Just-in-Time Inventory System Proves Vulnerable to Labor Strife
By DAVID GREENBERG
With 50 percent of his holiday merchandise sitting on container ships off the Ports of Los Angeles and Long Beach, Charlie Woo was worried last week that customers of his Los Angeles-based toy manufacturing operation would begin canceling orders.
To make matters worse, the chief operating officer of Megatoys would need to store the canceled merchandise in a 20,000-square-foot Commerce warehouse facility he had planned to use for a Valentine and Easter gift basket operation.
Holiday sales of his Asian-manufactured merchandise generate half his company’s $30 million in annual revenues. “There is a potential to lose a chunk of my business,” he said.
Woo had fallen victim to just-in-time delivery, a tenet of manufacturing and retailing that generally works like clockwork, but can wreak havoc when goods are prevented from coming ashore.
Developed by Japanese auto manufacturers in the 1960s, just-in-time delivery is now the norm in most industries. It is hailed as a way to cut costs of storing and delivering products by 10 percent to 12 percent annually while increasing product quality.
But it is vulnerable to disruptions in the supply chain particularly given the magnitude of a port lockout as the crucial holiday season approaches.
“Anybody reliant on goods from the Pacific is going to feel the pinch right away,” said Peter Olney, associate director of the University of California’s Institute for Labor and Employment.
With the just-in-time concept firmly in place, businesses are more vulnerable to a work stoppage than they were in 1971, when the International Longshore and Warehouse Union staged its most recent strike, one that lasted 134 days.
Back then, businesses had inventories for weeks, if not months, and were prepared for labor unrest. Today, retailers and manufacturers generally lease enough warehouse space to hold no more than a month of merchandise or parts.
American automakers and heavy durable goods manufacturers began implementing the just-in-time system in the early 1980s, taking their cues from the successful Japanese systems. Retail goods are unloaded and manufacturing parts are used within hours or days of their receipt, drastically reducing the amount of costly storage space needed.
On the manufacturing side, each set of just-in-time parts is inspected as they are being assembled into components so defects will be detected immediately. Before, inspections were made only after the component was assembled, so if it was defective, workers had to break the piece down to locate the problem, search their warehouses for the rest of the shipment, and return the load to the supplier.
“Just in time delivery alerts you to the problem right away,” said Dan Sieger, a spokesman for Toyota Motor Manufacturing North America, which makes parts for its line of Tacoma pickup trucks in Long Beach. “There are quality checks at each step of the process.”
Computers, on-ship bar coding and label scanning have played important roles in the system because they connect all links of the logistics chain, allowing for the efficient tracking and moving of cargo.
Shorter warehouse time
For auto parts, the time that goods sit in warehouses has dropped to three or four days from a month; for apparel, a week from four to six weeks; for non-perishable foods three or four days from a month; and for electronics one week from a month.
“In just-in-time, everything is very interdependent,” said Sieger. “Everyone relies on everybody else.”
Adhering to the just-in-time concept can be expensive in times of emergency such as at ports.
To meet promised delivery times in these cases, air freight costs up to 10 times more than ships and there are not enough planes in service to handle all the goods transported by ships. Planes also lack the capacity for large orders or heavy equipment.
Late last week, nearly all of L.A.-based EStyle Inc.’s holiday merchandise remained off shore, including a line of teddy bears and nursery rockers that grace the front and back covers of the company’s catalogue that will arrive at 1 million homes nationwide on Oct. 15.
“This reminds American businesses that there is some value to producing goods in the United States,” said Goetz Wolff, research director at the L.A. County Federation of Labor.
Assessing Sides in Port Tussle
International Longshore and Warehouse Union
– A single bargaining unit for all 29 West Coast ports can constrict cargo traffic.
– Shippers have few viable alternatives. Air freight is more costly, and diverting cargo to East Coast ports is both costly and time consuming.
– The 68-year-old ILWU is so unified that casual laborers are not expected to cross picket lines.
– Just-in-time delivery leaves retailers and manufacturers with little inventory as the holiday season approaches, adding pressure from shippers to settle.
– If President Bush invokes the Taft-Hartley Act, sending both sides back to the bargaining table for 80 days, union will lose leverage because holiday season will be over.
– Hasn’t staged strike since 1971. Lack of experience might make it vulnerable to strike breakers.
– ILWU officials say there is only $2 million in strike fund, which won’t last long.
Pacific Maritime Association
– Has Bush administration on its side with threats of invoking Taft-Hartley.
– Has backing from shipping companies to stand firm on technology issue. Members caved to union demands to avoid strikes in previous contract talks.
– Lockouts can be executed by order of PMA, while strike requires vote that would take weeks to implement.
-Took out a $200 million line of credit in January to weather the labor storm.
– Taft-Hartley does not negate protracted strike, which happened when the union walked off the job in 1971 for more than 100 days despite federal intervention.
– Lack of unity. Shipping and stevedore companies are in competition with each other.
-Has history of caving into union demands.