China – Page 3 – The OM Blog by Heizer, Render, & Munson

OM in the News: China’s Dominance in the Rare Earth Supply Chain

The minerals, metals and rare earths needed for the green and digital transitions are shaping up to be the oil of this century—complete with a race to secure raw materials and production capacity at home or in friendly locations.

China has the early lead, writes The Wall Street Journal (March 9, 2023), dominating production of many critical materials including lithium and rare earths. Over the past years, China secured deposits around the world and invested heavily in the domestic manufacturing of clean technologies such as electric vehicles, batteries and solar panels. As the graph shows, China has a clear lead in the rare earth supply chain.

Western nations have now made it a top priority to secure a supply of these materials. The West has been tempted by the economic opportunity but also chastened by the recent semiconductor shortages, Europe’s efforts to replace Russian energy imports, and Beijing’s support for Russia after it invaded Ukraine.

Going back to President Trump, the U.S. signed executive orders for critical minerals– and has had recent success in starting to build local supply chains. The European Union’s latest effort—a Critical Minerals Act—aims to kick-start mining, processing and recycling in that region. There is one area where the EU act is right on the money—accelerating permitting. Permitting has been a key challenge for companies investing across geographies and sectors including mining, processing, power lines, solar, wind and batteries. In the EU, ambitious permitting reforms appears to be be the biggest hurdle to getting political agreement on that bloc’s local production of EV batteries. Limiting or overriding local opposition is rarely a vote-winning stance.

We may also get a G-7 critical minerals buyers club of the Group of Seven advanced democracies to secure supply from mineral rich countries in Africa, Asia and Latin America. Reduced Chinese supply—if it happens—will force Western policy makers and voters to face the trade-off between the carbon benefits of wind energy or electric vehicles and the environmental and pollution costs associated with manufacturing those technologies.

Classroom discussion questions:

Why are countries and companies so concerned about “rare earths”?
What is the main benefit in dominating the mineral supply chain?

OM in the News: Foxconn’s Big India Expansion

Apple has identified India as a prime destination as it seeks to diversify the sites where its products are assembled.

Apple’s main manufacturer, Foxconn Technology, is considering a major expansion in India, including assembling millions more iPhones and setting up new production sites as it seeks to further diversify beyond China, reports The Wall Street Journal (March 6, 2023). It aims to boost iPhone production to 20 million units annually by 2024 and triple the number of workers to as many as 100,000 at its existing plant near Chennai. The plant currently produces 6 million units.

Foxconn also plans to build: a new production facility in Karnataka, where it would make products including iPhones; a new production site in Hyderabad; and a silicon carbide fabrication plant for its semiconductor business. The Indian government has offered billions of dollars of incentives in recent years to lure global manufacturers to India, as part of a major push to boost advanced manufacturing jobs and decrease reliance on electronics imports.

Meanwhile, Apple has been pushing suppliers to diversify beyond China after many of them faced production disruptions in China multiple times during Covid lockdowns. Geopolitical tensions have been growing between the U.S. and China, as well as between Beijing and Taiwan, where Foxconn is based.

China has been the biggest manufacturing hub in the electronics supply chain for years, with Apple a major driver after building much of its supply chain and assembly in the country over the past two decades. Concerns over that reliance heightened after protests erupted at the world’s biggest iPhone production site in central China late last year over tight pandemic control policies and wages. Still, expanding into India won’t mean companies such as Apple and Foxconn leaving China. The supply-chain infrastructure that these companies have built over the past decades there can’t be easily replaced by other countries.

Despite strides in local automobile and smartphone production in recent years, India has long trailed regional rivals in advanced manufacturing due to concerns over the country’s challenging bureaucracy, protectionist rules and underdeveloped infrastructure. India, alongside Vietnam, has already been identified by Apple as a prime destination with the company seeking to diversify the sites where its products are assembled. Apple has told its suppliers to plan more actively for assembling its products beyond China.

Classroom discussion questions:

Why India and Vietnam? Why not the U.S?
Chapter 8 lays out key success factors that affect location decisions (see page 337). Which of these factors is Apple considering?

OM in the News: The Shifting Supply Chain Winds

The world economy is undergoing significant changes as we shift from a global approach to one focused on regional and national production, reports Industry Week (Feb. 21, 2023). Demographic, geographic and political factors are reshaping our world and driving the change. Going forward, companies will need to continue to navigate supply chain disruptions, China risk, and concerns about capital outlays. The new model will not be defined by the globalization that dominated the last half-century. Here are four of the challenges the article presents:

The American China Crisis The post-COVID world has escalated tensions between the U.S. and China, with allies involved on both sides. Consumers still want the low-cost products they can get through the Chinese manufacturing value chain. But companies that ignore the post-China supply chain plan are putting their companies’ futures at risk with a clear and quantifiable situation.

Regional Industrial Labor and Skill Shortage Companies are looking to low-cost manufacturing zones in North America and Europe in an effort to move higher-value production to the region. Much of the shift to date has been items where a logistics penalty supported a more rapid move. Challenges exist for smaller commodity components with low margins, which are currently manufactured in China. These parts, mostly taken for granted, will likely stress supply chains in the near future. Purchasing teams need to regionalize their value chains. Mexico continues to shine as the heart of the North American low-cost manufacturing engine.

Shifts in the Semiconductor Industry The semiconductor life cycle has historically been cyclical, and this time is no exception. COVID drove a rapid expansion in consumer electronics, pulling this cycle ahead. Automotive companies suffered, but availability is temporarily increasing. However, with the shift to EVs requiring a growing number of semiconductors per vehicle, constraints will re-emerge. The U.S. has taken steps to engage allies and block further development of a Chinese semiconductor industry.

The War in Ukraine The Russian war in Ukraine continues to be a serious crisis with disruptions across Europe. Neon gas supplies remain tight, impacting semiconductor production. Companies should be evaluating a shift to military and government production if the Ukraine war breaks out to a larger conflict in Europe. There is a short window for companies to re-engineer value chains for risk mitigation.

The Industry Week article concludes that “2023 is an opportunity for companies to work together to restructure and regionalize their manufacturing value chains.”

Classroom discussion questions:

Why is Mexico a popular regional option?
What factors are impacting the China supply chain?

OM in the News: China, Covid-19, and Production Hiccups

For nearly three years, one of the most dreaded possibilities among China-based manufacturers was if workers contracted COVID-19, reports Supply Chain Dive (Jan, 13, 2023). Under the country’s stringent zero-COVID policy, even a few positive cases in or around a factory could shut down an entire operation for days.

Employees prepare crayfish products along an assembly line at a plant in Hubei, China. Many factories there are facing new strains as swaths of workers are out sick with COVID

But in the last several weeks, the script has flipped. The Chinese government began lifting its zero-COVID policy, easing travel restrictions and ending mandatory quarantine measures for those infected. The change led to a sharp spike in cases. Between Dec.19- Dec. 26, cases rose more than 67%, with more than 251,000 confirmed cases that week alone.

With so many people falling ill so quickly, many factories throughout the country found themselves short staffed and struggling to maintain normal operations. In the sudden absence of control measures, not only are workers out sick, others have also been staying home to avoid infection, or in some cases, working while infected. Some companies have had to prioritize or shift orders as a lack of workers impacted the ability to maintain normal factory production schedules.

As companies contend with the challenge of absent workers, many are also facing the issue of falling input orders, causing them to cut production ahead of the Chinese New Year. The upcoming Chinese New Year also creates the possibility of a new wave of cases as millions of migrant workers travel from the country’s manufacturing hubs to their hometowns. Production interruptions could continue for at least the next 6 months, possibly longer if a new variant emerges.

In the meantime, it is critical for U.S. and European companies that source or produce in China to maintain communication with their local teams in the country. Supply chain executives need to get updates on day-to-day production plans, so they’re aware of updates or changes to accommodate for worker absences. They should also prioritize which orders must be completed before the holiday versus which could wait, and to create contingency plans if not all orders can be completed in time.

Classroom discussion questions:

What are the options for U.S. firms with production in China?
Why did China alter its Covid policy so abruptly?

OM in the News: Why Apple Plans to Move Beyond China

Apple and China have spent decades tying themselves together in a relationship that, until now, has mostly been mutually beneficial, writes The Wall Street Journal (Dec. 3-4, 2022). But in recent weeks, Apple has accelerated plans to shift some of its production outside the long the dominant country in its supply chain. It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, and looking to reduce dependence on assemblers led by Foxconn.

Protesting workers being beaten at Chinese iPhone factory in November

Turmoil at a place called iPhone City helped propel Apple’s shift. At the giant city-within-a-city in Zhengzhou, China, as many as 300,000 workers work at a factory run by Foxconn to make iPhones and other Apple products. At one point, it alone made about 85% of the Pro lineup of iPhones.

The Zhengzhou factory was convulsed by violent protests and running at only about 20% capacity last month. Coming after a year of events that weakened China’s status as a stable manufacturing center, the upheaval means Apple no longer feels comfortable having so much of its business and supply chain tied up in one place. In the past, China has excelled at building hundreds of millions of gadgets, heavily due to its concentration of production engineers and suppliers.

Two causes threaten China’s historic economic strength. Some Chinese youth are no longer eager to work for modest wages assembling electronics for the affluent. They also seethe because of Beijing’s heavy-handed Covid-19 approach, itself a concern for Apple and many other companies. And 5 years of U.S.-China military and economic tensions and U.S. tariffs have come into play.

The risk of too much concentration in China has long been known to Apple, yet for years it did little to lessen it. China supplied a diligent workforce, political stability and a huge local market. Apple’s goal is to now ship 40% to 45% of iPhones from India. Vietnam is expected to shoulder more of the manufacturing for other Apple products such as AirPods, smartwatches and laptops. American companies’ confidence in China has fallen to a record low, with about a quarter saying they have at least temporarily moved parts of their supply chain out of China over the past year.

Classroom discussion questions:

What are the benefits and risks of Apple’s move?
Figure 8.1 in your Heizer/Render/Munson text (see page 337) lists 20 factors that affect location decisions. Which concern Apple operations managers?

OM in the News: What Comes After “Made in China”

Decoupling from China will be slow, difficult and expensive for companies beginning to rethink their dependency on the world’s second-largest economy, writes The Wall Street Journal ( Oct. 29-30, 2022). Some are doing so because of rising tensions between Beijing and Washington, on everything from trade, technology and security to Taiwan.

The differences threaten to unravel decades of economic integration. Washington now wants certain products to be manufactured in the U.S., and has imposed new restrictions on semiconductor exports to China. China also wants to rely more heavily on homegrown suppliers. The supply-chain snarls unleashed by the pandemic and disruptions caused by China’s Covid lockdowns further strained relations between the countries.

Investment by American companies in China was already slowing before the pandemic. U.S. firms invested $15.4 billion in 2012. Investment sank to just $8.4 billion last year.

It isn’t going to be easy for the U.S. to wean itself from China. That country’s share of U.S. imports has shrunk in recent years, mostly as a result of tariffs, but it remains significant. The value of goods taken in from China was 17% of all U.S. imports this year.

The turmoil of recent years was enough for some American executives to diversify their supply chain networks. Companies that make Crocs shoes, Yeti beer coolers, Roomba vacuums. Inter Parfums, and GoPro cameras were among the U.S. manufacturers that shifted production to countries outside of China as trade tensions mounted.

Shifting away from China presents numerous challenges, as companies expand into Vietnam, India, Cambodia, Mexico and Turkey. Each option has drawbacks. Cambodia and Vietnam are promising but far smaller in terms of capacity and population. Factories in Vietnam are already jam-packed and have limited available space. Turkey has gleaming, high-tech factories but is beset by rampant inflation, complicating the management of costs and pricing. India has huge potential but needs newer infrastructure, such as better roads. But none of these places can compete with China, says one long-time U.S. CEO with factories in China. He says he has toured factories in Vietnam, India and Mexico where assembly lines are poorly organized and easily-automated tasks such as cutting and polishing sheets of metal are done by hand, limiting the speed of production.

Classroom discussion questions:

What are the arguments for leaving China?
For staying?

OM in the News: Decoupling of Supply Chains

“Covid-19, Russia’s invasion of Ukraine, and rising geopolitical risks in Asia have thrown a wrench into global supply chains,” writes The Wall Street Journal (Sept. 20, 2022). That has reinvigorated the push to put key supply links back onshore—particularly those currently located in China. A full “decoupling,” meaning the breaking of economic links with China, remains unlikely, but supply chains would become less integrated than in the past.

Two proposed laws in Europe are the latest case in point. The EU just set forth a ban on products made using forced labor. (It doesn’t name China but forced labor in the Xinjiang region is clearly a main target.) Recent U.S. legislation puts the onus on importers to prove that products from Xinjiang aren’t made with forced labor—an incredibly high bar. Such rearrangements could be challenging in some cases: For example in the solar supply chain, which is dominated by China. Xinjiang is a major producer of polysilicon, a crucial precursor of solar cells.

Another proposal from Europe tries to directly address such dominance, which also extends to the processing of lithium and other minerals critical for green energy applications. That law would attempt to speed up domestic production, processing and recycling of such raw materials. “Lithium and rare earths will soon be more important than oil and gas,” said EU’s Commission president. China processes almost 90% of rare earths and 60% of lithium.

All of this follows similar moves in the U.S. A recent law provides incentives for domestic manufacturing of clean-energy products such as batteries and solar panels. The U.S. is also implementing policies to encourage the onshoring of semiconductors and biotechnology. Such onshoring will take years and a full-scale relocation of manufacturing jobs back to the West is unrealistic. Friendlier or closer countries such as Vietnam and Mexico will probably be big beneficiaries—particularly those that already have free-trade agreements with the U.S. or the EU.

The rapid globalization of the past few decades seems likely to take a pause. Businesses, consumers and governments will gain a measure of reliability and peace of mind—but they should be prepared to pay up too.

Classroom discussion questions:

What are the benefits and dangers of the new U.S. and EU laws?
Is the globalization era ending?

OM in the News: Cutting the China Supply Chain

For two months, millions of dollars worth of designer perfume and cologne sat untouched in a Shanghai warehouse as Covid-related lockdowns rendered the building inaccessible. For Jean Madar, chairman of Inter Parfums, the lost sales validated his decision to break up with China. “We’re doing this even though China is way cheaper,” he said. “How good is it to have cheaper components when you cannot get them? You need to have super stability in supply.”

Inter Parfums cologne bottles are filled in New Jersey.

The NY-based fragrance seller is one of many companies permanently shifting operations back to the U.S. from China and other countries where cheap labor and easy access to factory capacity had far outweighed costs of shipping products across the ocean. Inter Parfums has doubled supplier contracts with U.S. companies; nearly 70% of parts now come from U.S. suppliers, rather than having to depend on Chinese suppliers for glass, metal and pumps. (There is enough profit made on a $50 or $100 bottle of perfume to absorb the higher expense incurred to give priority to reliable supply, even as inflation mounts).

“The pandemic and ensuing global supply-chain meltdown have made businesses—from beauty companies and auto manufacturers to global retailers and small businesses—rethink low-cost importing,” writes The Wall Street Journal (July 11, 2022). Close to 20% of supply-chain executives said they had brought some production back to a nearby country in the past year, double the number from a year earlier. “The equation has changed,” said a McKinsey supply chain exec.

Amid the pandemic, ocean shipping costs skyrocketed. Factory shutdowns and logjams led to major delays and shortages. Demand became difficult to accurately predict as consumers rapidly shifted buying patterns. All those dynamics compounded longer-term shifts already under way: rising cost of labor in China, higher tariffs and worries about theft of intellectual property.

But betting against China carries risk and remains out of reach for industries with narrow profit margins. Companies such as Peloton that set out in the pandemic to uproot their China-based factories and supply chains found doing so was harder in practice. The exercise-bike maker has since scrapped plans for a $400 million factory in Ohio.

Classroom discussion questions:

In Table 11.3 in your Heizer/Render/Munson text, 10 supply chain risks and tactics are provided. Which impacted Inter Parfums decision?
List several reasons why it makes sense to reshore now.

OM in the News: Losing Patience with China

China’s strict anti-Covid-19 policies have left most of Shanghai in lockdown for much of the past two months

Are foreign companies giving up on manufacturing in China? Covid-19 policies and Beijing’s increasingly ideological approach to business are making many companies reassess growth plans, reports The Wall Street Journal (May 26, 2022). A new survey by the European Union, of companies in China, found that 23% of respondents were considering shifting current or planned investments to other markets, the highest total in the past decade.

Apple, whose suppliers in China constitute the country’s largest source of private-sector employment, is pushing its contractors to do more manufacturing elsewhere. Even before the latest Omicron wave hit Shanghai, over a third of American companies told the American Chamber of Commerce this spring that they would reduce investment in the country due to the policy environment there. The stars are aligning for a much more concerted effort, long predicted but slow in arriving, by large manufacturers to diversify away from the country.

China’s export growth has taken a steep dive thanks to a combination of Covid-19 lockdowns, weakening overseas demand and, most likely, tougher competition from other low-cost manufacturers that were closed last year. There will inevitably be more disruptive lockdowns in China given the very low probability of a significant move away from the “zero-Covid” policy until early 2023 at the earliest. And while alternative production locations such as Southeast Asia and India all present their own difficulties, they also have some distinct advantages, including growing, youthful labor forces—and governments that aren’t positioning themselves as ideological and, potentially, military opponents of developed democracies.

Classroom discussion questions:

What are the tradeoffs of leaving or staying in China?
What Southeast Asian countries would most benefit from an exit of western manufacturers from China?

OM in the News: Turning Offshoring into “Friend-Shoring”

As war and the pandemic expose the fragility of supply chains, the U.S. and its allies are pursuing a new kind of global trade, one that confines commerce to a circle of trusted nations. The shift, writes The Wall Street Journal (May 16, 2022), is called “friend-shoring.” The new strategy is a departure from economic globalization of recent decades, when businesses bought and made products where costs were low and free-trade policies made moving goods around the world cheaper and faster.

“Friend-shoring” is a chance to revamp supply chains to reduce reliance on autocratic nations and nonmarket economies

Now, the U.S. and allies in Europe, Asia and the Pacific are promoting and funding new production and trading channels for essential goods that run though friendly nations. This trend comes after a series of disruptions, including the pandemic, Russia’s invasion of Ukraine, and a trade war between the U.S. and China.

Promoters of friend-shoring see it as a chance to revamp global supply chains to reduce their reliance on countries such as China and Russia. They say it is a compromise between full-fledged globalization and isolationism, and between offshoring and domestic production. Such arrangements, says U.S. Treasury Secretary Janet Yellen, “would allow the U.S. to deepen ties with a group of countries sharing a set of norms and values about how to operate in the global economy.”

Efforts are already under way in industries including semiconductors and rare-earth metals, a crucial input for EVs and missiles. Private companies are joining the fray as well, moving to increase production in countries they see as carrying relatively low political and logistical risk. U.S. Trade Representative Katherine Tai said “it is essential to diversify supply sources for key goods to make sure that the next time there is a crisis, we don’t have the panic and the sense of desperation.”

Some businesses have already moved ahead in their friend-shoring practices. Apparel companies had to grapple with U.S. policies clamping down on cotton products from China’s Xinjiang region linked to forced labor. Then came the pandemic-induced congestion that resulted in skyrocketing of the time and cost of shipping from Asia. Apparel businesses’ favorite destinations are Central American countries such as Honduras, Guatemala and El Salvador. Gap is doubling the region’s share of its global production to 10% within the next year and eventually wants to raise it to 25%.

Classroom discussion questions:

What are the disadvantages of “friend-shoring”?
The advantages?

OM in the News: The Logistics Disarray in China

For decades, the world has depended on China as a massive factory floor and market. As the country’s economic growth crumbles, the pain is spreading globally. Lockdowns aimed at stamping out Covid-19 are throttling activity in the world’s second-largest economy. Overseas demand for China’s exports is fading as economies wrestle with surging prices and rising interest rates.

Workers lined up to get tested for Covid-19 at the Foxconn factory in Wuhan, China

The effects of China’s slowdown are showing up everywhere from German factories to Australian tourist spots. Car sales in China have collapsed, hitting auto makers including BMW, VW, and Tesla. Tesla sold just 1,512 cars made at its Shanghai plant in April, down 98% from the more than 65,000 it sold in March.

Foxconn, the world’s biggest iPhone assembler, faces logistics disruptions and other challenges in China stemming from the country’s stringent Covid measures, reports The Wall Street Journal (May 13, 2022). Most of Foxconn’s factories in China have been running under a bubble-like system. The manufacturer has relied on its supply-chain management expertise to keep production going even during Covid outbreaks.

Apple, Foxconn’s biggest customer, said that the Covid outbreaks in China threaten to hinder this quarter’s sales by as much as $8 billion. Apple’s supply constraints mainly stemmed from Shanghai, much of which has been under a lockdown for more than a month, and the nearby regions, where logistics have been disrupted.

Foxconn has been following a closed-loop system to keep tens of thousands of workers in or around the factory, a system that has become the standard among manufacturers in China to continue manufacturing during Covid outbreaks.

In March, Foxconn had to suspend operations at its factories in Shenzhen, another site where it produces Apple products, after a virus outbreak there. Hit harder than Foxconn is rival Pegatron, the second-largest assembler of iPhones, which suspended production at its factories in Shanghai and nearby Jiangsu province last month.

Others in the electronics sector also face fallout from China’s anti-Covid policies. Sony faces delays in procuring parts from Shanghai and nearby areas. Panasonic warned that the impact from the lockdowns in China would start to manifest in its performance over the coming months.

Classroom discussion questions:

What are the advantages and disadvantages of Foxconn’s “closed loop” system?
What can Apple and other manufacturers do to mitigate the shutdown damages?

OM in the News: Bad Supply Chain News for EV Makers

Last year was the year of electric vehicles—global sales are likely to have hit a record, in turn pushing up battery demand. Now too much of a good thing is causing problems: Many key battery materials, including but not limited to processed lithium itself, are in short supply and prices are rising sharply.

Adding to the geopolitical risks for global auto makers, writes The Wall Street Journal (Jan. 24, 2022), is the supply chain concentrated in a country determined to make itself the EV capital of the world: China.

Lithium is the most spectacular example: Prices of lithium carbonate have quintupled in China from a year earlier. Other battery materials from nickel to cobalt have also been rising and could remain elevated as new supply will take time to come online. The rapid rise in demand for EVs has also created shortages in some lesser known components that go into batteries. For example, supplies of binder material polyvinylidene fluoride or PVDF—used to enable connections between electrodes—will likely be insufficient to meet demand until 2025.

Shortages are adding to already substantial concentration risks regarding China’s dominance in the EV supply chain. Most of the value chain for mining materials like lithium and cobalt is in China. China in general has more than 60% market share in the chemical processing and refining of critical battery minerals and that might be above 80% for some materials like cobalt and graphite. While other countries will also invest in more localized supply chains, China’s head start—in part due to years of generous EV subsidies which helped nurture a robust battery supply chain upstream—means it will remain dominant for the next few years at least.

Securing material supplies is also getting more important for car makers. They will increasingly need to either vertically integrate or establish joint ventures with battery suppliers. Tesla, for example, signed an agreement with an Australian mining firm this month to secure graphite supply.

EV sales have been speeding ahead, but the supply chain has a lot of catching up to do. That will cause a lot of headaches for EV makers in the months and years ahead—and potentially geopolitical jitters.

Classroom discussion questions:

How can OM managers address this supply chain problem?
What are the geopolitical issues involved?

OM in the News: The Problem is China

Residents waited at a testing site in Tianjin, China, where VW and Toyota announced they would temporarily suspend operations because of lockdowns.

Companies are bracing for another round of supply chain disruptions as China, home to 1/3 of global manufacturing, imposes sweeping lockdowns in an attempt to keep Omicron at bay. The measures have already confined tens of millions of people to their homes. At least 20 million people, or 1.5% of China’s population, are in lockdown, mostly in the city of Xi’an.

The country’s zero-tolerance policy has manufacturers — already on edge from spending the past 2 years dealing with crippling supply chain woes — worried about another round of shutdowns at Chinese factories and ports. “Additional disruptions to the global supply chain come as companies are already struggling with rising prices for raw materials and shipping along with extended delivery times and worker shortages,” writes The New York Times (Jan. 17, 2022). If extensive lockdowns become more widespread in China, their effects on supply chains could be felt across the U.S.

China used lockdowns, contact tracing and quarantines to halt the spread of the coronavirus after its initial emergence in Wuhan. Now four of China’s largest port cities — Shanghai, Dalian, Tianjin and Shenzhen — have imposed limited lockdowns to try to control virus outbreaks.

The combination of intermittent shutdowns at factories, ports and warehouses around the world and American consumers’ surging demand for foreign goods has thrown the global delivery system out of whack. Transportation costs have skyrocketed, and ports and warehouses have experienced pileups of products waiting to be shipped or driven elsewhere while other parts of the supply chain are stymied by shortages.

The spread of Omicron is foiling hopes for a fast recovery, highlighting not only how much America depends on Chinese goods, but also how fragile the supply chain remains within the U.S. Delivery times for products shipped from Chinese factories to the U.S. West Coast are as long as ever — stretching to a record high of 113 days in January– up from fewer than 50 days in 2019. Continuing problems exist at other stages of the supply chain, including a shortage of truckers and warehouse workers to move the goods to their final destination, and an only partially successful push to make the Port of Los Angeles operate 24/7.

Airfreight could also become more expensive and harder to obtain in the coming weeks as China has canceled dozens of flights to clamp down on another potential vector of infection. That could especially affect consumer electronics companies, which tend to ship high-value goods by air.

Classroom discussion questions:

What strategies can operations managers in the U.S. take at this point?
Summarize all the factors contributing to SCM woes.

OM in the News: Chinks in China’s Armor Create Opportunities for U.S. Industrial Recovery

China is facing a number of domestic issues including labor shortage, shipping and electricity. Prices there are rising at a record pace as a result of the inflationary forces hitting economies across the globe, including increasing wages and soaring energy costs. China’s official producer price index for the month of September showed a 10.7% increase over a year ago, following a 9.5% jump in August– the fastest increase since the mid-1990s.The U.S.-China relationship is facing additional issues: Taiwan and the possibility of decoupling.

While these issues will continue to cause problems for U.S. global supply chains, they are also propelling a long overdue push in the U.S. toward greater self-sufficiency. The U.S. trade deficit continues to rise. The deficit with China is up 10% from 2020, projected to reach $340 billion, which represents about 2.5 million manufacturing jobs. Recent reports from the Reshoring Initiative (Nov. 2021) indicate that the U.S. is starting to focus on key actions to pivot away from dependence on China.

Reshoring Initiative indicates that logistics managers are now beginning to pivot towards regional/domestic supply chains. The manufacturing industry plans to limit future disruptions by using advancements in technology, reshoring of production, and growth of the supply chain as-a-service business model. In the wake of ongoing global supply chain disruptions, a consortium of North American manufacturers has launched a new endeavor with the express intent to reverse the 5-decade trend toward offshoring. Its goal is intended to help the U.S. achieve balance with China.

Manufacturing executives expect the following five skills to increase significantly within the next 3 years: (1) technology/computer skills; (2) digital skills; (3) programming skills for robots/automation; (4) working with tools and technology; and (5) critical-thinking skills.

Shopping “Made in America” and sustainability are also found to be top of mind for consumers of all generations by Reshoring Initiative, with new data revealing: (1) that consumers are gravitating toward local shopping and American-made goods, and (2) that 63% of consumers want personal products and cosmetics to be made within the U.S. with 52% citing materials used in manufacturing as the reasoning.

Further, a recent survey of 1,000 U.S. respondents aged 18-24 found that the COVID-19 pandemic has had an impact on Gen Z’s perception of manufacturing. More than half of respondents (54%) said they had not considered frontline manufacturing as a potential career before the pandemic; while 24% are now open to it.

Classroom discussion questions:

Why the move to reshoring now?
How do your students feel about jobs in manufacturing and OM?

OM in the News: A Logistics Manager Tries to Save Christmas

MGA toys awaiting shipment fill up a rented warehouse in Shenzhen, China.

A toy traffic jam is threatening to ruin Christmas. John Baker’s job is to save the day. Baker is the logistics boss at MGA Entertainment, the company behind L.O.L. Surprise dolls, Little Tikes cars and other popular toys. His job: Retrieve the items in time for the holidays by overcoming a jammed-up global supply chain that is holding them hostage. In June, when new toys typically exit factories for cargo ships and stores world-wide, hundreds of thousands of MGA dolls, play sets and accessories were piling up in factories and rented warehouse space in and around China’s port city of Shenzhen. The waiting toys would require 1,400 40-foot containers and cargo space aboard vessels.

Baker had already faced warnings that Chinese factory owners were running out of storage space. If he couldn’t get the toys shipped out of Shenzhen soon, they would stop making any more. His supply-chain problem is testing leaders across America, from the makers of Nike sneakers to Ford pickup trucks to Whirlpool washing machines. “It’s more dramatic than what I can remember,” says Walmart’s CEO.

Since the Covid-19 pandemic, the once finely tuned world-wide assembly line has limped along, writes The Wall Street Journal (Oct. 13, 2021). Worker illnesses are shutting factories and ports in Asia, a once reliable source of inexpensive manufacturing. Floods and hurricanes are disrupting the orderly flow of raw materials. The shortage of semiconductors has limited availability of everything from cars to computers to videogame consoles. There is a shortage of cargo containers to ferry goods across seas and truck drivers to deliver them. Freight rates have hit record levels.

In a dessert town outside Los Angeles, the 62-year-old Baker tries to unravel the most complex knot of a career that began 4 decades ago, as a forklift driver moving pallets of Smurf dolls. He has been working in toy logistics his entire career and is now a VP for one of the world’s largest toy makers, which tallies more than $2 billion in annual sales.

The stakes are high this season, and the clock is ticking. Half of all retail toy sales come in the weeks leading up to Christmas. Toys that arrive too late won’t sell until they are heavily discounted after the holidays. Baker has to get MGA toys out of China and onto retail shelves with enough time for parents to buy them and put them under the tree.

This is a great story of the importance of one particular topic in Chapter 11 in your Heizer/Render/Munson text–logistics. Baker has used ships, trucks, and trains to try to get the toys to shelves. Will he succeed?

Classroom discussion questions:

Why has the global supply chain weakened?
What can Baker do to move toys from China to MGA’s European customers?