First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  March 26, 2009  
  Unionization and the Supply Chain  

I am going to take a slight diversion this week and write on a topic that is probably tangential to our direct supply chain issues, but worth exploring nonetheless. As is often the case, I will tread on some ground that may get me in some trouble from both sides.

As I assume most everyone knows, the issue of unionization is a big one right now due to the prospects of the Employee Free Choice Act, otherwise known as the “Card Check” law. It has again been introduced into the US Congress, but now with a fully Democratic Congress and executive branch. Labor is also expecting some payback for its part in delivering that position for the Democrats.

In summary, the Card Check law as proposed would do two major things: (1) allow unionization at a place of employment by a majority of workers signing a union card, rather than the traditional “secret ballot”; (2) less well understood, if a workplace does vote in a union (either by secret ballot or union card) and a contract cannot be reached with the company in 120 days, a government arbitrator can simply impose a two-year contract on both sides.

Gilmore Says:

Labor should focus on wages and benefits, and simply scale way back its stance on work rules and other barriers to continuous improvement. No rational person can believe that blocking continuous improvement is the path to company or employee success today.

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More on this specific bill in a moment. First, some thoughts on unionization and the supply chain generally.

Somewhat astoundingly, only 7.6% of private sector employees are currently union members. That’s down from about 24% in 1973. All the growth in union membership has basically come from the public sector.

There are a variety of reasons for this. Manufacturing jobs, traditionally the most heavily unionized, have continued to shrink (even as US manufacturing output has grown) as a result of automation/technology and offshoring.

Second, much of the population growth and manufacturing job growth has been moving away from the more union-centric Northeast and Midwest regions of the US to the South and Southwest. The most obvious examples are the foreign, non-unionized auto plants in South Carolina, Tennessee, Alabama, Texas, etc.

Third, and less well understood, more recent generations of workers simply aren’t as interested in unions as their predecessors.

Several years ago, I wrote a column that generated a ton of reader feedback on the union-breaking efforts of auto parts maker Delphi (once part of GM). The thrust of that column was that tough guy Delphi CEO Steve Miller’s success or failure in dramatically scaling back UAW wages at the bankrupt company would be a bellwether about US unionization generally. Here is what I wrote then: “Either Delphi will succeed in this move, which will really be the beginning of the end of high manufacturing wages that are not governed really by the supply and demand for labor; or, this will start a real political and economic backlash that could likely end in protectionist moves in Washington.” Miller rather boldly at the time said the UAW simply had to get real about what it cost to make product worldwide.

In retrospect, I was only half right, in part because Delhi, which is still in bankruptcy years later, in the end somewhat split the baby, getting a number of UAW concessions, but not going as far as it said it needed to go at first. Nonetheless, it continues to move a lot of its production offshore.

When you really look at things, there are some very odd disconnects. As a blue collar worker, if you got into the UAW and the automotive industry, you had the chance for an income that was certainly the equal of, or superior, to many mid-level white collar positions, even among the college educated. Heck, until just recently, you kept making that income even if you got laid off or the plant closed as part of the infamous auto industry “jobs bank.”

But maybe nothing compares to the Longshoremen’s union at our ports. If you are lucky enough to hit that union jackpot, in the West Coast ports, you can earn as much as $136,000 per year, according to reports I have seen. I think we can all agree - that’s pretty good money.

It is simply strange to me that we can have some unskilled labor in the country making that kind of fantastic income while workers in machines shops or whatever are toiling for $10 an hour or so.

I have no idea what would happen if a dramatic change in unionization started to move more and more labor costs strongly upward. Certainly, there would (as always) be many unintended consequences.

First, it would clearly lead to even more outsourcing/offshoring – maybe dramatically so. Let’s say your distribution center gets unionized. Will you look at outsourcing operations to a non-unionized 3PL? You bet, as many have before you. The odd thing with Card Check is that this could be sort of like a rolling move, as business is given to a non-union 3PL, which in turn becomes unionized via Card Check, so the business is moved again, etc.

Unionization will also cause many companies to look at automation to reduce labor requirements. Even with a surge in unionization, I doubt many will wind up with the kind of contracts that make those sort of automation moves difficult, as they have been for automakers.

Relative to both points, I recently spoke with the Director of Distribution for the Midwest region of a major grocery chain chain regarding both of these issues. His company has roughly a 50-50 mix of unionized and non-unionized DCs.

He made two points: First, automation was much easier to justify in the unionized facilities, and they were moving aggressively in that direction, especially AS/RS systems. Second, for more general expansion, they dramatically favored non-unionized facilities.

So, is labor better off with much fewer, but more highly paid jobs as companies automate in response, or more jobs at lower total wages?

From my own direct experience early in my career and many conversations I have had, it is often not the wages per se, but the benefits overhead (especially health care) and the work rules that make union operations much more expensive for companies. In the end, I think the health care thing is going to be rationalized one way or the other, effectively taking it off the table.

The work rules are a real issue though. As we noted in a recent article, Logan Robinson, a professor of law at the University of Detroit Mercy and former legal executive at Chrysler and other auto parts suppliers, recently said that such rules at the auto companies make decision-making and executing even small changes painfully slow and difficult.

Do we really want that situation to make its way into more companies and industries in the highly competitive global economy? Does anyone think Chinese companies have to deal much with those obstacles?

Now back to the Card Check law proposal. Former Home Depot CEO Bernie Marcus has called the bill a “path to economic ruin.” Certainly, it seems like strange economic times to push such a bill through.

To show just how contentious this proposal is, this week FedEx says it will likely cancel billions of dollars of orders with Boeing for new aircraft if Congress passes a somewhat related bill that would make it much easier for FedEx workers to unionize, as it expects its labor costs could increase dramatically.

My own view can be summarized in a couple of ways. I agree with the many business leaders who have told me that you rarely get a union if you treat the workers right. Second, I think Labor should focus on wages and benefits, and simply scale way back its stance on work rules and other barriers to continuous improvement. No rational person can believe that blocking continuous improvement is the path to company or employee success today.

Third, when it comes to Card Check, the worst recession in any of our lifetimes is simply not the time to let that particular genie out of the bottle. There may be compromises, which some have suggested, that can be tolerated by both business and labor, but for goodness sake, let’s wait until 2011 or so.

What’s your view on the Card Check bill? Is the potential damage to US business real or overblown? What are the keys to making a union environment work – or making conditions right to avoid a union? Is the more heavily unionized European model right for the US or not? Let us know your thoughts at the Feedback button below.

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