Arturo Lopez's Profile

In my opinion, economic incentives for OEMs, like GM, under current POTUS’ proposed withdrawal of the stricter fuel-efficiency standards the EPA has in place, and which have motivated OEMs to seek lighter materials to build automobiles in order to increase fuel efficiency, will be enough to, at least, stop the R&D practices that have succeeded in replacing steel with aluminum, however at a higher cost. In addition, currently troubled automotive industry in the U.S., will also be an incentive to GM to slow the process of reaching its ‘All Electric Future’ goal.

In my opinion, Apple’s minimalistic product design, in which suppliers’ brands are not visible to end-customers, is a major challenge on incentivising suppliers to become 100% Powered by Renewal Energy, unless the NPV of such investments in the long-term represent a significant cost reduction opportunity and suppliers have the financial capacity to invest in such renewal energy technologies. In cases where suppliers need financing for such products, I think Apple should refrain to invest its cash on such projects. Alternatively, such projects should look for project-finance funds or partnership with renewal energy providers to design and develop such technologies under a license-agreement directly with suppliers, without Apple’s intermediation.

In my opinion, UCLA’s Prof. Felipe Caro’s view on the low potential for scalability of mass cutomization in Zara is certain and will remain so until 3D technologies reach maturity. Compared to high-end brands such as Nike and Adidas, Zara’s apparel retail approach focuses in low cost and low price (hence moderate quality) items. As per the article “Zara’s Secret for Fast Fashion” (HBS Working Knowledge, 2/21/2005), “Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lower prices.” Therefore, until 3D technology is mature and technology prices are compatible with low cost business models, this strategy would only be marginal on Zara’s product mix.

Rather than regarding vertical integration or suppliers consolidation to minimize the risk of inventory shortages in an industry with high-turnarounds, Lululemon may consider a the implementation of a “fast-fashion” like production process, like the one used by Inditex brands (Zara, Bershka, Massimo Dutti, etc.). In this business model, constant exchange of communication optimizes inventories by rapidly reacting to consumer tastes on limited items on display, focusing only on producing items with positive reaction from end-customers.

“In Zara stores, customers can always find new products—but they’re in limited supply. There is a sense of tantalizing exclusivity, since only a few items are on display even though stores are spacious. Such a retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Zara’s designers create approximately 40,000 new designs annually, from which 10,000 are selected for production. This “fast fashion” system depends on a constant exchange of information throughout every part of Zara’s supply chain—from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on.” – HBS Working Knowledge (https://hbswk.hbs.edu/archive/zara-s-secret-for-fast-fashion)

Reagarding the negative effects of the potential higher tarifs Airburs and Boeing might face to commercialize their aircrafts into Brazil, Canada, China, Russia and Japan, I would argue that these worldwide leaders will be obligated to implement a pass-through pricing strategy of the higher tariffs to customers into these specific economies (in case they implement such barriers for trade). Given the long production cycle of aircraft, and the technological and expertise gap between Boeing/Airbus and new competitors based in these countries, customers will still require to acquire from these leading aircraft manufacturers. The power of consumers or barriers of entry are minimal in this industry, where no perfect substitutes still exists in these economies.

As you correctly pointed out, a key factor that GM and other US-based OEMs need to consider while deciding changes in their global supply chains around current NAFTA re-negotiations, is the length of the manufacturing cycle of automobiles. The development of a new model starts two to five years prior to marketing it to the public, therefore, in case current POTUS does not get re-elected, current mandated projects to GM’s plants in Mexico or to third-party autopart manufacturers are better off keeping current operations while NAFTA re-negotiatons end. The only solution that the OEMs should be implementing while re-negotiation results are uncertain, is to slow the awarding of new projects to manufacturers in Mexico and Canada.