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September 26th, 2014 | Tags: , ,

 

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

What could possibly be the connection amongst these three obviously disparate concepts? 

Money Ball 

Baseball fans know the movie “Money Ball about the 2002 Oakland A’s and their iconic then 44 year old General Manager, Billy Beane .  This fabulous movie starring Brad Pitt as Billy is as much about Lowest TCO as it is about baseball, two of my most cherished passions.  From 2002 to present day, the Oakland team has the highest win percentage as a function of team payroll.  For the past dozen years, the A’s sport a win percentages comparable to the NY Yankees, Boston Red Sox, St. Louis Cardinals, and other high profile MLB franchises but with a fraction of their payroll.  

I heard Beane deliver the closing keynote at an Alternative Investments conference in Denver last August at which I spoke on Oil & Gas opportunities.He spoke of the parallels between investing and baseball success.  Beane gained baseball immortality by hiring a nerdy recent college grad economics and math whiz from Yale who had never played and knew pitiful little about baseball.  This pair of geniuses were able to reduce the “art of winning baseball teams” to a more reliable science using facts measure by “Dollars and Numbers” ($’s & #’s). 

Beane stressed that the best business decisions are made on the basis of hard data, not by looking at the allure of the prospect, but at the $’s & #’s.  Beane’s success over the ensuing years is based upon some startling data.  For example, the number one predictor of a baseball player’s value and contribution to team success is his on-base-percentage (OBP)  – not his fielding accuracy, throwing arm, batting average or power, base running, or other skills and talents.    

Virtually every personnel decision was analyzed by a cost algorithm.  Beane found that bunting or stealing a base did not positively contribute to the winning percentage.  He also found that paying “$3 million bonuses” to high school prospects was a waste of money as they had not undergone the extent of player development at a college kid had experienced and are therefore far too risky.   

dfw airportDFW International Airport 

A few years after moving to the DFW metroplex in 1999,  the Boeing Company sought to relocate its corporate offices.  Chicago and Dallas were two finalists.  Anyone who travels extensively knows these two city’s airports well.  Chicago has the cramped O’Hare and older in town Midway airports.  Dallas has spacious DFW International and Love Field closer to town.  

Despite the superiority of the Dallas airports, the aerospace and defense giant chose Chicago.  Boeing cited the vibrant street life of Chicago, America’s third largest city compared to the uncluttered casual street life of Dallas the 8th largest city.  One of the things I noticed when considering the metroplex was that on street parking was plentiful in Dallas and Fort Worth.   

In retrospect, the loss of Boeing was not meaningful in terms of economic impact.  While it would have been a prestigious “get”, for the north Texas business community, they only relocated a few hundred execs.  All other jobs stayed at its facilities around the world.  Boeing chose Chicago. 

A major contributing factor to relocating to the DFW metroplex was the airport.  I was flying 100,000 miles per year, mostly in the US.  My Rhode Island home was only about 35 miles from Boston’s Logan Airport but the Big Dig, which went on for a dozen years, made that commute at least 90 minutes.  Add a six hour coast to coast flight, plus the time change, and the travel day was shot.  If I had two weeks booked back to back on the west coast, it made no sense to fly home all day Saturday and fly back all day Sunday. 

As with Toyota’s decision to move to north Texas , mine had other factors as well. The weather, political climate, spirit of the Texas people, and economy all had an impact.  So did the reduced travel times and nonstop flights to almost anywhere in the US and many foreign destinations. 

Lowest Total Cost of Ownership (TCO) 

Practitioners of professional purchasing are not surprised by the Beane or Boeing decisions, or their success for that matter.  It is all about $’s & #’s. In other words, it aint about the price, it’s the cost!  The Lowest TCO  is a sound business concept that applies well beyond purchasing.  It is the basis for Billy Beane’s baseball success and DFW International’s role in attracting business and boosting the north Texas economy.

 

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

By now it is old news that Toyota  is moving its U.S. headquarters (its largest sales market) to Plano, TX from Torrance, CA.  Certainly the high tax, anti-business environment cultivated aggressively for decades in CA influenced Toyota’s move.   Toyota started with one hundred potential locations before shrinking that list to four other choices besides the north Dallas suburb that also hosts Frito-Lay.  But other factors in play are the corresponding equivalent of Lowest Total Cost of Ownership (TCO).The TCO philosophy places paramount emphasis on facts as expressed by “Dollars and Numbers” ($’s & #’s).  Business decisions must rely almost exclusively on facts; these are measured by ($’s & #’s).  

Thousands of jobs, millions in payroll, and billions in economic boost 

Toyota is relocating thousands of employees who will generate a large economic bonanza to an already vibrant business environment in north Texas.  Although Toyota did not publicly disclose the competitors for its new headquarters, a request from the Associated Press  for public records found that the Tarheel state had offered more than $100 million in incentives to lure the world’s largest automaker to the Charlotte area.  

NC felt compelled to more than double the offer of the Lone Star state as Texas has no corporate or personal income tax.  NC Commerce Secretary  Sharon Decker, noted that relocating companies compare the total cost of a new site along with financial incentives.  Mike Michels, A Toyota spokesman said, “Incentives were just one of the many consideration.”  They also factored in transportation, cost of living, educational opportunities, and geography.  Toyota has production plants in San Antonio, Kentucky, Mississippi, and Indiana, all within or near the Central Time zone.   

DFW International Airport 

The availability of direct flights between the U.S. was a crucial factor as executives fly between HQ and Japan hundreds of times per year.  Charlotte Douglas International Airport is much smaller, has no direct flights to Japan, and is on the east coast, remote from Toyota’s operations in the U.S.  DFW has direct flights to Japan. 

Gov. Rick Perry’s office said that it offered Toyota about $40 million in incentives and the City of Plano kicked in another $6.75 million.  At less than half of NCs offer, it was not about the price; it was all about the cost! 

NC learned this lesson even though it probably never had a realistic chance.  Personnel relocation and severance costs are a large expense for relocating companies.  Adding the other costs into consideration, and the Lowest TCO choice was obvious.  According to Jim Lentz Toyota’s CEO for North America, “…the Dallas metro area was far an above the best choice.” 

Moral of the story 

Many suppliers who deal with Toyota, or Wal-Mart  , or Boeing, et al, understand that while it might appear that these organizations have a price fixation. It is really always about costs.   It is economically axiomatic that the lower the cost, the more prices can be reduced.  

Wouldn’t it be wise to emulate this successful business model?

 

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

The Dallas Morning news energy writer, James Osborne, reported in a story dated 20 August that natural gas sales for motor vehicles is running far ahead of projections.  He cites $2.2 million in tax revenues through the end of July even though the Texas comptroller’s office had projected less than $1 million for the entire fiscal year 2014, which ends in August.   

To be certain, this revenue from natural gas shrinks to insignificance compared to gasoline and diesel fuel consumption.  In 2012, petroleum sales in Texas were about $118 Billion according t the U.S. Energy Information Administration as compared to the approximately $30 million in natural gas sales.  Yet, the doubling over expectations in natural gas may foreshadow future growth.    

Who is fueling the growth? 

The public and private sector have dipped their toes up to their ankles into the natural gas vehicle markets.  In 2012, the Dallas Area Rapid Transit (DART) tested 30 and 40-foot buses  fueled by compressed natural gas (CNG).  These heavy duty, low floor buses are scheduled to replace the current fleet of liquefied natural gas (LNG) and clean diesel buses which began service in 1998. The full fleet conversion should be complete in 2015. DART is building four CNG fueling stations so they are making a serious investment. 

Major private sector companies like UPS  are also testing the alternative fuels markets, including natural gas.   Clean Energy Fuels  based in CA but founded by the iconic T Boone Pickens, is the largest retailer of natural gas for automobiles.  Its sales are on the upswing and will build facilities around Texas as it anticipates the growing trend toward natural gas vehicles.  Besides a play on words, Love’s the truck stop chain, will soon open a Compressed Natural Gas (CNG) filling station at Dallas’s Love Field the smaller but “in town” airport compared to DFW International.

CNG bedA major drawback to the use of natural gas powered vehicles is the loss of cargo and net payloads due to the large on board fuel tanks required.  Here is one example.   Yet, many fleet vehicles are not materially impacted by these tanks.  For example, utility companies deploy scores of patrol and trouble vehicles that carry little cargo more than laptops and portable tool kits.  Small package couriers and limo services do not rely upon ample cargo space.  Larger operators like UPS and FedEx, who do need the extra space and maximum payload, may well be more interested in image and Corporate Social Responsibility (CSR)  rather than unspecified economic benefits of natural gas.

 

Let the marketplace decide 

The battle of the fuels is a good thing.  As alternative fuels to gasoline and diesel become more plentiful and attractive, economic pressures will force prices down.  Some may choose natural gas for reasons other than price of energy equivalence and still others may believe in the environmental superiority of natural gas over other petroleum alternatives.  

I am all for all options all the time.

 

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

In a November 2013 post, we spoke of the hypocrisy of ethanol.  Taxpayers are subsidizing a Quixotic chase whose only economic benefit accrues to huge Agra-businesses.  This corporate welfare shame bears no resemblance to free market principles.  Further, it does violence to the environment and artificially invades the food chain, creating shortages and driving up prices to feed people and live stock. 

In a related example of mismanaged energy policy, the Keystone XL Pipe Line continues to be blocked by tiny but formidable far left interests who hold sway with the Obama administration.  This myopic and cynical minority are causing damage to vital interests to the U.S. such as energy independence and high paying construction jobs.  In a remarkable irony, big labor on the left is in favor of building it but some big businesses on the right are not.  For instance, Burlington Northern Santa Fe Railway,  (BNSF) principally owned and controlled by crony capitalist billionaire Warren Buffet and the Canadian Pacific Railway, LTD (CP)  are in no hurry to see the pipeline built; it is in their understandable economic interests for Oil & Gas production to rely upon rail  The same is true for Trinity Industries, a large rail car builder whose stock has risen 250% in the past year from about $20 to $50 per share as the demand for rail cars soars.  Trinity cannot keep up with the demand and will not until the pipeline is built, if ever, some years in the future.   

In yet another illustration of hypocrisy, General Electric headed by another crony capitalism pal of the Obama administration, Jeff Immelt, has announced that it will dramatically expand locomotive production at its new Fort Worth, TX plant to supply BNSF.  The business forces, aligned with loony so-called “environmentalists” constitute a formidable economic lobby against the Keystone KL Pipeline.

Parallels between ethanol and the Keystone XL Pipeline 

Keystone XL Pipe LineEnergy exploration in northwestern North Dakota is literally blowing out of the ground.  Rich resources in the Bakken Shale formation are driving petroleum production up, unemployment down to the lowest rate in the nation, and have lit the state’s economy on fire.  So far, so good. 

However, the many years of delay in approving the Keystone XL Pipe Line have exacted their economic and environmental costs.  Most of the negative consequences are predictable; indeed, catastrophes such as derailed oil tank cars are directly attributable to the lack of the pipeline.   

Pipelines have always been the most economical, efficient, safest, and fastest way to transport fuel from source to treatment to distribution.  A far secondary alternative is rail.  It is slower, more expensive, and riskier.  But those daunting problems are just for starters.   

As more rail cars and resources are devoted to energy, less is available for agriculture.  For decades, agriculture has been ND’s largest industry, accounting for more than a quarter of the state’s economy.   

The unavailability of rail resources forces companies like BNSF and CP to prioritize cargo according to fees and fares.  As of 22 August 2014, BNSF, the largest RR company in ND, has a backlog Bakken Shaleof 1,336 rail cars waiting to ship grain and other agricultural products.  CP had a backlog of another 1,000 cars for agricultural purposes.  For perspective, a unit train, meaning just one commodity like autos or grain, as opposed to a manifest train carrying many commodities, may be 100 to 125 cars long and between 7,500 and 10,000 feet, depending on type. 

In August, the US Department of Agriculture has expressed concern that CP will be unable to fulfill nearly 30,000 requests from farmers and others for rail cars before October.  Through elected representatives, constituents in the agriculturally bountiful states of ND, South Dakota (SD), Minnesota (MN) are pressuring the Surface Transportation Board the regulatory body affecting railroads, to favor agriculture, with perishable products, over petroleum, with stockpile-able products.  However, stockpile infrastructure is scarce in ND.   

Both railroads insist that oil shipments have not displaced crop shipments.  They blame the cold winter and an increase in shipments of all types due to the improving economy, at least in ND.  

Misguided energy policy impacts the food industry again 

Just as ethanol decreases the feed stocks available to humans and animals and thereby drives up costs, food giants like General Mills and Cargill are losing production.  In reporting an earning drop in August, Cargill cited “higher costs related to rail car shortages”. 

A study by ND State University found that rail congestion could cost farmers $160 million as the oversupply of gran drives prices down.  An aggravating factor is the projected record harvest of 272 million bushels of wheat, up from 235 million last year.  Corn and soybean are also expected to produce record harvest. 

So what is the take away? 

The Keystone XL pipe line could create sorely needed high paying jobs, enhance energy independence, and provide the safest method of transporting petroleum products.  Rail resources are inadequate to handle both petroleum and agriculture.  The result could impose avoidable disasters on US farmers and consumers.  The only counter-arguments are from politically based ideologues who are unable to confront the realities of science and economics.

Build the D@!n Keystone XL Pipe Line!

 

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

When the average American thinks about earthquakes, what comes to mind?  Certainly, California; it has more and more severe quakes than any other stated.  This is due to the geology of faults and tectonic plates.  The Pacific Ring of Fire, in which the entire west coasts of the U.S and Canada share major exposure and risk are well known.

If you live in Texas, whether or not connected with the Oil and Gas (O & G) industry, it is impossible to ignore the claims by some of the “scientific connection” between hydraulic fracturing and incidence of earthquakes.  This map of fault lines shows that the geologic facts.  Fault lines and consequent earthquakes are as much a part of Texas as the climate.  Both have always been here and have little to do with man’s dithering around the edges.   

Compare the Texas Tectonic map to the Texas Earthquake map.  To anyone with more than freshman geology credentials, it is obvious that the incidence of texas tectonic maptexas earthquakesearthquake locations overlay the fault lines.  Whether earthquakes are mathematically correlated to fracking is in serious doubt.   

Fracking and Quakes: History or Hysteria

 The Barnett Shale formation is an energy rich source of natural gas in north Texas, particularly the Dallas Ft Worth (DFW) metroplex, is also the source of claims of fracking induced earthquakes.  Many of these claims allege that underground disposal wells for used fracking water have caused the earthquakes. Some also claim that hydraulic fracking is the cause but scientific data is scarce.  Correlation, especially when wrought of politics, does not equal causation.  One way to eliminate specious speculation is to recycle fracking water instead of underground injection.   

The Texas Railroad Commission TRCC)  , which, despite its title, has control over the O & G industry in TX, has hired a seismologist but has expressed public doubt about the connection between earthquakes and disposal wells. According to TRCC Commissioner Christi Craddick , “With over 34,000 of these currently operating in Texas, it is important that sound science be our guide in determining if there are any links to seismic activity.”  

 What do you think? 

Energy production and distribution is a needlessly confrontational issue in the U.S.  We and the world thirst for more energy sources.  We will someday perfect solar, wind, water, and other renewable energy sources.  However, until “someday” arrives, we must capitalize on the providential gifts given us by geography and geology. 

 

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Should we be recycling fracking water?  OF COURSE WE SHOULD.  Even the cost argument pales in face of the severe drought affecting most of southwestern United States and the hundreds of millions of thirsty farm acres and millions of residents. Most folks connected with the practice of hydraulic fracturing or fracking, whether pro or con, understand that it takes about a gallon of water for each gallon of oil that is produced.  Natural gas requires less water but horizontal drilling (directional) requires more water than vertical wells.  

With all the hubbub surrounding hydraulic fracturing and its so-called “environmental impact”, it may be surprising to learn that this practice is almost 70 years old.  What is relatively new to the Oil & Gas technological scene is the emergence of directional drilling   These two processes, in tandem with enormous tax benefits (which we will discuss in a later post) are driving oil and gas production to blow out of the ground, quite literally.   

Accompanying the frenetic pace of production is an enormous strain on water resources.  Many parts of the US which are blessed with petroleum reserves, such as Texas, are also suffering under withering years long droughts.  Lake levels are falling, water restrictions are common, yet surface lakes and underground aquifers are being tapped for billions of gallons of fresh water for hydraulic fracking.  People and farms need the same water for survival.   

The problem is obvious and so is the solution   

Until recently, the popular method of disposing of the contaminated fracking waster was to pump it into wells thousands of feet below ground level.  Pressure in terms of Corporate Social Responsibility (CSC)  is encouraging some drillers and operators to embrace recycling.  The Wall St Journal reported in a late 2012 story that industry giants like Halliburton and Schlumberger  favor the practice.  Smaller companies like Ecologix Environmental Services LLC  and WTC, Inc. are jumping into the recycling pool.  Ecologix claims that the cost of recycled fracking water  is less than disposal costs. 

horizontal drillingOther big names like Chesapeake Energy Corp is recycling 100% of its fracking water from wells in northern PA.  This is cutting costs and reducing the number of trucks hauling water to drilling sites, an irritant for neighbors around well sites.

Recycled fracking water cannot be used for human consumption or irrigation but it can be used again for fracking.  In some locales, wastewater effluent is finding its way into fracking.  Pioneer Natural Resources  operations in the Eagle Ford and Permian are using waste water from the city of Odessa and negotiating with the city of Midland for its wastewater.  Halliburton claims that it has developed a fluid that eliminates the need to pretreat waste water for fracking.   

For the near term, the costs of recycling fracking water will remain confined to larger companies who can afford the technology and need the CSR profile.  Smaller operators might be able to afford the equipment but not the rights of way and pipelines to hook facilities together.   

Just do it 

The old athletic wear ad is right.  The necessity in using recycled water for fracking will soon be here, whether imposed by law, CSR, or economics.  It is just the smart thing to do.  As in the so-called “green energy” world of electric power, can green energy fracking funds be far behind? 

 

 

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

In June 2014, after many months of hearings and deliberations, the U.S. Environmental Protection Agency (EPA) proposed drastic reductions in carbon dioxide (CO2 emissions from the electric generation power plants in the United States.  According to James Osborne , staff writer for the Dallas Morning News,(DMN) Texas officials are nonplussed as to a response in his story published 06 August 2014. 

Lawyers are the greatest beneficiaries of this EPA decision.  Texas has coal mines, natural gas and, oil wells, solar, and wind farms.  Yet, EPA modeling suggests that coal generation would be cut by 50% by 2030 and replaced by natural gas plants plus a 150% increase from solar and wind sources.  What market forces are at work here? 

The State of TX may not comply and indeed sue the federal government.  The Texas Railroad Commission  (which, despite its name, has major control over energy production) Chairman Barry Smitherman worries that the state’s coal fired electric power generation would be cut in half by 2030 under proposed EPA regulations. The largest electric utility in Texas is Dallas based Energy Future Holdings (EFH)  now working through a complicated bankruptcy, would most likely be forced to close coal fired generation plants while Houston based Calpine  supports the EPA regulation.  Calpine generates natural gas fired plants exclusively. 

In between these extremes, Houston based NRG Energy  is in process of a clean coal projects on one of its plants and is ambivalent about the EPA statements.  The umbrella organization, the Association of Electric Companies of Texas stresses that coal plants cannot be economically converted to other fuels.    

Quo vadis?

The DMN story cites a total of 1,298 pounds of carbon dioxide (CO2) produced for every megawatt hour of electric energy and compares this to 650,000 747 jets.  EPA wants to reduce that total by 30% by 2030 which would shutter many existing plants and drastically drive up the cost of electricity.  This is the equivalent of a hidden carbon tax that will fall most disproportionately and do the most damage on the poor and economically depressed class.   

As currently constituted, the EPA has made coal its whipping boy.  EPA is artificially influencing the energy market by penalizing coal use in favor of the growing wind, solar, and natural gas sectors.  Ironically, the proliferation of natural gas production has driven down prices which has slowed some exploration.   

Litigation to follow – stay tuned!

 

 

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

In my online course on How to Buy a New or Used Car and Save Thousands published in 2012,, we stressed the mandates of a good credit score and financial literacy.  A New York Times (Times) syndicated story  dated 21 July 2014 authored by Jessica Silver-Greenberg  and Michael Corkery, cited risky loans at used car lots as the subprime mess of our day.   In the opening, the authors relate the tale of a 60 year old man who stopped working decades ago and whose only source of income is Social Security.  Yet Wells Fargo lent him more than $15,000 to buy a used Mitsubishi. 

According to the Times story, Durham’s loan app said that he earned more than $35,000 per year as a technician at a hospital in Binghamton, NY.  However, Durham claims that he has not worked at that hospital for more than 30 years yet Wells Fargo is pursuing payment and has repossessed the car.   

The Times story refers to Durham as one of millions of Americans with shoddy credit who seem to have no trouble easily obtaining credit from used car dealers.  The story blames used car dealers with falsifying the applications.   

In what the Times terms “explosive growth”, the risky used car loan market resembles the dynamics at work in the failure of the subprime housing mortgages of a few years ago.  Willing investors have been pouring money into the financing in return for ultra-high interest rates and profits.     

The pattern continues   

The subprime auto loans are bundled into complex bond packages and sold as “securities”, a la the subprime mortgages.  Buyers of these “securities” include banks, insurance companies, mutual funds, and public pension funds.  This buying activity stimulates spinoff interest from non-institutional buyers which in turn drives up demand.     

A Times investigation of related bankruptcy cases found that, “…dozens of civil suits against lenders involving hundreds of loan documents” revealed that subprime loans often came with interest rates above 23%.  A normal good credit borrower qualifies for a rate of less than 3% in today’s market.  The loans typically financed more than twice the value of the used car being purchased and including dozens of vehicles with mechanical defects that were concealed from the borrowers.   

While these facts are offensive on their face, how disheartening and vile is it that lesser advantaged buyers are exploited by unscrupulous sellers?  This is ironically called the high cost of poverty.  The only solution is education and training. 

In the online car course on, I take pains to demonstrate the importance of credit and how finance functions.  Those who are not minor experts in economics are easy prey for shady operators.  For many of these people, the only salvation is consumer law, but that usually arrives too late.   

Don’t become a victim

The Times drew a parallel of the auto finance scandal to the subprime mortgage meltdown.  The auto loans are but a fraction of the mortgages but fraud and criminality appear in both.  Some bank analysts and credit agencies that have profited by these high rate risky loans are mending their ways.   

Typically, these loans have balances that exceed the car’s value and longer payment periods.  A report issued by Standard & Poors  cautioned investors to expect higher losses in the subprime auto loan market.  Despite such warnings, however, the total of such loans increased by 15% to $145.6 billion in the first three months of 2014 compared to the same period in 2013 according to Experian.    

The arguments for and against these subprime loans are familiar.  The lenders insist they provide a service to borrowers with tarnished credit who would otherwise be unable to procure transportation and pursue a livelihood.  Investors point out that the higher risk is justified by the risk but the story is silent on the tawdry practice of bundling and reselling in “security packages”. 

The story suggest that low income Americans are the victims of these loans and recites interviews with legal aid lawyers, Federal Trade Commission Consumer Financial Protection Bureau , and state prosecutors.   

I believe that this subprime practice is a shameful fleecing of an uneducated and unsophisticated struggling economic class.  We can however make sure that we never make these same mistakes. 

 

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard,
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

No matter one’s politics, when the subject of President Obama and business appears in one headline, it stimulates curiosity and provokes investigation.  Such was the case with the Washington Post story entitled “Obama pushes faster payments for small businesses with help of Apple, IBM, FedEx” authored by J. D. Harrison  originally published on 11 July and subsequently syndicated nationally. 

Since payment to suppliers is a perennial source of argument and consternation in the Procure-to-Pay (P2P), sometimes called Source-to-Settle (S2S) universe , running this thunderbolt to ground was mandatory.   

The story reveals a White Hose initiative called “SupplierPay”, an initiative intended to encourage large businesses to pay their suppliers more promptly.  Among the 26 corporations endorsing this initiative are Apple, IBM, Coca-Cola, FedEx, Honda, CVS and Walgreens.  These and other larger companies have agreed to pay suppliers more quickly and assist suppliers in securing less-expensive financing. 

White House officials cited that small suppliers on average wait about two months to get paid for goods and services and those wait times, according to the Wall Street Journal , are growing.  “For the larger companies, joining SupplierPay demonstrates recognition that a healthy supply chain is good for business,” the White House. The statement continued, “For small firms selling to those corporations, it will translate into “more capital to invest in new opportunities, new equipment, and new hiring”.

SupplierPay is modeled after a similar White House initiative called QuickPay that requires federal departments to hasten speed to small-business contractors, ideally within 15 days. The White House blog  claims that the savings for small contractors has exceeded $1 billion in the three years of QuickPay’s existence.

The Post story cited one firm that serves as both a prime contractor to the federal government and as a subcontractor to other larger firms.  It may wait 75 to 90 days for payment as a sub but only two weeks for direct payment from the government on its prime contracts.

What does this mean for the purchasing community?The P2P conundrum is not new.  As long as three decades ago, the P-Card  family of solutions brought on a tectonic shift in the P2P world.  Abusive payment practices victimizing small businesses are legend in some industries, particularly construction and some of the manufacturing sector.The enlightened larger companies signing on to SupplierPay are engaging in good business practices.  Supplier Development  is the collaboration between large customer and smaller supplier wherein the larger company assists the smaller to grow and prosper.  Consider it a form of partnering.

It is well worth the effort to invest in supplier development.  Perhaps the best starting point with a high performing, low Total Cost of Ownership supplier is prompt payment.

 

 

 

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager
Robert Menard,
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

 

Last October, a blog post concerning hybrid and all-electric cars cited troubles Tesla Motors was having with its all electric $100,000+ luxury sedans.  According to Tesla’s site, the mile range on a full charge is only 265 and a full charge requires one hour and twelve minute.  Given rarity and dispersion of charging stations, and the high price of the Tesla vehicles, all of these serious impediments are a threat to sales growth.  Add to this the inanity of Carbon Offsets and Tesla vehicles have steep figurative and literal hills to climb.Meanwhile, Texas governor Rick Perry has been crisscrossing the country in a very successful recruiting campaign to have large and small companies relocate from high cost, high regulation, and business unfriendly states (particularly NY and CA).  The crown jewel of this effort is Toyota which is leaving California for the business Mecca of Plano, TX in the Dallas/Ft. Worth metroplex.   Another automotive company being wooed by Texas officials is Tesla.  It wants to build a $5 billion dollar, 6,500 job, 10 million square feet battery factory and it scrutinizing a variety of locations in four states, AZ, NM, NV and TX.  Two reported Texas locations are Dallas and San Antonio.  A drawback for Texas is that it prohibits direct car sales to customers – the state insists on a dealer network, unlike Tesla’s home state of CA.  

 

The importance of a lithium-ion battery plant was underscored in a statement by Elon Musk, the iconic business genius, founder, and CEO of Tesla.  He wants to reduce the price of the basic $70,000 Model S by at least 30% by vastly increasing the supply and availability of batteries.  Batteries are the most expensive component of the all-electric car.  Although all-electric cars constitute less than 1% of the automobile market, Musk and Tesla have Texas sized plans.  The goal is to drive sales from 22,400 units in 2013 to more than 500,000 in the next few years. 

An appeal to TCO  

You may have noticed the ads for Kyocera pitched by Professor Peter Morisi in his bow tie.  The slant is lowest Total Cost of Ownership.  The automobile sales business has embraced this concept.  All of the major car buying wesites, Kelly Blue Book, Edmunds, Consumer Reports  and others are promoting the TCO concept.  So is Tesla. 

This landing page on Tesla’s site purports to calculate TCO for a Tesla using a fairly sophisticated formula.  About the only important factor it does not take into account is the wasted energy lost in transmission and associated waste due to low voltages of the chargers.  Currently, and ironically, the electric vehicles create more greenhouse gasses  than they save, but that may change as more renewable sources of electricity come on line.