All in the Timing

Recent catastrophes in Japan are spurring a reevaluation of just-in-time manufacturing.

The sequence of disasters that hit Japan starting on March 11 — the record-setting earthquake and associated tsunami, a series of aftershocks, and the ongoing crisis at the Fukushima nuclear power plant — are likely to affect the supply chains of many U.S. companies for some time to come.

Particularly hard hit has been the manufacturing sector, with two industries, automotive and electronics, feeling the most pain. “With Japan producing 40% of the global component supplies, electronics have been especially worrisome. Bringing in new sources of supply is not easy, since many of the electronic components manufactured in Japan are highly specialized, and it will take time to find new sources,” according to a report by Dun & Bradstreet on the business impact of the catastrophe.

In the auto industry, the effect on car makers has ranged from the outright curtailment of manufacturing — both within Japan and at other locations, including the United States — to a diminished choice of options. Honda Motor, for instance, began cutting production levels at its U.S. and Canadian auto plants at the end of March because it lacked critical parts supplied by Japanese manufacturers, and predicted that production adjustments would continue for an undetermined time. Less affected was Ford, which reported that the only impact was a slowdown in producing vehicles in certain paint colors stemming from the fact that it had sourced an essential pigment from a plant in an affected area of Japan.

At the risk of seeming insensitive to an event that claimed such a heavy human toll, it can be said that the Japanese earthquake and its aftermath appear to have provided some useful supply-chain lessons for U.S. companies. For many, one lesson has been how little they actually know about who their suppliers’ suppliers are, and how prone those partners are to disruptions. Also instructional has been how vulnerable the most extreme forms of lean, just-in-time production can be to inventories when a crisis hits.

On the plus side, the global nature of supply lines that have evolved in recent years has enabled many U.S. companies to find alternative sources quickly.

The effects have indeed been disparate, for companies both large and small. Contrasting the experience of two vastly different companies with operations in the United States — both of which depend heavily on suppliers in Japan — brings home that disparity. On one hand, there’s Toyota Motor, one of the hardest-hit companies. Citing parts-supply difficulties, Toyota suspended production in April at its North American plants on Mondays and Fridays and assigned the plants to produce at 50% of their normal rate on Tuesdays through Thursdays. The company stated in a filing that it expects that huge disruption to “normalize in stages, starting in August, with full normalization expected to take place between November and December 2011.”

Top 10 supplier industries affected by the Japanese earthquake and tsunami

Compare that with the smooth sailing that Joto Sake has encountered. A New York–based importer of 10 artisanal brands of the rice wine from generations-old family brewers, Joto might have been expected to suffer severe disruptions of shipments of its delicate product. Although sake breweries are scattered in a number of other nations, Japan is the sole source of supply of the brands that the company’s owner, Henry Sidel, imports. Add to that the fact that sake is a dated product with a defined shelf life — meaning that on-time shipping is an urgent matter — and you have a supply chain that would seem to be hugely vulnerable to disruption.


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