Supply chains are tenuous operations, delicately balancing a multitude of reliabilities, so a disruption to any part of the process can have detrimental and far-reaching consequences for businesses and consumers.
When disruption does occur, the effects cause ripples that spread and highlight the vulnerable nature of the systems. Strikes, in particular, can expose how quickly supply chains become unstable, and they can affect everything from product availability to inflation.
Supply chain vulnerability
Strikes have repeatedly demonstrated how sensitive supply chains are to interruptions – whether they affect production or distribution, the outcome is often delays, shortages, and increased costs.
Two examples of supply chain fragility are the recent US dock workers’ strike and Samsung India’s factory strike.
The US dock workers’ strike had an impact on goods being shipped into the country, with ports on the east and Gulf coasts seeing delays in shipments – particularly from Europe and South and Central America. Oxford Economics said that the sectors exposed to the disruption include tin, tobacco and nicotine. European carmakers were also expected to be affected. According to an economist speaking to the Guardian newspaper, the first casualty of this action could be items such as fresh produce, which, if left for a number of days, would ultimately perish; then, once existing shop stock dwindles, shortages in grocery stores become a reality. Meanwhile, The Samsung India strike had a direct impact on production. Their month-long halt at the company’s Chennai factory, which accounts for a third of Samsung’s $12 billion revenue in India, led to supply shortages in home appliances.
These incidents demonstrate how industrial action at any point can derail the flow of goods and leave both businesses and consumers to deal with the consequences of shortages and delays.
Supply chain flexibility
Disruptions push companies to reassess their sourcing and distribution strategies. Strikes, along with the pandemic’s earlier impact, have required businesses to adopt more resilient protection measures. COVID-19 was a wake-up call for supply chains, and it forced companies to rethink their approaches with lockdowns and panic buying throwing established systems into disarray.
As a result, many businesses developed more robust strategies to mitigate these risks to enable continuity. Methods included diversifying suppliers and increasing inventory levels. However, no matter how well-prepared a company might be, prolonged industrial action ultimately force companies to reroute shipments or seek alternative logistics –often at greater cost.
For procurement professionals, the key takeaway from these disruptions is the need for diverse sourcing options, stockpiling critical materials, and maintaining flexible supply chain plans to avoid over-reliance on a single supplier or route.
Cost implications
Another effect of supply chain disruption is rising costs. The need to find alternative logistics routes lead to increased costs, likewise, higher labour costs from industrial actions impacts businesses and, ultimately, consumers. In the US dock workers’ strike, daily economic losses were estimated in excess of $5 billion. These higher costs – from rerouting shipments or delays – typically cascade down to customers.
Similarly, in the Samsung strike, the company acknowledged workers’ demands for higher wages, which could result in increased production costs. These are likely to be passed on to consumers, complicating pricing strategies and squeezing margins. For procurement teams, this means that forecasting and budgeting become even more challenging.
Automation and labour disputes
Labour disputes often showcase a deeper tension between employee demands and the push for automation. During the US dock workers’ strike, the resistance to port automation and semi-automation was a significant issue and highlighted the conflict between improving operational efficiency and protecting jobs.
The Samsung strike underscored another issue – union recognition and the challenges multinational companies face with local labour laws. Resolutions to disputes such as these take time, but they also leave companies vulnerable to further disruptions if the issues aren’t fully resolved. This ongoing risk reinforces the need for procurement professionals to plan not only for immediate disruptions but also for long-term challenges in workforce relations.
Mitigating future risks
When disruptions to supply chains occur, inflation is often not far behind. Delayed goods, increased costs, and prolonged negotiations all contribute to upward pressure on price increases – often passed on to the consumer.
One way to mitigate future risks from strikes is to diversify sourcing. Relying on multiple suppliers across different regions reduces the impact of a localised strike, and stockpiling critical materials where possible can help manage shortages in times of disruption. In terms of automation, it can help to streamline operations and reduce labour intensive processes; however, there is a balance between ensuring labour workers feel job security and automation is seen as a tool to better working practices and upskilling and not as a job replacement.
