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Sunday, 24 May 2015 22:00

Re-evaluating the just-in-time production model: West Michigan manufacturers react to persistent supply chain disruptions

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A protracted labor dispute that slowed the shipment of products through ports on the West Coast has forced some West Michigan manufacturers to rethink their just-in-time production model.

While the nine-month dispute between longshoremen and their employers ended in February, West Michigan manufacturers are still reeling from the supply chain disruption that left valuable components and products stranded on ships as they waited their turn to offload cargo. Trucks, railcars and freight processing points continue to struggle to keep up with the influx of volume, leading to continued delays for manufacturers.

As a result, some companies paid higher freight costs as they looked to expedite shipments once the products were eventually offloaded. Others, meanwhile, turned to domestic suppliers — and incurred the cost of additional tooling and testing — just to satisfy their customers’ deadlines.

For Zeeland-based Howard Miller Co., the labor dispute more than doubled the shipment time for components the manufacturer uses in its clocks, curio cabinets and other home furnishings. The normal four-week lead time to get components from overseas suppliers to its plant in West Michigan has been extended to 10 weeks and longer in some cases, said Doug Dykstra, the company’s materials operation manager.

“The delays are still going on at the ports,” Dykstra said. “They worked to get rid of the backlog and then the railroads get all behind and then Chicago gets behind and it’s a domino effect until it gets cleared.”

As labor disputes, natural disasters and other events prove the volatility of the global supply chain — and given the current availability of historically inexpensive debt financing — many manufacturing executives say it’s time to consider adding warehousing capacity to maintain some inventory to hedge against future disruptions.

“With the cost of money being what it is today, the concept of carrying that amount of inventory isn’t nearly as expensive (as it once was),” said Brian Long, director of supply chain management research for Grand Valley State University.


Even with dockworkers back to working at full capacity, it’s likely that it will take several months to completely clear the backlog of ships that have been waiting to deliver goods to the ports, according to industry experts. Moreover, as a rush of freight is offloaded in Long Beach, Calif. and elsewhere, the rest of the logistical supply chain is struggling to absorb the significant increase in traffic.

The West Coast ports account for 40 percent of all container cargo in the U.S. — the equivalent of 12.5 percent of the U.S. GDP, according to data from CBRE Group Inc.

“You handle that much of the total volume coming into the country and then put the brakes on and it affects the whole country,” Dykstra said.

Howard Miller incorporated longer lead times prior to the labor dispute, a move that helped shield it from some of the impacts of the port slowdown, Dykstra said.

“It was smart that we increased lead times,” Dykstra said. “There’s no easy solution to the whole problem because of the sheer volume that Los Angeles and Long Beach handle.”

Indeed, West Michigan-based companies of all sizes have had to adjust because of the labor dispute.

The “frustrating” West Coast port situation cost Rockford-based Wolverine World Wide Inc. (NYSE: WWW) about $10 million in the first quarter, Chairman, CEO and President Blake Krueger told brokerage analysts in late April in a call to discuss the company’s first quarter performance. The situation also led to delays in the receipt of goods, particularly for the Keds and Wolverine brands, Krueger said.

The delays, along with other factors, contributed to a 9.8 percent decline in inventories for the quarter. Senior Vice President and CFO Don Grimes attributed about half of the $45.9 million decline in inventory to the port situation.

Still, the problem could have been much worse for Wolverine had it not been actively managing its inventory, Krueger told analysts.

“We were pretty proactive on the whole West Coast port situation,” Krueger said.


The recent labor dispute started to take shape in May 2014 as contract talks began to break down between the Pacific Maritime Association — the group that represents port employers and managers — and the International Longshore and Warehouse Union ahead of the previous contract’s July 2014 expiration date.

During the negotiations, the ports never fully shut down, but workers often refused to unload ships or took days off, grinding operations to a standstill and causing operations to slow to around 50 percent capacity, according to the CBRE report.

The impacts of the West Coast labor dispute may illustrate a larger issue at hand with the global supply chain, namely that maintaining inventory might be a necessary hedge against volatility.

With companies scrambling to source the inventory they need to meet current contracts, it may be time for manufacturers to rethink single-dimensional supply chains and strict just-in-time delivery practices, said GVSU’s Long.

“We’ve gotten so ingrained with just-in-time that, to some extent, it’s become a religion for some companies,” Long said. “(Companies) bragged about how absolutely low they could get their inventories.”

Long points to the recent labor issues along with natural disasters such as the tsunami that ravaged Japan in 2011 and wiped out a considerable amount of the country’s manufacturing supply chain as evidence that just-in-time also has its share of pitfalls.

“Companies were assuming they had their bases covered because they were working with a few key suppliers that knew their business,” Long said. “However, the acts that have occurred during that time have shown otherwise.”

With the relatively low cost of debt, Long suggests that companies consider investing in larger warehousing space and a more diverse supply base to act as backup sources of components as a hedge against future supply chain upheaval.


Kalamazoo-based Glassmaster Controls Co. LLC is one manufacturer that increased its inventory levels to compensate for an additional six weeks to eight weeks of shipping time for components from its overseas suppliers as a result of the West Coast port slowdown.

Since the manufacturer of mechanical cables for the automotive, heavy truck and recreational vehicle industries operates on a small budget for logistics, it opted to work with one of its foreign supply chain partners to keep expedited freight costs down, said Michael Geschwendt, a purchasing agent at Glassmaster.

“Smaller companies like us can’t pay the prices to get the products out,” Geschwendt said of the higher costs of air freight.

The company also worked with one of its foreign suppliers that operated a warehouse outside of Oakland, Calif. to gradually build inventory before shipping components to Kalamazoo via UPS.

Going forward, Glassmaster plans to build more inventory to hedge against future supply chain disruptions. The company also expects to keep in close contact with its shipping partners along the West Coast to better plan for any potential problems before they arise, Geschwendt said.

However, he added that broadening the supplier base is not really an option for Glassmaster given the company’s limited resources.

“I’d love to eliminate overseas production, but we can’t compete with labor costs,” Geschwendt said.

The West Coast situation also has changed the behavior of a number of shippers, many of which have looked to diversify their shipments to other ports.

Sixty-five percent of the 138 companies surveyed in a February study conducted by the Journal of Commerce (JOC) — a subsidiary of IHS Inc. — noted that they have diverted their shipping routes away from U.S. West Coast ports, mainly to other facilities on the East Coast or in western Canada.

Dykstra at Howard Miller said supply chain managers need to balance the added costs with the risks of component and material shortages.

“It’s always smart to have backup sources, (but) unfortunately those can be more expensive,” he said. “You have to weigh the options of increased lead times and planning further out versus taking the risk and possibly having shortfalls.”

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