Supply chain disruption happens ‘just in time’

A global spectacle unfolded in March when the giant container ship Ever Given, bound for Rotterdam from Malaysia, got stuck in the Suez Canal for six days, stopping 150 ships in one day and supporting maritime traffic for an estimated cost of $ 1 billion (£ 750 million).

But the Ever Given snafu was not an isolated incident. On the other side of the world, in early November, some 77 container ships were stranded at sea outside the ports of Los Angeles and Long Beach, while nearly a third of ships docked had to wait five days or more to be unloaded. . Bloomberg said a “global supply chain crisis” “was pushing warehouses to capacity and forcing logistics officials to scramble to find space.” The Institute for Supply Chain Management reported that manufacturing activity was down as “supply chain challenges continued to weigh on US manufacturers in October.” What is happening?

The immediate cause of the supply chain crisis that began in 2020 has been a sharp increase in consumer spending on durable goods, as Covid-19 restrictions have led people to buy more goods for the home and fewer services in shops, theaters, bars and restaurants outside. Many of these goods came from overseas and had to be moved across the country anyway.

The problem, however, did not start with the pandemic. The American Industrial Journal Transportation topics reported in 2018 that road and rail carriers were already “struggling to meet demand.”

LABOR SHORTAGE KEY

The most important underlying cause of the 2021 US supply chain backup and crisis is a long-standing “shortage” of workers to move goods.

According to the American Trucking Association, there is a “historically high” shortage of 80,000 drivers. It’s not just truckers with the virus. Nor is this “shortage” due to a lack of people capable of driving trucks. As any Teamster can tell you, it’s the stagnant wages, long hours, high stress and health issues that keep workers away from industry and job seekers away. And that was the case long before the pandemic hit.

Warehouse workers, who also saw their wages stagnate and poor conditions during this period, were also relatively rare for the same reasons. The recent wage increases – which have resulted from these labor shortages and high levels of “quits” – are too small, too late.

To make matters worse, over the past few years, major freight rail carriers that move freight across the continent have reduced their workforce by using Precision Scheduled Railroading, their version of just-in-time lean production. . As a result, the number of workers on Class I freight railways increased from 170,000 in 2017 to 135,000 in 2020, while rail freight increased by 40 percent in weight and 37 percent in value. in dollars from 2010 to 2019. According to the organization Railroad Workers United, PSR has reduced “railcar equipment when needed”, “blocked ports and terminals” and depleted train crews, contributing to the crisis of the supply chain.

A shortage of truckers, railway workers, warehouse workers and others along the country’s supply chains means congested ports, ships stranded and unloaded, overloaded warehouses, increased delays, empty shelves and higher prices. An executive from the Association of Supply Chain Management summed up the problem in November: “Transportation is riddled with disruption,” including “the shortage of truckers and concerns about recruiting people into warehousing and freight jobs. transport ”.

When the pandemic struck in early 2020, delivery times for manufacturing and construction suppliers in the United States jumped 30%. In other words, a delivery that previously took two days would now take more than two and a half days. They fell somewhat at the end of the year, then rose by more than two-thirds in mid-2021.

JUST IN TIME ACCELERATION

What made this unprecedented disruption of the supply chain hit so hard and so quickly was the speed at which a single problem in the production or movement of goods due to a shortage of labor- of work or space can disrupt supply chains that crisscross the world.

Whether you are delivering parts to a factory or buying from home, these days it will be “just in time”. For example, a part ordered by an automaker from a supplier is expected to arrive as needed on the assembly line rather than being stored in inventory. This tightly calibrated movement is designed to keep commodities and money in perpetual motion. But once a link in the chain breaks, stalls, or overloads, the impact is immediate, deep, and widely felt. Just-in-time delivery is its own downfall.

Just-in-time is the idea of ​​Taiichi Ohno, an engineer at Toyota Motors in the 1950s. In the context of lean production, Ohno defined just-in-time delivery as a means of increasing profits by eliminating “waste” ie inventory, extra workers and more minutes. Instead of spending time, manpower, and money storing parts along the assembly line or in a warehouse (as manufacturers had done for decades), the idea from Ohno was that suppliers could deliver them exactly as needed, thereby eliminating inventory. This involved taming the Japanese unions and a huge acceleration of work. Years later, Ohno recalled: “If I had faced the [militant] Japan National Railways Union or American Union, I may have been murdered.

Since the introduction of lean and “just in time” production in the Western auto industry in the 1980s, these methods have spread to all types of production of goods and services, transportation and sales. by retail. Big retailers like Walmart and Amazon and producers like Ford and General Motors have forced it to downsize every supply chain until every supplier, big or small, is supposed to deliver products just in time to the next buyer. In the case of retailers like Amazon or Target, this means minimizing the inventory of any good based on the projected demand for that product using digital analysis. Amazon moves goods so quickly through its system that it actually receives your payment for a product you buy before paying its supplier.

This was to reduce costs and manpower by reducing inventory and inventory. And indeed, the inventory-to-sales ratio for US non-farm businesses fell 35% from 1980 to 2020. Along with other savings on labor, this helped US non-financial business profits to rise. increase by 40% from 2010 to $ 1.8 trillion in 2020 despite a relatively small slowdown. economic growth.

DO NOT STORE IT, MOVE IT!

To accelerate the pace of movement throughout the supply chain, the 21st century has seen the warehouse move from a place of storage to a place of movement: goods enter through one door and exit through another as soon as possible. possible. Even though there are more warehouses and warehouse workers than 20 years ago, little of that space and human force is devoted to storage. So when the pandemic hit and consumer demand skyrocketed, there was no inventory to draw on. Instead, more goods have entered and across the country and without enough workers to move them fast enough things have piled up and traffic is stalled. All the “Big Data” and the digital coordination of supply chains have not been able to compensate for the lack of manpower.

Speed ​​brings greater risk. Floods, power outages, IT problems, bad roads, labor disputes or, as we have seen, pandemics and business problems can bring a system to a halt just in time because it does not there is no slack in the system. Low stocks increase the chances of disruption, while speed propels dislocation up and down the supply chain via “ripple” or “snowball” effects.

Disruptions have a quick impact not only on deliveries, but also on a company’s finances. For example, a study of 397 U.S. companies between 2005 and 2014 found that a single supply chain disruption of any kind resulted in an average sales decline of 4.82%, while operating income fell 26.5% and return on assets (investment) fell 12.7%. during the three months following the incident. The strikers take note.

RISK, RESILIENCE OR RESISTANCE

Aware of all the potential problems, contemporary supply chain managers and logistics experts debate “risk” versus “resilience”. Resilience means including enough slack in the system to minimize or quickly recover from a disruption: thus larger “just in case” inventories, multiple suppliers, higher costs and most importantly more workers and potentially less profit.

Decades of deregulation, privatization and market worship devoted to increasing profits have left society vulnerable to the unbridled force of just-in-time supply chains, while depriving us of the political means to tame the beast. The weakening of trade unions and worker-employer cooperation programs has also limited our ability to curb the source of all supply chain movements: the workplace, whether a factory, warehouse, truck or train, port, computer screen, store.

Regardless of the degree of automation or digital tracking throughout the supply chain, every point of production and movement of goods and service delivery depends on workers, with millions of them in the infrastructure and transportation of companies alone. United States. In the final analysis, the speed of just-in-time delivery is created by the intensification of work and acceleration at work. In itself, “Big Data” cannot change anything.

The “resilience” that managers have spent decades breaking down through acceleration is actually about employing a sufficient workforce to get the job done at a livable and healthy pace. Labor has the potential power to impose this human rhythm on the production and movement of goods and services by striving for decent working conditions throughout the supply chain. Build unions, raise living and working standards, shorten hours for higher pay – and this supply chain crisis will subside, labor shortages will become a thing of the past and a thing of the past. A heavy blow will be dealt to the scandalous inequalities of today.

Kim Moody was one of the founders of Working notes and now lives in London where he is a researcher, frequent writer on labor issues and a member of the National Union of Journalists.

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