Contingency planning for supply chain disruptions

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Ramadesikan Jagannathan, Strategic logistics management

02/03/2015
The article

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 costeffective. 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.

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. Theres always been

Contingency planning for supply chain disruptions

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Ramadesikan Jagannathan, Strategic logistics management

02/03/2015
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 companys supply chain network is
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disrupted . 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.
To conclude the companies have to take broader approach & develop supply chain strategies that will
highlight the impacts of such disruptions in terms of brand performance, globalizations & complexity
of developing products. For example in high-tech markets, companies such as Sony have even pulled
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their manufacturing out of China and moved it to Japan . Sony executives found that the relatively
unresponsive Chinese production lines could not adapt fast enough to cope with the unpredictability of
market requirements for digital cameras. Similarly companies would be expected to design strategies
with contingency plans, which would improve visibility with all key supply chain nodes to detect
supply chain disruption earlier & enable short-term recovery plans. Also long tem collaborative
approach has to be taken into consideration where in company strategically re-designs its supply
chain over time to become more resilient and avoid such disruptions. The level of awareness of

Contingency planning for supply chain disruptions

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Ramadesikan Jagannathan, Strategic logistics management

02/03/2015
potential disruptions, and the capability to respond, will be the single effective preventive action that
organizations can take to protect themselves from the effects of a major disruption like the west coast
port labor strikes from disrupting global operations.

References
1. West Coast Port Snarls Will Take Months to Unwind. (2015, January 27). Retrieved from
http://www.wsj.com/articles/west-coast-port-snarls-will-take-months-to-unwind-1422395878
2. Hendricks, K. and Singhal, V. (2003). The Effect of Supply Chain Glitches on Shareholder Wealth.
Journal of Operations Management, 21, pp 501- 522.
3. Mitroff, I. and Alpasan, M. (2003), Preparing for Evil, Harvard Business Review, April 2003, 109-115
4. Jiang, B., What Pulled Sony out of China? Supply Chain Management Review, Jan/Feb 2003, pp. 2327.