-send-thousands-more-satellites-into-orbit-worry-nasa-11644921000 https://www.wsj.com/articles/spacexs-starlink-satellites-are-photobombing-astronomy-images-study-says-11644062404 https://www.wsj.com/articles/lockheed-martin-scraps-aerojet-rocketdyne-deal-11644800824 AuthorChristina Chen, RUSCA Blog Committee Ukraine, known as the “breadbasket of Europe”, is one of the world’s largest grain suppliers, responsible for 13% of global corn exports and nearly half of global sunflower oil exports. In fact, agriculture is the biggest part of its economy, and 70% of the country is agricultural land. Ukraine and Russia together account for 29% of global wheat exports (Tan). But the Russian invasion has disrupted operations in key ports and wheat-growing regions, stifling exports of these key inputs. Shipping in the Sea of Azov, which connects to the Black Sea, has already halted, threatening the 18 million tons of grains exported annually by the Ukrainian and Russian ports located there (Horner, MacDonald, Deng). War will likely also impact the spring planting season, and any damaged infrastructure will have long-lasting effects on future harvests. Food inflation has been an issue over the past couple of years due to rising energy prices, unusual weather conditions due to climate change, and general supply chain disruptions related to the pandemic. The United Nations’ Food and Agriculture Organization measured that global food prices rose by 28% in 2021, and the Russian invasion will only worsen the crisis. Russia is a major worldwide natural gas and oil exporter, so “any disruptions… will in turn affect the production of energy-intensive products such as fertilizers—and that’s bound to hit agriculture further”, according to Alan Holland, CEO of sourcing technology company Keelvar (Tan). Wheat futures already rose by 40.6% in one week, reaching prices that are the highest in sixteen years (Watts). Although US consumer brands rely on relatively minimal imported ingredients, producers will still have to deal with higher input prices, which will contribute to higher prices for consumers. This will especially be a problem for big grain importers, like Egypt and China. Egypt is the world’s largest wheat importer, and food inflation may affect its political stability. In the past, unaffordable wheat prices “have led to street protests, including ones in 2011 during the Arab Spring, which toppled the government of Hosni Mubarak” (Horner, MacDonald, Deng). China is another major agricultural importer. Ukraine was China’s top corn supplier in 2021, spurred on by domestic policies encouraging hog production. Currently, pork producers are in a difficult situation, as hog prices are dropping while corn prices are rising. However, China already has an alternative wheat and barley supplier lined up—Russia (Schiffling & Kanellos). Other large importers, like Turkey, Indonesia, and Pakistan, will also feel a major impact. Grain is far from the only impacted industry. Russian energy is a key component of many supply chains, and Ukrainian and Russian metals are vital raw materials for products like semiconductor chips, which are already in short supply and high demand. The world’s response to this still-developing situation will have major implications for all of these industries, and the global economy as a whole. SOURCES: https://www.cnbc.com/2022/02/23/impact-of-russia-ukraine-on-supply-chains-food-metals-commodities.html https://www.wsj.com/articles/russias-ukraine-invasion-chokes-food-exports-from-global-breadbasket-11645798059?st=hc7xnkbi0af3xry&reflink=desktopwebshare_permalink https://www.marketwatch.com/story/russia-ukraine-war-puts-wheat-on-track-for-biggest-weekly-price-surge-since-at-least-1959-11646334541 https://theconversation.com/five-essential-commodities-that-will-be-hit-by-war-in-ukraine-177845 https://www.cnn.com/2022/03/01/business/wheat-prices-russia-ukraine/index.html AuthorJennifer Chen, RUSCA Blog Committee Supply chain shortages are already severe due to labor shortages of truck drivers, service workers, and port congestion. The spread of the Omicron variant, several winter storms, and other contributing factors have further exacerbated the issues. For example, consumers are still eating at home more than they used to before the pandemic, which contributes to empty store shelves. In addition to being out of stock, products are also seeing price increases due to rising inflation. For Karns Foods, a privately owned supermarket chain based in the Harrisburg metropolitan area of Pennsylvania, rising prices and supply chain issues are rampant. Frustrations are growing for both the grocer and its customers, who are forced to purchase other brands instead of their preferred options. They also want certain sizes and flavors of products, which are not always available. However, Karns Foods has implemented plans to adjust to the new changes. For one, they are combating price increases by bringing in more private label products, which offers lower price points for customers to purchase from. In order to adapt to supply chain shortages, managers are buying surplus quantities of products such as toilet paper and pasta sauce whenever the opportunity arises. In response to the lack of product, Scott Karns, the CEO of Karns Foods, says that “we order 2,000 cases and we might get 1,200. It’s very frustrating for our customers to explain to them why they can’t get exactly the flavors and the sizes they want.” (Wells). Karn Foods has also begun sourcing some products locally, such as pork, which used to come from a Midwest supplier but is now sourced in-state. They also plan to begin sourcing around two-thirds of its beef supply from a handful of local farms that will exclusively supply Karns' stores. As retailers continue observing shopping patterns, they fear customers will shop at competitor stores offering lower prices. According to an Ipsos survey of 1,000 consumers released in December of last year, 45% of the group reported buying items from a store other than their primary grocer at least once a month because of supply chain issues or a poor online ordering experience. Eighteen percent of households with kids said they've changed to another primary grocer because of said factors. (Murphy and Daehn). However, consumer elasticity across multiple categories has remained lower than before the pandemic, meaning that retailers can still implement price increases from suppliers without completely damaging customer loyalty. SOURCES: https://www.usatoday.com/story/money/shopping/2022/01/12/shortage-grocery-store-empty-shelves/9178100002/ https://www.cbsnews.com/newyork/news/grocery-store-supply-chain-issues-covid-weather-deliveries-empty-shelves/ https://www.supplychaindive.com/news/grocers-managing-twin-pressures-supply-chain-disruption-inflation/618046/ AuthorShradha Rajgandhi, RUSCA Blog Committee During the week of February 11th, President Biden participated in an interview with Lester Holt of NBC, and his main topic of the cause was the current inflation problems. According to the New York Times our inflation, “which over the past 12 months has risen its fastest rate in 40 years” (Rattner). Biden kept insisting that this inflation is due to the supply chains being cut off, but that is not a valid reason. Rattner felt Biden was being dishonest and misleading with his response and he instead blamed “two things - rampant government spending and the Federal Reserve” (Phillips). Rattner acknowledges that the pandemic has stretched our supply chains, but primarily our consumer demand has been fueled by the government’s stimulus payments. Consumers did not spend much during our COVID lockdown back in 2020, but all this government aid has led to Americans resuming spending freely” (Rattner). If we take a look at this chain reaction, it is evident that Biden cannot be quick to judge that our supply chains are creating this problem when he is the main instigator of it all. Due to this, people are increasing their spending and the increased demand for goods is creating shortages. People are allocating their money by buying more cars, electronics, and building materials for homes, rather than travel or entertainment (Henney). We have products where the demand problem is creating the supply problems, and it is making prices go up tremendously. Car prices are up “55 percent over January 2020 levels, furniture, and bedding prices rose 19 percent and laundry equipment became 33 percent more expensive” (Rattner). In relation to this, products are being shipped very late and there are more delays now than ever before. In order to alleviate these surges in prices, Rattner argues that there needs to be a better approach from Biden’s administration. He claims that “instead of focusing on passing another trillion-dollar spending package, the White House should prioritize reducing the deficit” (Henney). Biden needs to figure out his priorities and address them as equally as he does for his other goals. The cost of living for Americans currently is very difficult to work with and it can create a downfall for the nation if it is not handled properly. The cost of living hit 7.5 percent in the month of January and this is the highest amount since February 1982 (Phillips). However, there are some aspects to this problem that are completely unexpected and unaccounted for. Many workers are voluntarily leaving their jobs because they do not want to work anymore, a movement called the Great Resignation (Rattner). Service prices are going up but there aren’t enough workers to keep up with the demand. The Federal Reserve as well as Biden’s administration need to create a robust plan to control this crisis instead of blaming our supply chains. Without our supply chains, we are nothing and we would not function as a well-operated country if they did not exist. SOURCES: https://www.nytimes.com/2022/02/17/opinion/inflation-supply-chain.html https://www.dailymail.co.uk/news/article-10528001/Rattner-tears-Biden-dishonest-claim-inflation-caused-supply-chain.html https://www.foxbusiness.com/politics/biden-blame-supply-chain-inflation-obama-official AuthorTrupti Valsangikar, RUSCA Blog Committee Mondelez International, the company behind some of our favorite treats like Oreo, Chips Ahoy, and Ritz, has been facing growing inventory challenges since entering 2022. Following a six-week strike in September 2021 over working hours and wages at one of Mondelez’s subsidiaries, Nabisco, the snack food giant, has struggled to keep shelves stocked with snacks (Gasparro). While Mondelez was able to stock up on inventory ahead of the strike to avoid a third-quarter revenue hit (Sophia), the lack of workers and products meant that the company had to rethink its marketing strategy to prevent advertising and increasing demand for merchandise that wouldn’t be available (Gasparro). To try and counter the effects of low inventory, Mondelez is trying the same technique it used at the beginning of the COVID-19 pandemic. The company is simplifying its operations by selling shares and investments they made in beverage and seafood companies to focus on its main business segments (Zimmerman). Mondelez is also trying to ensure that it only invests in brands where the raw material’s supply is good. This comes from issues the packaged foods industry is facing including high shipping and labor costs and rising raw material costs (Sophia). Furthering the business issues, economic inflation is forcing Mondelez to increase the prices of their products. The company announced in November that it would be increasing its prices by 6% to combat inflation. Mondelez also hoped that the rise in prices would help cushion the higher commodity and transportation costs that were also impacting low in-store inventory (Barrabi). Even with rising prices, Mondelez executives aren’t concerned about a drop in demand. CEO Dirk Van de Put says “although 70 percent of global consumers report concerns about inflation, it has done little to date to change their grocery shopping behavior.” (Barrabi). Given the obstacles Mondelez International is facing, revenue in 2021 was still higher than analysts expected. The company generated around $7.66 billion in 2021, which was $7 million more than the estimate (Gasparro). While high prices may rock the business right now, Mondelez executives are hopeful that the situation will improve as the year goes on. SOURCES: https://www.supplychaindive.com/news/mondelez-reactivates-covid-playbook-low-inventory/617995/ https://www.reuters.com/business/retail-consumer/mondelez-revenue-tops-market-estimates-sustained-snack-demand-price-hikes-2022-01-27/ https://www.wsj.com/articles/mondelez-mulls-more-price-hikes-for-snacks-as-inflation-eats-into-profits-11643331511 https://nypost.com/2022/01/28/oreo-maker-mondelez-considering-more-price-hikes/ AuthorDane Kuehnrich, RUSCA Blog Committee For the first time since 2018, Amazon is increasing its Prime subscription prices. On February 3rd, 2022, Amazon CFO Brian Olsavsky confirmed this price increase over the company’s Q4 earnings call. Beginning in phases over the next month, consumers will see the annual subscription price increase from $119 to $139 per year– as well as monthly rates from $12.99 to $14.99. New members will experience the change this month, while existing Prime members will be required to pay more starting at the end of March. While a price increase of over 15 percent may seem large to most Amazon customers, this change comes as no surprise to most industry analysts. The last price increase of their service took place in 2018– and prior to that in 2014 (Herrera). It was heavily speculated that Amazon would repeat this pattern this year as they did. According to Amazon, this price increase is being implemented as a result of rising transportation and labor costs, both of which are results of the global economy still suffering certain long-term effects caused by the pandemic. Labor shortages and supply chain bottlenecks are continuing to occur across the country, and for a company such as Amazon, it is essential for them to adapt to these circumstances in order to maintain the high standard to which they operate. Similar to previous years, Amazon also promised that this price increase would come along with major incentive bonuses to prime members. New content such as movies, new music, photo storage, and the latest Amazon products will be available for consumers. In addition, this year Amazon has gained exclusive rights to the National Football League’s “Thursday Night Football” which will be available exclusively to Prime members (Soper and Tobin). While other competitors such as Walmart and Target offer subscription services of their own as well, Amazon’s innovative marketing through brand image and customer loyalty is what drives their membership to be so successful. “The number of Prime subscribers topped 200 million globally, Amazon said last April. Most Prime members live in the U.S” (Selyukh). Not only are these subscriptions a massive source of revenue for Amazon, but also ensures a much more active user base. People with Amazon Prime are much more likely to use Amazon services on a regular basis. In fact, according to a recent analysis done by Morgan Stanley, households with an active Prime membership spent over $3,000 on average last year (Selyukh). Overall, analysts believe that Amazon will continue to see an increase in revenue as a result of this decision, with very little effect on the mass of their subscriber base. In the past they have been able to sell their price increase by promising new and innovative products and benefits. And, customer loyalty has increased in the past years, “The one-year rate reached 94% in 2021 and the two-year renewal rate increased to 98%” (Herrera). With membership renewal rates as high as theirs, it is unlikely that Amazon will see a substantial decrease in members post price increase. This decision has also proved promising for investors, with Amazon shares rising nearly 15% after this announcement. This was a large decision for the super-massive company, one that will most likely lead to a large increase in revenue. SOURCES: https://www.wsj.com/articles/amazon-prime-membership-increased-to-139-per-year-due-to-rising-shipping-labor-costs-11643930324 https://www.npr.org/2022/02/03/1077088524/amazon-raises-price-of-annual-prime-membership-to-139 https://www.bloomberg.com/news/articles/2022-02-04/amazon-bets-customers-are-willing-to-pay-20-more-for-prime |
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