All in the Timing

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

Yet Toyota, with its capacity to access alternative suppliers around the world, fared much worse than Joto Sake, which has five employees. What was the difference?

Man-Made Disasters

Perhaps the most important distinction stems from a simple truth: the effects of a disaster on a company’s supply chain largely depend on the state of the company itself and the conditions it faces when disaster strikes.

At the time of the earthquake, Toyota was just starting to emerge from a man-made disaster: a series of devastating recalls that undermined its long-standing reputation for bulletproof quality. In addition to alleged deaths and injuries attributed to accelerators that became entrapped under floor mats, the defects led to class-action suits and government investigations. There were more than 14 million Toyota vehicles worldwide subject to recalls and other safety adjustments in fiscal 2010, the majority of which occurred in the third and fourth quarters of that year.

At the same time, Toyota, like other automakers, was struggling to recover from the global recession. Besides its economic and safety problems, the company is also synonymous with the just-in-time method of managing supply chains — a method that has come in for considerable criticism in the wake of the disaster. To many observers, the disaster has called attention to the weakness of systems so lean that they’re especially vulnerable to supply shocks.

Toyota and companies that have followed similar strategies are learning that they have “instituted part of what they need to be successful. They’ve built world-class relationships with world-class processes that run very smoothly when things are going well,” says Jim Lawton, president of supply-management solutions at Dun & Bradstreet. Now, he adds, they have to assess the suppliers of their suppliers, and beyond, to be able to manage disruptions should things not go well.

As a result of the production strategy championed by Toyota, companies have increasingly outsourced their manufacturing operations in order to cut costs. That has meant that CFOs have less control over supply chains, even as the chains have come to include more and more links in more and more countries, according to Lawton.

Seeking cost reductions by cutting down on inventory and the number of suppliers they deal with, manufacturers in the auto, consumer electronics, and high-tech fields have found themselves short on safety stocks and lead time. “I’m not sitting with a month of inventory any more. I’m sitting with days or hours of inventory. Now, suddenly, there’s this direct connection between a disruption on the supply side and a disruption of customer shipments and financial commitments,” says Lawton, who expects many companies will reevaluate lean inventory techniques in the wake of the disasters.

Unlike Toyota, Joto Sake’s business prospects were at their peak when the earthquake hit. Over the past 10 years, the beverage has become a trendy accompaniment to Japanese food in the United States, and business has boomed. This year, Sidel expects the company’s annual revenues to rise from $1.8 million to $2.7 million, building on a rise of 30% the year before.


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