During one of the many discussions on the fate of the Big Three automakers recently, one expert interviewed on "Marketplace," American Public Media's evening radio show on business and economics, commented that "It's all about the parts."
She was referring to the ripple effect the failure of General Motors and Chrysler would have on the entire automotive supply chain and the broader economy.
Jean Jennings, editor-in-chief of Automobile magazine, has a bleak view of how things would play out if either automaker failed. She told the show's Tess Vigeland, "It would mean that no one would be able to build cars in the United States for at least a year. That means no Japanese, none of the Europeans that are building, and not Ford because of their great dependence on a supplier industry that would just crash and burn. It takes the loss of one part to shut the whole thing down."
Wow. I was in my car at the time I heard that, so I double-checked the text online to make sure I heard that right. It was all there in the transcript: "It's all about the parts. It's all about the parts," Jennings said.
Her prediction brought to mind for some reason the well-worn allegory used to explain how interconnected things are in nature. You've heard variations of it: If a butterfly flaps its wings in a remote jungle, that small disturbance leads to major effects—storms in the Pacific, shifts in stresses on species, and so on. While it is hyperbole, to be sure, the tale keeps getting told because it has some truth in it.
I hesitate to take something intended to illuminate a principle of natural science and apply it to business economics, but Jennings' dire forecast makes it seem apropos. What happens to Chrysler and GM will have profound effects on supply chains far beyond the boundaries of those companies.
Now the analogy falls apart, I confess, when you consider how vast both of those companies are. They are behemoths, not insignificant players. But their predicaments—and the likely consequences of their failure—suggest once again the potential risks of complex but closely interconnected supply chains. And what applies to the automotive industry applies to other industries as well, although perhaps not to the same degree.
Much attention has been given in recent years in these pages and elsewhere to the issue of business resiliency. But even the best laid plans can go awry in times of economic havoc. The resiliency movement gained momentum as a response to crucial, but discrete events—terrorist attacks, hurricanes, supplier failures. Now, they are being tested by an endemic crisis beyond what we might have imagined just a few months ago.
