Hello again, dear readers!

Well, that escalated fast. But trade wars always do. With China canceling orders for Boeing jets this week, US businesses and consumers are starting to experience the tangible effects of what has previously felt like distant international political tensions. More below on what might happen if China refuses to blink in an increasingly fraught contest. 

Also, I look into the secrets behind high-performing, low-cost companies that challenge some common myths about spending. It turns out that the leaders in this group pay their employees well, invest in innovation, and take bold financial risks. So how do they manage to keep costs down while their competitors struggle with constant budget blowouts? Keep scrolling to discover how.

This issue features the usual bunch of AI Insights and recommendations for the week's podcasts, books, shows, charts, and tweets, followed by a final chuckle.

This issue of The Supply Times is brought to you by Carbon Report, the easiest way to capture Scope 3 emissions data in your procurement process. The best part? Collecting and storing this data from suppliers is free for procurement users. Sign up for a free account on their website, or book a demo directly with their founder, here.

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Industry Highlights:  New Salvos in the Trade War

Just when we thought things couldn’t get any worse for Boeing, the Chinese government has instructed its domestic airlines to halt the acceptance of Boeing aircraft deliveries. This shock move comes as retaliation for the U.S. imposing tariffs on Chinese goods that have now skyrocketed to 125%. In response, Boeing's shares plummeted by $2.59, or 1.6%, sending shockwaves through the market and signaling just how serious this trade war has become.

The ripple effects of this conflict are reverberating through both countries' stock markets. U.S. stocks, particularly in the aerospace and technology sectors, are reeling from the fallout. Investors are increasingly anxious that a prolonged trade war could plunge the economy into chaos. Meanwhile, Chinese markets are also feeling the heat, with companies heavily reliant on U.S. imports facing dire uncertainty. Consumer sentiment is teetering on the edge; Americans are growing increasingly alarmed about rising prices, while Chinese consumers fear potential shortages of foreign goods that could disrupt their daily lives.

Economists are sounding the alarm about the broader implications of this trade war. The risk of an economic slowdown looms large, as the conflict could impact global supply chains and stifle investment. Recent analyses suggest that the tariffs in place threaten to raise prices on over a third of the products that America imports from China, potentially hammering household purchasing power and sparking widespread inflation. Scroll down to the “Charts” section below to see how tariffs have doubled the cost of a basic car mat set sourced from China.  

While the U.S. has certain advantages, including a diverse and resilient economy, China wields its own formidable weapons. Chief among them is its stranglehold on rare earth elements, which are crucial for a range of high-tech goods. China accounts for more than 90% of the world's supply of these materials, making it a critical player in the global supply chain.

If China were to cut off exports of rare earths, the impact on American industries could be catastrophic. Prices for essential components like dysprosium (used in laser materials and data storage) could soar from $230 to an eye-watering $300 per kilogram, impacting the technology and defense sectors.

We also need to keep in mind that, for now, the US is far more dependent on Chinese imports than China is on the US:

Moreover, China’s famous long-game mentality allows it to endure economic pressures more effectively, making short-term sacrifices for future dominance. While American businesses and consumers may react swiftly to immediate challenges, China can afford to play the long game, reinforcing its foothold in global markets while weathering temporary setbacks.

As this trade war heats up, both nations must navigate these treacherous waters with extreme caution. The stakes are high, not just for their economies but for the stability of the global economic order. With tariffs averaging over 25% across all trading partners, America is facing one of the worst self-imposed trade shocks in modern history. Whether this conflict leads to a new era of cooperation or plunges both nations into economic turmoil remains to be seen, but one thing is certain: the opening salvos have been fired, and the battle lines are drawn.

The Future of Work: Three secrets of high-performing, low-cost companies

When you think of low-cost companies, what comes to mind? Do you imagine businesses that pay their staff less, always looking to pinch pennies at every turn? Perhaps you picture them as overly cautious, shying away from investments in people or technology? The truth is far more intriguing.

Surprisingly, many of the most successful low-cost operators are anything but frugal in the traditional sense. Instead of cutting corners, they focus on creating a vibrant culture that empowers employees and drives innovation. I’ve drawn from an HBR article by Thomas Hout, who researched the strategies used by top-performing companies to keep costs low while also fostering a thriving workplace.

1. Leadership, Organization, and Culture

First up, let’s talk leadership. You might think that the heads of low-cost companies are all about pushing their teams to do more with less. But leaders like Herb Kelleher of Southwest Airlines and David Overton of the Cheesecake Factory prioritize decentralized decision-making, which means that team members feel valued and engaged in their work.

According to Hout’s research, the average tenure of leaders at high-performing, low cost companies is around 30 years - more than enough time to cultivate a deep-rooted culture of trust and collaboration. Employees at these companies often stick around longer, too,  leading to lower turnover rates and higher productivity. Instead of penny-pinching, these organizations invest in their people, creating a committed workforce that drives success.

2. Foundational Work Disciplines and Tools

Now, let’s explore how these companies operate. It’s a common myth that low-cost leaders sacrifice quality for savings. In fact, they excel in creating robust foundational work disciplines. They develop a rich understanding of their processes and maintain rigorous hiring practices. Companies like Toyota and Progressive Insurance exemplify this approach, using standardized documentation and real-time data to ensure everyone is on the same page.

They don’t shy away from investing in technology and training to stay ahead of the competition. For instance, Progressive leverages AI to streamline claims management, cutting operational costs while enhancing customer satisfaction.

3. Operations and Cost Management

Finally, let’s talk about their operational strategies. Contrary to popular belief, low-cost companies aren’t just looking for ways to slash expenses. Instead, they challenge industry norms and eliminate unnecessary costs that don’t add value. Take UPMC in healthcare and 7-Eleven Japan in retail. UPMC has created a fully integrated care system that keeps costs down while ensuring high-quality service. Meanwhile, 7-Eleven Japan uses advanced data analytics to optimize inventory management, aligning products closely with customer demand. This allows them to minimize waste and maintain lower prices without sacrificing quality.

Interestingly, these companies often employ fewer but better-paid employees. For example, Trader Joe’s hires capable purchasing executives who manage supplier relationships effectively, enhancing productivity and reducing costs. This strategy stands in stark contrast to larger chains that rely on bigger, lower-paid teams.

Of course, there are plenty of examples of companies that genuinely pinch pennies by paring their business down to the essentials, and it's ultimately the customer that feels the impact. Some even become a running joke; Irish ultra-low cost airline Ryanair, for example, is often lampooned for its zero-frills experience. 

But stripping your operation to the bones is unlikely to lead to runaway success. Instead, focus on leadership, culture, work discipline, tools, operations and (procurement’s favorite topic) cost management.

AI Insights

1. Could you raise $2 billion without a public product or roadmap? OpenAI co-founder Ilya Sutskever has done just that for his new venture, Safe Superintelligence Inc. (SSI). Backed by major players like Alphabet and Nvidia, SSI boasts a valuation of $32 billion. This investment reflects growing confidence in founder-led AI initiatives, where vision often outweighs early traction. Check out SSI’s webpage that gives absolutely nothing away: https://ssi.inc/

2. Amazon CEO makes it clear AI is the priority: In his annual letter to shareholders, Amazon CEO Andy Jassy declared AI as the company's top investment focus. He highlighted a new Alexa powered by Anthropic’s Claude and significant spending on chips and data centers. Jassy’s message is clear: Amazon aims to lead in retail, cloud, and AI services, integrating intelligence throughout the business.

3. Netflix is testing a natural-language search engine powered by OpenAI, letting users find content based on mood, themes, or emotions instead of just keywords. This aims to provide more intuitive, personalized recommendations and speed up content discovery. Netflix’s recommendation engine has always been its standout feature, so let’s hope they get this right.

The Supply Aside

📕 Read - The Mysterious Mr. Nakamoto

The truth of the identity of Bitcoin’s elusive creator is one of the enduring mysteries of our time. Benjamin Wallace takes us on a thrilling quest to track down the vanished Nakamoto. With the same engaging style that made The Billionaire’s Vinegar a hit, Wallace traces leads from London to Los Angeles, introducing a colorful cast of suspects. Each twist and turn feels like a scene from a gripping detective novel, as Wallace unravels the story behind Bitcoin’s rise from utopian dream to a speculative frenzy.

What Else I’m Reading

• How a dollar crisis would unfold: The Economist points to a possible dollar crisis as the currency takes a hit, raising eyebrows among investors about America’s economic health. With rising deficits and shaky trade policies creating more than a bit of uncertainty, there’s growing concern about the future of American assets and the dollar's crucial role in the global scene.

• 10 small things neurologists wish you’d do for your brain: From wearing a bike helmet to getting your eyes checked, this list of ten easily achievable habits will help protect your most important asset from cognitive decline. 

• Upwardly mobile jobs that are hard to fill: The WSJ explores the growing demand for middle-skill jobs, like sterilizing surgical instruments, which offer upward mobility but remain hard to fill due to a lack of awareness and training among potential workers. Programs like the one at LaGuardia Community College help bridge this gap, connecting students to in-demand roles in healthcare and other fields, though many still rely on luck and connections to discover these opportunities.

📺 Watch - Tune Out the Noise

Before the 1960s, Wall Street was dominated by performance-chasing strategies. Investors relied heavily on stock-picking and market timing, guided by the belief that they could predict short-term price movements while ignoring broader trends. 

Tune Out the Noise is a niche documentary by Academy Award-winning filmmaker Errol Morris, exploring how a group of 1960s University of Chicago academics leveraged early computer data analysis to transform the art of investment into a science. Together, they upended traditional Wall Street practices, leading to the rise of passive investing and index funds.

Featuring interviews with Nobel laureates like Eugene Fama and Robert Merton, along with key figures from Dimensional, the documentary reveals how rules-based, diversified portfolios revolutionized finance, making investing more accessible and cost-effective. I found it really captured the excitement of that moment in time; but then, I’ve always been a bit of a nerd for investment theory!

👂 Listen - The Knowledge Project: James Dyson

Tune into The Knowledge Project to explore the inspiring journey of a true innovator who transformed setbacks into success. You’ll learn how Dyson defied industry norms and faced countless failures to create groundbreaking products that revolutionized everyday items. The podcast delves into his unorthodox thinking, relentless curiosity, and the lessons he learned about perseverance and creativity. By listening, you'll gain insights into the world of engineering and design, and discover how embracing failure and trusting your instincts can lead to extraordinary breakthroughs in any field.

💡 Think - It's a Bird. It's a Plane. It's… Chipotle?

A recent Wall Street Journal article featured an interesting piece on the always intriguing topic (at least to me) of the delivery drone wars. They continue to heat up, and surprisingly, Amazon's not leading the pack.

While we've all been waiting for Prime Air to deliver on its promises, companies like Zipline and Alphabet's Wing have quietly pulled ahead, with thousands of backyard drop-offs happening weekly. Zipline's approach feels straight out of sci-fi: a quiet glide-in followed by a 300-foot tether lowering your order with surgical precision. Walmart is already on board, and Chipotle is next.

Amazon's MO is to blame, as they like to drop packages from 13 feet in the air. That's not what I call a salsa-friendly delivery.

This isn't just a cool story about flying robots. If regulators keep pace, drone delivery could reshape access for rural communities and anyone with mobility challenges. Zipline's CEO says we're only at 12:01 a.m. in this game.

The bottom line is that the future of delivery isn't rolling up to your doorstep. It's coming from above.

💡 Course - Craft Your Career!

As the world of work continues to evolve rapidly, with a more globalized labor market and many companies reducing headcount, the risk of getting left behind is higher than ever.

Throw in the rapid adoption of AI in the workplace and the rise of remote work, and even the most competent and hardworking leaders and professionals are struggling to keep up.

In Craft Your Career, Aaron Cleavinger and I teach you the skills you need to stay ahead of the curve and craft the career you deserve. Check it out here and enroll:  http://craftyourcareer.com/

Charts of the Week

Quote of the Week

Tweet of the Week

The Final Chuckle

Thanks so much for reading. I’d love to know what you think about this issue and how I can make it more useful to you.

If you have suggestions or topics you want to see me address, email me at [email protected]!

Want more?

If you’d like to read more of my writing on the supply chain, entrepreneurship, or the future of work, check out my website.

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Happy reading this weekend!

-- Naseem