General Motors: Supply Chain Management

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Introduction

Supply chains become ever more relevant to the advancement of the global trade era. There are lots of theoretical knowledge devoted to building a sustainable supply chain in different spheres and market circumstances. However, the question of the applicability of these theories remains open. The case of the General Motors downfall during 2008-2009 is an excellent example for investigating this issue and drawing implications for current and future supply chain management in this company.

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Literature Review

Supply chains are an extremely diverse sphere of knowledge that encompasses a variety of practices, theories, and models. The current paper will review some of the works in the area in order to better understand the subject of the report and investigate the supply chain management in General Motors.

One of the fundamental works in the sphere of supply chains was performed by Wisner, Tan, and Leong (2014). In their book, the authors reviewed common practices and theoretical knowledge of supply chains. They define a supply chain as a combination of productive forces that partake in the process of product manufacture and delivery to the end customer. For each product, there can be variations in the number of participants, stages, and processes. However, Wisner, Tan, and Leong (2014) note that practically in each case it requires meticulous planning, management, and coordination as sometimes dozens of companies are involved in the process creation of a single product.

Regarding supply chain management (SCM) Wisner, Tan, and Leong (2014) identify and review multiple models that are applied in business practice. SCOR or Supply-Chain Operations Reference is a model that evaluates the total performance of a supply chain. It is based on four ‘pillars’: modeling of processes and re-engineering, performance evaluation criteria, best practices, and skills required for adequate SCM. The first describes management processes that can be applied to many businesses regardless of the type such as planning, resource gathering, manufacture, delivery, and return (Wisner, Tan, & Leong 2014). The second incorporates over 140 performance indices that allow top management to have a detailed view of their supply chain. There are about 400 different practices identified by various successful managers that are differentiated by their applicability to the current business environment, different spheres of operation, level of success, and usability (Wisner, Tan, & Leong 2014).

Another complex view on supply chain management is offered by Perez (2013). His supply chain roadmap is based on dividing various supply chains into six main archetypes as Efficient, Fast, Continuous-Flow, Agile, Custom-Configured, and Flexible (Perez 2013, p 23). The roadmap then implements 42 metrics to measure the performance of each type and decide whether the supply chain needs adjustments and to which archetype it can be attributed. The author draws his model from his own managerial experience, which makes it a reliable tool for business.

Almost all authors agree on the necessity and high value of the planning stage that can define key areas for improvement, re-organization, and help clearly outline objectives, strategies, and other essential details of SCM (MacCarthy et al. 2016; Perez 2013; Stadtler 2005). The researchers also note that it is paramount to establish relationships with partners in which each side yields benefit. Otherwise, such relationships are rarely reliable and long-lasting (Stadtler 2005; MacCarthy et al. 2016).

For global corporations, SCM is of particular importance, as the structure of such companies becomes incredibly complex, and improper management can take a huge toll on the company’s efficiency. As a measure to increase the productivity of relationships between partners within a global inter-corporate chain, MacCarthy et al. (2016) suggests that adequate use of appropriate IT is invaluable in the circumstances of increased pace and volatility of the environment.

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Supply Chain Risks

Supply chain risks are often divided into two categories: external and internal. The former is represented by the circumstances that are outside the reach of the main company while the latter is under its direct control. External factors include such commonly identified ones as to supply and demand. For instance, the supply of raw materials or components may be interrupted as a result of a natural disaster. For instance, a hurricane, flood, or earthquake could destroy crops that are needed to produce crop-based meals. In such a case, a company producing cereals in a region hit by a disaster would have to reroute its connections and seek other partners who have raw materials in stock.

The demand could also suddenly decline as a result of unforeseen events. As an example, one could remember that cocaine and heroin were often used in clinics as an anesthetic. When the results of the research proving the dire consequences of its use were published, the demand for cocaine in clinics declined. The same situation happened with lead-based cosmetics in the 18th century.

Another external risk may be attributed to the spread of terrorism and cybercrime. Different groups of people may sever the supply chain by stealing or corrupting valuable information or destroying property. Such events are rather sudden and can target either a partner or the main company.

Business problems of an important supplier could affect the main company which poses significant risks to the whole chain. The bankruptcy of a coal mining company, for example, may sever the supply of hot water to the houses of citizens who depend on thermoelectric power plants.

Internal risks include problems that can disrupt production or sever the business connection from within the main company. Potentially damaging issues may be related to manufacturing risks such as technical problems at production facilities. Poor planning could result in unexpected financial or human losses, and even bankruptcy. Ineffective business practices such as improper information handling or bureaucracy could also lead the company and its suppliers to a downfall.

Mitigation of those risks requires thorough planning and management in all spheres together with gathering accurate and sufficient information in order to remain competitive and not to lose connection with suppliers.

Case Study

General Motors

One of the companies that received considerable attention from researchers was General Motors (GM). The history of the company is peculiar to its rises and falls including its bankruptcy in 2009, revival through federal investments, and current relative profitability. The company was founded in 1908 and started as the manufacturer of horse-drawn vehicles. Through a series of smart acquisitions, GM managed to become a large manufacturer of vehicles in different price categories and types. The company’s sales peaked in the early 1980s when it sold around 350 thousand cars a year under Cadillac, Buick, Chevrolet, and other brands. In the financial crisis of 2009 the company lost almost all its assets and went bankrupt due to its inability to optimize its internal structure. GM employed around a million people across the U.S. in their manufacturing facilities, sales offices, and owned companies. The U.S. authorities considered it would be a disaster for the economy if a million people would become unemployed, so it decided to buy out GM’s debts and restructure them in order to return them to the market.

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One of the reasons the economic disaster of 2008-2009 affected GM so deeply was partly due to the rigidity of its relationships with suppliers and employees. According to Goolsbee and Krueger (2015), the downfall of GM would encompass largescale supplier bankruptcies, as GM was a major partner for car seats and other equipment producers. Another reason is that GM traditionally failed to differentiate between their suppliers and the low-skilled workforce they employed (Helper & Henderson 2014).

Therefore, General Motors represents a peculiar case that has deep implications for the supply chain management. It illustrates the value of good relationships between the management and workers, the importance of foresight, and risk management in large multicultural and global organizations.

Issues Learned from Literature Review

The case received major attention from business analysts and researchers due to the exemplary value of its bankruptcy and revival history. As was mentioned above, Goolsbee and Krueger (2015) identified major implications for supply chain management in the fact that a failure of a large manufacturer in a certain sphere causes colossal problems for the whole supply chain. Also, Helper and Henderson (2014) argued that a considerable amount of the corporation’s problem came from the GM’s relationships with its suppliers. The average time GM spent for the whole cycle of vehicle production was non-competitive in juxtaposition to its Japanese rivals. The inflexibility of the inner structure of GM that was evident from fixed rates payment schemes also contributed to its failure on the market in times of financial crisis (Goolsbee & Krueger (2015). Additionally, Helper and Henderson tie together low wages GM paid to workers in their factories with the large number of defects it had.

Argumentations Emerged from the Literature Review

The issues reviewed above show that General Motors had systemic issues with the effectiveness of its supply chain. The researchers tie these issues with a variety of reasons. One of them was a failure to recognize challenges of the present and an inability to analyze the strengths of their competitors (Helper & Henderson 2014). Top executives of GM seem to have relied heavily upon the practices they utilized so far. They were appropriate while the market and economic situation were favorable, but under rapidly changing conditions GM’s size structural rigidity did not allow it to adjust as fast as it was required.

Lack of competition in 1970-the 80s when the company had a 50-60% share of the market also made the company less alert to possible challenges when Japanese cars produced by Toyota and Honda started to appear on the American market (Helper & Henderson 2014). Another issue was a lack of a just-in-time inventory system, which also increased the cost of production (Helper & Henderson 2014).

Challenges and Opportunities

The challenges the company faced were of various nature. Firstly, the company did not have the capacity for rapid organizational change. The company struggled to overcome its union contracts that bound them to fixed payments. Closing a manufacturing facility would entail a large number of legacy payments and slow down the whole procedure. Another challenge was a loss of profit from sales, which the company was not ready to bear. The above-mentioned rigidity restrained the company from adapting to the losses. The Increase of completion became the major problem for GM as its failure to recognize and analyze the competitors and overconfidence in its own methods.

As far as the opportunities are concerned, the recent revival of the company has given it a chance to review its supply chain management and try to compete for a portion of its former market. Another opportunity is a close study of more successful rivals such as Toyota and Honda who have already become transnational corporations. The lower average cost and time of production and the practices they use to achieve them could prove invaluable if GM could utilize them for restructuring its own supply lines. Rethinking staffing policy is an opportunity that GM also has now that it received relative financial freedom from its former obligations. Entirely new strategic goals for cooperation with suppliers will enable the company to better adjust to the present situation. Through being granted a second chance after a major disaster, GM received an excellent opportunity to analyze and better understand its mistakes and make sure it never repeats them.

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The Applicability of the Theoretical Knowledge to Business Practice

A model is often a theoretical construct the practical application of which may require serious restructuring and induce heavy costs. This happens partly because the real world represents a complex structure where there is a vast amount of different events. Most of them could be analyzed, structured, and predicted. The effects of some, however, remain hidden. For instance, the human factor can be considered as one of the most unpredictable and potentially disruptive. Each person’s reactions to stress could be unpredictable, and one who was a successful CEO respected by colleagues and partners could suffer professional skills decline as a result of an illness or other personal circumstances. In the case of GM, the alleged personal reluctance of top management to adapt to challenges resulted in the major collapse of the company and its partners.

Researchers often tend to elaborate complex structures and models that tackle such a problem, but the problem then arises with its implementation. A complex and multifactorial model such as SCOR relies heavily on the availability of information required for the assessment of key parameters. The bigger the chain is, the harder it is to gather and process all necessary data. However, with the application of modern IT technology such as electronic document flow, this task becomes largely simplified. The reliability of the data can be an issue as partners may not always be as diligent or simply not possess the same technology. Such issue persists, for instance, in developing countries but GM will most likely handle such threat (Georgise, Wuest, & Thoben 2017).

Another challenge related to the applicability of theoretical knowledge is the limitedness of the author’s own experience in SCM. As such, Hernan David Perez devised his roadmap referenced above, built it relying upon his own experience in SCM in the field of fast-moving consumer goods, vehicle production, and retail. Despite the fact that the model is successfully used in these industries, it is not guaranteed that it would work in other spheres such as oil and gas. Here, the roadmap could be applicable due to the mentioned experience of the author in the sphere of vehicle production SCM.

Another issue is the regional specificity of business relationships. For instance, in Asian countries, long-lasting and fruitful relationships between partners are established through a long and thorough process of personal connection formation. Whereas in the U.S. and Europe much depends on the offer and terms with concrete numbers and sums. However, currently, cultural diversity becomes a well-spread concept that is being applied in the sphere of global SCM. Provided GM uses a culturally-minded approach to forming reliable partnerships with suppliers and their employees from different countries, they will manage to overcome this difficulty.

All the above-specified issues once again underline the complexity of the world’s business conditions and the multitude of factors that may have various degrees of influence on the success of SCM. The applicability of theoretical frameworks, concepts, and models is obstructed by the specific combination of business environment peculiarities in a given country, relationships between partners, and the level of technical progress achieved and employed in the companies united in a supply chain. However, a wise choice of strategies and practices together with an appropriate SCM model can help the company overcome these difficulties.

Recommendations

As a first measure to implement after such an occurrence, the company should conduct a comprehensive analysis of its past and present to see how it needs to change in order to compete with others on the market both today and tomorrow. GM may consider implementing a complex model for supply chain analysis such as SCOR. It will reveal strengths and weaknesses in the internal and external relations and give the company’s executives insight into the spheres for immediate intervention. The company should not underestimate the planning stage of implementing change in the sphere of SCM as it provides an opportunity to envision possible threats and take precautions against them.

Progressive thinking is another practice that GM’s top management should employ to be able not only to implement innovations that work for their competitors but also stay ahead of them. A globalized world poses many more threats than economic recession or competition. To be able to cope with terrorism and organized cybercrime, GM has to think about fail-safe mechanisms that will protect its supply chain from data corruption or stealing.

Conclusion

All things considered, supply chain management has an immense influence on a company’s performance in the market. Adequate strategies and models for evaluation of the SCM performance can ensure the company stays competitive. General Motors case analysis further speaks to the fact that supply chains need to be managed with the utmost professionalism. Problems the company faced during the economic perturbations of 2008-2009 show that flexible inner structure and well-established partnership with suppliers could make a difference between survival and downfall.

Reference List

Georgise, F, Wuest, T, & Thoben, K 2017, ‘SCOR model application in developing countries: challenges & requirements’, Production Planning & Control, vol. 28, no. 1, pp.17-32.

Goolsbee, A & Krueger, A 2015, ‘A retrospective look at rescuing and restructuring General Motors and Chrysler’, Journal of Economic Perspectives, vol. 29, no. 2, pp.3-24.

Helper, S & Henderson, R 2014, ‘Management practices, relational contracts, and the decline of General Motors’, Journal of Economic Perspectives, vol. 28, no. 1, pp.49-72.

MacCarthy, B, Blome, C, Olhager, J, Srai, J, & Zhao, X 2016, ‘Supply chain evolution – theory, concepts and science’, International Journal of Operations & Production Management, vol. 36, no. 12, pp.1696-1718

Perez, H 2013, Supply chain roadmap, CreateSpace Independent Publishing Platform, New York, NY.

Stadtler, H 2005, ‘Supply chain management and advanced planning––basics, overview and challenges’, European Journal of Operational Research, vol. 163, pp. 575–588

Wisner, D, Tan, C, & Leong, G 2014, Principles of supply chain management: a balanced approach, Cengage Learning, London.

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BusinessEssay. 2022. "General Motors: Supply Chain Management." January 15, 2022. https://business-essay.com/general-motors-supply-chain-management/.

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BusinessEssay. "General Motors: Supply Chain Management." January 15, 2022. https://business-essay.com/general-motors-supply-chain-management/.