{"id":22937,"date":"2017-11-14T22:21:13","date_gmt":"2017-11-15T03:21:13","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/delphis-supply-pain-moral-and-business-responsibility-in-the-age-of-isolationism\/"},"modified":"2017-11-14T22:21:13","modified_gmt":"2017-11-15T03:21:13","slug":"delphis-supply-pain-moral-and-business-responsibility-in-the-age-of-isolationism","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/delphis-supply-pain-moral-and-business-responsibility-in-the-age-of-isolationism\/","title":{"rendered":"Delphi\u2019s supply pain: moral and business responsibility in the age of isolationism"},"content":{"rendered":"

Delphi\u2019s supply pain: moral and business responsibility in the age of isolationism<\/u><\/strong><\/h2>\n

Delphi\u2019s non-responsiveness to isolationism is concerning from a business and moral perspective.<\/p>\n

After the introduction of NAFTA, Delphi, a UK-based global automotive components supplier, established operations in my hometown of Ciudad Ju\u00e1rez in 1995. The move allowed Delphi to transition from locations where it paid employees $30\/hr to a location where employees earned $1\/hr, thus increasing the company\u2019s price competitiveness and allowing Delphi to maintain a favorable geographic presence.[1]<\/sup> Globalization, along with \u201cJust-in-time\u201d inventory management, and increased integration within the auto-component supply chain, enable Delphi to serve the largest 25 OEMs, operate 126 manufacturing facilities in 46 countries, and generate revenues of $16.6Bn in 2016.[2]<\/sup> Isolationist movements are putting the company\u2019s promise is at risk.<\/p>\n

Isolationist movements and their potential effects on the auto industry<\/em><\/h3>\n

The rise of isolationist movements across the globe, including Brexit and the renegotiation or termination of NAFTA, are raising fears that global auto industry supply chains, which have been optimized to accommodate an interconnected and globalized economy, will become less efficient and more costly due to added tariffs and increased consumer prices.<\/p>\n

For example, the Financial Times recently reported that lorry fuel injectors produced by Delphi are produced with European steel, which is machined in the UK before receiving heat treatment in Germany. The final assembly of the injector takes place in Delphi\u2019s UK plant in Stonehouse before being sold to truckmakers located in Sweden, France, and Germany, who in turn would sell the finished trucks in the UK. Thus, raw materials and finished goods crossed geographic borders several times during the procurement, production, and sales process on a tariff free basis. As a result, Brexit could result in tariffs on \u00a312bn of annual raw materials utilized by the auto industry in the UK alone.[3]<\/sup><\/p>\n

With the election of Donald Trump, NAFTA has come under fire and is currently undergoing a renegotiation. Through this process, the Trump Administration is seeking to increase the amount of regional content (e.g., North American labor, raw materials, etc.) of vehicles produced in North America from 62.5% to 85%. In addition, the Trump Administration wants to require that 50% of that regional content be produced in the USA.[4,5]<\/sup> These changes are likely to introduce additional costs to auto-linked manufacturers and do away with estimated annual efficiencies of $10Bn created by the NAFTA agreement across the North American auto industry.[6]<\/sup><\/p>\n

Delphi\u2019s response and potential alternatives<\/em><\/h3>\n

When questioned about his thoughts on the developing regulatory environment, Kevin Clark, Delphi\u2019s President and CEO, mentioned during the company\u2019s most recent earnings call (11\/2\/17) that \u201c[Delphi operates] in a global industry. The supply chain is very global. The soft supply chain has been optimized, quite frankly, over the last 25 years. To the extent that gets affected in a negative way, I think it ultimately has implications for the cost of vehicles, which ultimately have implications for production and sale of vehicles. So that would not be positive.\u201d<\/p>\n

Members of the auto industry have launched the \u201cDriving American Jobs\u201d coalition to urge Trump not to withdraw from NAFTA, as withdrawal \u201cwould lead to a decrease in vehicle production, a decline in jobs and an increase in what our customers spend when buying a new vehicle. Not to mention this would also have an impact on our abilities to export vehicles to foreign markets.\u201d[7]<\/sup><\/p>\n

Delphi has not spoken out directly against isolationist movements and has continued to focus its attention on positioning itself to provide high-growth\/margin products (technology focused on increased safety, reducing emissions, and improving connectivity\/infotainment systems) and has entered emerging markets such as China, where it has established 6 new manufacturing facilities since 2012.[2]<\/sup><\/p>\n

The uncertain regulatory environment creates an opportunity for Delphi to further explore the shortening its supply chains, while limiting disrupting at existing production facilities. For example, Delphi should consider working with other component suppliers to coordinate their supply chains to provide quality products and services to overlapping customers. Furthermore, Delphi should explore vertically integrating additional auto components that clients source from other providers or regions. Although these types of process and product integrations might be difficult to achieve in the short-term, the company could benefit in the long-term as it increases its capability of fulfilling client\u2019s needs.<\/p>\n

Delphi\u2019s community impact and moral responsibility<\/em><\/h3>\n

As manufacturers such as Delphi created 250,000+ jobs in Ju\u00e1rez[8]<\/sup>, my home has become the second largest exporting entity of the country, contributing ~10% of Mexico\u2019s exports, of which 55% are related to the manufacturing of machinery, electronics, and auto sub-assembly parts.[8,9]<\/sup><\/p>\n

In the face of these challenges, should Delphi do more to ensure that the communities through which it has built its brand and reputation continue to thrive? Should the company be more vocal against isolationist movements? Will my city survive a Trump-influenced NAFTA?<\/p>\n

(800 words)<\/p>\n

<\/h5>\n

[1]\u00a0<\/sup>Kate Linthicum, \u201cWhat happened when factory jobs moved from Warren, Ohio, to Juarez, Mexico,\u201d Los Angeles Times, November 14, 2017, http:\/\/www.latimes.com\/world\/mexico-americas\/la-fg-mexico-us-factories-20170217-htmlstory.html<\/a>, accessed November 2017<\/p>\n

[2]\u00a0<\/sup>Delphi Automotive Plc, 2016 Annual Report (Gillingham, Kent, 2017), p. 4-5 https:\/\/www.sec.gov\/Archives\/edgar\/data\/1521332\/000152133217000013\/dlph1231201610k.htm#s7451F8BD837B3E3223B89C37D4CC6239<\/a><\/p>\n

[3]\u00a0<\/sup>Peter Campbell, \u201cUK car industry fears effects of Brexit tariffs on supply chain,\u201d Financial Times, October 16, 2016, https:\/\/www.ft.com\/content\/c397f174-9205-11e6-a72e-b428cb934b78<\/a>, accessed November 2017<\/p>\n

[4]\u00a0<\/sup>Video conference with Kenneth Smith (Lead NAFTA Negotiator for Mexico), Boston, Massachusetts, November 13, 2017<\/p>\n

[5]\u00a0<\/sup>\u201cNAFTA Negotiation Update: Auto & Parts Sector Implications,\u201d October 13, 2017, Center for Automotive Research, http:\/\/www.cargroup.org\/nafta-negotiation-update-auto-parts-sector-implications\/<\/a>, accessed November 2017<\/p>\n

[6]\u00a0<\/sup>Ryan Beene, \u201cAuto Industry Sees Threat to Jobs and Profits From Trump’s Nafta Push,\u201d October 12, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-10-12\/auto-industry-sees-threat-to-jobs-profits-from-trump-nafta-push<\/a>, accessed November 2017<\/p>\n

[7]\u00a0<\/sup>\u201dAmerican Auto Industry Unites to Defend NAFTA and Preserve American Jobs,\u201d October 24, 2017, Driving American Jobs, https:\/\/globenewswire.com\/news-release\/2017\/10\/24\/1152521\/0\/en\/American-Auto-Industry-Unites-to-Defend-NAFTA-and-Preserve-American-Jobs.html<\/a>, accessed November 2017<\/p>\n

[8]\u00a0<\/sup>\u201dPrograma de la industria manufacturera, maquiladora y de servicios de exportaci\u00f3n (IMMEX) – 2007 en adelante,\u201d 2016, Instituto Nacional de Estad\u00edstica y Geograf\u00eda, http:\/\/www.inegi.org.mx\/est\/contenidos\/proyectos\/registros\/economicas\/manufacturera\/default.aspx<\/a>, accessed November 2017<\/p>\n

[9]\u00a0<\/sup>\u201dExportaciones por Entidad Federativa,\u201d 2016, Instituto Nacional de Estad\u00edstica y Geograf\u00eda, http:\/\/www.inegi.org.mx\/est\/contenidos\/proyectos\/registros\/economicas\/exporta_ef\/default.aspx<\/a>, accessed November 2017<\/p>\n","protected":false},"excerpt":{"rendered":"

Delphi, along with other auto industry players and the communities in which they operate, is being threatened by isolationist movements throughout the world (e.g., Brexit, NAFTA renegotiation\/termination)<\/p>\n","protected":false},"author":10215,"featured_media":22938,"comment_status":"open","ping_status":"closed","template":"","categories":[217,2271,3230,440,3571,1601,1591,1202,3239,3570,341,3219,1598],"class_list":["post-22937","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-auto","category-auto-industry","category-brexit","category-canada","category-delphi","category-donald-trump","category-economy","category-globalization","category-isolationism","category-juarez","category-mexico","category-nafta","category-usa","hck-taxonomy-organization-delphi","hck-taxonomy-industry-auto","hck-taxonomy-country-united-kingdom"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nDelphi\u2019s supply pain: moral and business responsibility in the age of isolationism - 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