As we pen our second commentary, it has been just 24 hours since the devastating earthquake and consequent tsunami have impacted northern Japan. Our hearts and prayers go out to all of people and associated families in Japan that have been forever impacted by this tragic event.
As can we expected, the situation on the ground remains chaotic, with the immediate crisis being the care for human casualties, the control of fires, and strong concerns regarding five nuclear power plants.
The nuclear power station located in Fukushima incurred an explosion at 4pm local time, which has triggered additional concerns regarding a potential meltdown of that unit’s nuclear core. Authorities have ordered an evaluation of all residents within a 20 kilometer limit of this facility.
Continuous additional aftershocks continue impacting many areas of the country, including a strong 6.7 magnitude quake that jolted Nagano and Nigata prefectures in central Japan. Japan’s Fire and Disaster Management Agency has reported that 206 fires continue to occur across 12 different prefectures, some involving oil refinery, and petrochemical and other supply chain related facilities. Electrical and telecommunication services within the direct impacted areas in northern Japan remain non-existent, with the military and international relief forces continuing to be mobilized and deployed to the area. Power in the city of Tokyo and the surrounding regions is being provided from faculties in the south of the country.
As we noted in our initial commentary, the global supply chain impacts and scope of this disaster are yet to be determined, but in just 24 hours, it would seem that there surely will be local and other global impacts. Initial and immediate concerns will need to be focused on the condition of various modes of transportation and distribution including air and port facilities. There is no other country better prepared for the effects of an earthquake than Japan, but this was the fifth largest earthquake in history, which means that physical and structural damage is a reality.
At first blush, industries that could be impacted are high tech and electronics, automotive, aerospace and specialty instruments. There could also be some near-term agricultural commodity impacts since the impacted area was a major agricultural area for rice production. Compliments of a Twitter follower, we were alerted to an article published in Electronics Weekly where Europe’s leading semiconductor analyst, Malcolm Penn, spelled out a potential disaster scenario for the semiconductor industry. Mr. Penn reminds us that a mere microsecond power supply glitch, as occurred with one of the Toshiba factories in December, can seriously interrupt production. He also takes CFO’s to task for what he believes has been short-term thinking in inventory strategy. Readers may be reminded of the case study incident in 2000 when a Phillips semiconductor plant was struck by the effects of a thunderstorm, whose impact was initially believed to be minor, but turned out to be major in scope.
Yesterday, we observed that many multi-national corporations issued statements that they were accounting for the safety of their employees and facilities in the region. The chief executive of 3PL provider ProLogis, who has a significant presence in Japan, just happened to be visiting his staff and provided the CNBC business network with a first-hand account of the company’s efforts to account for people and facilities. This will certainly continue. We noticed on Twitter that Procter & Gamble tweeted several alerts during the day, asking any employees in need of immediate services to register on an emergency web site.
The coming days and weeks are going to be intense for supply management professionals. There will be a need for continuous assessments and communications with key suppliers and partners. It may take time to gain a full assessment of the situation at the source, so take the time to establish a strong communication link, and be sensitive to the fact that this tragedy effects humans as well as businesses. Now is not the time to be issuing impersonal requests for information or key performance indicators.
This is a time for reaching out, assessment, and preparing all forms of contingency planning.