The devastation and tragedy unleashed on Japan by a trio of domino-like forces—an earthquake, then a tsunami, and finally a nuclear meltdown—is now beginning to topple global supply chains. The immediate effect on U.S. companies with operations in Japan was muted, according to sources Inbound Logistics spoke with soon after the tsunami hit land. But supply chain aftershocks are emerging.
For Ecolab, a St. Paul, Minn., sanitation supply company with a manufacturing footprint in Japan, disruptions have been minimal. “Our workforce is safe and the plants are running,” says Mike Monahan, vice president of external relations, Ecolab. “One facility had minor damage that did not impact production. We are being affected by the disorder in infrastructure and logistics around Japan, however, which is making shipping and receiving a challenge.”
While some companies have been successful executing short-term contingency plans, there is concern that Japan’s infrastructure losses, economic vulnerability, and disruptions to high-tech and complex manufacturing operations—the country’s strength—will be lingering problems.
Japan’s vaunted automotive sector has the most to lose. If transportation is a source of concern for companies such as Ecolab, Japan’s carmakers and suppliers are cautious about the long-term effect of production shutdowns and supply shortages on just-in-time manufacturing and lean inventory models across the world.
Toyota Motor North America is still assessing its network to ensure there is enough supply to build vehicles in the United States. Most of its Japanese plants are centrally located and nowhere near the disaster zone. Only four plants—subsidiaries supplying parts—were compromised following the earthquake and tsunami.
Production facilities closed immediately after the disaster, says Toyota spokesperson Javier Moreno. The company expected to begin production again on March 17, 2011. Getting spare parts facilities back online was top priority to ensure replenishment for vehicle repairs in the United States.
“There has been no lapse in taking care of U.S. customers,” says Moreno. “There has been some build-up in the United States to manufacture products for overseas consumption. No scale-up has occurred at other production facilities, apart from extending overtime at U.S. plants. Toyota will continue to assess the situation.”
Lean Leads to Delays
To say the situation in Japan is still fluid is an understatement. Shortly after IL spoke with Toyota, the company announced it would stop manufacturing activities at all of its Japanese plants and subsidiaries for another week. The carmaker didn’t resume production of its popular Prius model until March 28.
Other carmakers such as Ford, General Motors, and Honda are also idling production and leveling demand at facilities across the world to counter immediate supply constraints. Rolling blackouts have forced some Japanese facilities to take turns running assembly lines to conserve power. As lean as automotive supply chains are, shortages have already begun to materialize in the United States as factories feather the brakes on assembly lines.
General Motors halted production at its Louisiana truck plant. Toyota and Subaru followed suit to stockpile parts. Ford had to stop taking new orders for cars in Tuxedo Black, and is limiting orders in three shades of red due to a pigment shortage. The hard-to-get pigment is made at a single German-owned factory near a coastal town hard-hit by the tsunami and close to the damaged Fukushima Daiichi nuclear facility.
For industries where supply lines are more flush and lead times longer, shortages likely won’t manifest for a few months. Apple, for example, predicts possible difficulty sourcing parts for its new iPad2.
Sony Ericsson faces a dearth of components for its mobile phones, and it won’t be alone. Sources estimate that Japan produces one-fifth of the world’s semiconductors, which are commonly found in computers and cellular devices.
Such shortages affect suppliers as well. The Philippines semiconductor industry association expressed concern that the disaster in Japan could disrupt the supply of raw materials from the country and affect the export of Philippines-made components back.
For now, shippers are generally concerned with supply chain implications rather than tactical transportation and logistics adjustments. Japan has always had great infrastructure density, especially at its ports. Industry observers expect a negligible impact in the ocean container trade. Getting product from manufacturing facilities to the coast, however, could present some problems, especially where roads have been damaged and recovery efforts are ongoing.
Readying to Rebuild
While the rest of the world copes with supply chain contingencies, Japan faces its greatest reconstruction effort since World War II. Apart from the human toll and the material impact on transportation assets, Japan’s economy will be under the microscope.
The country is two decades removed from its economic bubble burst, when out-of-control stock and real estate prices precipitated over-investment and collapsed the financial sector and countless industries. Government and private sector interests have been ultra-conservative over the past decade regarding fiscal practices, economic stimulus, and trade liberalization.
An outpouring of humanitarian aide and assistance from trade partners will also expose an insular island culture. Japan’s enduring keiretsu—“management by consensus”—approach to business has always placed great value on collaboration among Japanese multinationals. It has also created uneasiness about outsourcing. It will be interesting to see how Japanese industry responds, and to what degree it embraces outside help in its recovery.
For a small country, Japan’s impact on global supply chains is remarkable. Many countries and businesses are stakeholders in Japan’s economy. The United States contributed $104 billion in foreign direct investment in 2009, by far the most in Asia.
The real impact of the earthquake and tsunami will likely take months to fully materialize, but in the meantime Japan will receive ample support in getting its economy back on the assembly line.
Retailers are placing greater emphasis on investing in technology to address external challenges such as customer relations management, according to Aldata’s 2011 Global Retail CIO Survey. Forty-six percent of the retailers surveyed plan to use IT to gain “one view of the customer” to better understand buying patterns and improve margins. The survey, which was conducted by Martec on behalf of Aldata, includes more than 130 retailers from 26 countries.
Many shippers and motor freight carriers have been lobbying state and federal transportation authorities to lighten up restrictions on trailer weight capacities—an effort that would allow for more long combination vehicles (LCVs) and contribute fewer carbon emissions.
Opponents such as the Coalition Against Bigger Trucks (CABT) argue that heavier trucks divert volumes from the railroads—which some say are a greener and cheaper solution.
Allowing heavier trucks on interstates would add seven to 18 million more trucks on U.S. highways and subtract a big chunk from Class I traffic, according to a recent study by independent transportation consultant Carl Martland.
An increase in maximum truck weight from the current 80,000-pound limit to 97,000 pounds could reduce overall rail traffic by 19 percent, while an increase in LCVs would divert as much as 36 percent of Class I traffic to truck, according to the study. If more states allow 97,000-pound, six-axle trucks, 7.8 million truck trips worth of freight would be added to highways. Longer LCVs could add 17.4 million truck trips worth of freight.
“Allowing heavier or longer trucks takes us in the wrong direction,” says Curtis Sloan, policy director for CABT, which opposes efforts to increase truck weight and size, including the recently reintroduced Safe & Efficient Transportation Act. “Raising the maximum truck weight will divert freight from railroads, add millions of heavy trucks onto our roads, and add more strain on budgets at all levels.”
A majority of mid-sized to large manufacturers are grappling with market pressures to measure and report on their environmental footprint and regularly change their business models, according to an IFS North America research study.
More than 80 percent of respondents report that green supply chains—in which companies make purchasing decisions based on non-financial criteria, including the environmental impact of vendors and their products—will become more important in the next three years. The study surveyed more than 200 executives who have manufacturing operations with revenue greater than $100 million.
However, respondents indicate that their IT infrastructure, including enterprise resources planning (ERP) software, is not keeping up with changing green supply chain needs. Eighty-seven percent report that this data is handled at least in part through hard copy.
Meanwhile, more than 80 percent of respondents say their companies are running multiple business models or manufacturing modes; 74 percent have added modes in the past five years; 54 percent have added modes—engineer-to-order, engineer, procure, and construct, for example—at least twice during that period; and 28 percent have added modes three or more times.