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Holiday Discounts Increase Pressure on Suppliers

by APICS staff |   2013 | 13 | 23


The holiday season starting often sees retailers offering deep discounts, but the discounts aren’t actually all that great for consumers, the Wall Street Journal reports. They’re even worse for suppliers, who bear much of the associated costs to provide the discounts—either by paying up front or settling up at the end of the season.

Suppliers of retail products also contribute to costs surrounding end-cap displays and newspaper flyers. They can get additional penalties for violations such as if packaging does not meet retailer specifications. After the holidays, retailers often ask for more payments, known as markdown money, to fund unplanned promotions. For example, if a blouse is not selling at 30 percent off regular price and the retailer has to mark it down to 50 percent off, the supplier often has to make up that difference.

Some retailers have gotten into trouble for these practices. In 2005, Saks agreed to pay its suppliers $48 million after it was found to have improperly collected markdown allowances during a seven-year period.


Toyo Tire Latest Target of Price-Fixing Sweep  


A Japanese auto parts supplier agreed to plead guilty to charges of price fixing and pay a $120 million fine, the New York Times reports. Toyo Tire and Rubber is the latest target of the US Justice Department’s antitrust inquiry into the auto parts business, a sweeping investigation that so far has charged 22 companies and has involved authorities from Asia to Europe and North America. Of 26 executives charged so far, 20 have been sentenced or have made plea agreements.

Toyo’s charge “is the latest step in the antitrust division’s effort to hold automobile part suppliers accountable for their illegal and collusive conduct,” says Renata B. Hesse, deputy assistant attorney general in the US Justice Department’s antitrust division. The investigation involves more than a dozen conspiracies to fix prices on more than 30 different types of parts sold to Chrysler, Ford, and General Motors, as well as American subsidiaries of foreign carmakers. Price fixing affects more than 25 million cars bought in the United States, the department says.

The US Justice Department alleges that Toyo engaged in a conspiracy to allocate sales, rig bids, and fix prices of its anti-vibration rubber parts from 1996 through 2012. Toyo owns subsidiaries in Kentucky and Georgia. Corporate officers will forfeit a portion of their compensation, the company says.


Apple Invests in Technology and Supply Chain


At Apple, a record $10.5 billion is being spent on new technology, from assembly robots to milling machines, that consumers will never see, Bloomberg News reports. Apple’s spending underscores how the company is investing in design and new technology for its manufacturing processes. Apple regularly strikes exclusive machinery deals and outspends peers on tools it later places in factories of its suppliers, many of which are in Asia.

“[Apple’s] designs are so unique that you have to have a very unique manufacturing process to make it,” says Muthuraman Ramasamy, analyst at consulting firm Frost & Sullivan, who has studied the use of the machinery. “Apple has so much cash that they can invest in cutting-edge, world-class machinery that is typically used for aerospace and defense.”

Apple uses its $146.8 million in reserves as a type of bank, providing financing to build factories for it supply chain, says Horace Dediu, former researcher for Nokia. In November, Apple exchanged an exclusivity agreement with GT Advanced Technologies for a prepayment of $578 million, which GT Advanced will pay back over five years beginning in 2015. In this way, “Apple deploys capital as a competitive advantage,” Dediu says.

Chinese Auto Consumers Demand Discounts and Deals


Chinese consumers are more willing to hold off on purchasing cars as a glut of supply puts pressure on automakers to provide additional incentives, according to a survey by marketing research and consulting firm TNS. The survey of 1,000 Chinese respondents revealed that about 75 percent say that final purchasing decisions are prompted by deals or promotions, including cash discounts, extended warranties, and giveaways. In comparison, only 40 percent of respondents indicated this last year.

“As Chinese consumers wise up to the fact that supply is outstripping demand in the auto sector, brands have to work much harder to persuade shoppers to part with their cash,” says Guillaume Saint, managing director, Automotive Asia Pacific, at TNS.

China is now the world’s largest car market and is expected to be a major source of growth in coming years, the Wall Street Journal reports. A rush by global automakers could ratchet up competition in the area. Meanwhile, manufacturers are passing off some of this pressure to suppliers and car dealers. Around 40 percent of Chinese car dealers lost money last year, says Mei Songlin, vice president at J.D. Power and Associates.


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