The 2O11 earthquake and tsunami in Japan not only resulted in the tragic loss of thousands of lives and inflicted massive property damage, it also disrupted many production and distribution channels worldwide.
For automotive giant General Motors, it meant production of some of its models in the U.S. and elsewhere was halted when the parts flow from Japan was interrupted. It quickly became apparent that GM, as well as other OEMs with worldwide operations and a supply base in Japan, was not as prepared to handle the disaster it should have been.
But GM did not take the hard lessons learned standing still. Its supply chain management team reviewed what went wrong, and more importantly, how it could better prepare for unforeseen disasters around the world where the automotive giant has production.
The end result was that when another earthquake struck Japan in April 2016, GM was much better prepared. Production output did suffer, but operations resumed at a much faster pace than they did in 2011.
In a candid interview, Todd Scott, executive director of supply chain for GM, discussed what GM has learned and how its supply chain strategy has improved since the 2011 disaster. Here are five key elements Scott reveals that any supply chain should have in place, applicable to both large and small enterprises.
Map and React
One of the more painful takeaways that GM learned after the 2011 earthquake and tsunami in Japan was the importance of having a bird’s eye view of the entire supply chain network, scaling down from the tier one to the sub-tier two suppliers and beyond. As a solution, a virtual map on a PC or smart phone screen that displays the intricacies of and relationships between the different players in a supply chain serves as an always-on way to check the status of your operations.
“After the tsunami in 2011, it took a long time to understand our position and which suppliers were impacted, mainly because most of the supply impacted consisted of tiered suppliers, which we often did not have a direct relationship with,” Scott said. “We now have a continuously updated understanding off exactly what our supply network looks like. This includes which parts are in transit to us, where they are exactly, and what quantity and to where they are headed.”
GM can now react more quickly in the wake of a disaster or other events that may affect supply, even indirectly, such as when a supplier’s management changes. “Anytime there is a one-off event, such as a fire or a typhoon in Taiwan, we can predict those events and react more quickly,” Scott said. “We know instantly what the relationships are, so that if a supplier is impacted, we know whom they supply to, to which sites, and to which tier-1s.”
One Meeting that Won’t Waste Your Time
The merits of regularly held departmental meetings often come under scrutiny, while some surveys even show that many people think they are a waste of time. But done right, scheduling face time with your organization’s supply chain managers will boost productivity, and in many cases, help to stave off future production outages in the event of a disaster.
In GM’s case, a weekly conference call is held to discuss possible bottlenecks around the world. The participants hail from GM country headquarters worldwide, including, Germany, Poland, Brazil, China, India, and Thailand, as well GM’s supply chain based in Warren, MI.
“Once a week there is a sync-up meeting with leaders from around the world, myself included, and all of my direct reports from around the globe,” Scott said. “We learn about which countries might have to allocate extra parts or require more tooling and which areas have been already successfully resolved and are working their way to resolutions. So with that global network already in place for our global day-to-day business, we can instantly reach into that group when there is a crisis.”
Communication is Key
Suppliers may tend to shy away from communicating information about their supply chain, which in many cases may be for perceived competitive reasons. But instead of trying to contractually force suppliers to divulge possible problems about bottlenecks and other issues, GM offers a more partner-like approach. It encourages suppliers to communicate more information about potential bottlenecks and other potential issues, and in consideration, GM communicates problems it sees with their suppliers ahead of time.
“Sometimes our suppliers are reluctant to share data, but we tell them that we have a system set up to inform them when one of their suppliers is in an impact zone,” Scott said. “We monitor our networks and inform them when there could be a problem. We have really turned a corner, by building a relationship with suppliers in this way.”
Put Those Tools in Place
Without mentioning specific offerings, appropriate supply chain management software package is critical. A small- or medium-sized enterprise may not require a very powerful package, such as the one that GM uses, but it can, among other things, help you prepare for the weeks and months ahead
“We know what our contracted quantity of supply is at a part-number level, and we know what our production plan is on a rolling 30-weeks basis globally. And the system will indicate for weeks ahead when demand peaks out and goes over our contracted supplier’s obligation to supply us,” Scott said. “And if we have five or more shortage instances over the next 40 weeks, where we know our demand is higher than our contracted supplier’s supply, then they get an electronic signal that says ‘you are possibly in danger, here is our demand, and we would like to help you meet that demand.’”
Scott cites how GM’s procurement software is applied to sourcing parts for its Chevrolet Cruze, which is made in China, Korea, Brazil, and Argentina, as well as in multiple locations in Europe and North America, as an example. “The [software] shows when demand for common Chevy Cruze components can exceed suppliers’ contractual obligation,” Scott say. “No one person could possibly know that [without software support]. But our system knows, so whichever region has the highest pull, then that is the one that gets the attention.”
Deep Dive Analytics
Data analysis has emerged as a key component in GM’s procurement strategy.
“Thanks to data analysis, we learn where we are vulnerable and where we have highly concentrated supply that would leave us vulnerable to a single supplier impacting a large number of sites,” Scott says. “Data analysis also shows your alternatives—you can dual tool, use the same supplier but with multiple sites, or bank parts ahead of time. The other extreme is not to use data analytics or software to manage your supply chain.”
In that case, Scott says, you will end up “putting all of your eggs in the basket and just hoping for the best.”