Although nearly 80% of respondents to the quarterly NABE survey agreed that economic contraction has ended in the US, there is still a long road to recovery. While many economists agree that expansion has begun, 94% of respondents believe that the majority of jobs lost over the course of the recession (7.2 million) will not be recovered until at least 2012. An article in yesterday’s Automotive News featured Bob Socia, vice president of GM’s global purchasing and supply chain, sharing his opinions that his troubled supply base has not seen the last of its woes.
He believes that even now, as volumes begin to increase, many suppliers will have trouble obtaining operating cash flows in the short term and protecting capital for the long-run. Along with the more than 20 GM suppliers that have filed for protection under chapter 11 and smaller suppliers who simply closed up shop, there are the remaining suppliers that need to figure out a way to cover return period between production of parts and collection of payment. Socia says that GM is “keeping a close check on” the nearly 150 troubled suppliers who will be trying to survive this 45-60 day gap.
In the coming months, GM has a number of both tactical and strategic considerations in respect to how they will handle various troubled suppliers. Socia and other GM execs will have to play a balancing game between spending money/resources to ensure the survival of a healthy, diversified supply base and keeping GM in good health over the short term. As troubled suppliers teeter on the brink of bankruptcy, GM will have to make several choices about which suppliers they help, which ones they leave alone, and, in some cases, which ones they should take actions to put down. While this situation seems rather cloudy, I believe there is a bit of a silver lining for GM. As GM recovers and achieves healthy levels of both capital and cash flows, there may be an opportunity to vertically integrate back up the supply chain by taking control of some troubled suppliers that provide strategic advantages.
Whether or not the NABE economists are correct about the end of the recession, one thing is certain. The effects of the decisions executives make in the coming quarters will reverberate into the future. Great decisions will provide sustainable competitive advantages that will allow companies to thrive, and bad decisions could easily mean the end of even the most prominent organizations.
He believes that even now, as volumes begin to increase, many suppliers will have trouble obtaining operating cash flows in the short term and protecting capital for the long-run. Along with the more than 20 GM suppliers that have filed for protection under chapter 11 and smaller suppliers who simply closed up shop, there are the remaining suppliers that need to figure out a way to cover return period between production of parts and collection of payment. Socia says that GM is “keeping a close check on” the nearly 150 troubled suppliers who will be trying to survive this 45-60 day gap.
In the coming months, GM has a number of both tactical and strategic considerations in respect to how they will handle various troubled suppliers. Socia and other GM execs will have to play a balancing game between spending money/resources to ensure the survival of a healthy, diversified supply base and keeping GM in good health over the short term. As troubled suppliers teeter on the brink of bankruptcy, GM will have to make several choices about which suppliers they help, which ones they leave alone, and, in some cases, which ones they should take actions to put down. While this situation seems rather cloudy, I believe there is a bit of a silver lining for GM. As GM recovers and achieves healthy levels of both capital and cash flows, there may be an opportunity to vertically integrate back up the supply chain by taking control of some troubled suppliers that provide strategic advantages.
Whether or not the NABE economists are correct about the end of the recession, one thing is certain. The effects of the decisions executives make in the coming quarters will reverberate into the future. Great decisions will provide sustainable competitive advantages that will allow companies to thrive, and bad decisions could easily mean the end of even the most prominent organizations.
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