Just recently I commented on Alex Fullick’s learnings from the Japanese earthquake. One of my points related to the inter-dependence of the modern world. Today we must think in terms of global Supply Chains, and when disrupted we need to be adaptive, responsive and have a culture that promotes these attributes.
Recently the New York Times published a brief case study that highlights how these attributes were employed by General Motors in responding to the Japanese disaster. The article Piecing Together a Supply Chain highlights three important messages that help explain the concept of resilience.
1. The limited applicability of plans and planning
Yes, you should do some planning and produce some plans, but they are not the primary driver of resilience. The point that needs to be understood here is that plans can only take you so far. They never foresee all possible eventualities, and too often they do not anticipate the extreme consequences.
GM reported that they regularly created contingency plans for supply chain disruptions. Every major company with such a complex supply chain would do the same. However the article quotes a GM vice chairman as saying their plans did not address anything “of this kind of scale or scope”.
This is normal, and if you apply cost/benefit to your preparedness, then it would surely be acceptable practice.
Within 4 days of the earthquake, GM had established three specific purpose crisis rooms, and assembled hundreds of staff to address the problems. They probably used their plans for this part. But they were confronted with a problem they had not previously considered.
2. The critical role of Adaptive Capacity
This is is the capability that has to kick in when you exceed the planning threshold.
GM did not just have to address the impact to their suppliers, but also to some of the second and third tier below these suppliers. In some cases the problem did not become known until much later as these lower level impacts were understood.
Because they took a holistic view, directed by senior Executives, GM were able to shut down operations at one plant and divert components to other plants producing different (higher-margin) vehicles. You cannot achieve that with bottom up planning and execution.
The ability to adapt here also means we can think outside the box of conventional wisdom.
Rather than the simplistic solution of asserting they can source components from another supplier, GM spent a great deal of time and effort helping to get their suppliers (and their suppliers’ supply chains) operational again. Some examples include;
- Sending a team to Japan to inspect and assist first hand
- Arranging new sources of materials such as hydrogen peroxide and steel from Korea to get some suppliers operational again
- Focus on getting existing suppliers operational first
“Our objective was to help the suppliers get back into production, not to re-source the parts somewhere else. We like the parts we had.” according to GM’s Executive Director of Engineering and Program Management – the lead in the Engineering Crisis Team.
GM is not a company that one would normal expect to be the poster boy for resilience. It was not that long ago that the company was in bankruptcy.
3. Importance of leadership and culture as enablers of resilience
Fortunately the company has undergone a major upheaval to get out of bankruptcy. Making changes to the culture has been critical.
A new CEO has been part of the cultural change, and he has tried to break up the traditional ‘command and control’ culture that dogged GM, and empowering decision making at the appropriate levels – the old culture was described as ‘clueless’ in this article.
The change has encouraged new management thinking and changed the mindset by promoting a number of junior and female Executives.
Would GM have been able to cope so effectively with the crisis under their previous management and culture? We will never know, but I would doubt it.
The case study also contains another interesting aspect of culture that is important to understand. We need to understand the different national cultures we are dealing with.
“The culture of the Japanese is they don’t want you to come into their home or their workplace unless things are running well” from the manager of the GM Tactical Operations Team who spent 3 weeks in Japan visiting up to 10 suppliers each day.
And if the conventional wisdom of Supply Chain agility is that you penalise non-performing suppliers and move your business elsewhere, then you could expect some of this reaction in any country.
Resilience goes beyond BCM – it is not about plans and procedures.
What is your company doing to promote responsiveness and adaptation?
Do you rehearse and exercise your Adaptive Capacity?