NEW YORK – If you’re an investor in the stock market, you should cower in fear of Barry Uhl.
Not that he’s a mean or imposing guy. The 59-year-old is perfectly pleasant and soft-spoken, a branch manager for discount brokerage Scottrade in Fremont, California who daydreams about volunteering with animals for the Humane Society.
Instead, fear Uhl for what he represents. He’s a baby boomer, and he’s retiring in February. That means he’s about to start drawing down his savings after building up a nest egg for so many years.
Uhl by himself isn’t going to alter the course of the stock market, of course. But multiply his modest investment moves by roughly 79 million other members of his generation and you’ve got trouble. According an Investment Company Institute report, a whopping 44% of all mutual-fund shareholders are boomers. As they take withdrawals from their retirement kitties over the next couple of decades, you’re looking at a major, potentially market-altering event.
The first Boomers have already turned 65, and every day for the next couple of decades another 10,000 people will do the same, according to data from the Pew Research Center. By 2030, 18% of America will be 65 or older, taking the Early Bird dinner special and slowly siphoning off their savings.
“The front end of the Baby Boomer generation is starting to take money out, and that could become a big headwind for the stock market,” says David Foot, a professor at the University of Toronto and author of “Boom, Bust & Echo,” which looks at how demographic trends affect the investing world. “In the short-term, the economy drives market returns. But over the long-term, demographics dominates as the major determinant – and its impact is very hard to offset.”
Take Japan and its lengthy economic stagnation, which Foot attributes not to governmental incompetence or policy miscues but to the simple fact of that nation’s demographics. While younger societies generally experience robust growth as its members enter the prime of their working and investing lives, aging societies grapple with an economic decline that’s very tricky to evade.
For example, almost a quarter of Japan’s population is now over 65 – a number projected to rise to 40% by 2050.
The full force of these investing winds has yet to be felt in the U.S., since the leading members of the boomer generation are still in their mid-60s; minimum 401(k) withdrawals don’t kick in until after 70. Indeed many boomers are still working and accumulating wealth, and the biggest demographic bulge of all is comprised of Americans in their late 50s, still in their prime earning years.
But demographic trends are already affecting the markets in significant ways. The hearty appetite for bonds and dividend-paying stocks reflects that boomers have begun to tweak their portfolios in the direction of income-oriented investments, to help preserve their capital and skirt market volatility. Scottrade’s Uhl, for instance, has been subtly remaking his portfolio over the last five years; he’s now about 50% in bonds and cash.
“For six decades the boomers have driven everything in society, and that’s only going to continue,” says David Rosenberg, chief economist and strategist for wealth managers Gluskin Sheff. “They can no longer afford to buy stocks for the long run and wait out any bust. They’re focusing less on capital appreciation and more on income, and we’re seeing that trend take hold already.”
You needn’t be worried about demographics causing a total U.S. market freefall, though. That’s because many of those boomers had kids of their own, a sizable bloc (though not quite as massive) known as the ’Echo Boomers’ or Generations Y. So even if there’s a gradual exodus of boomers from the stock market, the full effect will be tamped down as their kids continue to work and invest. Says Foot: “When boomers start to sell their stock, a large generation of their children will be coming into their 40s ready to buy them, which should help underpin the stock market in North America.”
That said, there are certain steps you can take to deal with the demographic tsunami that may be on its way. A three-pronged plan:
- Avoid Japan and Europe, look to ’younger’ populations. The demographic challenges facing those regions are significant and not going away, notes Foot. But not all countries have similar profiles: Brazil, Turkey, and Vietnam are three nations with relatively young populations whose economies will likely be revving up in years to come.
- Sectors matter. Speculators would be wise to match their stock picks to nations’ demographic profiles. “In young societies like India, where there are a lot of mouths to feed, agriculture is extremely important,” says Foot. “As those people age – as is happening in Turkey – they buy manufactured goods, housing, autos. Then as people move into their 50s and 60s, as is going on in North America, areas like pharmaceuticals become much better investments.”
- Income is king. For Gluskin Sheff’s clients, Rosenberg has been seeking out “income at a reasonable price”. That means slotting the majority of client assets in combination of high-quality, income-producing equities and corporate bonds. “You have to look at the market environment and demographics together,” says Rosenberg. “And that augurs well for investment strategies dedicated to income.”
Saturday, 14 January 2012
10 ways budgeting saved my marriage
Eleven years ago, my wife and I sat across the table from an experienced married couple squirming in their seats uncomfortably as though they feared we were about to deliver some terrible news. But the source of their discomfort was the bomb they were about to drop on us.
You see, we were not yet married, but engaged, and the couple across the table was our mentor couple in our pre-marital class. Upon review of our personality profiles and piles of personal baggage, they felt it their duty to discourage us from further pursuing the sacred vows of matrimony. They’d never seen a hopeful couple more innately disparate, more inevitably destined for failure.
We are indeed vastly different, but one thing my wife, Andrea, and I share in common is a penchant for resisting authority. So with the blessing and support of family and friends, I’m thrilled to report we’ll be celebrating our eleventh anniversary this April with our two wonderful boys, Kieran and Connor, ages six and eight.
We have never forgotten, however, the well-intended admonishment of our mentor couple; indeed, we see much of life from vastly different perspectives, foremost among them our view of things financial. And apparently, we’re not alone. Over 50% of marriages end in divorce. Over 50% of those splits cite financial disputes as the primary reason for the break-up.
100% of marriages deal with money as a daily necessity.
This thought occurred several times when preparing my recent posts on budgeting on Forbes.com (How To Spend $1 Million At Starbucks) and TimMaurer.com (A Burdensome Yoke…Or A Path To Peace?). It struck me that budgeting ranked right up there with prayer and counselling as a precious few factors that have helped keep us together. Here are the top 10 ways budgeting has saved, and continues to save, our marriage:
10. Budgeting forces us to collaborate. It seems that as parents of young children, the level of commitments between work, school, church, sports and the arts leaves us functioning more as independent business partners than spouses. We’re almost always in short supply of adult conversation and genuine collaboration, and (strange as it may seem) budgeting gives us the context for both.
9. It offers healthy accountability. Ronald Reagan famously said, “Trust, but verify,” and while 100% verification of trust in our marriage would be stifling, we’ve found periodic accountability to be a healthy way to build faith and trust in each other. Our joint budgeting effort means all of our expenditures are accessible to the other. Scrutinizing every penny spent would be unfair (a-hem, note to self), but knowing everything is visible is likely to encourage us each to spend more responsibly.
8. It humbles us. I’ve not found a more helpful tool in the pursuit of a successful marriage than humility, and since the use of money is so pervasive in our lives, small mistakes are the norm, not the exception. Rarely a weekly cycle goes by in which we don’t each humbly acknowledge that we erred in some capacity, humbly submitting our mistake to the other. And of course, a good budget is designed to withstand these small mistakes.
7. It provides an opportunity for reconciliation. The prevalence of small errors in our budgeting, however, provides fertile ground for a destructive tendency: that we’d develop a scorecard, real or implied, and shame the more regular offender (because there normally is one in most households). So for us it’s very important that a humility ground-rule is established: Any time an offending spouse submits in humility to an irreversible mistake, forgiveness and reconciliation is the only way forward.
6. It gives us reason to celebrate. For each mistake, there are several successes in each budget cycle. The long-term success of our marriage is often built on a series of small victories, and we should never withhold an affirmation for completing a project under budget or enjoying the security of a buffer when an emergency arises.
5. It cuts down on surprises. So many aspects of our life are subject to variability and volatility. We can’t necessarily reduce the number of those surprises, but we can certainly reduce their negative impact by being financial prepared for them. Financial strain, and especially shock, pushes many marriages to (and over) the brink.
4. It makes us better parents. All of us parents could probably agree that it’s possible to spend too little OR too much on our children, right? We’re responsible to determine what the right levels of spending are for our children, and budgeting allows us to deliberately set aside appropriate levels of funding for education, clothing, sports, music and fun.
3. It shows our dependence on each other. Andrea and I do think very differently, and this inevitably leads to divisive thoughts like these: “You know, I think I could do this better on my own!” But this decries the very essence of marriage as an institution in which each partner’s primary objective is to serve the other. The process of budgeting puts our (literal and emotional) dependence on each other on full display. That makes us vulnerable, but it’s good.
2. It preserves a healthy level of independence. The income production in most households is almost never perfectly equitable. Andrea sacrificed a successful career in the financial industry when she chose to stay home with our young children. This has been an incredible blessing in our family, but it’s also a breeding ground for insecurity and manipulation as I might have a tendency to overestimate my contribution to the family’s finances and underestimate Andrea’s. It is imperative, then, that part of our budget is the preservation of a certain amount of financial independence for each spouse. To offset this income inequity, we’ve established “His and Hers” accounts with unilateral privileges. Many shun budgeting as too restrictive, but properly implemented, it actually gives us room to breathe financially, and we all need room to breathe.
1. It preserves date night! One of the interactions I’ve enjoyed most throughout my career was with a client who is a generation or two my senior. He and his wife have five kids(!) and appear to be more in love today than they’ve ever been. So at the close of one meeting, I got up the nerve to ask this gentleman what his secret to marriage and parenting was. His answer? They never fail to set aside time — and money — for each other as a couple. He made a convincing case that we are better parents when we deliberately set aside time to be together, away from the kids, and not just for date nights, but also long-weekends and even week-long vacations to remind ourselves that before we were parents we were lovers. This proved especially difficult for Andrea and me because by the time we got to the end of most months, we’d already spent our discretionary cash on the rest of life and felt like we were taking funding away from other things to line-up a babysitter and enjoy a night or weekend out. So now, much as we have preserved His and Hers accounts, we also have an Ours account.
Budgeting is not the slightest bit romantic, but it has the ability to promote and preserve the romance in our marriages and keep us on the right side of that daunting 50% divorce statistic. There are as many good ways to manage this process as there are couples, and I’d love to hear some of the ways budgeting has helped preserve YOUR marriage also, so please share your story in the comments section!
You see, we were not yet married, but engaged, and the couple across the table was our mentor couple in our pre-marital class. Upon review of our personality profiles and piles of personal baggage, they felt it their duty to discourage us from further pursuing the sacred vows of matrimony. They’d never seen a hopeful couple more innately disparate, more inevitably destined for failure.
We are indeed vastly different, but one thing my wife, Andrea, and I share in common is a penchant for resisting authority. So with the blessing and support of family and friends, I’m thrilled to report we’ll be celebrating our eleventh anniversary this April with our two wonderful boys, Kieran and Connor, ages six and eight.
We have never forgotten, however, the well-intended admonishment of our mentor couple; indeed, we see much of life from vastly different perspectives, foremost among them our view of things financial. And apparently, we’re not alone. Over 50% of marriages end in divorce. Over 50% of those splits cite financial disputes as the primary reason for the break-up.
100% of marriages deal with money as a daily necessity.
This thought occurred several times when preparing my recent posts on budgeting on Forbes.com (How To Spend $1 Million At Starbucks) and TimMaurer.com (A Burdensome Yoke…Or A Path To Peace?). It struck me that budgeting ranked right up there with prayer and counselling as a precious few factors that have helped keep us together. Here are the top 10 ways budgeting has saved, and continues to save, our marriage:
10. Budgeting forces us to collaborate. It seems that as parents of young children, the level of commitments between work, school, church, sports and the arts leaves us functioning more as independent business partners than spouses. We’re almost always in short supply of adult conversation and genuine collaboration, and (strange as it may seem) budgeting gives us the context for both.
9. It offers healthy accountability. Ronald Reagan famously said, “Trust, but verify,” and while 100% verification of trust in our marriage would be stifling, we’ve found periodic accountability to be a healthy way to build faith and trust in each other. Our joint budgeting effort means all of our expenditures are accessible to the other. Scrutinizing every penny spent would be unfair (a-hem, note to self), but knowing everything is visible is likely to encourage us each to spend more responsibly.
8. It humbles us. I’ve not found a more helpful tool in the pursuit of a successful marriage than humility, and since the use of money is so pervasive in our lives, small mistakes are the norm, not the exception. Rarely a weekly cycle goes by in which we don’t each humbly acknowledge that we erred in some capacity, humbly submitting our mistake to the other. And of course, a good budget is designed to withstand these small mistakes.
7. It provides an opportunity for reconciliation. The prevalence of small errors in our budgeting, however, provides fertile ground for a destructive tendency: that we’d develop a scorecard, real or implied, and shame the more regular offender (because there normally is one in most households). So for us it’s very important that a humility ground-rule is established: Any time an offending spouse submits in humility to an irreversible mistake, forgiveness and reconciliation is the only way forward.
6. It gives us reason to celebrate. For each mistake, there are several successes in each budget cycle. The long-term success of our marriage is often built on a series of small victories, and we should never withhold an affirmation for completing a project under budget or enjoying the security of a buffer when an emergency arises.
5. It cuts down on surprises. So many aspects of our life are subject to variability and volatility. We can’t necessarily reduce the number of those surprises, but we can certainly reduce their negative impact by being financial prepared for them. Financial strain, and especially shock, pushes many marriages to (and over) the brink.
4. It makes us better parents. All of us parents could probably agree that it’s possible to spend too little OR too much on our children, right? We’re responsible to determine what the right levels of spending are for our children, and budgeting allows us to deliberately set aside appropriate levels of funding for education, clothing, sports, music and fun.
3. It shows our dependence on each other. Andrea and I do think very differently, and this inevitably leads to divisive thoughts like these: “You know, I think I could do this better on my own!” But this decries the very essence of marriage as an institution in which each partner’s primary objective is to serve the other. The process of budgeting puts our (literal and emotional) dependence on each other on full display. That makes us vulnerable, but it’s good.
2. It preserves a healthy level of independence. The income production in most households is almost never perfectly equitable. Andrea sacrificed a successful career in the financial industry when she chose to stay home with our young children. This has been an incredible blessing in our family, but it’s also a breeding ground for insecurity and manipulation as I might have a tendency to overestimate my contribution to the family’s finances and underestimate Andrea’s. It is imperative, then, that part of our budget is the preservation of a certain amount of financial independence for each spouse. To offset this income inequity, we’ve established “His and Hers” accounts with unilateral privileges. Many shun budgeting as too restrictive, but properly implemented, it actually gives us room to breathe financially, and we all need room to breathe.
1. It preserves date night! One of the interactions I’ve enjoyed most throughout my career was with a client who is a generation or two my senior. He and his wife have five kids(!) and appear to be more in love today than they’ve ever been. So at the close of one meeting, I got up the nerve to ask this gentleman what his secret to marriage and parenting was. His answer? They never fail to set aside time — and money — for each other as a couple. He made a convincing case that we are better parents when we deliberately set aside time to be together, away from the kids, and not just for date nights, but also long-weekends and even week-long vacations to remind ourselves that before we were parents we were lovers. This proved especially difficult for Andrea and me because by the time we got to the end of most months, we’d already spent our discretionary cash on the rest of life and felt like we were taking funding away from other things to line-up a babysitter and enjoy a night or weekend out. So now, much as we have preserved His and Hers accounts, we also have an Ours account.
Budgeting is not the slightest bit romantic, but it has the ability to promote and preserve the romance in our marriages and keep us on the right side of that daunting 50% divorce statistic. There are as many good ways to manage this process as there are couples, and I’d love to hear some of the ways budgeting has helped preserve YOUR marriage also, so please share your story in the comments section!
Saturday, 7 January 2012
Elite Asian students cheat like mad on US college applications
BANGKOK, Thailand — From sleep to social lives, there is little Asia’s most upwardly mobile students won’t sacrifice for education. Though they belong to the so-called “Asian Century,” American colleges remain the premier destination for the elite from Shanghai to Singapore to Seoul.
The path to US college acceptance, however, increasingly compels students to sacrifice their integrity. For the right price, unscrupulous college prep agencies offer ghostwritten essays in flawless English, fake awards, manipulated transcripts and even whiz kids for hire who’ll pose as the applicant for SAT exams.
“Oh my God, they can do everything for you,” said Nok, 17-year-old Thai senior in her final year at a private Bangkok high school. (She asked GlobalPost to alter her name for this article.) “They can take the SAT for you, no problem. Most students don’t really think it’s wrong.”
China's latest craze: dyeing pets to look like other wild animals (PHOTOS)
Among Asian high society, and particularly in China, parents’ obsession with sending their offspring to US colleges has given rise to a lucrative trade of application brokers. Depending the degree of assistance, families can expect to pay between $5,000 and $15,000.
“The parent says, ‘My kid needs this GPA but, frankly, his scores aren’t that strong.’ Then the unscrupulous agent says ‘Don’t worry. We’ll figure that out,’” said Tom Melcher, chairman of Zinch China and author of a Chinese-language book on choosing American colleges.
A 250-student survey by Zinch China, a Beijing wing of the California-based Zinch education consultancy, suggests college application fraud among Chinese students is extremely pervasive. According to the survey, roughly 90 percent of recommendation letters to foreign colleges are faked, 70 percent of college essays are ghostwritten and 50 percent of high school transcripts are falsified.
“For the right price,” Melcher said, “the agent will either fabricate it or work with the school to get a different transcript issued.” Admission into a top 10 or top 30 school, as defined by the US News & World Report, can bring a $3,000 to $10,000 bonus for the agent, he said. The magazine, Melcher said, is commonly confused in China for an official government publication.
Demand for such agents is high and getting higher. Rapid economic growth across China and other parts of Asia has sparked an explosion in foreign students hoping to secure their ascent with a Western diploma.
Chinese citizens currently account for more than one in five foreign students studying at US colleges. Nearly 158,000 Chinese students are enrolled at any given time, a full 300 percent jump over mid-1990s numbers, according to the Institute of International Education.
Chinese, Indian and South Korean students comprise roughly half of America’s foreign college student population. Vietnam has sent 13 percent more students to the US within the last year, and Malaysia has added 8 percent, the institute reports.
But many American college officials are oblivious to the application fix-it men these foreign students may have paid back home. Worse yet, remaining blind to the deception is often financially incentivized.
America’s economic downturn has drained the state tax coffers that provide a funding lifeline to many US colleges. Many schools have resorted to unpopular tuition hikes. But many are also courting wealthy foreign students whose families gladly fork over money for housing and tuition along with out-of-state or even out-of-country fees.
Rice Fields Of Asia: From Above and Below (PHOTOS)
“International students are seen as a source of revenue ... and the trend has exploded in the past two years,” said Dale Gough, international education director for AACRAO, the American Association of Collegiate Registrars and Admissions Officers.
Foreign students, through tuition and living expenses, contribute $2.1 billion to the US economy, according to the US Commerce Department. “In short,” Gough said, “they help the bottom line.”
Excuses abound for ignoring fraudulent applications, Gough said. Some assume that kids who cheat will inevitably flame out anyway and never score a degree. Some admissions officers, he said, contend that “that’s just the way it’s done over there.”
Many schools also make sloppy attempts to translate foreign transcripts, calculated by an “indigenous” and unfamiliar methodology, into America’s GPA or “grade point average” system, Gough said.
His association publishes a guide to deciphering foreign scores, the only one of its kind, but fewer than 500 of the 3,500 institutions represented by AACRAO bother to buy a copy.
“Translating foreign grades into a GPA system is meaningless,” Gough said. “They attempt to do it anyway.”
Gough fears that universities’ lax standards, and focus on big foreign tuition payments, will eventually undermine the pedigree of an American diploma. The damage, he said, would be nearly impossible to undo.
“This scenario spells disaster,” Gough said. “Even if a lot of the students who cheat are bright, and they go on to succeed, is this fair to American students? Or [to] the foreign students who play by the rules?”
While America has ceded manufacturing power and foreign influence to China, an American degree remains the gold standard of educational prestige. Nok, who is currently applying for colleges abroad, never considered applying to universities in Asia.
“Students who study in America are elite, the privileged,” said Nok. “It shows you’re smarter than the others.”
But like most Asian students, Nok has felt baffled and overwhelmed by America’s complex application system.
“Here, you take a big test one day and report the score. That’s how you figure out where you’ll go to college,” she said. “The Americans are different. They want to know the big picture. All these essays. All this stuff about your life.”
America’s liberal arts application system is “fundamentally more confusing,” said Joshua Russo, director of Top Scholars, a college prep and tutoring agency in Bangkok.
Asian families unfamiliar with the process, he said, are justified in seeking an agency’s help with application strategies and tutoring to build the skills US colleges demand. But Russo’s refrain to parents, he said, is that kids who can’t write their own essays are likely to burn out once enrolled in America.
“Some consultants will promise the world ... and they’re fundamentally preparing students to fail,” Russo said. “Beyond fabricating an essay, they’re fabricating a whole life story. Students will start to believe in the lie. It’s wrong.”
The allure of America’s universities, and the pressure-cooker drive to succeed among Asia’s expanding upper class, will continue to propel Asian students into American schools. Many Chinese teenagers applying abroad, Melcher said, are the sort of highly motivated students colleges desire.
“Chinese kids are typically great,” Melcher said. “They’re not at the tailgate parties drinking. They’re busting their butts. Failure is not an option.”
But college application fraud will continue, he said, so long as the risks are low and the rewards are so high. His consultancy suggests interviewing all Chinese students via online video chats, conducting spot tests in English, and hiring a mainland Chinese staffer in the college’s home office.
“Frankly, I feel really bad for Chinese families who are trying to be honest,” he said. “They’re driving 55 while everyone’s zooming past them. After a while, they throw up their hands and say, ‘Fine, I’ll speed up.’”
The path to US college acceptance, however, increasingly compels students to sacrifice their integrity. For the right price, unscrupulous college prep agencies offer ghostwritten essays in flawless English, fake awards, manipulated transcripts and even whiz kids for hire who’ll pose as the applicant for SAT exams.
“Oh my God, they can do everything for you,” said Nok, 17-year-old Thai senior in her final year at a private Bangkok high school. (She asked GlobalPost to alter her name for this article.) “They can take the SAT for you, no problem. Most students don’t really think it’s wrong.”
China's latest craze: dyeing pets to look like other wild animals (PHOTOS)
Among Asian high society, and particularly in China, parents’ obsession with sending their offspring to US colleges has given rise to a lucrative trade of application brokers. Depending the degree of assistance, families can expect to pay between $5,000 and $15,000.
“The parent says, ‘My kid needs this GPA but, frankly, his scores aren’t that strong.’ Then the unscrupulous agent says ‘Don’t worry. We’ll figure that out,’” said Tom Melcher, chairman of Zinch China and author of a Chinese-language book on choosing American colleges.
A 250-student survey by Zinch China, a Beijing wing of the California-based Zinch education consultancy, suggests college application fraud among Chinese students is extremely pervasive. According to the survey, roughly 90 percent of recommendation letters to foreign colleges are faked, 70 percent of college essays are ghostwritten and 50 percent of high school transcripts are falsified.
“For the right price,” Melcher said, “the agent will either fabricate it or work with the school to get a different transcript issued.” Admission into a top 10 or top 30 school, as defined by the US News & World Report, can bring a $3,000 to $10,000 bonus for the agent, he said. The magazine, Melcher said, is commonly confused in China for an official government publication.
Demand for such agents is high and getting higher. Rapid economic growth across China and other parts of Asia has sparked an explosion in foreign students hoping to secure their ascent with a Western diploma.
- Electronic TranscriptsEducation's Trusted Intermediary - High school and college transcripts Docufide.com
Chinese, Indian and South Korean students comprise roughly half of America’s foreign college student population. Vietnam has sent 13 percent more students to the US within the last year, and Malaysia has added 8 percent, the institute reports.
But many American college officials are oblivious to the application fix-it men these foreign students may have paid back home. Worse yet, remaining blind to the deception is often financially incentivized.
America’s economic downturn has drained the state tax coffers that provide a funding lifeline to many US colleges. Many schools have resorted to unpopular tuition hikes. But many are also courting wealthy foreign students whose families gladly fork over money for housing and tuition along with out-of-state or even out-of-country fees.
Rice Fields Of Asia: From Above and Below (PHOTOS)
“International students are seen as a source of revenue ... and the trend has exploded in the past two years,” said Dale Gough, international education director for AACRAO, the American Association of Collegiate Registrars and Admissions Officers.
Foreign students, through tuition and living expenses, contribute $2.1 billion to the US economy, according to the US Commerce Department. “In short,” Gough said, “they help the bottom line.”
Excuses abound for ignoring fraudulent applications, Gough said. Some assume that kids who cheat will inevitably flame out anyway and never score a degree. Some admissions officers, he said, contend that “that’s just the way it’s done over there.”
Many schools also make sloppy attempts to translate foreign transcripts, calculated by an “indigenous” and unfamiliar methodology, into America’s GPA or “grade point average” system, Gough said.
His association publishes a guide to deciphering foreign scores, the only one of its kind, but fewer than 500 of the 3,500 institutions represented by AACRAO bother to buy a copy.
“Translating foreign grades into a GPA system is meaningless,” Gough said. “They attempt to do it anyway.”
Gough fears that universities’ lax standards, and focus on big foreign tuition payments, will eventually undermine the pedigree of an American diploma. The damage, he said, would be nearly impossible to undo.
“This scenario spells disaster,” Gough said. “Even if a lot of the students who cheat are bright, and they go on to succeed, is this fair to American students? Or [to] the foreign students who play by the rules?”
While America has ceded manufacturing power and foreign influence to China, an American degree remains the gold standard of educational prestige. Nok, who is currently applying for colleges abroad, never considered applying to universities in Asia.
“Students who study in America are elite, the privileged,” said Nok. “It shows you’re smarter than the others.”
But like most Asian students, Nok has felt baffled and overwhelmed by America’s complex application system.
“Here, you take a big test one day and report the score. That’s how you figure out where you’ll go to college,” she said. “The Americans are different. They want to know the big picture. All these essays. All this stuff about your life.”
America’s liberal arts application system is “fundamentally more confusing,” said Joshua Russo, director of Top Scholars, a college prep and tutoring agency in Bangkok.
Asian families unfamiliar with the process, he said, are justified in seeking an agency’s help with application strategies and tutoring to build the skills US colleges demand. But Russo’s refrain to parents, he said, is that kids who can’t write their own essays are likely to burn out once enrolled in America.
“Some consultants will promise the world ... and they’re fundamentally preparing students to fail,” Russo said. “Beyond fabricating an essay, they’re fabricating a whole life story. Students will start to believe in the lie. It’s wrong.”
The allure of America’s universities, and the pressure-cooker drive to succeed among Asia’s expanding upper class, will continue to propel Asian students into American schools. Many Chinese teenagers applying abroad, Melcher said, are the sort of highly motivated students colleges desire.
“Chinese kids are typically great,” Melcher said. “They’re not at the tailgate parties drinking. They’re busting their butts. Failure is not an option.”
But college application fraud will continue, he said, so long as the risks are low and the rewards are so high. His consultancy suggests interviewing all Chinese students via online video chats, conducting spot tests in English, and hiring a mainland Chinese staffer in the college’s home office.
“Frankly, I feel really bad for Chinese families who are trying to be honest,” he said. “They’re driving 55 while everyone’s zooming past them. After a while, they throw up their hands and say, ‘Fine, I’ll speed up.’”
Wednesday, 4 January 2012
How Expedia Plans to Make Travel More Social
Some online travel sellers see an enormous business opportunity in working with bloggers, as well as connecting your friends with your travel plans. Care to share?
“If our goal is to get closer to travelers … bloggers are a very interesting place to us,” says Joe Megibow, vice-president of Expedia U.S. And while Expedia isn’t looking to add a roster of bloggers to its payroll, the company is likely to fund trips for bloggers it deems influential—those with sufficient audience and voice. Expedia would likely use the bloggers’ videos, photos, and writing on its site, without influencing content. The company considers bloggers an untapped resource in an industry whose media strategies are often dictated by newspaper travel sections, magazines, and public relations firms, said Sarah Keeling, the Expedia public relations executive overseeing the effort.
The idea that your friends might alert you to cool stuff while flagging the dreck is not a new one. Industries as diverse as retail, radio, and restaurants have leapt into social networking with gusto in recent years. People tend to trust their friends’ opinions. The $109 billion annual online travel market has been notable for not deploying the mountains of data found on social networks to suggest potential trips, or to connect your friends’ experiences with a hotel or resort you may be researching at a site such as Orbitz (OWW) or Expedia. “Think about what Amazon (AMZN) has done around personalization and recommendations. And we see nothing like that around online travel,” says Douglas Quinby, a senior director for travel research firm PhoCusWright.
A slew of tech startups such as Trippy, Gogobot, Gtrot, and FlyMuch are hoping to change that by using Facebook, Twitter, Foursquare, and other social-networking data as a way to gather information, share reviews, and plan trips. The idea is that as you plan travel, you’ll be more comfortable about booking a particular hotel or resort—or choosing a particular Caribbean island or rain forest hike—if one of your friends has been there.
“Harder to Backpedal Into Social”
Some travel experts question whether such sites, which struggle for traffic, can build viable stand-alone businesses. Most suffer from no recognition and meager traffic. To help build traffic, Gtrot plans to introduce “white label” co-branded sites that larger travel clients will use to offer a socially curated experience, says Brittany Laughlin, a co-founder of the Chicago-based company. For example, airlines, hotels, or online travel agents would offer a link to Gtrot from their sales-transaction pages so customers can share plans with friends. The first such partnerships are to be announced in February. “I think the biggest challenge for OTAs is that they are transaction sites and they always have been,” Laughlin said. “It’s just a lot harder to backpedal into social.” Johnson, of Trippy, agrees, citing the retailing success Apple (AAPL) has enjoyed with iTunes, vs. the dismal public reaction to its Ping social network. The meager traffic for social-travel sites hasn’t kept investors away. Trippy received $1.75 million in funding from Sequoia Capital and True Ventures in November and Gtrot has raised $1 million from Lightbank, the venture capital firm started by co-founders of Groupon (GRPN). Trippy founder J.R. Johnson in 2008 sold another travel startup, Virtual Tourist, to Expedia. Johnson and Megibow declined to comment on whether Los Angeles-based Trippy would fit into Expedia’s plans for social travel.Expedia’s goal is to make planning the entire trip—from flights to hotel to transportation, with even restaurant selections and amusement park tickets—an integrated shopping experience. Say your family is planning a spring break trip to Orlando. After booking flights, your hotel search would incorporate friends’ views on particular properties. If your cousin’s family has been to a particular restaurant, you’d get her recommendation or caution. And all those Facebook photos that people post after a trip? Expedia wants to mine those for your own travels, just as TripAdvisor (TRIP) does with hotel shots its users submit.
In several important ways, Expedia’s push to personalize travel—“delivering a pleasant, positive surprise,” in the words of President Scott Durchslag—marks a return to the bricks-and-mortar travel agent of old who could steer you clear of a dodgy hotel or restaurant. The twist is that your modern “agent” would be a collection of friends and acquaintances conversing about travel. That would be very different from the way most online shopping for leisure travel takes place today: Visit an airline or hotel site, mix in an online travel agent (or four), check an aggregator site such as Kayak or Fly.com, search Google (GOOG), find a hotel discount site, worry about whether the posted prices are reasonable, become frustrated. Repeat the process. And then your trip is booked.
An Amazon.com-Like “Place Market?”
Expedia’s three-year strategy, still in its infancy, envisions an online “place market” akin to the bazaar overseen by Amazon.com, on which competing retailers post their wares and prices with buyers’ comments. Expedia also wants to know where you’re considering going for your next few trips, to align your personal interests and dislikes with your network and customize it all into an integrated networking-cum-travel shopping experience. “Consumers are eager to engage, if you can do it in interesting, meaningful ways,” Megibow says. Gone would be the guesswork of ascertaining what is a reasonable rate, how small or clean the room really is, or the best time to visit a particular beach. You might also become a loyal Expedia shopper, curbing your travel site promiscuity.There’s already some evidence that social networks spur sales in the travel industry. Delta Air Lines (DAL) has been selling tickets directly through a Facebook page for more than a year; most airlines still link you back to their own sites to purchase anything. Facebook, with its 800 million users, referred 15.2 million visitors to hotel websites in 2010, a 35 percent jump from the prior year, according to a July 2011 PhoCusWright study on social media’s role in travel. Of that number, about 568,000 resulted in a booking—a “conversion rate,” in industry parlance, of 4 percent. That’s far higher than expected, and higher than the conversion rate from travel-review sites, said Quinby, one of the report’s authors.
“When we saw the results from the data, we kind of did a double take internally and went back to our partners and had them double check,” he said. “I think it’s some very provocative circumstantial evidence that there’s something going on.” One possible explanation: Knowing someone who stayed at a particular hotel or resort makes you want to have the same experience. You’re keeping up with the Joneses, in essence, and will have something additional in common.
Moving in on TripAdvisor
The report also found that the number of hotel reviews posted online is increasing, to 1.1 million in 2010, the latest data available. That trend, coupled with further networking tools, could pose a threat to the largest source of online hotel reviews, TripAdvisor. The Newton (Mass.)-based company, which spun off from Expedia in a Dec. 20 public offering, pioneered the role of hotel reviews and turned it into a business valued at nearly $4 billion. TripAdvisor licenses its 50 million reviews to some 300 clients and says it adds 25 fresh reviews per minute. The bulk of its income comes from referring traffic to hotel booking sites. TripAdvisor founder and Chief Executive Officer Stephen Kaufer said he’s not concerned if Expedia and others jump into social travel with more editorial content, encroaching on an area TripAdvisor has owned nearly exclusively. “I think they have a couple of years before they’re able to catch up with where we were five years ago,” Kaufer says.That’s where Expedia thinks bloggers can help. Expanded posts on travel adventures, supplemented with user reviews and comments, might draw in more travelers. The online travel agents have been pushing to expand the number of reviews travelers post. Orbitz saw its review count jump 300 percent in 2010, while Expedia says it has collected more than 5 million user reviews to date.
Both company and bloggers say they aren’t concerned that readers may be turned off by commercial relationships between the travel agent and writers. Kim Mance, a Brooklyn, N.Y., video blogger and co-founder of Galavanting, a site aimed at female adventure travelers, says disclosure is important for readers but bloggers need to retain the mission and voice that garnered an audience in the first place. “Bloggers will miserably fail and lose their audience if they piss them off,” Mance says.
Bloggers say they’re ready to deliver travel tales and potential new Expedia customers—so long as they are compensated with exposure and cash. “I’ve spent five years traveling and building up an expertise and a following,” says Sherry Ott, a blogger from South Dakota who was among the Expedia visitors in Seattle. “I want to be able to be paid for my knowledge and for access into my audience.”
Professional Women and a Secure Retirement
Professional Women and a Secure Retirement
The first generation of highly paid professional women is about to enter retirement—and their path could serve as a model for others
For millions of aging Americans, it starts by examining the 401(k) statement. Their retirement savings plan has gone nowhere for more than a decade. Their mood darkens when they think about their debts (too many) and their savings (too little). The harsh recession has taken a toll on households headed by people aged 55 to 64, who have seen their wealth—net equity in homes and financial assets combined—fall 13.7 percent, to an average $222,300, since the recession hit. “We’re in a mess when it comes to retirement,” says Steven Sass, program director of the Financial Security Project at the Center for Retirement Research at Boston College.
His comment seems especially true for women. They earned less than men throughout their work lives, and they were more likely to take a break to raise children. The wage penalty shows up in an average retirement income for women 65 and older in 2009 that was 57 percent less than for men of the same age group—$21,519 vs. $37,509, according to the MetLife Study of Women, Retirement, & the Extra-Long Life. Women face the prospect of paying bills much longer than men, since those reaching age 60 have an average remaining life expectancy of 23.8 years vs. 20.6 years for men. Millions of women have labored in low-wage service jobs without pensions. In 2010, three out of five women expressed “a lot” or “a fair amount” of worry about not having enough to live on in retirement, according to a survey by the Institute for Women’s Policy Research.
Nevertheless, it’s underappreciated how much better one large cohort of aging boomers should do financially during the traditional retirement years: The college-educated stalwarts of the feminist movement. A generation of well-educated career women is nearing retirement for the first time. It’s the group that marked the revolutionary shift from earning money because they and their families needed it to embracing working because it defined “one’s fundamental identity and societal worth,” said Claudia Goldin, economic historian at Harvard University, in her 2006 Richard T. Ely lecture at the American Economics Assn. annual meeting. “It involved a change from ‘jobs’ to ‘careers.’” They’re poised to flourish in their elder years, at least compared with most everyone else.
PERSISTENT BUT NARROWER GAP
It’s an accomplished generation with plenty of financial and human capital. Although the earnings gap between college-educated men and their female counterparts remains, it has narrowed. Since 1979, earnings for women with college degrees rose 33 percent, while those of their male peers increased 22 percent. Women make up 51.5 percent of all management, professional, and related positions, somewhat higher than women’s share of total employment, which is 47 percent. Among full-time, full-year workers, a higher percentage of women than men have participated in employer-sponsored retirement plans since 2001, according to the Employee Benefits Research Institute. In 2010, it was 55.5 percent for women and 53.8 percent for men. For women earning $75,000 or more, 72.5 percent were in a retirement plan (69.8 percent for men), and for those with a paycheck between $50,000 and $75,000, it was 70 percent (64.1 percent for men).Financial stereotypes about women and money are remarkably durable. All one needs to do is peruse the personal finance section of a bookstore, and you’ll see a number of patronizing titles, such as Shoo, Jimmy Choo!: The Modern Girl’s Guide to Spending Less and Saving More and Does This Make My Assets Look Fat?: A Woman’s Guide to Finding Financial Empowerment and Success. The research suggests otherwise, however. For example, a University of Michigan Retirement Research Center study found that men trade 56 percent more than their female counterparts in 401(k) plans, and the more men traded, the worse they did.
The vanguard generation of the women’s movement is well-suited to work long into the traditional retirement years. Baby boomers are healthier and better educated than earlier generations. Survey after survey shows that they don’t think of themselves as old and they’re well-positioned to earn a paycheck. Moreover, a part-time job and flexible work schedule allow savings to compound longer and make it practical to delay taking Social Security, a boost to the annual benefit. Certainly, the trend is toward a longer work life. Between 1993 and 2009, for instance, the labor force participation rate of women ages 65 to 69 who had completed four or more years of college rose 77 percent, the Urban Institute calculated.
A SEARCH FOR MEANINGFUL WORK
Of course, many aging boomers might want to say goodbye to their current employer and try something new. There’s no question the current job market is harsh on all job seekers, young and old. Nevertheless, for college-educated women, the insights gained from a lifetime of work and family flexibility, moving in and out of the workforce, shifting from full time to part time and back again, will hold them in good stead when looking for work. “They’re looking for what will be satisfying in the next stage of life,” says Betsy Werley, head of Transitions Network, a nonprofit that acts as a career resource for professional women 50 and older. “They’re saying, I want to work, but in a different way.”Take the experience of Pat Snyder of Columbus, Ohio. She’s 64 and like everyone else her age she’ll be eligible for Medicare next year. But she’ll also receive a master’s degree in applied positive psychology from the University of Pennsylvania in 2012. The degree is geared toward boosting her credentials for her third career, which she launched in 2010: coaching lawyers seeking a career change or greater fulfillment in their current profession. She was a lawyer for some two decades previously. Before that, she was a newspaper reporter. “It’s a practical third career for me, it’s flexible, and it’s fun,” Snyder says. “A lot of women are looking for meaningful work at this stage of their lives.”
The women’s movement is probably the most powerful social movement of the post-World War II era. The generation that swayed to singer Helen Reddy’s anthem, “I am woman, hear me roar,” transformed the U.S. education system and the workplace. It’s heartening to think that at least this one group has devised a means to a successful retirement—a path all of us can learn from.
Sunday, 1 January 2012
America’s Threat to Trans-Pacific Trade
MUMBAI – As if undermining the World Trade Organization’s Doha Round of global free-trade talks was not bad enough (the last ministerial meeting in Geneva produced barely a squeak), the United States has compounded its folly by actively promoting the Trans-Pacific Partnership (TPP). President Barack Obama announced this with nine Asian countries during his recent trip to the region.
The TPP is being sold in the US to a compliant media and unsuspecting public as evidence of American leadership on trade. But the opposite is true, and it is important that those who care about the global trading system know what is happening. One hopes that this knowledge will trigger what I call the “Dracula effect”: expose that which would prefer to remain hidden to sunlight and it will shrivel up and die.
The TPP is a testament to the ability of US industrial lobbies, Congress, and presidents to obfuscate public policy. It is widely understood today that free-trade agreements (FTAs), whether bilateral or plurilateral (among more than two countries but fewer than all) are built on discrimination. That is why economists typically call them preferential-trade agreements (PTAs). And that is why the US government’s public-relations machine calls what is in fact a discriminatory plurilateral FTA, a “partnership” invoking a false aura of cooperation and cosmopolitanism.
Countries are, in principle, free to join the TPP. Japan and Canada have said they plan to do so. But a closer look reveals that China is not a part of this agenda. The TPP is also a political response to China's new aggressiveness, built therefore in a spirit of confrontation and containment, not of cooperation.
The US has been establishing a template for its PTAs that includes several items unrelated to trade. So it is no surprise that the TPP template includes numerous agendas unrelated to trade, such as labor standards and restraints on the use of capital-account controls, many of which preclude China’s accession.
From the outset, the TPP’s supposed openness has been wholly misleading. Towards this end, the TPP was negotiated with the weaker countries like Vietnam, Singapore, and New Zealand, which were easily bamboozled into accepting such conditions. Only then were bigger countries like Japan offered membership on a “take it or leave it” basis.
The PR machine then went into overdrive by calling the inclusion of these extraneous conditions as making the TPP a “high-quality” trade agreement for the twenty-first century, when in fact it was a rip-off by several domestic lobbies.
American regionalism closer to home shows the US now trying to promote the Free Trade Agreement of the Americas (FTAA). But its preferred template was to expand the North America Free Trade Agreement (Canada, Mexico, and the US) to the Andean countries and include huge doses of non-trade-related issues, which they swallowed. This was not acceptable to Brazil, the leading force behind the FTAA, which focuses exclusively on trade issues. Brazil’s former President Luiz Lula Inácio da Silva, one of the world’s great trade-union leaders, rejected the inclusion of labor standards in trade treaties and institutions.
The result of US efforts in South America, therefore, has been to fragment the region into two blocs, and the same is likely to happen in Asia. Ever since the US realized that it had chosen the wrong region to be regional with, it has been trying to win a seat at the Asian table. The US finally got it with the TPP, simply because China had become aggressive in asserting its territorial claims in the South China Sea, the South China Sea, and vis-à-vis India and Japan.
Many Asian countries joined the TPP to “keep the US in the region” in the face of Chinese heavy-handedness. They embraced the US in the same way that East Europeans rushed to join NATO and the European Union in the face of the threat, real or imagined, posed by post-Soviet Russia.
America’s design for Asian trade is inspired by the goal of containing China, and the TPP template effectively excludes it, owing to the non-trade-related conditions imposed by US lobbies. The only way that a Chinese merger with the TPP could gain credibility would be to make all non-trade-related provisions optional. Of course, the US lobbies would have none of it.
The TPP is being sold in the US to a compliant media and unsuspecting public as evidence of American leadership on trade. But the opposite is true, and it is important that those who care about the global trading system know what is happening. One hopes that this knowledge will trigger what I call the “Dracula effect”: expose that which would prefer to remain hidden to sunlight and it will shrivel up and die.
The TPP is a testament to the ability of US industrial lobbies, Congress, and presidents to obfuscate public policy. It is widely understood today that free-trade agreements (FTAs), whether bilateral or plurilateral (among more than two countries but fewer than all) are built on discrimination. That is why economists typically call them preferential-trade agreements (PTAs). And that is why the US government’s public-relations machine calls what is in fact a discriminatory plurilateral FTA, a “partnership” invoking a false aura of cooperation and cosmopolitanism.
Countries are, in principle, free to join the TPP. Japan and Canada have said they plan to do so. But a closer look reveals that China is not a part of this agenda. The TPP is also a political response to China's new aggressiveness, built therefore in a spirit of confrontation and containment, not of cooperation.
The US has been establishing a template for its PTAs that includes several items unrelated to trade. So it is no surprise that the TPP template includes numerous agendas unrelated to trade, such as labor standards and restraints on the use of capital-account controls, many of which preclude China’s accession.
From the outset, the TPP’s supposed openness has been wholly misleading. Towards this end, the TPP was negotiated with the weaker countries like Vietnam, Singapore, and New Zealand, which were easily bamboozled into accepting such conditions. Only then were bigger countries like Japan offered membership on a “take it or leave it” basis.
The PR machine then went into overdrive by calling the inclusion of these extraneous conditions as making the TPP a “high-quality” trade agreement for the twenty-first century, when in fact it was a rip-off by several domestic lobbies.
American regionalism closer to home shows the US now trying to promote the Free Trade Agreement of the Americas (FTAA). But its preferred template was to expand the North America Free Trade Agreement (Canada, Mexico, and the US) to the Andean countries and include huge doses of non-trade-related issues, which they swallowed. This was not acceptable to Brazil, the leading force behind the FTAA, which focuses exclusively on trade issues. Brazil’s former President Luiz Lula Inácio da Silva, one of the world’s great trade-union leaders, rejected the inclusion of labor standards in trade treaties and institutions.
The result of US efforts in South America, therefore, has been to fragment the region into two blocs, and the same is likely to happen in Asia. Ever since the US realized that it had chosen the wrong region to be regional with, it has been trying to win a seat at the Asian table. The US finally got it with the TPP, simply because China had become aggressive in asserting its territorial claims in the South China Sea, the South China Sea, and vis-à-vis India and Japan.
Many Asian countries joined the TPP to “keep the US in the region” in the face of Chinese heavy-handedness. They embraced the US in the same way that East Europeans rushed to join NATO and the European Union in the face of the threat, real or imagined, posed by post-Soviet Russia.
America’s design for Asian trade is inspired by the goal of containing China, and the TPP template effectively excludes it, owing to the non-trade-related conditions imposed by US lobbies. The only way that a Chinese merger with the TPP could gain credibility would be to make all non-trade-related provisions optional. Of course, the US lobbies would have none of it.
Jagdish Bhagwati, University Professor at Columbia University and Senior Fellow in International Economics at the Council on Foreign Relations, is the author of Termites in the Trading System: How Preferential Agreements undermine Free Trade.
Friday, 30 December 2011
starbucks supply chain strategy
From bean to cup: How Starbucks transformed its supply chain
With operational costs rising and sales declining, the global coffee purveyor implemented a three-step plan to improve supply chain performance, cut costs, and prepare for the future.
It takes a well-run supply chain to ensure that a barista pours a good cup of Starbucks coffee. That's because the journey from bean to cup is a complicated one. Coffee and other merchandise must be sourced from around the globe and then successfully delivered to the Starbucks Corporation's 16,700 retail stores, which serve some 50 million customers in 51 countries each week.But in 2008, Starbucks wasn't sure that its supply chain was meeting that goal. One clue that things were not quite right: the company's operational costs were rising even though sales were cooling. Between October 2007 and October 2008, for example, supply chain expenses in the United States rose from US $750 million to more than US $825 million, yet sales for U.S. stores that had been open for at least one year dropped by 10 percent during that same period.
In part, Starbucks was a victim of its own success. Because the company was opening stores around the world at a rapid pace, the supply chain organization had to focus on keeping up with that expansion. "We had been growing so fast that we had not done a good enough job of getting the [supply chain] fundamentals in place," says Peter D. Gibbons, executive vice president of global supply chain operations. As a result, he says, "the costs of running the supply chain—the operating expenses—were rising very steeply."
To hold those expenses in check and achieve a balance between cost and performance, Starbucks would have to make significant changes to its operations. Here is a look at the steps Gibbons and his colleagues took and the results they achieved.
A plan for reorganization
Starbucks' supply chain transformation had support from the very top. In 2008, Chairman, President, and Chief Executive Officer Howard Schultz tapped Gibbons, who was then senior vice president of global manufacturing operations, to run the company's supply chain. This was a familiar role for Gibbons; prior to joining Starbucks in 2007, he had been executive vice president of supply chain for The Glidden Co., a subsidiary of ICI Americas Inc.
The first two things Gibbons did in his new position were assess how well the supply chain was serving stores, and find out where costs were coming from. He soon learned that less than half of store deliveries were arriving on time. "My quick diagnosis was ... that we were not spending enough attention on how good we were at delivering service to stores," he recalls. Following that assessment, Gibbons began visiting Starbucks' retail stores to see the situation for himself and get input from employees. "The visits were made to confirm that our supply chain could improve significantly," he explains. "The best people to judge the need for change were those at the customer-facing part of our business."
A cost analysis revealed excessive outlays for outsourcing; 65 to 70 percent of Starbucks' supply chain operating expenses were tied to outsourcing agreements for transportation, third-party logistics, and contract manufacturing. "Outsourcing had been used to allow the supply chain to expand rapidly to keep up with store openings, but outsourcing had also led to significant cost inflation," Gibbons observes.
In response to those findings, Gibbons and his leadership team devised a three-step supply chain transformation plan and presented it to Starbucks' board of directors. Under that plan, the company would first reorganize its supply chain organization, simplifying its structure and more clearly defining functional roles. Next, Starbucks would focus on reducing the cost to serve its stores while improving its day-to-day supply chain execution. Once these supply chain fundamentals were firmly under control, the company could then lay the foundation for improved supply chain capability for the future.
Simplifying the complex
The first step of the transformation plan, reorganizing Starbucks' supply chain organization, got under way in late 2008. According to Gibbons, that involved taking a complex structure and simplifying it so that every job fell into one of the four basic supply chain functions: plan, source, make, and deliver. For instance, anybody involved in planning—be it production planning, replenishment, or new product launches—was placed in the planning group. Sourcing activities were grouped into two areas: coffee and "non-coffee" procurement. (Starbucks spends US $600 million on coffee each year. Purchases of other items, such as dairy products, baked goods, store furniture, and paper goods, total US $2.5 billion annually.) All manufacturing, whether done in-house or by contract manufacturers, was assigned to the "make" functional unit. And finally, all personnel working in transportation, distribution, and customer service were assigned to the "deliver" group.
After the supply chain functions were reorganized, the various departments turned their attention to the second objective of the supply chain transformation: reducing costs and improving efficiencies. As part of that effort, the sourcing group worked on identifying the cost drivers that were pushing up prices. "We went out to understand the contracts we had, the prices we were paying, and the shipping costs, and we began breaking items down by ingredient rather than just purchase price," Gibbons says. "We built more effective 'should cost' models, including benchmarking ingredients and processes, which showed that we could negotiate better prices."
Meanwhile, the manufacturing group developed a more efficient model for delivering coffee beans to its processing plants, with the goal of manufacturing in the region where the product is sold. Starbucks already owned three coffee plants in the United States, in Kent, Washington; Minden, Nevada; and York, Pennsylvania. In 2009, the company added a fourth U.S. plant, in Columbia, South Carolina. The benefits of that approach were quickly apparent; regionalizing its coffee production allowed Starbucks to reduce its transportation costs and lead times, says Gibbons. Moreover, once the new facility was up and running, all of the U.S. coffee plants were able to switch from seven-day operations to five days.
In addition to the four coffee facilities it owns in the United States, Starbucks also operates a coffee plant in Amsterdam, the Netherlands, and a processing plant for its Tazo Tea subsidiary in Portland, Oregon. The company also relies on 24 co-manufacturers, most of them in Europe, Asia, Latin America, and Canada.
Even though it spread production across a wide territory, transportation, distribution, and logistics made up the bulk of Starbucks' operating expenses because the company ships so many different products around the world. Getting that under control presented a daunting challenge for the supply chain group. "Whether coffee from Africa or merchandise from China, [our task was to integrate] that together into one global logistics system, the combined physical movement of all incoming and outgoing goods," says Gibbons. "It's a big deal because there's so much spend there, and so much of our service depends on that. ... With 70,000 to 80,000 deliveries per week plus all the inbound shipments from around the world, we want to manage these logistics in one system."
One world, one logistics system
The creation of a single, global logistics system was important for Starbucks because of its far-flung supply chain. The company generally brings coffee beans from Latin America, Africa, and Asia to the United States and Europe in ocean containers. From the port of entry, the "green" (unroasted) beans are trucked to six storage sites, either at a roasting plant or nearby. After the beans are roasted and packaged, the finished product is trucked to regional distribution centers, which range from 200,000 to 300,000 square feet in size. Starbucks runs five regional distribution centers (DCs) in the United States; two are company-owned and the other three are operated by third-party logistics companies (3PLs). It also has two distribution centers in Europe and two in Asia, all of which are managed by 3PLs. Coffee, however, is only one of many products held at these warehouses. They also handle other items required by Starbucks' retail outlets—everything from furniture to cappuccino mix.
Depending on their location, the stores are supplied by either the large, regional DCs or by smaller warehouses called central distribution centers (CDCs). Starbucks uses 33 such CDCs in the United States, seven in the Asia/Pacific region, five in Canada, and three in Europe; currently, all but one are operated by third-party logistics companies. The CDCs carry dairy products, baked goods, and paper items like cups and napkins. They combine the coffee with these other items to make frequent deliveries via dedicated truck fleets to Starbucks' own retail stores and to retail outlets that sell Starbucks-branded products.
Because delivery costs and execution are intertwined, Gibbons and his team set about improving both. One of their first steps was to build a global map of Starbucks' transportation expenditures—no easy task, because it involved gathering all supply chain costs by region and by customer, Gibbons says. An analysis of those expenditures allowed Starbucks to winnow its transportation carriers, retaining only those that provided the best service.
The logistics team also met with its 3PLs and reviewed productivity and contract rates. To aid the review process, the team created weekly scorecards for measuring those vendors. "There are very clear service metrics, clear cost metrics, and clear productivity metrics, and those were agreed with our partners," Gibbons notes.
The scorecard assessments of a 3PL's performance were based on a very simple system, using only two numbers: 0 and 1. For example, if a vendor operating a warehouse or DC picked a product accurately, it earned a "1" for that activity. If a shipment was missing even one pallet, the 3PL received a score of "0." As part of the scorecard initiative, Starbucks also began making service data by store, delivery lane, and stock-keeping unit (SKU) available to its supply chain partners. "The scorecard and the weekly rhythm (for review of the scorecard) ensured transparency in how we were improving the cost base while maintaining a focus on looking after our people and servicing our customers," Gibbons says.
Although Starbucks has a raft of metrics for evaluating supply chain performance, it focuses on four high-level categories to create consistency and balance across the global supply chain team: safety in operations, service measured by on-time delivery and order fill rates, total end-to-end supply chain costs, and enterprise savings. This last refers to cost savings that come from areas outside logistics, such as procurement, marketing, or research and development.
In undertaking all of those steps to reduce operating costs and improve execution, Gibbons says, Starbucks was laying the foundation for future supply chain capabilities. "We tell the stores that we have got to get the fundamentals right—the things that give people confidence. ... We don't ship things that aren't right," he explains.
Earning the company's confidence
Since Starbucks began its supply chain transformation effort, it has curtailed costs worldwide without compromising service delivery. "As a company," Gibbons says, "we have talked publicly of over $500 million of savings in the last two years, and the supply chain has been a major contributor to that."
In Gibbons' eyes, the transformation effort has been a success. "Today there's a lot of confidence in our supply chain to execute every day, to make 70,000 deliveries a week, to get new products to market, and to manage product transitions, new product introductions, and promotions," he says. "There's a lot of confidence that we now are focused on service and quality to provide what our stores need and what our other business customers need."
To sustain that momentum for improvement and to ensure a future flow of talent into the organization, Starbucks recently began an initiative to recruit top graduates of supply chain education programs. (For more on this initiative, see the sidebar "Starbucks: The next generation.") Along with its recruiting program, the company plans to provide ongoing training for its existing employees to help them further develop their supply chain knowledge and skills. "We want to make sure we have thought leaders [in our supply chain organization]," Gibbons says. Starbucks considers this initiative to be so important, in fact, that Gibbons now spends 40 to 50 percent of his time on developing, hiring, and retaining supply chain talent.
The infusion of new recruits will allow Starbucks to stay focused on its supply chain mission of delivering products with a high level of service at the lowest possible cost to its stores in the United States and around the globe. As Gibbons observes, "No one is going to listen to us talking about supply chain strategy if we can't deliver service, quality, and cost on a daily basis."
Email James A. Cooke
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