Ann Arbor MI — February 5, 2008 — Better supply chain risk management could have prevented a shutdown of Chrysler factories this week caused by a dispute with Plastech Engineered Products, according to noted supply chain management consultant Bill Michels, CEO of ADR North America.
Chrysler shut down four assembly plants on Monday in the wake of its ongoing dispute with Plastech, a Dearborn, Mich.-based supplier of a range of parts used on most Chrysler vehicles.
The automaker had ended its contract with the financially troubled Plastech last week, and the supplier had filed for bankruptcy on Friday, prompting Chrysler to shutter the plants, saying that it was not receiving parts from Plastech. More plant closures were possible as "just-in-time" parts stopped showing up on the docks at Chrysler's assembly plants.
However, a Plastech lawyer announced on Tuesday that a deal had been reached with Plastech's creditors and that the supplier would begin producing parts for Chrysler on Tuesday, according to a newswire report. As of this writing, Chrysler had not announced when the shuttered plants would reopen.
Michels, a widely known expert in supply chain management with long-time experience in the U.S. automotive industry, noted that the best practice in supply chain management is to have a detailed risk management plan, which would have anticipated scenarios such as a bankrupt supplier and set up contingency procedures.
"It is unfortunate that many companies assess the vulnerability and risk in their supply chain after a catastrophic event occurs," Michels said. "For example, a set of duplicate tooling for critical plastic components might have been cheap insurance for Chrysler. It's easy to see that in retrospect, but it's also possible in many cases to assess risks in time to mitigate them."
Michels said that tools are available to identify potential trouble spots by analyzing key supply chain risk factors. Those predictive models can spot troubled suppliers or other potential problems that can disrupt supplies.
"Chrysler's dilemma also points out the dangers when big companies use too much leverage to try to force down prices from their suppliers," said Michels, who has evangelized — including in this magazine (see related articles below) — a more collaborative approach to supplier relationship management. "It is unfortunate, but as the economy continues to worsen and prices for basic commodities soar, suppliers that have been leveraged by their customers are bound to fail."
Michels offered the following early warning signals of suppliers in financial difficulty:
- Constant price increases, early payment, accelerated payment terms or direct financing
- Consistently using your technical support
- Failure to support sales
- Failure to meet on time in full deliveries
- Requests for pre-payment
- Lack of investment
- Failure to appropriately cut costs during economic downturns
- Delinquent paying taxes
- Deteriorating accounts receivable and payable
- Employment of business turnaround specialists
- Introduction of many consultants – especially business turnaround specialists
- Lack of maintenance
- Negative variances from projections
- Payments on insider debt
- Use of third parties and factoring companies
- Loss of business or market share
- Recent rapid growth in sales volume
- Lack of focus by management or response to requests
- Conduct proper due diligence on the front end
- Periodically audit suppliers
- Create a program to effectively select and manage the supply base
- Conduct internal training for purchasing agents, accounts payable, quality control and plant managers so they can recognize potentially troubled suppliers
- Create a proactive supply chain risk management strategy
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