Just when manufacturers and distributors thought some semblance of “normal” might be returning, the possibility of a railroad strike has resurfaced.
The scenario of a rail strike sheds light on the unsteadiness that has come to define today’s global supply chain, as QAD’s Stephen Dombroski wrote recently in an article in Food Logistics.
Consumers may not be aware, but manufacturers and distributors know all too well the immense volume of American manufactured and distributed goods that depend on rail transportation in all vertical industries, from industrial, chemical and high-tech to food and beverage and automotive, among others. Rail transportation is the best choice to move raw materials, ingredients, packaging, work-in-process, finished goods and essential supplies like fuel, solvents and processing chemicals.
According to a recent Bloomberg article, trains move about 28% of total U.S. freight. Half of that traffic involves bulk commodities — particularly food, energy, chemicals, metals and wood products — plus automobiles and industrial parts. The other 50% consists mostly of shipping containers carrying smaller consumer goods.
An enormous volume of products hangs in the balance, with wide-ranging ripple effects. It is estimated that a rail strike could cost the U.S. economy up to $2 billion a day.
The stakes couldn’t be higher.
Transportation-related Supply Chain Challenges Remain
Manufacturers and processors know that the supply chain remains battered and fragile. While responding to supply challenges by adapting to new ways of working, increasing inventories and improving digital and risk management strategies, manufacturers understand the harsh truth:
“…recent events have shown that supply chains remain vulnerable to shocks and disruptions, with many sectors currently wrestling to overcome supply-side shortages and logistics-capacity constraints,” according to an article from McKinsey. “In many sectors, there are signs that the rate of investment in digital supply-chain technologies is slowing down. Talent gaps are wider than ever, end-to-end transparency remains elusive, and progress toward more localized, flexible supply-chain structures has been slower than anticipated.”
Stephen points out that “The industry needs to treat the supply chain like it is a living, breathing thing that has a mind of its own. Companies need to anticipate how its moves, twists and turns will impact both short and long-term scenarios for all manufacturing sectors and all regions.”
An Urgent Need for Contingency Planning
The specter of a rail strike highlights the critical importance of contingency planning. Anticipating how the supply chain will react to those scenarios is essential.
Some logistics and shipping businesses have already prepared contingency plans in the event of a rail strike. Many rail freight providers started over the summer and early fall by moving priority freight such as chlorine and ethanol ahead of common freight, according to a report from CNBC.
Events like a rail strike underline how urgent contingency planning really is. And while many industries are still rebuilding from the effects of the pandemic by re-engineering facilities, improving safety measures, and planning ways to respond to labor shortages, there are steps to take to avoid operational impacts.
In our implementation processes, we underscore the importance of contingency planning. Among our lessons learned from hundreds of successful implementations, our number one is to follow full due diligence by conducting and including contingency planning.
As a core survival strategy, many organizations are adopting technologies and methods, such as moving to the cloud to gain better data availability and integration, and implementing guidelines to prepare for disruptions. They understand the serious nature of contingency planning.
Contingency Planning with an S&OP Process
A sales and operations planning (S&OP) process guides organizations in strategic planning and execution to include contingency planning. Stephen writes: “It takes the integration, dissemination and passing of data from distributions, forecasting, manufacturing and supply planning systems to align all areas of a business with trading partners. One of the critical steps to make this work at all levels of planning is the inclusion of your entire business ecosystem – your customers and suppliers as well as the departments of your enterprise.”
S&OP is even more vital during times of disruption and flux. It delivers visibility, stability and alignment with corporate goals throughout the value chain. By covering the entire ecosystem, an S&OP process helps:
- Distribution and transportation contingency plans
- Inventory management
- Management of customer delivery requirements and expectations
- Suppliers and supplier inventory management
- Coordination of outsourced processes and contract manufacturing
- Temporary process changes
Want to learn more? Check out the full article in Food Logistics.
