tariffs – The OM Blog by Heizer, Render, & Munson

Good OM Reading: Successful Strategies to Deal with Supply Chain Disruption

In today’s volatile global environment, geopolitical upheaval has emerged as a defining threat to supply chain resilience — on par with natural disasters and the lasting effects of the COVID-19 pandemic. From shifting trade policies and tariffs to rising political tensions and regulatory unpredictability, these forces are disrupting global operations, raising costs, and reshaping supplier networks.

A new study conducted by Supply Chain Dive (July, 2025) reveals the
true cost of this disruption — and what leading companies are doing to manage it. The clear consensus: geopolitical risk is rising fast, and most organizations are not fully prepared. Seventy-eight percent of companies studied expect that the risk of geopolitical events will increase in the next two years, with the median revenue loss from supply chain disruption at 5%.

The findings challenge conventional thinking. The most widely used mitigation strategies aren’t necessarily the most effective. In fact, some of the highest-performing tactics are the least adopted — despite being relatively simple to implement.

The report explores the gap between strategy and success, offering a detailed look at how forward thinking companies are building geopolitical agility through smarter partnerships, more proactive policy engagement, and better use of data and technology.

Key takeaways include:
1. Geopolitical disruption is a major, growing threat to supply chains.
2. Financial and operational costs are substantial, as disruptions lead to higher shipping costs, material price volatility, and reduced supply chain efficiency.
3. Many organizations are underprepared for changes like tariffs and other trade policy shifts.
4. Top-performing strategies are often underutilized, these include relocating operations for geopolitical advantage, board-level compliance elevation, and policy-influencing activities.
5. Supply chain adjustments are underway, with half of the companies actively adjusting their supply chains to avoid countries impacted by tariffs, and 79% re-evaluating nearshoring strategies in response to geopolitical shifts.

OM in the News: The F-35 Jet Fighter and Supply Chains

The F-35 has contributed to America’s dominance of the arms trade.

The F-35 is a symbol of U.S. military and technological might. With a cost of more than $2 trillion over the program’s life cycle, the F-35 has been called the world’s most expensive weapon, reports The Wall Street Journal (May 6, 2025).

Overall, the jet fighter, made by Lockheed Martin, has more than 1,900 suppliers from about a dozen countries that provide everything from tiny chip boards to the ejector seat. “Like many companies in the industry, our supply chain and customer base are global, and we import raw materials, parts and modules from around the world,” said the CEO of RTX, which makes the fighter’s engines.

The fighter has been a particularly successful export, with more than 1,100 jets sold to 20 countries since it entered service in 2015. The program was partly financed by the U.K., Italy, Norway, the Netherlands, Australia, Canada and Denmark, whose companies then won contracts to supply components. (Foreign governments increasingly seek greater involvement in the production of the U.S. equipment they buy).

British companies contribute about 15% of the value of each aircraft. Much of that is made in Britain. BAE Systems produces one of the plane’s fuselages and the pilot’s control stick in the U.K. Rolls-Royce supplies the technology that allows one variant of the F-35 to take off and land vertically. Even the jet’s ejector seat is made in Britain. Australia provides components for the jet’s avionics and propulsion systems. In Denmark, one company alone—Terma— has made 30,000 parts for the program so far, including pods that hold the machine gun.

The U.S. accounted for 43% of global weapons exports in the five years ended 2024. The U.S. accounted for about 3% of imports.

Classroom discussion questions:

Will tariffs have a major impact on F-35 sales?
What are the plusses and minuses of such global supply chains?

OM Podcast #34: An Inside Look at Tariffs

In our latest podcast Barry Render interviews Bob O’Donnell, Vice President of Business Development of Life Sciences at East Coast Warehouse, who previously spent 13 years with Maersk Logistics and Services. Barry and Bob discuss tariffs and their potential impacts.

Heizer Render Munson OM Podcast · OM Podcast #34: An Inside Look at Tariffs

Transcript

A Word document of this podcast will download by clicking the word Transcript above.

Have you subscribed to this podcast on Apple podcasts? Just go to your Apple podcasts app, search “Heizer Render Munson OM Podcast,” and subscribe to get all our podcasts on your mobile device as soon as they come out!

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM. See our earlier blog post with a recording of author and user Chuck Munson to learn how to find these, or contact your Pearson rep to learn more! https://www.pearson.com/en-us/help-and-support/contact-us/find-a-rep.html

Guest Post: Mass Timber–A Sustainable Alternative Worth a Closer Look

Temple U. Professor Misty Blessley raises an interesting point in her Guest Post

Mass timber refers to beams, columns, or panels composed of smaller wood pieces bonded together using fasteners, such as nails, or other adhesives. These engineered wood products are increasingly being used in the construction of high-rise buildings, praised for their strength, durability, versatility, and sustainability.

At a time when the U.S. is relying on steel imports to meet demand—and tariffs threaten to drive prices higher, causing delays or cancellations of some construction projects—mass timber presents a compelling alternative that deserves objective evaluation. Mass timber as a building material is gaining traction.

The Benefits:
Mass timber offers a significantly smaller carbon footprint compared to traditional materials like steel. As a renewable resource, wood supports sustainability goals, and “track and trace” technologies now enable end-to-end transparency, from forest to finished product. Notably, mass timber is reported to match steel in strength and is fire resistant. Additionally, clear-cutting practices, which involve harvesting most or all trees in an area simultaneously, allow for high productivity. Once harvested and processed, the prefabricated nature of mass timber allows for faster construction and shorter project timelines.

The Trade-Offs:
Despite its advantages, mass timber comes with concerns. Critics have raised the issue of greenwashing, questioning whether its environmental claims are justified. Also, building codes, historically designed with steel in mind, can lengthen project times because they are still evolving to accommodate this new material. Finally, while competitive, costs have been reported to be marginally higher than conventional options.

Classroom discussion questions:

In Supplement 5 of the Heizer/Render/Munson textbook, sustainability is defined as meeting the needs of the present without compromising the ability of future generations to meet their needs. Consider the trade-offs of clear-cutting through the lens of environmental sustainability.

2. Seven TQM tools are discussed in Chapter 6. As a project manager of a new building using mass timber, create a cause-and-effect diagram and conduct an initial analysis of what should be considered in preparing to embark on the project. Include all of the four M’s – material, method, manpower, and machine.

OM in the News: India Moves Up the Value Chain

The first trade war, in 2018, helped India rise—and this second one could be transformative, writes The Wall Street Journal (April 19-20, 2025). “Is this India’s moment?” says the CEO of a major Indian electronics supplier. “Yes. But the country still needs improvement on the most important quality for a global supply chain: consistency. ”

With most Chinese exporters cut off for now from U.S. consumers by high tariffs, companies are looking for alternative places to produce and export to the U.S.—adding up to a golden opportunity for India. Global high-tech firms and retailers say India is a harder place to do business than China or Vietnam, owing to government red tape, restive labor groups and an often-punitive approach to compliance and taxation. Vietnam, a country of 100 million people, exports $50 billion more in goods to the U.S. than India, whose population is 1.4 billion.

Smartphones offer an example of what India can do when it puts its mind to it.

But now India wants to emulate what has made China the world’s unparalleled manufacturing powerhouse by offering not just manual assembly of goods but also design, parts and other knowhow. “We are looking at building the entire value chain in India itself,” said a government official.

For the moment, most Indian goods face only the 10% tariff the U.S. has imposed globally, and certain exempted electronics such as iPhones have no tariff. The tariff on most Chinese goods is 145% while those electronics items are subject to a 20% rate.

Apple is already moving to export more iPhones to the U.S. from India, and the country currently accounts for about 20% of iPhone production. A decade ago, when India started focusing on building phones, its annual mobile-phone exports were only $250 million. Now the figure exceeds $22 billion.

A second factory operated by Taiwan’s Foxconn is coming on line this year which will add annual production of 20 million phones, rivaling Foxconn’s first Indian plant. Smartphones are benefiting from the government’s attention and support, including manufacturing subsidies and upgrading its freight terminals to address bottlenecks.

A network of suppliers is also growing up to feed the final assembly. New York state-based Corning, which has long made scratchproof glass for Apple phones, plans to start production in India this year.

Classroom discussion questions:

What is needed in India to match China’s manufacturing prowess?
What other companies have made moves to relocate to India?

OM in the News: The Supply Chain of the Future

“The supply chain of the future will look like a multiheaded dragon,” said the CEO of a Vietnamese industrial-park. “The era of sourcing from one global manufacturing base in the world is completely over.”

Workers stitching apparel at a factory in Ho Chi Minh City, Vietnam

Under the current U.S. tariff plans (which are subject to change, of course), certain countries with lower tariff rates are set to emerge as relative winners. Mexico, Brazil and India would step up to a bigger role linking China’s vast supply chain to the U.S. market. Those countries would draw investment to replace the current “connector states” in Asia, led by Vietnam and Cambodia.

Products vulnerable to tariffs are toys, videogames, computer parts and smartphones. Vietnam and China supply more than half of the furniture imported by the U.S. Vietnam supplies a third of the sports shoes and a quarter of the solar cells imported by the U.S. China, Vietnam and Thailand make much of the world’s portable computers.

Businesses such as Apple, HP and Nike have invested heavily in Asian countries outside China and moved assembly there, reports The Wall Street Journal (April 6. 2025). This strategy is termed “China plus one.” It was designed to sidestep tariffs imposed by both the Trump and Biden administrations.

Apple, Taiwan Semiconductor, and the South Korean automaker Hyundai have announced large factory investments in the U.S. this year, in line with the administration’s goal of rejuvenating American manufacturing.

But it would be unrealistic to expect labor-intensive businesses such as apparel to return to the U.S. It lacks workers skilled in those industries and a nearby supplier network to keep costs down. U.S. manufacturing employees earned around $103,000 on average in 2023 (including benefits). That is around four times the wage level in China and 2.5 times that in South Korea. Chinese factories could seek to cut costs by sourcing such components as resistors and transformers from parts of China where labor is cheaper.

Many Chinese factories have already relocated to Vietnam. The next place is jumping to India where tariffs are lower.

Classroom discussion questions:

What is your supply chain strategy if you are an Asian manufacturer?
What if you are a U.S. toy company with most production coming from China?

OM in the News: Supply Chains and Tariffs

For more than a decade, US manufacturing has achieved growth in employment, output, the number of manufacturing establishments, and investment to expand or construct new facilities. This strong growth was driven by a desire to derisk supply chains and establish facilities closer to US customers. Increased supply chain volatility in recent years has led organizations to shift their supply chain strategy from cost minimization to a focus on balancing cost with resilience.

Some manufacturers have reconfigured supply chains by reshoring portions of production, by nearshoring—leveraging the USMCA free trade agreement (see Ch.2) to source more from Mexico and Canada—and by growing trade with countries such as India and Vietnam, which offer cost advantages.

And this trend is likely to continue: Over 70% of CEOs plan to alter their supply chains over the next 3-5 years.

President Trump’s policy priorities include cutting taxes, reducing regulations, lowering energy costs, and bolstering fair trade, all of which could accelerate continued investment in the US manufacturing sector. The policies could also drive a shift in supply chain strategy by prioritizing reshoring while potentially disrupting recent nearshoring and global sourcing trends. Tariffs comprise a component of this economic strategy.

Here are some key takeaways from a new Deloitte report (April 1, 2025) called Enhancing Supply Chain Resilience:

1. US manufacturers import a variety of products, parts, and raw materials from around the world, and supplemental tariffs levied on these items could impact supply chains, costs, and the industry’s profitability.

2. Economically viable opportunities for reshoring production to the US are likely to be higher-value, complex products with strict quality standards, produced with technologically advanced, higher-capital intensity processes, and a workforce with higher-level skills.

3. For labor-intensive or lower-value goods, it might not be as economically viable for manufacturers to reshore. Instead, manufacturers may diversify their supply chains by seeking suppliers in countries that offer labor cost advantages—and minimize the long-term risk of supplemental tariffs, trade tensions, and geopolitical friction.

4. Digital tools and technology will play an important role in any supply chain strategy. For example, simulation, supply chain planning tools, and enhanced visibility can help mitigate risks in global supply chains.

Classroom discussion questions:

What are the advantages and disadvantages of tariff adjustments?
How are nearshoring and reshoring impacted?

OM in the News: Tariffs and a Strategic Move to Reshore Manufacturing

“President Trump has certainly employed tariffs as a strategic tool to reshape the American manufacturing landscape,” writes UCLA Prof. Chris Tang in Industry Week (March 10, 2025). The vision driving these initiatives, at its core, aims to bring manufacturing back to the U.S., reduce trade deficits, and protect national security.

Reshoring The central pillar of the strategy is to incentivize both American and foreign companies to establish manufacturing operations here. Imposing tariffs on imported goods provides a financial rationale for companies to rethink their offshoring strategies. The goal is to rebuild a robust industrial ecosystem that produces goods domestically for world markets.

Trade deficits Most countries impose higher tariffs on American goods than the U.S. imposes on theirs. For example, the U.S. has relatively low tariffs on dairy products, around 25%, whereas Canada imposes tariffs of over 200% on certain dairy imports from the U.S. With reciprocal tariffs and higher import tariffs, the U.S. seeks to make it less attractive for companies to rely on cheap foreign labor –and more feasible to invest in America. This shift is expected to reduce the trade deficit and boost domestic economic growth.

National Security Implications Dependency on foreign manufacturing in critical sectors like technology and pharmaceuticals poses risks. By encouraging companies to produce these goods domestically, the U.S. can ensure a more secure and reliable supply chain (critical during crises such as the pandemic).

Many firms have shifted operations from China to other countries to avoid paying higher tariffs associated with Chinese imports. For example, Apple shifted some operations from China to friend-shoring countries such as India. Likewise, toy manufacturer Mattel and tech manufacturer HP expanded operations to Mexico as a near-shoring strategy.

A significant outcome on the new tariffs is the renewed focus on building domestic manufacturing capabilities and its significant infrastructure. Apple plans to invest more than $500 billion in the U.S., Eli Lilly $27 billion, and Taiwan’s TSMC over a $100 billion (for 3 new semiconductor plants).

Rebuilding an industrial ecosystem that was hollowed out over decades requires substantial investment, skilled labor and modern infrastructure. There are many long term benefits, including growing the U.S. economy through economic revitalization.

Classroom discussion questions:

What is the difference between near-shoring, reshoring, and friend-shoring?
Summarize the advantages of tariffs as a tool, according to Prof. Tang.

OM in the News: Top Five Global Supply Chain Risks

The supply chain landscape continues to evolve at an unprecedented pace. A new report in Material Handling & Logistics (Jan. 15, 2025), identifies the top five most likely supply chain events that could impact companies in 2025.

Climate Change — 90% Risk Score Driven by shifting climate patterns and record-high temperatures, extreme weather events are a dominant risk to the supply chain. Volatile flooding has the potential for deep disruption. Indications point to the state of ocean temperatures being elevated in 2025 and beyond, with the potential for record-breaking highs.

Geopolitical Instability with Increased Tariff Risk – 80% Risk Score

The following major geopolitical events are likely to impact global trade in 2025:

• Ongoing Houthi attacks on cargo and container ships in the Red Sea continue to lead to longer transit times and equipment imbalance.

• Continued conflict in Ukraine could destabilize manufacturing and trade activities, putting European economies at further risk.

• Increased Chinese military drills near Taiwan could hinder trade through major sea routes, affecting global container shipping flows.

*The automotive, semiconductor, and manufacturing industries are possibly at risk due to proposed tariffs by the U.S.

Cybercrime – 75% Risk Score. Escalating cybersecurity risks in 2025, driven by the growing reliance on AI, IoT devices and interconnected systems include:

• Growing reliance on AI and cloud computing within supply chains is creating new “back door” opportunities for bad actors.

•Cyberattacks via sub-tier supply chains where criminals can more easily exploit common programming errors and vulnerabilities, allowing them into organizations via phishing and software connection links.

Rare Metals and Minerals– 65% Risk Score

• Within a politically charged atmosphere between the West and the major commodity producers – China and Russia – companies will face new tariffs and sanctions on critical metals.

• China could impose broader export restrictions, highlighting the need to diversify sourcing strategies. Lack of supplier diversity complicates procurement, leads to supply shortages and makes the price of affected commodities particularly vulnerable to trade tensions and eventual tariffs or sanctions.

Forced Labor – 60% Risk Score A growing crackdown on forced labor across industries will increase pressure on companies who are facing scrutiny to manage and eliminate suppliers violating human rights. Anticipated risks in 2025 include: Labor conditions in China, a cascade of legislation to address lax forced labor issues, the global concentration of commodities (like palm oil and vanilla) that originate in countries cited for modern slavery.

Classroom discussion questions:

What can an OM team at a manufacturer do to mitigate these risks?
Do you agree with these rankings? Would you add other risk factors?

OM in the News: Taking Nerf Guns Away From China

Nerf guns. Monopoly board games. G.I. Joes. Some of Hasbro’s bestselling toys are getting pricier as the U.S. implements stiff tariffs on Chinese imports. So Hasbro, and others like Barbie maker Mattel, are negotiating with suppliers and considering design changes. The threat of new taxes on toy imports comes amid a long-term shift in the industry away from China, spurred by rising labor costs in that country. Manufacturers have spent years trying to make fewer toys and games in China by relocating to factories in other countries, including Vietnam and India.

Across industries, U.S. companies have been diversifying their supply chains, prodded in part by tariffs implemented during both the Trump and Biden administrations, writes The Wall Street Journal (Nov. 18, 2024). Makers of everything from steel and semiconductors to auto parts are rejiggering supply lines to source components from other countries. Sharpie and Yankee Candle maker Newell Brands, for example, is moving more factory work to the U.S.—the desired result of the tariffs.

Hasbro’s current target is for roughly 20% of its U.S. sales to come from China-made products within four years, down from about 40% today. The challenges the company has faced in achieving a long-held goal underline the pressure facing toy makers. While lower-cost locations are easy to find, switching to a new factory with similar product-quality and safety standards can be a challenge in the toy industry.

Unlike in some industries, automation has yet to make major strides in parts of the toy-making process. Assembly for many toys still relies on skilled workers to put together the latest action figure or hand-paint details. Shifting to a different country requires training a new generation of craftspeople. Smaller factories in South and Southeast Asian countries also might not produce enough units to easily replace Chinese facilities.

Hasbro’s shift away from China is part of a $750 million cost-cutting push that includes negotiating lower prices from suppliers or changing designs to make them cheaper to build, such as Jenga blocks that now use a single type of wood. The change lowered costs and had the added benefit of making the pieces slide more smoothly out of a Jenga tower. Meanwhile, the Chinese government has been pushing for the country to graduate from being a hub for lower-cost work, such as toy making.

Classroom discussion questions:

What other products have been moving away from China?
Have the tariffs been successful?

OM in the News: Apple to Keep Building Mac Pro in U.S. After All

Apple just said it is keeping production of its new Mac Pro in Texas, reversing earlier plans to shift assembly of the computer to China, reports The Wall Street Journal (Sept. 25, 2019). The decision follows the administration’s move last week to grant tariff exemptions on 10 items Apple imports from China. The exclusions for components includes a power supply and a logic board, and the U.S. will refund tariffs already paid.

The tech giant had earlier tapped Taiwanese contractor Quanta Computer to assemble the $6,000 desktop computer outside Shanghai. The high-end computer, which was introduced in 2013, had been assembled in Austin, Texas, and was touted as Apple’s only Made in USA product. Escalating trade tensions over the summer challenged Apple’s plans to make the product in China, where labor and logistics costs are lower than in the U.S. The proposed tariffs could have cut into Apple’s profits or forced it to increase the cost of the Mac Pro.

The parts for which Apple obtained exemptions are critical to the computer’s function. For example, Apple received a tariff waiver on the Mac Pro’s graphics-processing module, which itself incorporates more than 1,600 components and allows images to be rendered on a computer screen. Apple’s decision to reverse course and instead keep the computer’s assembly in Texas is among the most pronounced examples of how tariffs have roiled corporate decision-making.

Apple also said it is on track to fulfill its commitment to invest $350 billion in the U.S. economy by 2023, last year spending more than $60 billion with more than 9,000 domestic suppliers.

Classroom discussion questions:

Where do you think Apple falls in terms of international operations strategies (see Figure 2.9)?
What factors did Apple consider in making this decision?

OM in the News: Garment Makers Returning to Bangladesh

The dollar value of apparel exports from Bangladesh to the U.S. is up 14.5%

The trade war between the U.S. and China has led many fashion brands to shift production to spots across Asia, including to Bangladesh, where safety issues persist years after two horrific workplace accidents killed more than 1,000 workers in 2012-2013. American clothing makers cut back on sourcing from Bangladesh or abandoned the country entirely, after the accidents.

In the aftermath, large U.S. retailers formed the Alliance for Bangladesh Worker Safety, an organization responsible for inspecting Bangladeshi factories that produced Alliance brands goods. The organization recommended improvements for structural, fire and electrical safety, and blacklisted factories that failed to make changes. When the Alliance dissolved in 2018, it said 90% of factory-safety issues had been resolved for factories in its program.

But some industry analysts say that safety and compliance issues persist, including structurally unsound factories and retaliation against employees who join unions. One global audit company has found continued use of child labor in the Bangladesh apparel supply chain, stating that over 80% of factories in South Asia were in need of improvement.

Now new tariffs have gone into effect in that already difficult environment. Since Sept. 1, most Chinese garment imports to the U.S. are subject to 15% tariffs—enough in the apparel industry to make many products uncompetitive. So companies have bulked up sourcing in Bangladesh amid “safer” conditions, and according to The Wall Street Journal (Sept. 6, 2019), at least one major brand that left—Ralph Lauren—has returned.

China remains by far the world’s largest supplier of garments. The shift to South Asia will only come gradually, in part because China’s high-quality infrastructure meant clothes could be shipped quickly from Chinese factories to the U.S.—necessary in the age of fast fashion, when consumers alight on new styles every few weeks.

Classroom discussion questions:

Besides tariffs, what other factors are driving manufacturers out of China?
What are the plusses and minusses of Bangladeshi production?

OM in the News: Apple Wrestles With Conflicts in its Supply Chain

Apple is asking suppliers to study shifting final assembly of some products out of China, as trade tensions prompt the company to consider diversifying its supply chain, reports The Wall Street Journal (June 19, 2019). While any major changes would be difficult and could take time to implement, Apple is looking into the feasibility of shifting 1/3 of the production for some devices to S.E. Asia.

Manufacturers of apparel, footwear and other low-margin items have been moving out of China for years due to rising costs, and tariffs have accelerated that trend. Many tech companies, however, find it more difficult to move. Among China’s chief attractions are well-developed chains of suppliers and reliable infrastructure, much of it built in the past 20 years. A plentiful labor force skilled in precision manufacturing as well as trained engineers and pro-business government policies also make China appealing. And for those companies looking to sell into the large Chinese market, producing in the country is more competitive than importing.

Apple remains deeply rooted in China. About 1/5 of its total sales are recorded there, while on the manufacturing side its supply chain accounts for three million jobs. Foxconn, which assembles iPhones, iPads and Macs, is, however, ready to shift some Apple production to plants elsewhere. It has also put more than $213 million into India recently and is looking to invest in Vietnam.

Outsourcing to China helped solidify Apple as one of the world’s largest and most profitable companies. CEO Tim Cook helped build the company’s sophisticated and efficient supply chain there, relying on Foxconn and others to crank out hundreds of millions of iPhones annually.

International moves won’t come easy. Production equipment and assembly lines would need to be dismantled and packed,. They then must be reinstalled, tested and calibrated, and their output rate adjusted. Software and environmental-control systems would need to be put in place, and line operators, engineers and quality managers must be available and trained.

Classroom discussion questions:

Why isn’t more of Apple’s manufacturing coming to the U.S?
What are the advantages and disadvantages of moving production?

OM in the News: Tariffs and Global Supply Chains

The potential costs of tariffs being discussed by the U.S. and China have prompted many firms to get creative with sourcing strategies, reports Supply & Demand Chain Executive (March 29, 2019). Oftentimes, that means working with Chinese suppliers to find alternative countries to buy from to avoid the tariffs. The same factories that were relied on in China are now shifting to countries like Thailand and Vietnam, a move that’s expected to take at least 6 months — and increase prices. Companies that have simply accepted tariffs as a new way of doing business are taking control of their own supply chains instead of waiting for a political solution. The challenges are especially great for American companies with manufacturing hubs outside of the U.S.

“We have heard that it takes at least 2 years to get manufacturing up and running someplace else, but its closer to 5,” said one industry exec. The diversified supply chains have made the shift particularly expensive and lengthy for tech companies. Apple, for example, sources parts from 43 different countries to assemble its iPhones. Late last year, its key assembler, Foxconn, announced it would invest $230 million in factories in India and Vietnam to expand its presence outside of China amid the trade spat.

The global rethink of supply chains goes beyond the tech space. In a recent McKinsey report, 33% of companies surveyed said uncertainty over trade policy was a top concern. Nearly half said their companies would shift their global footprint in response, and expected to invest more in local supply chains. Trade uncertainty has only accelerated a trend that began well before U.S.-China relations turned frosty. Rising labor costs in China have been a key driver for the shifts, especially among apparel makers. The China exit is seen as a bigger hit to the domestic economy there, with factory activity shrinking to a 3-year low. Exports slumped to the worst in a decade. Unfortunately, the China slump hasn’t led to a significant bump for the U.S.

Classroom discussion questions:
1. How does the trade war impact global supply chains?

2. Where does a firm like Apple fall in the “Four International Operations Strategies” graphic in Figure 2.9?

OM in the News: The Stressed Global Auto Supply Chain

The automotive supply chain is a complex, global network of interdependent businesses ranging from small, family-owned manufacturers based in the U.S. heartland to large publicly traded overseas auto parts companies—all working in unison to keep cars rolling off the assembly line. But fights are emerging across the auto industry over who should bear the costs of tariffs, leading to new stress along the supply chain, reports The Wall Street Journal (Nov. 10, 2018).

Recently, Pierburg US, a manufacturer of parts used in the Ford F-150 pickup truck and Jeep Wrangler SUV, sued one of its suppliers over new tariffs imposed. The two sides have been in business for 20+ years. Pierburg says that the supplier’s refusal to ship electric motors from China to Pierburg’s factory in South Carolina unless it paid the 25% tariff cost in full was “extortion.” A failure to deliver the parts could shut down multiple auto factories and “plunge the automotive industry into complete chaos,” Pierburg added. Sorting out the cost of tariffs is difficult because some parts cross the U.S. border multiple times before being installed in a car, blurring the lines of what is “domestic” content.

A typical vehicle is made up of roughly 30,000 individual parts, and car companies on average work with hundreds of suppliers at once for each model line, either buying components directly or contracting them out further down the chain. Thousands of individual contracts outline in detail parts orders, delivery dates and prices, and many of them are locked in place months and even years in advance.

Toyota has told suppliers they shouldn’t count on the Japanese car maker to help absorb the higher tariff-related costs. The average operating profit margin in the auto parts manufacturing business is already slim–about 7%—so extra costs can hit earnings hard.

Classroom discussion questions:

Describe the auto supply chain.
What is the impact of tariffs proposed?