OM in the News: Global Supply Chains and the Port Gridlock

The labor dispute that caused months of gridlock at West Coast ports may be over, but the disruption is expected to redraw the trade routes that goods take to reach U.S. factories and store shelves, reports The Wall Street Journal (Mar.6, 2015). About 1/2 of all U.S. cargo has flowed through these ports, including imports as diverse as sneakers, soy sauce and auto parts. But over the past year, supply-chain managers have increasingly shifted cargo to ports on the East Coast, Gulf Coast and in Western Mexico and Canada in attempts to avoid growing congestion resulting from union slowdowns.

This is bad news for West Coast ports, truckers and railroads already worried that the expansion of the Panama Canal, due for completion next year, would begin to divert more business to the East Coast. Already it is expected to take 3-6 months for West Coast ports to return to normal (29 ships are still anchored outside the LA area ports).

Supply-chain flexibility has become increasingly important since the 2008 economic crash, as businesses have become more focused on keeping inventories lean and scheduling deliveries to arrive just as they are needed. Decisions are made on a day-to-day basis, with the most sophisticated shippers tracking progress of their shipments via cloud-based technology.

The West Coast port chaos is just the latest event prompting shippers to both diversify transportation modes and ports. Hurricanes, a tough winter, or labor issues all can trigger severe product delays or even empty shelves, costing companies tens of millions of dollars. The biggest shippers, including Wal-Mart, Home Depot, and Target, have employed for years what is known in the industry as a “4-corner strategy,” in which networks are expanded to include warehouses at northern and southern ports on both coasts and the Gulf of Mexico. Now even smaller companies are diversifying.

Classroom discussion questions:

1. What is the 4-corner strategy and why is it being used?

2. Why are supply-chain managers concerned about the West Coast port slowdowns?