Part A On February 28, 2014 Steve Hogg, Director of Supply Chain Services with F
ID: 380662 • Letter: P
Question
Part A
On February 28, 2014 Steve Hogg, Director of Supply Chain Services with Fraser Direct, a third party logistics supplier from London ON, learned that 1000 truckers and port workers went on strike in Vancouver. Mr. Hogg had to find ways of moving customer goods to ensure continuity of supply for a key customer.
General Company Background
Fraser Direct Distribution Services Ltd was started by Al and Lois Fraser in Georgetown, Ontario in January 2000 as a third party logistics supplier. In October of 2010 it acquired BTC Logistics in London, Ontario. They currently employ 130 people at four locations. Fraser Direct offers a wide range of services including supply chain advice, customs clearance, warehousing, inventory control and project management.
Transportation Management
Steve Hogg, as Director of Supply Chain Services in the London office, provides transportation management with third party provider Fraser Direct. This includes international air and ocean transportation as well as US and Canada wide shipping. Orders to vendors from Fraser’s customers are copied to Fraser Direct and the vendor informs Fraser when the product is ready to be shipped. Mr. Hogg monitors the process from then on with daily status reports. Fraser has all the information to communicate any variances in the shipments.
Mr. Hogg’s responsibilities include providing information to customer on all options available for the shipment of goods from vendors including researching the options, offering the solutions and making recommendations. The customer only has to make decisions on how to proceed. Fraser Direct is the supply chain department for their customers despite working outside their physical walls. Fraser manages transportation so its customers are not over spending but their requirements are still met.
Every month Mr. Hogg looks at the data from the previous months shipments (broken down by mode of transportation) and makes recommendations to reduce costs. Attached Exhibit A is the Monthly Averages Based on Actual Shipments report developed for Fraser’s key customer. This demonstrates the scope of the transportation of goods from 2009 to 2013. Fraser Direct’s motto is to “know where your freight is at all times and keep you up to date on it”.
The Immediate Issue
Thus far the winter of 2014 had been unprecedented for its cold weather across Canada. Concerns about derailment or damage due to the buildup of snow and ice and heaving of the rails due to frost reduced both the weight and speed of rail traffic. This caused containers to pile up in the port of Vancouver. There were ships anchored off shore waiting to unload that could not because the yards were full. This had a secondary consequence of causing delays for truckers whose compensation did not include provisions for wait time.
As a result, on February 28, 2014, 1000 non-union truckers and port workers went on strike, leaving millions of dollars of cargo stranded in Vancouver area container terminals. Although there were “rumblings” for a day or two before, the strike was not confirmed until the day it occurred leaving Fraser Direct and their customer with no ability to prepare.
The Key Customer’s Concern
Fraser Direct’s key customer manufactures auto parts in southwestern Ontario for the top automakers. Most of their sourcing is from overseas, Asia in particular. As with most manufacturing companies they operate with Just In Time inventory, keeping little on hand so inventory is ordered and delivered just in time to use in the manufacturing process. The customer must be adept at their lead time requirements in order for the supplier to produce materials and to allow sufficient time for the shipping to occur. At any given time the manufacturer would have 60 – 70 shipments of materials on the water.
Exhibit B contains the 2014 Freight Activity Report for the months of January and February, leading up to the start of the strike.
When the strike hit containers of essential inventory for the manufacturer were stranded in Vancouver along with thousands of other containers.
Conclusion
These unforeseen circumstances resulted in inventory not being delivered to the auto parts manufacturer in a timely manner from the date of the strike. Such inventory delays could result in a shutdown of operations for the parts supplier, but more importantly could result in the shutdown of the automakers, which would cost millions. How can Mr. Hogg get the inventory needed from the supplier to the manufacturer in a timely manner in light of the urgency of the current situation? What are his options?
Questions
You have been asked by Steve Hogg what would be your analysis of the situation? What action would you recommend and why? Detail all of your options, identifying the one that you feel would best serve your customer in this immediate situation. Present your response to Steve Hogg in a report format.
Identify the risks that are inherent in this situation. Present your response to Steve Hogg in a Memo format.
Explanation / Answer
The delay in transportation of goods due to bad weather is the main cause of waiting time that caused workers' compensation issue to surface, and subsequent strike. As huge amount of goods is lying in yards, and more on the way, the immediate concerns are to ensure delivery of goods to automakers and find a resolution of workers' issues so that the strike can be brought to an end.
Since Millions can be lost if prompt action is not taken, the only mode of transportation in the current scenario is to air transport the sufficient inventory so that the plants don't shut down. In the mean time, workers' demands must be addressed to end the strike as early as possible. Efforts should be made to devise a formula for calculating compensation in the wake of such unprecedented circumstances so that such events don't happen again. Though the option will incur extra costs, but it is much better than causing huge loss to the customer and losing goodwill in the market.
Risks involved in situation.
1. Risk of losing key customers due to huge losses incurred by the parties involved.
2. Risk of litigations by the said parties.
3. Risk of truckers severing relations with company.
4. Risk of demurrage on held up cargo.
5. Risk of loss of face in the market and consequent loss of business.