Survival of Supply Chain Strategy in Catastrophe

Survival of Supply Chain Strategy in Catastrophe

It is high time to re-think the supply chain strategy after the tsunami attack in Japan recently. The damage is not limited to the physical constructions; but also includes the supply of major Japanese-made components to world-wide manufacturers (facilities damaged during earth-quake or flooding). Components being affected are majority to be applied in the electronics and automobile industries. It means that the shortage will be from component level up to finished goods level for coming few months which may even more than half a year; it depends on lead-time for purchase of manufacturing equipment, dedicated machines installation, production line set-up, line qualification for mass-production, and the raw materials lead-time. Planning horizon will be varied according to the complexity of products.

In order to better manage the adverse situation, two different approaches can be adopted. First is the "preventive approach". Under the circumstance of disaster, dual source of vendors for major components (also consider other materials supply on the BOM) from different geographical locations can be of great value to the manufacturers for avoiding the entire factory shutdown due to running out of components and parts. Alternate parts concept can be another preventive strategy for major components. Chance is that this will increase the product development costs and may pose technical bundles on design engineering team. In spite of the added development cost, flexibility in design and production can be reviewed in the start of the design phase to secure the introduction of risk management.

Second, "aftermath approach" can now be put in place. Manufacturers can re-access now for the supply of major components from vendors based on dual source strategy (I mean two different suppliers or same supplier with different geographical location of manufacturing). If supplier choice is still in Japan, this will be better to work with Japanese suppliers with more collaboration in their production line redesign or relocation of manufacturing facilities. It is a right time to work closely with Japanese suppliers. In addition, most Japanese major corporations own facilities in other Asian countries; like, China, Malaysia, Thailand. It is also good time for these big corporations to consider to offshore their major product line, which used to be manufactured in Japan due to perception of quality parts, to other Asian countries with added flexibility for delivery of their parts to customers.

In sum, manufacturers can source another supplier to be qualified in their vendor list. If parts on the BOM are still sole source, it will be better to locate and develop other reliable source now. In fact, the lead-time to locate and qualify new supplier is inevitable time-consuming. However, it will reduce risk in supply if another catastrophe hit (no one can predict when and where, preventive approach can reduce risk of supply.)

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