Contigency Planning for Supply Chain Disruptions

The article 1 describes the operational & tactical sustainment of the manufacturing & retail industry operating on and from sea, facing difficulties due to the west coast port labor issues. Transport and distribution have always been key considerations when planning for international trade. Choosing the right mode of transport is essential to ensure the import or export operation is efficient and cost-effective. The congestion that is experienced currently on the West Coast has been worsening in the past few weeks, making it arguably the worst the industry have seen in nearly a decade.

Low-cost sourcing has become core competitive strategy in many retail and manufacturing sectors. This approach has lead to sourcing a greater proportion of manufactured products from low-cost countries. The advantages of such sourcing activities has been significant but has also brought in a lot of hidden perils along with it as the frequency and severity of supply chain disruptions increases significantly. Organizations have started to incorporate contingency planning for a logistics disaster such as a terrorist attack, airport closure, Natural disaster like volcanic eruptions (Icelandic volcanic eruption in 2010) or like in our case in hand a worker strike.

   “Supply chain disruptions can reduce shareholder value by as much as eight to 10 percent, or even worse in “time sensitive” environments like retail where early market introduction is critical to success.” 2

 This particular case of workers strike has proven to be much more complicated & expensive to any other means of logistics disruption from the past. A lot of factors are involved like the boom in retail over peak season has lead to increase in retail import volumes in larger vessels discharging massive amounts of cargo containers. The trailer chassis used for moving cargo at the ports, recently sold them to leasing companies, which have had trouble deploying them where and when they are needed. All that has made it harder to load cargo, and has complicated labor negotiations. Congestion at port has lead to shortage & dislocation of chassis indirectly affecting the rail service. There’s always been shortage of rail cars and the industry is facing trouble getting railroads to take loads west from Memphis, Dallas or Chicago, because they are reducing service to the ports until the congestion clears. All the factors above adding have lead industries to import shipments via airfreight or have incurred losses maintaining larger inventory. On the other hand exports have also gotten affected multiplying the losses amounting to billions of dollars across various industries.

All this has again lead to the question if there is a better way to handle the risk involved with the global supply chain system. The current west coast fiasco has shown that most organizations are not prepared to manage such supply chain disruptions. Recent studies suggest that only between five and 25 percent of FORTUNE 500 companies are prepared to handle crises or disruptions and that a US$50 million to US$100 million cost impact can be incurred for each day a company’s supply chain network is disrupted 3. On the other hand avoiding risk is becoming more difficult by the increasing pressure to source globally, to exploit lower manufacturing costs and import products. The complexity of products and processes are also adding to the probability of disruptions.