Surviving the tough times is quite a challenge to many firms and many have gone bankrupt mostly because they had no prior preparation for such a crisis. The supply chain industry however is likely to survive the financial crisis. DHL portrays this possibility as it has not recorded a lot of losses. This is because goods still have to be delivered even with reduced production. DHL and General Motors (GM) are two companies that are expected to defy the odds despite the ongoing global financial crisis. DHL has been forced to lay off some of its workers and close up some of its hubs with all hubs in the U.
S being completely shut down. This is in response to the financial crisis pressures that have put the company at a risk of insolvency. GM faces the same plight and it has been forced to lay off a significant number of workers in the recent past to try and reduce the impact of the crisis. GM and DHL portray the importance of adopting an effective supply chain as it is likely to have positive effects on a company's operations. In the occurrence of similar challenges, firms must learn from the current economic crisis to adopt better global supply chains to maintain business in future. Introduction
The effects of the global economic crisis can be felt in each and every industry with far reaching consequences. Not only has the power of industries to produce goods reduced but the consumer's purchasing power has also been affected leaving the world economy in a poor state. Possession of an efficient global supply chain is one thing that will help majority of firms to overcome the situation. The global supply chain industry is one sector that has been greatly impacted on by the crisis. It is however believed that the supply chain industry will eventually ride out of the current crisis given that supply will have to be maintained.
The fact that the goods and materials are in reduced volumes does not matter because even then, they still need to be delivered to the final customer. This paper seeks to justify this statement while incorporating real organizations. The global supply chains of two organizations: DHL and General Motors will be used as research support cases for this analysis. From the two case studies, the paper will analyze the importance of implications and consequences of having an effective supply chain. Findings DHL As the financial crisis deepens DHL has found itself a victim of fate with the company suffering major financial difficulties.
According to Yasmin (2009: 2), DHL is already trying to shield itself off from the effects of the crisis by laying off some of its workers and closing some branches for a limited period of time until they can be able to sustain them. DHL is one of the largest companies in the supply chain industry undertaking transport of goods and packages to different destinations in the world (DHL, 2009). Although the company expects to survive given that companies are still using its services to transport their merchandise, DHL has been forced to lay off some of its workers due to reduced business (Yasmin, 2009: 3).
The total number of workers bound to lose their jobs is estimated to be over 16,000. The Deutsch global shipping giant also intends to close its operations in the United States. In a statement issued by the executive director of March Joint Powers Authority, Lori Stone in November 2008, the March Air Reserve Base hub would be closed by January 2009 (Press Enterprise, 2008: 11). About 300 employees undertaking the sorting and loading of trucks, planes and other jobs will lose their jobs in this hub. In total, DHL's 18 hubs in the U. S will close as confirmed by the CEO, John Mullen.
This means that the company will reduce the 13,000 workforce to only 3,000. With the exit from the U. S, DHL plans to outsource its business to UPS (United Parcel Services) in a $1 billion ten year contract (Press Enterprise, 2008: 16). As indicated by Mullen, decline had been witnessed in the U. S but otherwise it was doing well globally. DHL has established an effective global supply chain. Being a freight company, theirs is a service industry and therefore supply refers to delivery of the goods on behalf of the customers (DHL, 2009).
To facilitate this, DHL has established agents all over the world. These agents are responsible for providing DHL services in their countries and they include freight agents including air freight agents and sea freight agents, logistics agents and cargo and storage agents. As the company would have it, the agents are well distributed around the world making a total of 1,025 suppliers (Barrington, 2007: 23). China rates among the countries with the highest number of suppliers with 127 agents. This is more so because of the numerous products and raw materials exported from China.
The company needs supplies which include packaging materials, delivery trucks, airplanes, ships and trains for which they have identified global suppliers. DHL has also arranged its supply chain such that it appoints agents who are financially endowed and who can purchase their own trucks for transport. This way, the company only pays the agent fees and the burden of obtaining supplies is eliminated. Some materials such as packaging materials must however be supplied from specific suppliers identified by the company due to identity. General Motors
General Motors (GM) is one company that has been hit hard by the ongoing financial crisis. The Automobile giant is yet to make any profits following its harsh experience from the economic crisis. GM has been forced to lay off some of its workers which has reduced its production from 6 million vehicles per year since 2002 to 4 million (Krisher, 2009: 14). GM plans to lay off 26,000 of its employees in the U. S. This is about 17 percent of the total number of GM workers. The firm will also temporarily close some of the plants until times are better.
According to the former CEO, Rick Wagoner the reduction in production and workers is to ensure that the production goes in line with sales which have drastically reduced. Krisher (2009: 12) notes that there is a general shortage in the market for cars which is forcing the company to export less cars at almost the same transport expenses. GM possesses a vast network of global suppliers and an expansive sales distribution network. It ensures that its dealers are constantly supplied with cars and spare parts. This has been the source of success for the company.
The company is currently using a model they have named 'Centralized Decentralization' in which a single supplier is given the role of providing materials to the company (SCDigest, 2008: 6). The supplier undertakes the purchases on behalf of the company such that it only has to deal with that particular company instead of purchasing small quantities from numerous suppliers. This system was created by the global procurement and supply chain operations vice president, Bo Andersson. The company has at least 1,500 parts suppliers whose input make up for 80 percent of the raw materials required to make their vehicles.
The company divides its supplies into direct and indirect supplies for the ease in management (GM, 2008: 23-29). These are further sub-divided. For example, direct purchasing includes the interiors, exteriors, electrical components, chassis and closures. Indirect purchases are mostly services such as financial services, IT services and engineering services. This kind of segmentation aids GM to effectively locate the suppliers who are assigned with the supply of each given that they come from all over the world.
To facilitate ordering and tendering, the company uses ebXML (Electronic Business XML) as their means of communication with clients (Reese, 2008: 9). This ensures that no extra expenses are paid to employees as a result of overtime needed to take orders during busy times. Supply of the finished goods is through agents and dealers established worldwide. Just like suppliers, they use the ebXML to make their orders. The company only undertakes the transport of the vehicles where they deliver directly and where agents have been used to locate customers.
Dealers may be given discounts but usually bear the responsibility of facilitating transport of the vehicles to their countries. Analysis It is clear from the above case studies that the two companies have been affected by the global financial crisis to an extent of closing some of their branches and laying off a large number of workers. What is more evident however is that these companies are not feeling the effect of the economic crisis in the same manner. DHL will most likely continue to operate and at no given time has it occurred that it would have to be closed completely due to lack of business.
The amounts of cargo available for delivery from producing companies may be less in volume but it is given that these have to be transported to their destinations to meet final customer's needs. GM on the other hand is struggling to keep its income flowing now that it has reduced its production capacity and the demand of vehicles has dropped significantly (Simon, 2008: 1). In the face of the current global economic crisis, both companies are enjoying the benefits of effective supply chain management. DHL is keen on selecting its suppliers so that all of them are financially stable and the crisis is not likely to lead to their bankruptcy.
This way their operations will continue in the various countries. DHL also seems to concentrate its suppliers in countries where a lot of importation goes on. The case of China is just but an example of how DHL maximizes its presence in areas that are likely to bring more income. According to Mentzer, Theodore and Myers (2006: 39-46), an effective global supply chain must identify the target markets and settle for those that have a high likelihood of registering maximum sales. This does not mean that a company should ignore other countries altogether because they have customers as well.
The difference is that the market is not large enough and the best thing for the company to do is to reduce the concentration of suppliers in these less endowed countries (Lee, 2006: 139-143) . It is evident that what has saved GM is its global supply system which is well established and which has ensured the flow of raw materials and finished cars in an efficient manner. The car manufacturer's suppliers must prove that the supply of the materials will be regular before being given the tenders. This is ensured through the use of supplier audits to check the credit worthiness and financial position of the companies.
This is a good tactic which will ensure that supplies do not fail leading to stagnation in production. The use of centralized decentralization however may bring in some disadvantages to the company. When one supplier is served with the duty of supplying a certain raw material, the company is likely to encounter huge losses in case of collapse of the company (Lee, 2006: 39-46). This is the case encountered when the auto manufacturer's major supplier Delphi went bankrupt causing massive confusion in the company.
CEVA logistics has since replaced Delphi after acquiring its assets (Brazil, 2009: 12). The importance of modern technology is well displayed by General Motors who have embraced a system to facilitate their global supply chain. This according to Schwarz (2008: 17), this saves a company from excessive paper work and also saves money. As indicated by GM, it saves them the cost of paying overtime. Recommendations Global supply management is becoming an essential requirements for businesses outsourcing materials and those exporting overseas.
It is therefore inevitable for companies to move with the times and set up effective supply chains. An effective global supply chain is one that is affordable to the company and one that is reliable (Schwarz, 2008: 8). For DHL to survive in the logistics industry considering that it is possible for another economic crisis to hit the world, it must maintain its policies on selecting potential suppliers and agents. This crisis should be a lesson that it should revise its supplier conditions so that it only takes those who are better placed to survive economic hardship.
According to Lee (2006: 60-63), before a company selects suppliers and dealers, it is wise to establish their financial capabilities so as to ensure a steady flow of materials and finished goods to the final customer. This will ensure that all the processes involved in the manufacture and supply of goods is not affected by loop holes resulting from poor supply chains. Similarly for General Motors, effective selection of suppliers is essential because a pause in delivery of raw materials could cause massive losses to the company.
There is need to revise the centralized decentralization policy acquired for the supply of parts and materials. This is because this system could be risky to the company. Schwarz (2008: 23) emphasizes on the need for companies to avoid 'putting all their eggs in one basket'. The consequences of failure of a sole supplier could be quite detrimental to the company. There is also the need to come up with alternatives. What the company would do in case one plan fails should form part of an effective global supply chain.
DHL and GM need to identify next possible suppliers and keep them as back up in case their current ones suffer from financial difficulties or if they are unable to deliver according to their expectations. Alternatives help businesses to adapt quickly once their current source of materials are suddenly cut off. Conclusion It is true that the global supply chain industry is likely to survive the economic crisis. Citing from the case of DHL, the companies in this industry will continue getting business from manufacturers and importers since goods continue to be transported to end users even though in smaller quantities.
Manufacturing companies on the other hand are faced with shortage of markets as the economic crisis impact on people's spending patterns. They have in turn been forced to reduce their production and at the same time lay off some workers to reduce the cost of production. It is however notable that an effective global supply chain will aid any company to reduce losses caused by the ongoing crisis. Having a well established network of suppliers and dealers is an important aspect of the global supply chain management because it ensures that the manufacturing and the distribution process is well taken care of.
Reliable suppliers can be identified through their credit worthiness and their asset base. As indicated by the case of DHL and GM, an effective global supply chain can save the company from harmful effects of economic downturns. Word Count: 2564 Reference List Barrington, J. (2007). DHL leading in the Logistics Industry. The Economist, March 27. Brazil, G. (2009). CEVA Logistics Wins General Motors Supply Chain Contract. PR News, April, 16. DHL (2009). About Us. Retrieved on May 6, 2009 from www. dhl. com. GM (2008). General Motors Global Purchasing and Supply Chain Global Suppliers.
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