GM Bankruptcy Shines Spotlight on Corporations' Need for Strategic & Robust Supply Chain Plans
Actions Required Now to Avoid Rushed Decisions & Costly Errors
Manassas, VA – July 10, 2009 – INSIGHT, Inc., a top international provider of supply chain planning solutions for the world's foremost companies, suggests that every firm should be using strategic supply chain planning tools on an ongoing basis, whether in times of economic turbulence or prosperity. 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.
“Apart from the obvious issues associated with capital and liquidity, General Motors is facing a classic supply chain strategy/redesign problem,” comments Jeff Karrenbauer, president of INSIGHT. “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. This process once again emphasizes the need for companies to have in place rigorous, ongoing programs for corporate strategic planning 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 the operations as well as marketing.”
Without a strategic plan, companies are forced to rush to judgment without adequate preparation and run a significant risk of making costly errors. The case of General Motors is especially troubling as they speed to make decisions with respect to international outsourcing, dealer closures and according to new GM Chairman Edward Whitacre, Jr., “a shuttering of plants.” Adds Karrenbauer, “There is no question but that GM must slim down its entire supply chain, from suppliers to dealers.
The issue is how they go about it. For example, the outsourcing decisions are especially vulnerable to the classic myopia of focusing on comparative labor costs. 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, the profitability of brands, markets and channels and so on, essentially simultaneously. Challenging, yes, but it’s the right way to do it and with the amount of money and jobs at stake, nothing less should be acceptable.” 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.” According to a recent article in the Associated Press pertaining to GM emerging from bankruptcy,
“Turning a profit will not be easy. GM has piled up losses and survives only because it expects to receive $50 billion in U.S. government loans. Without the loans, its executives have said the company would have been sold off in pieces.” The bottom line, according to Karrenbauer, is that “GM and other corporations must generate and continuously re-evaluate robust supply chain strategies if they want to survive.”
ABOUT INSIGHT, INC.
INSIGHT provides optimization-based supply chain design software and consulting services developed specifically to meet the dynamic business challenges of globalization, disruptions, and mergers/acquisitions prevalent in today’s business environment. Founded by supply chain and logistics experts in 1978 with the goal of using world-class technology to add intelligence to decision making,
INSIGHT solves the supply chain management issues of the world's foremost companies, including Abbott Laboratories, BASF, Clorox, ExxonMobil, Goodyear, GE, Kellogg, Nestle, PepsiCo, Pfizer, Procter & Gamble, Toyota, and Unilever. SAILS, INSIGHT's award-winning flagship product, can accurately represent a company's current business practices, from raw materials sourcing to capacity planning through delivery to the end customer.
The X-System®, a proprietary optimization engine, powers a family of planning and scheduling solutions, from the design of global supply chains to crew scheduling, troop deployments, and transportation procurement. In addition, INSIGHT provides optimization components, partnering with third-party software providers to deliver best-of-breed solutions. Our software and services help design optimal supply chain networks that minimize costs and free up capital, streamline operations, maximize profits, and increase customer service levels. For more information, please visit us on the Web at http://www.insight-mss.com.