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March 26, 2009 - Supply Chain Digest Newsletter



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."

What do you say?

Send us your Feedback here


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.

Let us know your thoughts.

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This Week's Supply Chain News Bites Only from SCDigest

Supply Chain Graphic of the Week: Where Does US Energy Usage Come from and Go to?

This Week's Supply Chain by the Numbers - Effect of Card Check, Integrated SC Planning & Execution Study, Carbon Emissions Reporting, China & Commodity Assets


Last week brought more relief to investors on Wall Street and, with only a very few exceptions, the stocks in our Supply Chain and Logistics stock index ended the week in positive territory.

In the software group, Logility climbed 15.2% and is up for the quarter 22.4%.  On the negative side, i2 and Ariba lost a bit of last week’s gains (down 5.4% and 3.1%, respectively).  It was a wash in the hardware group as Intermec fell 2.9% while Zebra gained 2.7%.  In the transportation and logistics group, FedEx was up another 10.3% last week.  Also within the group, Prologis nose-dived 22.3% and closed out the week down 91.2% for the year.       

See full stock report.

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March 24, 2009 Edition

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Supply Chain Performance Management: Managing and Measuring Plan B Performance

Traditional Supply Chain Technology Tools do not well Support Effective Response to Problems and Delays; True Real-Time Visibility is Required

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HolsteHolste's Blog: Increasing Penetration by Foreign Material Handling Systems Vendors a Threat to Domestic Providers

>> Top Story: Can a New Warehouse Control System Breathe Life into a Tired DC?
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Why should today's global logistics professionals thank a man named Malcolm McClean?

A. Click to find the answer below


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We received a number of letters on our piece on Will Natural Gas Cars be the Answer to Ridding World of Oil Dependence? earlier this year.

That includes our Feedback of the Week from Phillip Messer of UPS Freight, who says this is a move that we simply have to make as a nation, and adds some insight into what is happening in this area.

Richard Kolodziej of a natural gas vehicle industry association makes some excellent amendments to Messer’s letter, while Ken Goodgold of Goldfinger Inc. also wonders why this isn’t happening sooner.

Dean Cunningham of the Beacon Industrial Group says the government needs to subsidize natural gas filling stations, while David Gaskill of TOTO USA notes that effort to get truck stops to support natural gas “fill-ups” is much less than all the consumer gas stations that would need to be retrofitted.

You can read all these and more below.

Feedback of the Week - On Natural Gas Cars:

We need to discriminate between natural gas as a fuel for automobiles, essentially a gasoline engine fueled with natural gas and natural gas as a fuel for heavy trucks, essentially a diesel engine fueled with natural gas.

The difference is critical. In the former, conversion of gasoline engines to natural gas (kits) have not worked well at all. As a matter of fact, I spoke with one of the mechanics at Mobile Gas in Mobile, AL who told me that the last company to manufacture the conversions went out of business last year.

Engine failures, well within the warranty period, were related to the much higher combustion temperatures of methane, the largest component of natural gas fuel. Valves, valve seats and pistons of the engine have to be able to withstand these very high operating temperatures, as does the lubricant of the engine.

The Honda Civic CNG has been in production for about ten years and most all who own them, love them. The Civic was engineered from the start to run on natural gas and that makes all the difference.

In the latter, a tiny amount of diesel is injected into the combustion chamber a fraction of a second before the natural gas is injected. This tiny amount ignites the larger mixture of natural gas, since diesel ignites at a temperature a little lower than the NG. The results are impressive and they keep coming in from test fleets all over the country. They are working very well in the coal mines of Canada, a tough environment indeed.

The block and head of the diesel engine are designed to work at these high temperatures to begin with and results are promising, indeed. I think the key here is to persuade some very large fleets to sign on and that will not be easy: UPS, FedEx, Wal-Mart and Ryder Leasing come to mind.

Swift Transportation based in Phoenix has shown some interest as well. The key, as Boone has pointed out, is that the trucks in the fleet, or most of them, return to the 'barn' every night where they are fueled and serviced.

Even so, those tractors will need large tanks, about 150 gallons on each side, to complete a 400-500 mile dispatch, the norm for the TL/LTL industry.

One other factor needs to be addressed. According to Charlie Sumrall, director of fleet maintenance for Mobile (AL)Transit Authority, the monthly maintenance costs for the compressor station at his location, which takes natural gas off the low-pressure line and compresses it into a liquid for storage and use, amount to $12,000 per month; that is $72,000 per year.

That cost has to be considered in the operating budget. That cost for municipal fleets can be substantial.

One thing is certain: we can do this for the security of our nation and the good of our environment. Let's move ahead with the same confidence and resolve our fathers have demonstrated.

Phillip N Messer
UPS Freight

More on Natural Gas Cars:

Thank you for that well researched and balanced story. Additional data not mentioned is the huge increase in domestic NG supplies made possible by new technologies utilized by companies like XTO and CHK.

So NG prices are low and likely to stay low. And, of course, if domestic NG was used as an automotive fuel, we would be keeping billions of dollars of wealth in the USA instead of buying oil and transferring billions to our middle east "friends."

Pickens' plan for utilizing NG for the trucking industry (greater than 25% of today's petroleum usage) makes sense.

Since trucks (in general) follow predictable routes and have room for NG or LNG storage tanks, the requirements for a national infrastructure would be less than for the automobile driving public. Stations could be placed on interstate highways at 100-mile intervals. Once the trucking infrastructure was there, it would be easier to jump start what would be necessary to make NG available to the general public. Perhaps we could even put Detroit back to work building NG automobiles.

I don't know about you, but this makes so much sense I don't understand why it isn't happening?

Ken Goodgold
Goldfinger Inc.

Mr. Messer of UPS has some NGV facts correct and some incorrect. Natural gas is 130 octane, and light-duty conversions operate wonderfully today. In fact, the number of companies offering NGV conversion systems is growing. Most of the world’s 9.4 million NGVs are light-duty conversions.

As to heavy-duty engines, Mr. Messer is partially correct. One option is “dual-fuel” technology, which uses a diesel cycle engine and a small amount of diesel fuel for pilot ignition. Most of the fuel used, however, is natural gas. Most of the heavy-duty natural gas engines in use in the U.S., however, use a heavy-duty block but are dedicated natural gas engines. For a complete list of all natural gas conversion systems and engines on the market in the US, go to (Technology).

Richard Kolodziej

The Government needs to subsidize the "filling stations" for Natural Gas, perhaps start in urban areas with air pollution problems.

Also they could offer good tax credits for UPS, FedX, etc., to install their own "stations", and modify their trucks. The city travel and constant start and stop must be big polluters.

Areas of the country that are best for natural gas, or states that support the concept, should be given funding to encourage. Cities, county governments,  school systems , etc., should be encouraged, and receive financial help.

Dean Cunningham
Beacon Industrial Group

CNG is a good fit for fleets, such as those owned by asset-based carriers. Being a fossil fue, however, it is not a good long-term solution for automobiles.

Nevertheless, even owner-operators and non-asset based transportation providers can eventually benefit from CNG, as there are far fewer truck stops requiring an upgrade to offer CNG than there are filling stations for cars.

[Mr. Pickens didn’t get to be a Billionaire by being stupid].

David J. Gaskill, CPIM,CIRM
Manager - Logistics Planning


Q. Why should today's global logistics professionals thank a man named Malcolm McClean?

A. In the 1950s, the legendary CEO of shipping company SeaLand invented the modern ocean shipping container, one of the most important supply chain innovations of all time and which played a significant part in the subsequent boom in globalization. That innovation was wonderfully remembered in two fairly recent books: "The Box that Changed the World" and "The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger."

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