What We Learned From Japan Earthquake

During the spring of last year, the global business community was shocked and saddened to learn of the devastating earthquake and violent tsunami that struck the northeast coast of Japan, crippling the operations of local manufacturers and suppliers and causing significant supply chain disruptions on an international scale.

To measure the impact of the disasters on the high-tech supply chain, as well as how the events impacted future supply chain plans, UPS asked high-tech manufacturers based in the Asia-Pacific region about the supply chain aftershocks they experienced as part of its annual high-tech industry survey, called "Change in the (Supply) Chain," fielded by IDC Manufacturing Insights. Targeting senior-level decision makers at high-tech companies, the survey explores top industry trends and challenges that are driving change in the high-tech supply chain.

Perhaps not surprisingly, risk management was a key topic emerging from the 2011 survey, which was fielded soon after the natural disasters. Risk management was identified as a "weak link" in the supply chain by 42 percent of companies surveyed, overshadowing other issues such as inventory management, which has long been a top concern within the high-tech industry. However, only 27 percent of survey respondents said they planned to improve their supply chain resilience through risk management.

If anything, the natural disasters in Japan speak to the importance of companies being prepared to handle unexpected supply chain disruptions. And yet, the Change in the Chain survey showed that, while most companies in the Asia-Pacific region have some form of risk management plan in place, the majority do not have the resources or readiness to react fully in times of significant disruption.

While there is nothing that can predict or prevent disasters like the one in Japan, there are ways that high-tech manufacturers can move forward to reduce the impact of unforeseen events on their operations in the future. A key strategy is to create flexibility within the supply chain. Below are some suggestions for companies looking to achieve more flexibility in their supply chains to address fast-changing business needs while simultaneously managing any risks involved.

1. Avoid sacrificing flexibility for efficiency: For years, and especially following the recent recession, companies have focused on lean manufacturing. By streamlining manufacturing, lowering inventory, and converting to a just-in-time model for the movement of goods, manufacturers stand to benefit from lower and often more predictable costs and increased profits due to higher efficiencies. While manufacturers benefit greatly from lean manufacturing processes, they must walk the fine line between efficiency and inflexibility.

   For example, relying on a single source or route for materials and parts might be more cost effective, but in this scenario, operations can quickly break down if the supply chain is disrupted. Utilizing supply chain partners with large networks is one strategy manufacturers can follow in order to minimize potentially negative effects on lean operations. With access to more resources and experience, these supply chain partners can develop flexible supply chain solutions to normalize operations as much as possible.

2. Think business continuity vs. disaster recovery: An additional step manufacturers can take in an effort to minimize the impact of catastrophic events on their operations is to develop plans that focus on business continuity in the wake of major disruptions. Many manufacturers have basic disaster recovery plans in place to handle emergency scenarios, but true business continuity plans should identify the operations that are critical to maintain and focus on strategies for maintaining them. These areas usually include production, fulfillment, distribution, accounting, and customer service.
3. Use visibility technologies to your advantage: It's critical that companies plan ahead to manage risks, especially in highly competitive industries such as high-tech, in which companies cannot afford disruptions in operations. Visibility tools and technologies enable manufacturers to track and monitor supply chain events and patterns as they happen (or even before they happen), putting companies at a significant advantage when it comes to risk management. Investing in the latest visibility technologies will help protect your supply chain and your company's ability to stabilize operations quickly if a disaster or other unexpected event should occur in the future.

Disasters like the one in Japan are beyond our control. This is why manufacturers must focus on the things that are in their control and make supply chain adaptations wherever possible to prepare for the unexpected. A flexible supply chain should be a priority for every high-tech manufacturer and embraced across the company for supply chain and business impact.