Tuesday October 16 2012

AS promised here is the video for the Bug a Salt, in the best Spaghetti Western tradition.

My point here is in this Wall St Journal Story about the inventor. He offered free shipping on the initial orders hoping for $15,000. He alreaday has $67,00. The problem is that he will not make any money if he pays the shipping. No matter how novel an idea, all ideas need a good budget and an understanding of the break even point, something we study in cost accounting.

Monday Oct 15 2012

Is Ron Johnson the wrong guy at the wrong time?  This article suggests he is. My take is that Ron has nothing at stake in JCP,if it fails he does not, a dangerous combintaiton. 

Thursday October 11 2012

In
the 1970s, A Japanese firm took over the Motorola Corporation (at that time they
made TVs) and increased production while decreasing defects and errors,
resulting in little to no rework. In
1981 a new CEO was named for Motorola, Bob Galvin, he challenged his company to
improve on what they knew and produce tenfold in all areas of the business.  A later addition to the team was Mikel Harry,
he is regarded as the authority on theory and practice of Six Sigma. Mikel Harry
developed a four stage quality program called MAIC which meant Manage, Analyze,
Improve, and Control. This process would be later known as Six Sigma. In 1987
Galvin launched the program at Motorola. In 1988, Mikel collaborated his idea
with plant manager, Cliff Ames, they both loved the martial arts and recognized
that if a company could achieve then Six Sigma, they would be known as a Black
Belt. In 1989, Bob Galvin introduced the Six Sigma Research Institute under
Mikel Harry. In 1993, Mikel Harry partnered with Richard Schroeder and together
created the Six Sigma Academy. Graduates of this academy were known as Champion,
Master Black Belt, Black Belt and Green Belt. These different levels represented
the levels of success a company could measure themselves up against. Harry and Schroeder took their show on the road and landed with
Allied Signal, once they turned that company around, Jack Welch, CEO of GE,
teamed up with the Academy and it was this major move that made everyone notice
what SIX SIGMA could do for their company.

Thanks to Emiliano Baiza for this succinct history of Six Sigma!

Thursday October 11, 2012

There are four levels of probability. From the least likely they are

Possible

Plausible

Probable

Certianly True

The trick in business is distinguishing between the middle two, the plausible and the probable. The certainly true and the just possible are usually fairly evident.

Which brings me to the topic of the $400 Million Circuit of the Americas.  That is a link to the story in the San Antonio Business Journal about the Formula One Racetrack in Southeast Travis County, that would be Austin. Yes, this idea has taken such flight that a track some one hundred miles away is going to be a big winner for our town.-San Antonio!  By the way how is the Retama Horserace Track fairing?  But I digress…

Here is the link to the Official Website.

Yes they claim to have sold 300,000 tickets to the Formula One Race due there next month. At a minimum they will create the largest traffic jam in Travis County. And this is going to rent hotel rooms all the way to yes San Antonio.

As you can see from the website, motorcycle races are planned as well. But being the skeptical guy you know I am, I said well what about those other 40-50 some odd weekends?

The answer I got was, inhale before reading further,  that is when they make  the big money on the track. Yes, there are apprently, so the story goes, thousands of folks around the world just waiting for the chance to jet in to Austin, TX, be treated like royalty, ferried to and fro from a 4 Star hotel to a real race track experience. The race cars will be speed limited to say 120 mph but other than that your $10-15 thousand dollar entry fee will get you time on the track as well as analysis by a pro race driver in residence. Think Formula One Camp!

Now we are studying break even analysis in class. And we have studied the time value of money. In one article Red McCombs said it was much harder to raise the money than he thought it would be. Admittedly this is the only Formula One Track in the US, there used to be others, and so we have exclusivity but also a lack of familiarity with the Sport. I was not surprised it was hard to raise the money but then I already admitted to being bit skeptical.

I don't know the interest rate they got on this deal but I suspect there is little equity and lots of debt. What would be reasonable interest rate on a one of a kind idea. I promise to inquire about the interest rate.

But assuming 6-8%, what would the payment be required on  say a twenty year annuity to retire $400 M in debt?  A big number I bet without consulting the tables.

So what do you think, will this work?

This goes hand in hand with the Skyscraper Theory.  As positive social mood pushes markets higher anything becomes possible. The kilometer high Kingdom Tower claims to have financing in place. Now the $400 M Circuit is expected to be a great success. You will recall similar predictions about oh say the

Alamodome – sure to attract a pro football team, it finally got UTSA, at least a realistic outcome, but does the Alamodome really really pay out?

the Houston Astrodome may finally get demolished

The former Summit in Houston, home to the basketball and hockey teams, today is Joel Osteen's Church.

And so it goes. What is your take, wanna buy some Circuit of America bonds?

Wed Oct 10 2012

Today Steve Ballmer announces that MSFT will capitalize on hardware and the mobile internet. This would be hilarious if anyone else like say Jon Stewart had made the announcement. MSFT has been playing catch up to Apple for years, or more exactly ever since Ballmer took over in 2000 and Apple's ascent began. IN a related announcement, MSFT cuts back Ballmer's bonus. 

In a similar vein. Wal Mart is playing catch up to Amazon. Wal Mart has announced it will ship on line deliveries from individual stores. But experts say that can cost two to three times as much as shipping from a warehouse as Amazon does. WMT's estimated on line sales are $4.9B while Amazon's are $34 B. 

Wal Mart has tried to go upscale numerous times and take on Target, it never worked. WMT's on line is about 1% of their overall sales. No doubt imagining that doubling or tripling that small number causes numbers to dance in heads in Ark, but do you think of WMT as an internet source?  Me either….

Thsi is classic supply chain efficiency in action. Page B 1 in today's WSJ. 

Tuesday October 9 2012

Wendy's claims the fastest drive thru window.

We will study standards in cost managerial later this semester. This is a branch of statisitcs referred to as

queing theory. I understand that some fast foods are installing a second drive in window.

And then there is Sonic where everyone has their own drive in window…