Japan Quake and the Delicate Nature of Supply Chain

March 23, 2011 at 8:23 pm Leave a comment

For those who keep a close eye on the global economy, recent events in Japan have highlighted the complexity of the world’s supply chains and the great interdependencies in global production systems. With the economic shockwaves of this month’s quake and tsunami being felt in many sectors, it is easy to see how our modern, tech-dependent way of doing business is constantly dangling from a tenuous thread.

As Willy C. Shih, of the Harvard Business School said in a recent blog post, “The world’s supply chains are complex and highly optimized to deliver products efficiently at the lowest cost. They are characterized by a sequential mode of production where goods are produced in a series of stages in different countries by vertical specialists who pass them across borders to the next firm in the value chain. Shocks like this ripple through the chain, and test the robustness of their design. With lean inventories and just in time deliveries, there is not a lot of slack in the system to act as a buffer. This disaster promises to be quite a test.”                                                                                           

Shih also points out some interesting statistics about Japan’s role in the global tech supply chain. He notes that Shin-Etsu Handotai, one of the world’s primary producers of silicone wafers, has shut down its Shirakawa plant for lack of electric power. This plant was producing 22% of the world’s supply of silicon wafers.

One lynchpin product, anisotropic conductive film, is a key material used in the manufacture of LCD flat panel displays in TV sets, notebook computers, smartphones, and tablets. Japan is home to 70% of the world’s supply, and as of March 16th, suppliers have stopped taking orders.

Japanese powerhouse Toshiba makes 35% of the flash memory in the world, but has not disclosed how the earthquake will affect its business. But, according to Shih’s Harvard Business Review blog post, other memory chip makers, like Samsung and Hynix in Korea, have already stopped quoting prices until they can assess the impact of the earthquake on their supply chains. A report in the Korea Herald tries to downplay the immediate effect of Japan’s temporarily shattered infrastructure on the supply chain, but manufacturers in Korea admit that the long term impact is still unpredictable. http://m.koreaherald.com/detail.jsp?newsId=20110314000919&menu=news&categoryId=02&page=1


There is no doubt that Japan’s tech sector will bounce back, and, in fact, there is some historical evidence to suggest that it may come back stronger and more quickly than many would anticipate. A recent New Yorker article considers the possibility that the “Jacuzzi Effect” may take hold in Japan. Past examples of similar scenarios, including the Kobe earthquake of 1995, and the Northridge quake of 1994, show that mass devastation of this type is often followed by a rebuilding boom that replaces less efficient, worn out systems with more modern, more profitable infrastructure.  http://www.newyorker.com/talk/financial/2011/03/28/110328ta_talk_surowiecki

Yet, there is little doubt to those who rely on Japanese goods that the recent disaster has thrown chaos into an already beguiling global supply chain system. As every sector of the economy becomes increasingly interdependent, and reliant on intercontinental trade, the threat of global events on resource planning cannot be ignored. Any company, whether or not they directly source their materials or labor overseas, can be affected by supply chain disturbances. In the modern economy every manufacturer or retailer has to keep a constant eye on their supply chain, and there is no better way to do this than by using a Product Lifecycle Management (PLM) or Supply Chain Management (SCM) system. When properly designed and implemented, supply chain software can give a company the transparency and oversight to make quick decisions in the event of a global supply chain disturbance. Being able to communicate your needs and make changes instantly to all of your suppliers, contractors and partners will allow your company to weather unexpected economic storms, and to minimize the impact whenever possible.

To find out more about how a SCM or PLM system can help your company take the chaos out of the global supply chain, please contact Business Management Systems online at www.bmsystems.com, or at our offices in Manhattan.

JW Yates

New York City, New York

March 23, 2011

Business Management Systems

330 West 38th Street

Suite 705

New York, NY 10018

(800) 266-4046

info@bmsystems.com

http://www.bmsystems.com

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Business Management Systems (BMS) has been a leading provider of product lifecycle management software solutions to the apparel & textiles industry for 15 years, delivering VerTex Toolboxes--an easy-to-use modular system uniquely configured to meet every company's specific needs.

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