Week Three discussion 1 replies. Please reply to the TWO students discussion post. 250 word min.

Please reply to the TWO student’s discussion post. For your replies to others what else could you add to take the conversation further? and make more vivid for the other students.

Nimene Kofa

Imagine you owning a toy store and buying toys from a friend who lives far away. You agree to pay $10 per ton. Then one day, the government introduces a new rule, a tariff that adds extra cost when the toy enters the country. Now each toy might cost $12 or $15 instead of $10. The question becomes: who should pay the difference you, your supplier, or should you split it?

That question is at the heart of Finkenstadt, Handfield, and Miller's (2025)  How Contracts Can Help Firms Navigate the Uncertainty of Global Tariffs. Their central argument is that companies should build flexibility into supplier contracts  before problems arise. Rather than a contract that simply states "we will purchase this product for $10," buyers and suppliers can negotiate rules for what happens if tariffs suddenly rise for example, agreeing to split the added cost, renegotiating pricing once tariffs cross a certain threshold, or adjust order quantities. This matters for supply chain risk management because tariffs can quietly reshape the total landed cost of goods moving through a global network, turning a stable contract into a liability overnight.

Hasbro maker of Monopoly, Nerf, and Play-Doh illustrates the operational side of this same problem. The company has long relied heavily on Chinese manufacturing; in 2025, roughly 50% of its U.S. toy and game volume originated there. To reduce tariff exposure, Hasbro accelerated its sourcing diversification, shifting hundreds of U.S.-bound SKUs to alternative manufacturing locations, with a goal of pushing China's share of U.S. sourcing below 40% by 2026 (Garland, 2025).

In simple terms, Hasbro decided: "Instead of buying half our toys from one friend, let's buy from several friends in different places." Supply chain professionals call this supplier diversification or multi-sourcing. If tariffs make one location too costly, Hasbro has other options ready. But flexibility isn't free, diversifying suppliers typically means higher transportation costs, longer lead times, and more logistics complexity to manage. In that sense, it mirrors the trade-off in flexible contracts themselves: contract flexibility often costs more upfront, in the form of less price certainty or added negotiation, in exchange for protection against a worse outcome later.

Together, these two strategies show the same underlying lesson from different angles. Flexible contracts build  financial flexibility they determine who absorbs cost shocks when tariffs shift. Diversified sourcing builds  operational flexibility it determines how quickly a company can pivot when one source becomes too expensive or unreliable. Companies can pair these with other dual tools

Sourcing, inventory buffers, nearshoring, alternative transportation routes to further reduce tariff risk.

The simplest way to state the lesson: don't make a deal that only works when everything goes perfectly. Make a deal that says what everyone will do when the rules change. For supply chain managers, that means contracts shouldn't just fix prices and quantities they should also share risk and enable fast response. In today's uncertain trade environment, companies with flexible contracts  and diversified sourcing are better positioned than those tied to a single supplier, country, or fixed strategy.

References

Finkenstadt, D. J., Handfield, R., & Miller, J. (2025, April 11).  How contracts can help firms navigate the uncertainty of global tariffs. Harvard Business Review.  https://hbr.org/2025/04/how-contracts-can-help-firms-navigate-the-uncertainty-of-global-tariffs

Garland, M. (2025, May 1).  Facing tariffs, Hasbro shifting some SKU origins away from China. Supply Chain Dive.  https://www.supplychaindive.com/news/hasbro-tariffs-china-manufacturing-move/746683/

Van Owen

Good evening Class,

Hope you had another great week! If I were explaining tariffs to an elementary school kid. I would say, 

Imagine you own a toy store, and every month a delivery truck brings you a big shipment of action figures from a factory in another country. One day, the government adds a new rule saying that any truck bringing toys in from other countries has to pay extra money at the border before it can cross. You did not do anything different, but now those action figures cost more just to get onto your shelves. That is basically what happened to companies in 2025 when the government suddenly added new taxes, called tariffs, on goods coming into the United States from other countries (Finkenstadt et al., 2025). A tariff is like a border fee on imported goods, and when it shows up overnight, it can make a company's costs jump without any warning.

Finkenstadt et al. (2025) explain that the smart way for companies to protect themselves is not to just complain about the border fee, it is to write the border fee into the rules ahead of time. That is what a contract is, a set of rules two companies agree to before something happens, so nobody is surprised later. The article points to a few specific rules companies should build into these agreements. A force majeure clause is like an escape hatch, a rule that says, "if something huge and unexpected happens, like a new tariff, here is what we do about it," instead of just hoping it never happens. A price adjustment mechanism is like telling your toy factory ahead of time, "If the border fee goes up, we will split the extra cost evenly" instead of arguing about it after the shipment arrives. Diversifying sourcing means not depending on just one toy factory, so if that factory's country adds a fee, you can order action figures from a factory in a different country instead. Cost transparency means the factory shows you the receipt for the fee, so you can trust that the extra charge is real and fair, not just made up.

A real company that shows several of these tools working together is Stanley Black & Decker, the maker of DeWalt and Craftsman tools. Facing an estimated $800 million annualized hit from the 2025 tariffs, the company raised prices by high single digits on its U.S. tools in April, with another round planned for later in the year, essentially passing part of the border fee forward the same way a price adjustment mechanism would (Neuffer, 2025). At the same time, the company moved to reduce how much of its supply chain runs through China, shifting production toward Mexico so that more of its products would qualify under the U.S.-Mexico-Canada Agreement and avoid the tariff altogether, with a goal of getting China production for the U.S. below 5% by the end of 2026 (Neuffer, 2025). That is diversifying sourcing in action, not by finding a second toy factory in the same country but by moving to a country with no border fee.

Best,

Van

References

Finkenstadt, D. J., Handfield, R., & Miller, J. (2025, April 11). How contracts can help firms navigate the uncertainty of global tariffs. Harvard Business Review.  https://hbr.org/2025/04/how-contracts-can-help-firms-navigate-the-uncertainty-of-global-tariffs

Neuffer, P. (2025, May 20). Stanley Black & Decker raises prices to mitigate tariff impacts. Supply Chain Dive.  https://www.supplychaindive.com/news/stanley-black-decker-raises-prices-to-mitigate-tariff-impacts-USMCA/747979/