Responding to a supply chain crisis

Much has been written about the impact of the recent Japanese earthquake on the supply chains of various industries. (We have several posts on the topic.) A recent New York Times article has a different spin on the topic (Piecing Together a Supply Chain, May 12). It essentially asks how did a major manufacturer organize its response to the quake? The firm in question is General Motors. And while GM was not as exposed as others in the auto industry to disruptions from Japan (only about 2% of its parts spending is in Japan), the earthquake still posed major challenges. According to the article, at one point GM was at risk of losing 75,000 units of production.

Four days after the earthquake, G.M. had assembled hundreds of employees into a team that began working around the clock to manage what has turned out to be the biggest catastrophe to hit the auto industry’s complex supply chain. G.M. regularly creates contingency plans for supply disruptions, “but nothing on this kind of scale or scope,” Stephen J. Girsky, a G.M. vice chairman, said. Through what it called “Project J,” General Motors briefly idled two plants to conserve supplies but otherwise found alternative sources for some parts and helped many suppliers get back online quickly enough to keep car and truck assembly lines running. The outstanding problems are essentially limited to semiconductors and other electronics. Because these devices are widely used in vehicles and substitution options are generally limited, G.M. executives said they were not entirely in the clear.

Part of the challenge was just understanding what parts were at risk. GM identified 118 parts it needed to monitor. That list is now down to five. The question is how do you respond? Do you reduce production? Do you work with current suppliers? GM did a mix of things. It was the first firm to shut a production plant in the US (its Shreveport, LA, assembly facility). This was largely robbing Peter to pay Paul. Peter in this case made small pick ups which apparently are not a huge profit center for GM. Shutting down Shreveport allowed GM to reallocate key parts to plants making higher volume/value models.

One thing GM did not do was abandon its current supply base.

“Our objective was to help the suppliers get back into production, not to re-source the parts somewhere else,” said Ronald Mills, G.M.’s executive director of engineering and program management, who headed the operation in the engineering room. “We like the parts we had.”

The article has some interesting examples of what it means to help one’s suppliers. GM, for example, sent 40 volunteers to Japan to work with suppliers. These people were available to help recalibrate and test equipment that had to be moved. In a few cases, they helped arrange alternative supplies of raw materials.

In some ways I find this the most interesting aspect of the article. There was a time when one could pretty much count on GM to mess with suppliers at will. Given that, it is a little surprising that GM hasn’t been aggressively shopping its business. Part of that may have been a simple political calculation. Kicking Japanese suppliers when they were down could easily have resulted in some bad press. Still, it may be indicative of a less arrogant approach out of Detroit.