Port Strikes Can Present a Significant Supply Chain RiskOn November 27, 2012, approximately 800 members of the International Longshore and Warehouse Union Local 63, all clerical workers at the Los Angeles and Long Beach ports, went on strike. At first glance, it doesn’t seem as though a clerical strike should have a significant impact on port operations, but the 10,000 unionized dockworkers who also work there refused to cross their picket lines. And thus the largest port operation in the United States, representing approximately 40% of the value of imports brought into the U.S., ground to a halt. Further complicating matters, other U.S. ports along the west coast also refused to take any vessel rerouting from L.A. The economic cost of the strike was estimated at $1 Billion per day.
Labor and management were fortunately able to come to an agreement after only a week, but the problems for companies relying on shipments from Asia and Australia did not end with the strike. They still had a backlog of goods on ships waiting to dock and on the dock waiting to be moved to the rail and truck yards. At the end of the day, most companies probably saw at least a two-week delay in their shipments, and maybe even up to three weeks in some cases. For an organization that runs as lean as possible, two or three weeks can be an eternity.
An event like this can take even the most prepared company by surprise. In fact, all of our global manufacturing clients were affected in one way or another. Comprehensive supply chain risk management can position an organization to understand risk positions better, take preventive measures, and respond quickly to minimize the potential impact from an event such as this.
Key elements of a comprehensive supply chain risk management strategy include:
- Knowing the impact of long lead times and design decisions on operational flexibility
- Having the ability to monitor supplier performance (including item-level details in your complete supply chain)
- Understanding the risk exposure in your supply chain (not just as a ranking number but as a dollar impact to your bottom line)
- Positioning inventory along the supply chain for low cost, high flexibility, and low risk
For example, a centralized supply chain Control Tower can assess the impact of a port strike (or any other supply disruption event) and immediately begin actions to re-route shipments, cover shortages, and ultimately reduce or even avoid stock-outs and critical part shortages.
Flexible product designs as well as flexibility in manufacturing allow for immediate adjustments within the organization. Instead of costly air cargo shipments or lengthy shipment re-routings, alternate parts can be used or manufacturing can switch production plans to accommodate for part shortages. Similarly, for parts with high financial impacts but low unit prices, dual sourcing and inventories close to manufacturing can improve flexibility and reduce the cost of responding to disruptions such as a port strike.
Our analysis and experience show that this additional flexibility and risk reduction can be achieved while actually reducing not only total costs (material, transportation, inventory), but also reducing complexity of your operations. Often, most of the improvements are achieved with rather small changes – but you have to know where to change.
Looking ahead, there continues to be instability between union workers and port management on both US coasts. Four days before the February 6th deadline, the International Longshore and Warehouse Union reached a tentative agreement over a new six-year Master Contract for East and Gulf Coast dock workers. That contract was threatening 15 of the largest ports on the East and Gulf Coasts of the U.S. Experts are hopeful that this contract will be approved by the union voters, but there is always the possibility that it can get rejected. Back in Long Beach, the International Longshore and Warehouse Union Local 63′s Office Clerical Unit just last week rejected the contract proposal that ended the 8-day strike in December. It remains to be seen whether another strike is called or if contract negotiations can move the two sides closer to a long-term agreement.
Is your organization ready for a work stoppage at a major port? How have you prepared for future events like this, be it a labor stoppage or a natural disaster that can wreak havoc on your supply chain? Take a look at our resources page for more information.
*photo credit: bloomberg.com
Written by Jeffrey Keene, a consultant at OPS Rules Management Consultants
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