SEARCH searchBY TOPIC
right_division Green SCM Distribution
Bookmark us
sitemap
SCDigest Logo
distribution

Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global SupplyChain Logistics

From SCDigest's On-Target e-Magazine

April 6 , 2011

 

Global Supply Chain News: Will Japan Supply Chain Disruptions Really Cause Changes in Approach to Supply Management?


Understanding Risks from Suppliers' Suppliers; Parallel in Japan Disaster and Supply Chain Impact with the 2008 Financial Crisis?

 

SCDigest Editorial Staff

 

The earthquake, tsunami and now radioactivity crisis that have hit Japan in the past few weeks are causing severe supply chain disruptions and leading some pundits at least to call for companies to rethink their sourcing strategies.

The Economist magazine made an interesting parallel, finding similarities between the supply chain troubles companies are facing with production in much of Japan severely curtailed and the global financial crisis of 2008.

How's that?

SCDigest Says:

start
But will these lessons really lead to changes in supply chain thinking, or will the short term pain some companies are experiencing from the current Japan disruption quickly be forgotten once things have returned to normal?
close
What Do You Say?
Click Here to Send Us Your Comments
feedback
Click Here to See Reader Feedback

"In both cases, two of the biggest surprises were the unexpected connections the crisisuncovered, and the extent of the contagion," The Economist wrote this week. "The problems began in a seemingly well-contained part of the system—subprime mortgages in the case of finance, in manufacturing’s case a natural disaster in an economic backwater—but quickly spread."

One thing that many observers agree on is that the disruptions from Japan are driving many companies to realize that their supply chain risk profile is not driven only by the direct supplier network, but their suppliers' suppliers and perhaps even the suppliers of their suppliers' suppliers.

Case in point: It turns out that just two Japanese companies, Mitsubishi Gas Chemical and Hitachi Chemical, control about 90% of the market for a specialty resin used to bond parts of microchips that go in to Smart phones and other devices. The factories of both companies were damaged in the quake.

Another: The compact battery in Apple’s iPods relies on a polymer made by Japanese company Kureha, which holds 70% of the market, and whose factory was damaged. While the battery producer is fine, its ability to manufacture is threatened by the troubles at its supplier.


All this, many say, is leading to a rethinking of a global production and logistics systems in which a natural disaster in a small part of Japan's industrial base could have such broad effects around the world

Automotive and electronics manufacturers appear to be the hardest hit. While companies might normally have expected suppliers with modest damage to get back to speed quickly, continued aftershock quakes and now the fear of radioactivity contamination could extend the supply disruptions for some time.

About 13% of worldwide auto output has been lost due to parts shortages, and IHS Automotive has recently estimated it may cut output by as much as 30% within six weeks in a worst-case scenario

Shin-Etsu Chemical Co. is the world's biggest producer of advanced silicon wafers, a key material needed for the producing semiconductors. Its factory in Shirakawa Japan received heavy damage from the quake, and represents about 20% of the globe's capacity to produce key components for several high tech products.

The disruption could prove to be a big problem for chip makers such as Intel Corp. and Toshiba Corp. that buy wafers from Shin-Etsu, and then in turn OEMs that buy chips from those companies.

Chinese computer maker Lenovo Group recently warn that a shortage of components from Japan could have a impact on output, among others citing the same concerns. Chinese cell phone maker ZTE Corp. said it could face shortages of batteries and LCD screens for months.

The likelihood of more disruptions to come has touched off a scramble for alternative suppliers, and triggered a run-up in the price of memory chips and other parts.

One interesting fact: those companies that had the largest inventory buffers are able to manage through the crisis better than those operating "just-in-time."

(Global Supply Chain Article Continued Below)


CATEGORY SPONSOR: SOFTEON

 

 

Just-in-time "is a good plan for normal times, not for emergencies," said Tetsuji Morino, a managing director at Dai Nippon Printing Co., a $19-billion company based in Tokyo.

Japanese suppliers like these of course are also dependent on their own suppliers, and many of those companies either sustained their own damage or have logistics problems getting their shipments to their customers, especially if they were located in the hardest hit areas. Some large Japanese electronics manufacturers have their plants back up and running but are operating at only 50% capacity because of their own supply chain disruptions.

The automotive industry especially may need to rethink its supply chain model, according to one expert.

"What this says is that there might be some cracks, some inefficiencies, some unplanned-for problems not only in nuclear power plants, but in our global supply system for the auto industry," Sean McAlinden, chief economist for the Center for Automotive Research, said at a conference near Detroit last week.

"We may have consolidated our suppliers too much," he added. "We may have shared parts across too many models. We may have built regional models with global parts, which means lines will go down here for cars that don't sell anywhere else, really. And maybe there will be some pull-back because of this particular disaster. Who knows?"

But will these lessons really lead to changes in supply chain thinking, or will the short term pain some companies are experiencing from the current Japan disruption quickly be forgotten once things have returned to normal? And has the extent of the disruptions been overblown on the media?

"Many pundits are over-exaggerating impact from this," says Gene Tyndall, an executive vice president at Tompkins Associates and long time observer of global supply chains. "The primary impact on businesses will be to reinforce, or expedite, their supply chain risk management strategies and contingency plans."

Tyndall says that some 50% of companies still do not have adequate risk mitigation plans and/or clear action steps if a major supply chain disruption of any type occurs.

"Companies are just not prepared for the key questions of What if? and What will we do?" Tyndall added.

See also: Thought Leaders on the Supply Chain Risk Management Less from Turmoil in Japan

Do you think there will be any real changes in supply management strategies coming out of the Japanese disaster? Or was this such a once in a lifetime event that companies should not make changes based on this experience? Are must companies not doing a good job on risk mitigation strategies? Let us know your thoughts at the Feedback button below.


ur feedback
shadow

Recent Feedback

 

No Feedback on this article yet

 

 
.