Rail strike emphasizes automakers' vulnerability to
low-inventory supply system:
JUST-IN-TIME DELIVERY UNDER SCRUTINY
Jim Hartford is blunt about the impact of the
recent rail strike on Ford Motor Co. of Canada Ltd.
"It brought us to our knees," the company's
spokesman admits.
Typically, Ford Canada's assembly plants depend
on just-in-time delivery of parts from outside
suppliers to keep running smoothly.
Seats for the Windstar minivan plant in
Oakville, Ontario, for example, arrive by truck
every 20 minutes from Lear Seating Canada, located
a short distance away. Other parts, like body
panels, are delivered daily by Canadian National
Railway Company from a Ford stamping plant in
Buffalo, N.Y.
With the rail lines shut down, it took a massive
logistical adjustment by Ford Canada to keep three
plants going, even at half capacity.
General Motors of Canada Ltd. and Chrysler
Canada Ltd. also depend on just-in-time deliveries
but, because they are less dependent on rail
service, they managed to keep assembly lines
running full tilt during the rail shutdown.
Since it was introduced in North America about
10 years ago, just-in-time delivery has taken
hundreds of millions of dollars out of production
costs for the Big Three.
By sharply reducing inventories, Detroit's
automakers, like Japanese auto companies before
them, have eliminated the need for vast warehouse
spaces and systems to manage them. Inventory
financing has been greatly reduced, too.
But the savings can be blown out the window in a
hurry if things don't go exactly as planned.
Bill Van Gaal, president of Canadian Auto
Workers local 707 at the Ford complex in Oakville,
figures the recent rail strike cost Ford about $90
million in lost output of Windstar minivans alone.
The Windstar, Ford's top minivan, is made only in
Oakville for the North American market.
Ford Canada also had to pick up 80% of the wages
earned by its hourly employees in Oakville even
though the majority of them were working half days.
"It doesn't take long to lose the savings from
just-in-time delivery with lost production," says
Van Gaal, noting that, in earlier days, automakers
had an inventory buffer of at least two or three
days, sometimes longer.
When on Saturday, March 18, CN imposed a lockout
of its workers following a strike/lockout on parts
of CP Rail System earlier that week, there was no
immediate impact on Ford because it doesn't
assemble on weekends.
But by Monday, the automaker had a crisis on its
hands.
That 'morning, it was decided to send 2,500
hourly workers at the St. Thomas, Ontario, large
car plant home for the duration of the strike.
Production of Windstars in Oakville was cut in
half, putting 3,500 employees, who build 75
minivans an hour, on four-hour shifts.
On Tuesday, March 21, 800 hourly employees at
the Oakville truck plant were sent home after four
hours of a 10-hour shift.
Later that same day, when it was realized the
strike would last at least to week's end, Ford
hired hundreds of trucks to deliver the body panels
that would normally be transported by rail.
Hartford will not disclose details, but he says
the cost of this move was "substantial." Thanks to
the fleet of trucks, Ford was able to keep its
three Canadian plants operating at half capacity
for most of the week of March 20.
By the following Monday the rail stoppage was
over, thanks to Ottawa's back-to-work legislation,
and Ford's St. Thomas car plant and Oakville truck
plant were back in gear. By Tuesday, the Windstar
minivan plant was at capacity.
"The benefits of just-in-time, although hard to
define, are significantly greater than the costs,"
says Toronto-based auto analyst Dennis DesRosiers.
He estimates that because of just-in-time
delivery, Canadian automakers and autoparts
suppliers have reduced the amount of inventory they
carry by about $1.2 billion over the past decade.
That translates into annual savings of about
$300 million, split evenly between a lower cost of
financing inventory and more efficient plant use,
DesRosiers says.
A number of strikes by the United Auto Workers
union at GM parts plants in the U.S. last year were
all resolved quickly, largely because GM could not
afford to stand by and watch one plant closure
cripple its entire operations.
The UAW, which is pushing GM to hire more
workers and stop moving contracts to outside
suppliers, forced GM to give in to most of its
demands before ending the strikes.
"Without question, just-in-time delivery has
given us more clout," says UAW spokesman Reg
McGhee, noting that with just-in-time assembly,
plants normally have an inventory cushion of no
more than a few hours before they have to shut
down.
-- The Financial Post
April 1, 1995
Sid Shniad
