An article earlier this month in Forbes.com reinforced what many observers, including this author have been expressing regarding the U.S. automotive supply chain.  “The growing fear is that without help the auto industry may collapse from the bottom, rather than top down”, states Joann Miller, the article’s author.

In essence, funneling more money to bailout General Motors or Chrysler will be a waste unless there is way to insure some integrity in the overall network of key component suppliers that make-up the fabric of the automotive supply chain in the U.S.  If key supplier failures occur in large numbers, it could take many months to shift tooling and re-certify alternative suppliers.  Some of these same suppliers also supply foreign automotive makers for their production facilities located in the U.S.. More importantly, just when the U.S. auto industry needs to step-up its ability to remain competitive in global markets, and insure U.S. based innovation for market attractive vehicles for the next decade, its supply chain capabilities may be the fatal link.  As the article pointed out, the stress on suppliers becomes more evident every day.  Yesterday, the Associated Press reported that Visteon will not be able to file its annual report on time because it expects an upcoming report by its accountants to indicate significant doubt about the company’s ability to continue as a “going concern”.

Voices of reason and rational action need to be a response to this crisis situation. I read a press release from Grant Thornton LLP that attempts to influence a broader set of industry actions into place.  Laura Macero, part of  the Corporate Advisory and Restructuring Services team at Grant Thornton believes that some 500 Tier-One suppliers may be at high risk, and damage could be mitigated if key suppliers form a coalition with automakers, banks, and the government to drive an orderly consolidation of the supply base.  According to Macero: “Without a structured approach of consolidation to the benefit of the entire supply chain, the industry may lose critical partners with the technology, scale and geographic footprint that are linchpins in the viability equation.

Suppliers need to proactively determine whether they are a consolidator or a consolidatee,” she said. “For those that are best suited to operate as consolidators, they need to step forth and provide solutions.“  The release continues with a set of  recommended roles and actions for each of the key players that can resolve this crisis.

President Obama’s special auto industry task force is currently analyzing the options for insuring the future for the U.S. automotive industry.  I trust that task force members will take this more holistic view, that GM and Chrysler alone do not constitute the entire automotive supply chain.  The Grant Thornton proposal and any others that take the full holistic view deserve consideration.

What’s your view?  Should the broader U.S. automotive supply chain be preserved, or should the forces of the market take their toll?

Bob Ferrari

News began to leak out yesterday concerning the long anticipated trimming of the SAP workforce.  An article in CIO.com indicates that an SAP spokesperson has confirmed that the company has now begun the process of layoffs, but no specific numbers were confirmed.  ” The cuts were not directed at any one particular discipline or area of our business” indicated this spokesperson. Indications are that the layoff number may be in excess of 3000 employees since SAP had previously communicated to the financial analysts that it plans to lower its worldwide headcount to 48,500. SAP had in excess of 51,500 worldwide employees at the end of 2008.

The fact that the cuts were spread across multiple areas indicates to me that SAP has taken a pragmatic and rational view of what the company needs to do to position itself for perhaps a new era of enterprise level applications buying activity. SAP was already bloated in staffing, and this trimming is actually long overdue This, in my view, may not be the last of these cutbacks, as SAP adjusts to a different business model.

The question for our community is what, if any would these cutbacks have on SAP’s supply chain management applications development or customer support.  My belief is that there would be very little impact.  . The area of supply chain management has been waning in strategic importance for SAP, as it searches for other growth markets.  Within the SAP SCM suite of applications, a lot has been accomplished to make these applications more attractive for SAP customers, but this work obviously needs to continue. To cite one example, SAP Supply Network Collaboration has in my view been an application with the potential for considerable value for customers, but SAP enhancements to this application come at a slow pace. SAP Advanced Planning and Optimization (APO) application has come a long way, but must be constantly modified to help customers to be more productive in the use of its functionality.  There are certainly other areas such as Sales and Operations Planning (S&OP) process support that need considerable more work.  There is also a rather large SAP user base in the governmental, military, and defense areas who depend on more robust functionality in supply chain management applications.

Hopefully, SAP will continue to invest in SAP Supply Chain Management, in spite of cutbacks.  A lot obviously remains to be done.

What’s your view?

(Full Disclosure: this author was a previous employee of SAP in the role of global product marketing manager for SAP Supply Chain Management.)

 Bob Ferrari