Japan supply chain break down to hurt global production
Mar 25, 2011 - Two weeks after the devastating earthquake and tsunami struck the north-east coast of Japan, the aftershocks are being felt by the global manufacturing industry. A shortfall in supply of parts has already seen some of Japan's biggest companies, including carmakers and electronics manufacturers, shut down production at their factories. It has also started to have a global impact, with Toyota Motors saying that it will curb its North American production due to parts scarcity. General Motors has also announced suspension of production at one its plants in the US, blaming parts shortages.(BBC)
Background and Implications
Over the years, the global economy has proven very resilient to natural disasters- slow downs tend to be minor and recoveries quick. The disaster in Japan may buck this trend for several reasons. First is the magnitude of the disaster, with rolling blackouts disrupting key industries and the leakage at the Fukushima Dai-ichi nuclear-power plant denting consumer and producer confidence. America blocked imports of produce from the radiation zone on March 23rd, with other countries following suit, despite expert assurances of safety. Second is Japan's central position in increasingly lean global supply chains, especially for the electronics and automotive industries. Toyota, which pioneered the process of running just-in-time inventory systems, has idled all domestic facilities and many foreign ones. GM, which has fewer Japanese Tier I suppliers than many other automakers, has idled its Shreveport plant, ostensibly to conserve parts for more popular vehicles. Sony Ericsson noted that liquid crystal displays, flash memory, and batteries used in mobile phones are beginning to become in short supply. Third is that Japan already was in a fragile economic and political state. Bureacratic inflexiblity and partisanship remains, keeping individual aid from reaching its destination and preventing "emergency" reserves of oil from being legally released.
Rajiv Biswas of IHS Global Insight notes that the real challenge would come in mid-April when companies run out of inventories and supplies. Given the grim outlook, it would be wise to plan for the shortage to last at least that long. Depending on the long-term impact, the practice of global, just-in-time supply chains may come under fire.
Other Recent News and Information
Disaster in Japan: A heroic public spirit, but a weak state. (The Economist. Mar 24 2011)
Turn to Korean Suppliers Could Hit Japanese Exporters Long-Term: As companies scramble to ensure shipments of parts and materials from earthquake-hit Japan, some are turning to South Korean firms for alternative supplies—a move that could threaten Japanese exporters' supply deals in the longer-term.. (WSJ. Mar 25 2011)
GM to Reopen U.S. Truck Plant: General Motors Co. said Friday it will reopen a Louisiana truck factory that had been shut due to the crisis in Japan (WSJ. Mar 25 2011)