Supply chains directly associated with up and coming or mid-sized businesses need to be constantly diligent to the effects of a major supply chain disruption, both overt and not so. Procurement teams of mid-sized brand owners need to be especially cognizant that labor unrest has become much more prevalent within low-cost manufacturing regions and the implications to less influential customers have greater significance. Of late, such unrest moves beyond disputes regarding wages, but also worker social responsibility policies. Once more, active use of customer segmentation strategies implies that the bigger global players can often be buffered to such disruptions, both operationally and financially.
Just this week, we have come across news reports of ongoing disruptions involving influential industry supply chain players. In the footwear and apparel sector, workers at certain facilities of shoe manufacturer Yue Yuen Industrial, located in southern China have walked off the job in a dispute over social insurance payments tied to overall wage rates, which are governed by labor law. Yue Yuen employs upwards of 40,000 employees at its facilities located in Dongguan. The Wall Street Journal reported (paid subscription) yesterday that this shoe manufacturer is a supplier for both Adidas and Nike. It quotes an Adidas spokesperson as indicating that the Chinese supplier is currently working at 50 percent of capacity but Adidas has experienced no slowdown in production volumes. A spokesperson for Nike is noted as indicating that that company is monitoring the current situation including ongoing talks between workers and factory management. The WSJ report further indicates that demands raised by the Yue Yuan workers may become an important precedent for labor policies among most workers in China’s manufacturing industry. Thus, the stakes in finding a resolution are somewhat higher.
Judging from the reported statements from both Adidas and Nike, we would venture an opinion that what production capability that is still operating is probably being allocated to the production schedule needs of the most influential customers. That is an obvious supply chain reality, namely, the most influential customers in terms of revenue and profit will in more times than not, be somewhat buffered from such disruption. Consider further that ongoing labor unrest continues for within apparel producers in Bangladesh, Cambodia and other regions as workers continue to be more active in demanding that social responsibility policies are adhered to by employers in these regions. While industry consortiums have been established to address such issues, workers have become untrusting.
Continued work stoppages and production disruption imply that the most influential customers will be somehow buffered while less influential customers may bare the bulk of the disruption or added cost burden.