The following commentary can be viewed and commented upon on the Supply Chain Expert Community web site.
As many of the supply chain management community are acutely aware, the after-effects of the earthquake in Japan will have far reaching impacts on multiple industry and global value-chains. A lot of commentary can be found in the blogosphere and in traditional media, and we at Supply Chain Matters have also added our own perspectives which can be reviewed here and here.
Before continuing with this commentary, we should again emphasize our empathy for the people and victims within Japan who have and continue to endure the effects of this calamity. Our thoughts and our prayers should continue to be focused on their recovery.
Unfortunately, tragedies bring implications and that is on what this commentary will reflect.
At this particular time in this evolving crisis, the one important unmistakable conclusion is that just like the 2008 global financial crisis, the Japan event will ultimately seed a number of significant watershed changes for industry supply chain strategies and capabilities going forward. The open question is how significant and how deep.
In this commentary, we reflect on a few of the more significant implications. Jason Busch of Spend Matters called attention to a Paul Martyn, commentary published on Forbes.com that noted an estimate that it would be 9 to 12 months before production can return to pre-disaster levels. That seems to be a reasonable general estimate and there certainly could be some outlier exceptions, particularly in electronics and automotive sectors. In his commentary, Martyn predicts three major shifts as a result of this crisis:
1. A lessoning of the rigidity of zero inventory policy that many companies have been following these past few years.
2. The entry of new players takes advantage of the crisis to seize new revenue opportunities.
3. Bullish upside for U.S. and perhaps North American based manufacturers that stand to gain in the short-term as alternative suppliers.
Regarding point three, Jason Busch opines that then again, U.S. manufacturers may once again be unable to respond to the new business opportunities because of a lack of required capabilities in key people skills such as machining, welding, design and other specialized manufacturing. Needs for updated capital equipment are also expressed. Steffora Mutschler, contributing editor on EDN notes in a commentary a specific prediction from Dale Ford, senior vice-president of market intelligence at IHS iSuppli where Ford asserts his belief that for the semiconductor industry as a whole, the earthquake will provide the biggest impact in the history of the industry. None of the previous natural disasters have been as broad in multiple supply chain impacts.
We would add our prediction that this crisis, when the dust finally settles, will also challenge the very foundations of procurement and outsourcing strategies which will cause product development, strategic sourcing and supply chain management teams to reassess their policies and processes in product and component sourcing.
The crisis will be another critical reminder to the importance of having solid supplier relationships, including how priorities during a crisis will always lean toward established and loyal customer and supplier relationships. While previous strategies were primarily motivated by lower cost considerations, Supply Chain Matters believes that the current realities of business risk and changing end-markets will challenge previous management motivations. The era of the CFO dictating supply chain strategy is about to be shaken to its core.
For the longest time, supply chains have been constantly reacting to all forms of crises, either internally or externally driven. The voice of the supply chain has been hampered perhaps by an inability to converse with the boardroom and articulate desired business outcomes with required capabilities in planning, agility, procurement policy and customer fulfillment. Too often and too frequently, supply and value-chain strategy directed at needs for specific business driven outcomes have been rather viewed in a ‘cost center’ or ‘shared service’ mentality… “We will not have inventory! We do not have the time or budget resources to address specific risk or needs for process agility! Planning on spreadsheets can get the job done just as effectively!”
Traditional industry analysts harp on being more demand-driven or customer focused, and can well cite numbers of multi-national companies who had the foresight and budget to invest. The crisis involving the after effects of the Japan disaster is a supply-driven crisis, with many implications to all sizes of manufacturers and service providers relative to customer demand, industry competiveness and perhaps the role and fabric of the supply chain.
How have the events in Japan changed thinking in your company, or has it neglected to change any thinking?
Weigh in and let’s get a conversation started.
Also, take the time to participate in our Supply Chain Matters interactive polling question of the month and ascertain how other teams may be impacted by Japan.