Managing supply chain risks: 4 ways to avoid trouble
In a volatile business environment, companies must identify supply chain risks and act proactively to reduce the impact of disruption. Here are four key strategies.
Industry experts fear a prolonged strike by the United Auto Workers against the Big Three automakers could upend the automotive supply chain and damage the US economy.
The UAW strike was launched Sept 15 targeting a Ford assembly plan in Michigan, a General Motors factory in Missouri, and an Ohio plant owned by Chrysler parent company Stellantis. The union said it will expand the strike to more plants on Friday if there’s no real progress in talks with the automakers.
There are already reports of the strike’s supply chain impact, including layoffs at auto parts suppliers. Experts say a prolonged strike would have a domino effect on suppliers, auto dealers, the trucking industry, and consumers.
UAW strike impact so far
As negotiations drag on between union leaders and the Detroit automakers over pay and benefits for workers, the supply chain is already feeling the effect of about 13,000 workers off the job.
According to an Associated Press report, 12 shops that supply parts to the Ohio plant have laid off more than 1,600 workers. In Michigan, a parts supplier told officials it expects to close four plants for a month beginning in October.
General Motors halted production at a Kansas plant and laid off 2,000 workers, citing a shortage of parts, according to CNBC. Stellantis also announced layoffs at parts factories due to strike-related impacts.
United States Steel Corp. said it’s temporarily shutting down a blast furnace in Illinois as a risk mitigation response to the UAW strike, according to a local TV report. It’s unclear how many workers could be impacted.
Looming threat to automotive supply chain
If the UAW and Big Three fail to reach a deal soon and the strike expands to more workers and more plants, the impact on the supply chain could be extensive and potentially devastating, experts say.
A strike that lasts for more than a few weeks would have a cascading effect, reducing demand for steel, paint, and plastics, Rob Handfield, Distinguished Professor of supply chain management at North Carolina State University, wrote in a blog post.
“We’ll start to see a cascade further upstream with Tier 2, and Tier 3 suppliers. These smaller suppliers, especially small tool and die shops, and plastic injection plants, may start to see workers laid off. This rolling effect could dampen the economic outcomes for the country.”
Joseph Sarkis of the Worcester Polytechnic Institute, told Spectrum News 1 that the most vulnerable companies are downstream parts and service suppliers to automakers.
“And some of them, if there is a prolonged strike, may actually go bankrupt,” he said.
According to the US Chamber of Commerce, more than 5,600 US suppliers make components for the Detroit Three automakers. An estimated 690,000 supplier jobs are tied to the Big Three.
The UAW argues that the huge disparity in pay between workers and CEOs is untenable. While CEO pay has skyrocketed, cuts that workers agreed to during the 2008 recession, such as cost of living adjustments, weren’t reinstated.
According to the Economic Policy Institute, profits at the Big Three automakers shot up 92% between 2014 and last year; CEO pay increased 40% during that same period. Auto worker wages across the US have fallen nearly 20% since 2008.
UAW strike: Economic impact could be far-ranging
In August, Anderson Economic Group estimated that a 10-day strike by 143,000 UAW workers on the Big Three could cost the US economy more than $5 billion.
The group said its estimate was based on potential losses to UAW workers, the automakers, and the auto industry overall.
According to the AP report, the president and COO of Hyundai Motor Corp. said the strike could impact production at nonunion automakers due to the interconnected nature of the automotive supply chain.
Handfield said a prolonged strike could impact production of electric vehicles, noting there’s less inventory of EVs and EV batteries.
“If the strike continues, it could also impact inventory on dealer lots, and we would likely see an increase in prices, and possibly used car prices as well as supply cannot keep up with demand.”
He added that many Big Three auto plants produce spare parts for repair and warranty work, which are distributed through unionized distribution operations. “So there could be an impact on dealerships getting parts, which could delay part repairs.”
Fewer parts and vehicles rolling out of plants will also impact the US trucking industry, Chris Spear, president of the American Trucking Association said in a Freightwaves report.
“Trucks move more than $950 billion worth of cars, trucks and parts. That’s hundreds of millions of tons of freight that are subject to disruption if this dispute continues for a significant period of time,” he said.
