A Manufacturing-Supply Chain Risk Under Tariffs Impact in a Local Market

Abstract

AbstractNowadays, supply chains experience the risk of the impact of trade tariffs imposed by governments on the imported items. Basically, higher tariffs or import taxes affect global trade through amplifying the risk on supply chain costs which in turn jeopardizes the supply chain networks. This chapter considers a manufacturing company, assumed to be in the USA, with its manufacturing system that is inspired by a jewelry manufacturing industry. The manufacturer produces finished products and procures raw materials required from local and global suppliers that are assumed to be in the USA and China, respectively. In a supply chain risk, considering the global economy competition, a local government needs to improve a local industry; therefore, it imposes tariffs on the imported raw materials. This policy helps local suppliers compete with global suppliers who are negatively impacted by higher imposed tariffs. Additionally, a manufacturer as a buyer is impacted by imposed tariffs. The main objective of this chapter is to study the impact of tariffs on the manufacturing-supply chain considered. Thus, different tariff rates are imposed on imported raw materials. As the tariffs increase, the purchased materials costs increase as well. As a result, the purchase of raw materials is shifted from global to local suppliers when high tariff rates are imposed. Further, this chapter shows that the total products costs including raw materials, labor, and overhead costs are increased, which eventually affect the selling prices of finished products. Consequently, the demand values of the finished products, determined by demand function, are dropped due to the increase of selling prices. This leads to impact the profits, generated by the manufacturing company. It is observed that the profits of products act differently in which some products generate more profits and others lose profits when the tariffs increase. Moreover, in this chapter, the impact of the trade tariffs on the manufacturing system design is studied considering the number of manufacturing cells open to meet the demand. Results show that demand impacts the manufacturing system design in which the number of cells decreases as the demand decreases. It is concluded that although the market share has been impacted in terms of the demand, the manufacturer sustains the business by making satisfactory profits.