Parts crisis at GM plants must never be repeated

Some 4,500 workers at the sprawling General Motors Lordstown complex, as well as tens of thousands of their peers throughout North America, teetered on the brink of calamity this week. A bankrupt Massachusetts company providing critical parts for GM’s line of cars and trucks ceased production, threatening shutdown of most of the automaker’s operations on this continent.

In a federal court filing this week, GM minced no words about the potentially horrendous fallout: “A continued disruption in the supply of component parts will also cause a catastrophic disruption in the supply chain and the operations of countless GM suppliers, dealers, customers, and other stakeholders, including the potential layoff of tens of thousands of workers in the event GM’s North American operations are completely shut down.”

Fortunately for GM, its workers, its spinoff industries and the communities the automaker supports, that feared catastrophe was averted.

The auto giant deserves some credit for handling the looming crisis effectively. It did so with a sense of extreme urgency and with stalwart resolve toward carving out a workable solution with the supplier and with the federal court overseeing its bankruptcy case.

That century-old supplier, the Clark-Cutler-McDermott Co., had been providing General Motors with essential parts for about five decades. It claimed in its bankruptcy filing last month that it has 200 to 999 creditors and liabilities of up to $50 million.

“The debtors’ contracts with GM – their single largest customer – are very unprofitable,” CCM wrote on behalf of its case for bankruptcy.

Judge Christopher J. Panos’ ruling in federal court Wednesday night granted GM the right to recover its production tooling designed specifically for its models from CCM and share that tooling with new parts makers and suppliers that it has located.

In so doing, no time should be lost in tedious efforts to reinvent, redesign or reconstruct the critical production tooling. How critical is it? It is used in the production of about 175 component parts, including dash insulators, wheelhouse liners, floor insulators, fender and pillar insulators used for all GM cars and light trucks assembled in the United States, Canada and Mexico.

IS SINGLE SOURCING WISE?

This week’s crisis for GM also illuminates some potential risks involved in the automakers’ contemporary mode of operations.

For the sakes of efficiency and cost savings, GM – and most of the domestic auto industry for that matter – have shifted to “single sourcing,” which is contracting with only one supplier to provide parts for a manufactured vehicle.

The CCM case, however, illustrates the potential for lightning-quick harm that such monolithic sourcing strategies can produce in the absence of at least one viable and reliable alternative supplier always at the ready.

Another industry trend that played a role in the production panic this week can be traced to the auto world’s heavy reliance on so-called “just-in-time” delivery of parts and needed supplies.

Just-in-time is an inventory strategy that companies use to increase efficiency and decrease waste by receiving goods only as they are needed in the production process. This method cuts inventory costs dramatically but requires producers to forecast demand with pinpoint accuracy.

This inventory supply system represents a shift away from the older just-in-case strategy, in which producers carried large inventories just in case higher demand had to be met in a moment’s notice or if an emergency of any sort disrupted the supply chain.

The CCM debacle this week points out quite clearly the potential downsides of single sourcing and just-in-time production techniques. Corporate leaders would be wise to consider reviewing those strategies to determine what, if any, tweaking of them may be in order.

In any event, we hope that GM goes beyond merely solving this immediate dilemma fully and effectively. In addition, it and other American automobile manufacturers also should work to ensure such a potential production catastrophe never happens again.

Who knows? Next time, there could well be no quick and easy escape value.