Japan’s Natural Disaster: The importance of global supply chain management

Since March 11th   2011, news teams have been scrambling in Japan to cover the series of offshore earthquakes, tsunamis, and the destruction of nuclear power plants causing nuclear leakage and radioactive waves. The major area affected was around Sendai on the Japanese island of Honshu. The two major industries that were most damaged by this natural disaster were automotive and technology companies. Estimates average that 25% of global production of silicon wafers has been lost. This demonstrates the delicacies of supply chain management and how important the decisions concerning supply chain management are.

            Many global corporations use Just-in-Time Manufacturing, which is the practice of having parts delivered just when they are needed instead of carrying large and costly inventories at assembly plants. This model was actually pioneered in Japan and it is ironic that it is here where the risks associated with Just-in-Time management were displayed so prominently. Customers were affected the most due to the inability of Japanese companies to produce certain products due to the earthquake. These products were necessary supplies to other companies or were required for further production in kind. Just-in-Time manufacturers receive supplies only when they are needed. Companies that depended on the products from Japan would not have much inventory on reserve. Toyota idled all 12 of its domestic assembly plants Auto companies such as Ford Motor Co. and Renault are affected as parts for their cars had been sourced from Japan.

            Companies that sourced their raw materials or products from manufacturing plants in Japan have turned to European and American suppliers. Global companies with multiple suppliers are examining possible returns to regional sourcing production.  Companies could also hold more stocks or source parts from multiple large suppliers from around the world. This plan of action is costly both in effort, time, and money and therefore squeezes company profit margins. The Financial Times noted that we are witnessing a shift from “offshoring” to “nearshoring”.

Professor Michael R. Czinkota and Mariele Marki

Sources:

Brown, Kevin. “Global Supply Chain’s Vulnerability Exposed.” Financial Times. 23 Mar. 2011. Web. 27 Mar. 2011. <http://www.ft.com/cms/s/0/4b98305a-5497-11e0-979a-00144feab49a.html?ftcamp=rss>.

“Japan and the Global Supply Chain: Broken Links.” The Economist. 31 Mar. 2011. Web. 6 Apr. 2011. <http://www.economist.com/businessfinance/displaystory.cfm?story_id=18486015&fsrc=rss>.

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