Labor unrest can disrupt entire supply chains

on Friday, November 30, 2012

Labor unrest can disrupt entire supply chainsLabor problems have the potential to disrupt supply chains, from manufacturing facilities in Asia to ports in the U.S. These work issues can stem from poor working conditions to union disputes and prevent a company from effectively getting its products to consumers and keeping costs in line with projections.

Manufacturing troubles
Many companies engage in offshore manufacturing, especially major corporations and electronics companies. In countries in locations like Southeast Asia, manufacturing labor costs are often much lower than they would be in other parts of the world, making them attractive locations for global companies to set up shop.

However, placing manufacturing operations overseas often means a company has less oversight into how its facilities are being run and managed. News of labor unrest has become more frequent, and a recent riot at Apple supplier Foxconn's facility was noted by many. These problems are not limited to China; a recent fire that killed more than 100 in an Indonesian factory also resulted in protests from workers demanding better working conditions and benefits.

Labor problems such as this have the potential to hinder a company's production, making it impossible for them to provide consumers with a consistent supply of products, especially during busy times such as the holiday season.

Through the supply chain
Issues with labor don't just occur on one end of the supply chain. Even if raw materials are procured, manufactured and shipped without a problem, worker protests or strikes can still delay the products from getting to store shelves or to consumers.

A labor strike has had an enormous impact the busiest shipping port complex in the U.S., costing an estimated $1 billion per day, according to the Los Angeles Times. Ships attempting to unload cargo are forced to leave these California ports, meaning there could be delays in getting the products they are delivering to market. The strike doesn't just impact the logistical process - it also has the potential to disrupt other aspects of the supply chain as well.

"The longer it goes, the more the impacts increase," said Paul Bingham, an economist with CDM Smith, according to the Los Angeles Times. "Retailers will have stock outages, lost sales for products not delivered. There will be shutdowns in factories, in manufacturing when they run out of parts."

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