Andrew WhiteThis morning I was perusing the web and one link referred to me an Industry Week article from October on supply chain risk management. My mind wandered to the potential value of risk management to another topic from this week, that being the US automakers going cap-in-hand to the US government for a bail-out. Before I knew it I was writing this blog.
There is NO WAY the US government should bail out excessively poorly performing firms (remember – this is my opinion, so I can say this). Firms like GM, Ford and Chrysler, have been dying slowly for many years. There is no universal agreement what the cause was – if indeed there was one – but certainly there are observations that reinforce that there were major issues some time back.
Did the Big 3 make the wrong cars? Did they spend too long living off their laurels with profitable high margin “big cars” and take too long to develop or seed the US market for smaller, more efficient cars? Do they blame this situation on “we do what our customers tell us” rhetoric? Did the automakers model risk through their entire end to end supply chain process in order to streamline costs? Did they just pay their employees too much and for too long, and now are hamstrung by unions? Did these firms have a single business process platform on which to model single view of customer, product, supplier, in order to propagate new product data, new competitive process models?
I don’t know the details but I do know this: if management is making the wrong decision, no amount of IT will help. Certainly IT can help enable better decision making: MDM can help in unifying the underlying data that is consumed in decision making processes; SCM technology can help model and evaluate what happens to decisions if conditions (think inflation, currency exchange, constraints) change. Even product portfolio management can help evaluate which markets should be addressed and at what price and desired margin. But this requires management to lead, and recognize the value that IT can bring to the business.
Earlier this year I was in Detroit and I visited a very large parts supplier. This parts supplier had many manufacturing locations, and it had outsourced much of its IT strategy and IT management. IT was outsourced some time ago since it was felt that IT was not the parts maker’s core competency. The result however is that the gap between process adaptation (a business competency) and business application deployment (a perceived IT-only competency) became so great, that it took even LONGER for the business to adapt itself to changing business conditions.
I was flabbergasted to discover that the entire business planning process, from annual financial planning down to factory floor level parts demand forecasting, was all run on spreadsheets! And this condition had remained in place for several years even after this firm had spent millions and millions of dollars on IT, over many years to “automate the business”. What on earth where they doing with IT? It was incredulous to me that this well known, hitherto successful firm, was now too cash strapped and too near death’s door, and bereft of any idea how IT can help business, that it had no capacity or ability to change. IT had been excised from the body and what seemed like a good decision at the time (“we saved some money since we pay a specialist that is more efficient at running servers”) turned out to be yet another seed that contributed to the demise of the overall US automakers industry.
If the Us government bails out the “Big 3 it will be my taxes that will be used to sustain an over paid, bloated, inefficient, and poorly led industry. It’s about time the chickens came home to roost: Chapter 11 is what is needed. It’s a shame, but in this case it is probably too late for technology to help here.
If you have not read Micheline Maynard’s, “The End of Detroit”, I would recommend it. I suspect that it will be updated (it was written in 2003). It’s a good “who done it” type read that describes one view of how Detroit sowed its own seeds of destruction.
2 responses so far ↓
1 Sudripto De May 14, 2009 at 8:22 am
Interesting thoughts Andrew and very bold as well…. As I see it, I tend to approve to your protest for spending tax-payer’s money on the 3 auto biggies in Detroit. There is one point I would like to make here, which brings out a detrimental impact these automakers are having on “other” auto makers.
The bankruptcy of any of these big 3 would lead to a consequential bankruptcy of some of its largest suppliers, as a chain reaction. Now with these large suppliers also being part of the supply chain of some of the “other” automotive manufacturers, there is a huge risk of supply disruptions for these “other” manufacturers. There is already news of Toyota, one of the significant “other” manufacturers, stockpiling to avoid supply eventualities. With 28% of the manufacturing industry identifying “supplier failure and continuity of supply” as its top risk(AMR Research study), there is need for pro-active measures to be adopted by these “other” manufacturers. The link below provides some pro-active measures that these “other” manufacturers should adopt to ride over the bankruptcy epidemic.
http://www.infosysblogs.com/supply-chain/2009/04/how_can_manufacturers_cope_wit.html#more
2 Mitul Shah May 25, 2009 at 9:18 am
Andrew,
When such supply chain disaster looms in horizon, it is even more important for the other firms, which are part of this interwoven Supply Chain Network, to understand the potential risk emerging out of common supplier bankruptcy. US Bankruptcy Code prohibits companies from terminating the contract and requires continuous receipt of goods/services and paying the supplier who has filed for bankruptcy. Even if the Supplier Contract allows you to terminate it at anytime and without cause, or terminate it if supplier becomes insolvent, the clause is uneforceable under Bankruptcy Protection Code.
This poses severe financial and legal risk to the other players. Understanding interwoven relationship of financial supply chain & product supply chain and controlling the risk emerging out of it should be the priority of organizations during recession.