Over the past six months, we have witnessed a series of truly remarkable events in the American auto industry. After much consternation, evaluation and debate the Administration and Congress have decided that we the people will, indeed, sell Chrysler and rescue General Motors. Fair enough. So, GM rapidly plunges into bankruptcy, then quickly emerges within 600 days of filing. This speedy emergence caused many supply chain professionals to lose sleep at night.
Apart from the obvious issues associated with capital and liquidity, General Motors is facing a classic supply chain strategy problem. Over the next few months they must decide which suppliers to cut loose and which to retain, which worldwide manufacturing facilities to close and how best to utilize the survivors, how they will continue to distribute product (railheads, distribution centers, ports and so on), which brands, models and dealers to retain and which to close, how much inventory to slash, etc.
These decisions can't be made on spreadsheets, and they shouldn't be rushed. It takes a detailed, strategic and robust supply chain plan and ongoing programs that deal with issues of expansion, contraction, contingency planning, risk, and so on, preferably under a comprehensive corporate profit maximization umbrella that includes all of operations as well as marketing.
Many industries today, from auto to chemical, struggle with their supply chains: excess inventories, collapsing demand, struggling or bankrupt suppliers, fluctuating fuel prices, environmental mandates, and so on. Many are saddled with supply chain strategies that were ill conceived from the outset but whose shortcomings became apparent only when stressed.
Without a strategic plan, companies are forced to rush to judgment without adequate preparation and run a significant risk of making costly errors. In GM's case, they are rushing to make decisions with respect to international outsourcing, dealer closures and according to new GM Chairman Edward Whitacre, Jr., "a shuttering of plants."
According to Steve Banker of ARC in a recent Logistics Viewpoints article, "Firms with a robust strategic planning process are better equipped to deal with large, unexpected events, like the current global recession." In another discussion on preparing supply chains for the upturn, he adds, "As this reset evolves, supply chain planning tools will be important in assessing best manufacturing, warehousing (finished goods staging), transportation routes, etc."
The article continues, "Every firm should be running supply chain planning tools right now, to reestablish a new baseline for itself, given the harsh economic times. In addition, firms should have tools that enable re-optimizing the supply chain with the hoped-for, continuing improvement in the economic climate. Continuing improvement in the economy mandates a Deming-like 'continual improvement' in the quality of supply chain decisions, including frequent re-optimization with market changes."
While there is no question that GM must slim down its entire supply chain, from suppliers to dealers. The issue is how they go about it. A proper analysis would look at all relevant factors, including procurement, manufacturing, transportation, warehousing, various types of inventory, duties, taxes, port handling charges, flexibility, responsiveness, risk, worldwide markets, profitability of brands, markets and channels and so on, essentially simultaneously. Challenging, yes, but it's the right way to do it.
Jeff Karrenbauer is president of INSIGHT, Inc. INSIGHT, Inc. is provider of supply chain solutions and consulting services. www.insightoutsmart.com
Interested in information related to this topic? Subscribe to our weekly Value-chain eNewsletter.