Disaster in Japan exposes supply chain crisis

Disaster in Japan exposes supply chain crisis

By Don Lee and David PiersonTRIBUNE WASHINGTON BUREAU

SHIRAKAWA, Japan — About 40 miles west of the crippled Fukushima nuclear plant, another kind of crisis may be unfolding this one striking at the heart of the world’s multibillion-dollar market for smartphones, portable music players and other cutting-edge electronics.

The powerful earthquake that rocked Japan last month knocked out a factory owned by Shin-Etsu Chemical Co. Little known outside industry circles, Shin-Etsu is the world’s biggest producer of advanced silicon wafers, a key material for manufacturing semiconductors.

The disaster could prove to be a major concern for chipmakers, including Intel Corp. and Toshiba Corp., that purchase wafers from Shin-Etsu, analysts said.

It also has turned the spotlight on a much broader problem in the global economy: Companies around the world often rely on small networks of suppliers that may be thousands of miles away. A good number of those suppliers are in Japan.

Already, quake-related shortages of automotive electronic sensors made by Hitachi’s Automotive Systems business have been blamed for halting or cutting production of vehicles in Germany, Spain, France and Shreveport, La.

The crisis also is expected to slash the supply of some vehicles, such as Toyota’s Prius, and contribute to higher passenger car prices in the U.S.

The likelihood of more disruptions has touched off a scramble for alternative suppliers. And it is almost certain to lead to a rethinking of a global production and logistics system in which a natural disaster in a small part of Japan’s industrial base can have such broad effects around the world.

“There should have been fail-safe measures taken; if one (plant) goes offline, it doesn’t throw your whole production schedule off,” said Kenneth Grossberg, a business professor at Waseda University in Tokyo. “How could you make yourself so vulnerable?”

What’s more, the disaster and its aftermath revealed just how far some companies had pushed the just-in-time supply system. The practice, pioneered by Toyota Motor Co., allows companies to reduce inventories, freeing up cash for more profitable use elsewhere.

But in managing supplies so tightly, companies also narrowed their vendors, sometimes to just one or two, leaving little margin for adjusting if something went wrong.

France’s PSA Peugeot-Citroen, for example, usually keeps just a 10-day supply of Hitachi air-flow sensors on hand. With Hitachi controlling more than half of the world’s production of the component, Peugeot and General Motors, among others, had little choice but to cut production when those parts began to flow more slowly.

Just-in-time “is a good plan for normal times, not for emergencies,” said Tetsuji Morino, a managing director at Dai Nippon Printing Co., a $19 billion enterprise based in Tokyo.

He said that only about three of his company’s 50 factories sustained damage. But the actual effect is likely to be bigger as rolling blackouts, transport problems and fuel shortages in Japan hamper production and delivery of supplies for many companies, possibly for months.

It’s hard to know the extent of Shin-Etsu’s problems and the looming capacity crunch because the company has disclosed little information about the damage and the overall supply situation, said Joel Scheiman, a Tokyo analyst for MF Global Holdings Ltd. For now, he and other analysts said, there appears to be enough 300-millimeter wafers to go around through May.

Akira Minamikawa, vice president of iSuppli’s Japan research, doesn’t see the Shirakawa plant returning to full strength until October. That means the company will most likely supply first-tier customers first, such as Toshiba, Taiwan Semiconductor Manufacturing Co. and Elpida Memory Inc.

Intel spokesman Chuck Malloy wouldn’t comment about Shin-Etsu, but said it’s rare for Intel to rely on a single supplier. Given the extent of the disaster in Japan, he said, Intel is in “fairly good shape.”

LA Times Business Matters

Disaster in Japan exposes supply chain flaw

Earthquake damage to a Japanese silicon wafer production plant illustrates the manufacturing troubles that can ensue when companies reduce their network of suppliers.

By Don Lee and David Pierson, Los Angeles Times  April 6, 2011

 

Reporting from Shirakawa, Japan; and Beijing —

About 40 miles west of the crippled Fukushima nuclear plant, another kind of crisis may be unfolding — this one striking at the heart of the world’s multibillion-dollar market for smartphones, portable music players and other cutting-edge electronics.

The powerful earthquake that rocked Japan last month knocked out a hillside factory owned by Shin-Etsu Chemical Co. Little known outside industry circles, Shin-Etsu is the world’s biggest producer of advanced silicon wafers, a key material needed for the manufacturing of semiconductors. Its Shirakawa plant represented 20% of the globe’s capacity to produce the building blocks on which some key high-technology products depend.

The disaster could prove to be a major concern for chip makers, including Intel Corp. and Toshiba Corp., that buy wafers from Shin-Etsu, analysts said.

But it also has turned the spotlight on a much broader problem in the global economy: Companies around the world often rely on small networks of suppliers that may be thousands of miles away. A good number of those suppliers are in Japan.

 

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Comments
One Response to “Disaster in Japan exposes supply chain crisis”
  1. Its quite shocking knowing that the Earthquake in Japan has unfolded the supply chain flaws so badly.We can realize that to rectify our faults we need such kind of a blast,so shame.
    We our self are the cause of our climax.Though its natural calamity but we somehow are smoothing its occurrence.Earths natural balance is at a stake now.But still we are sleeping.At least we can take positive precautions to defeat them.That is only we can do.

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