Labor has certainly been a trending news topic. The recent United Auto Workers strike against the Big Three was settled and the successful contract negotiation between the Teamsters and UPS avoided a strike this past summer all point to the influence and resurgent power that labor enjoys these days.
We are hearing about labor strife across several industries. The post-COVID-19 move to reshore and the shorten supply chains, coupled with legislation increasing the capabilities and scope of domestic manufacturing, will continue to put labor in the spotlight.
Procurement strategies, often focused on material cost, will need to calculate potential increased labor costs as well. Buyers will also need to check on the overall relationship status of labor at their key suppliers. A surprise work stoppage at a Tier 2 critical supplier can be devastating.
Labor issues, including strikes, recruitment and retention challenges, salary pressures, the rise in labor organizing, and even a return to the dark ages of child labor, continue to impact manufacturing and service providers. These challenges not only affect the workforce but also have consequences that ripple throughout the supply chain. Disruptions in continuity of supply and increased operational costs are just a few of the critical issues that buyers need to focus on.
Here are five labor related issues for procurement professionals to consider.
Strikes. Planned or wildcat strikes can disrupt production lines, transportation schedules and the overall supply chain. Why strike? Workers demand better pay, improved working conditions and job security. The outcome of these negotiations can impact the cost structure for companies as they may need to provide better wages and benefits to retain and attract workers. Higher costs lead to higher prices.
Recruitment and Retention. Companies face strong competition for talent. Factors such as a strong economy, an aging workforce, evolving skill requirements and changing demographics contribute to recruitment challenges. To attract and retain talent, companies may need to invest in workforce development and create an attractive work environment. Training programs, career advancement opportunities and competitive compensation packages are essential to attracting and retaining employees.
Salary Pressures. Salaries represent a substantial portion of operational costs for suppliers. Driven by factors like inflation, wage expectations continue to increase the cost of living and also the success of labor gains in other companies and industries. As workers demand higher wages, companies find themselves under pressure to increase compensation packages, not only to retain workers, but to blunt potential organizing efforts. Higher labor costs may lead to margin compression, impacting the overall financial health of companies. Some of those costs will be passed on to customers.
The Resurgence in Labor Organizing. The recent and successful surge in labor organizing efforts across all industries has been significant. Workers are recognizing the power of collective bargaining and the benefits of joining unions. As more workers unionize, they gain greater influence in negotiations with employers. Unions often push for improved working conditions, better pay and job security. While this can benefit the workers, it may also result in increased costs for the employers. Additionally, unionization can lead to strikes, work stoppages and other disruptions that affect continuity of supply.
Supply Chain Risk. Any interruption in the flow of goods and services can lead to significant problems, including increased costs and unhappy customers. For manufacturers, interrupted production can lead to missed deadlines and increased inventory costs. Transportation providers may struggle to meet delivery schedules, leading to customer dissatisfaction and potential contract penalties. Labor issues can percolate anywhere in the supply chain. The ones in the headlines are just the ones we know about.
Procurement professionals should take a 360-degree approach to labor issues in their own supply chain. In addition to analyzing labor for your critical path suppliers, take a look at the labor conditions in your industry and with your customers and compare it to the condition of labor at your own company. That analysis will quickly tell you where your next procurement strategy pressures will come from.