**London**: As labour negotiations and strikes disrupt supply chains, companies adapt by shifting strategies towards local production and diversifying suppliers. Economic impacts and demands for higher wages spark concerns over inflation, necessitating stronger supplier relationships to navigate the evolving landscape of procurement effectively.
In recent months, the dynamics of supplier relationship management (SRM) and procurement strategies have taken centre stage as companies grapple with a changing landscape driven by recent labour negotiations and strikes across key sectors. A notable instance occurred when U.S. West Coast ports faced potential strikes in 2023, prompting many firms to reroute their freight through the Panama Canal instead of the traditional West Coast hubs. This decision led to a measurable decline in market share for these ports, compelling firms to explore alternative shipping routes as ongoing negotiations unfolded with the International Longshoremen’s Association (ILA).
The economic fallout from labour unrest is substantial, with estimates from J.P. Morgan indicating a staggering impact ranging from $3.8 to $4.5 billion per day. In the pursuit of a more robust economic footing, the ILA and port operators have tentatively agreed to significant pay increases, reportedly raising wages by 62% over the next six years. In parallel, the Boeing machinist union settled a protracted seven-week strike with a 38% pay rise over the same period. The implications of such wage increases have stirred concerns about further inflationary pressures in an already beleaguered supply chain.
However, the demands of the labour force extend beyond mere financial compensation. The ILA is advocating against the automation of cranes, gates, and container movements critical to freight operations, an unresolved issue that could potentially raise costs and jeopardize the competitiveness of U.S. ports in a global context. As highlighted by the Wall Street Journal, productivity levels at the L.A. and Long Beach ports lag significantly behind their international counterparts, being approximately half as efficient as China’s leading facilities.
In response to these disruptive events, supply chain executives are increasingly recognising the need for resilience in their operations amid a landscape of volatility, uncertainty, complexity, and ambiguity (VUCA). Companies are taking proactive measures to adapt to these challenges and maintain a competitive edge. For many, this involves reassessing existing strategies, enhancing processes, and adopting advanced technologies for greater flexibility and responsiveness.
Traditional cost-driven procurement strategies are evolving. Manufacturing in distant locations to reduce labour costs has become less viable, especially when faced with potential supply chain chokepoints and geopolitical risks, such as those revealed during the Red Sea crisis. A pivot towards localising production through reshoring and nearshoring has emerged as a key strategy, exemplified by Ascential Medical and Life Sciences’ recent establishment of a domestic manufacturing facility in Minnesota aimed at improving control and reducing risks associated with transportation delays.
Moreover, many companies are diversifying their supplier base to mitigate risks. This includes forging strategic partnerships, establishing backup supply chains, and embracing vertical integration. Enhancements in business processes are critical for companies looking to improve their operational success amidst these challenges. For instance, rolling out a Sales, Inventory, Operations Planning (SIOP) framework enables firms to respond swiftly and effectively to changes in customer demand and supply disruptions. Companies that have successfully integrated these processes can significantly improve service levels while simultaneously reducing unnecessary inventory and costs.
Technological advancements also play an essential role in creating resilient supply chains. Companies are increasingly utilising advanced planning systems equipped with artificial intelligence (AI) to facilitate rapid decision-making during times of disruption. Such systems help planners adapt production plans based on real-time data, thereby ensuring that customer requirements are met even during crises such as strikes. Automation in manufacturing processes further enhances this flexibility, allowing for continuous production and quick adjustments as required.
In logistics, sophisticated technologies streamline processes, enabling companies to swiftly reroute shipments and optimise costs in response to changing conditions. As companies strive for more resilient and responsive supply chains, collaboration and the nurturing of strong supplier relationships are becoming paramount. By fostering these connections, firms can not only navigate current challenges but position themselves for greater success in the future. As the demand for more robust supplier management continues to rise, the evolving landscape of procurement reflects a transition from a focus on cost management to a broader commitment to value creation and competitive advantage.
Source: Noah Wire Services
