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Automakers Hit by Components Shortages

Automakers this week continued to slow down production or shutter plants altogether as electronic component shortages stemming from Japan’s recent disaster rippled through the supply chain.

The Wall Street Journal reported Monday that several European auto manufacturing facilities have been affected already or could face disruptions in the coming weeks.

According to the report, Adam Opel AG, the German unit of US auto giant {complink 12709|General Motors}, reduced output at its German and Spanish plants, and France's PSA Peugeot-Citroën warned that diesel engine production would be affected. Last week, Volvo Cars said that inventory of some components was down to a week's worth of production; output could be squeezed if stocks are not replenished.

In Japan, damage to factories, combined with the lack of electricity and fuel, has forced several OEMs to stop production. In a press release, Toyota said Tuesday that a vehicle production halt, which began on March 14, will continue at all plants in Japan (including subsidiary vehicle manufacturers) until March 26. “A decision on when vehicle production will resume in Japan has yet to be made,” the company said.

On the up side, Toyota added that “TMC parts plants in Japan resumed production of replacement parts for vehicles already on the market on March 17 and resumed the production of parts for overseas production on March 21.” Meanwhile, all of Toyota’s 13 North American vehicle and engine plants are running normally, but “overtime has been curtailed to conserve parts that come from suppliers in Japan,” the company noted.

Honda made a similar announcement on Tuesday as well. The OEM said production of finished units would continue to be suspended until March 27 at several of its Japanese factories. “Concerning operations from March 28 onwards, Honda will make decisions based on the status of the recovery of Japanese society as a whole as well as the supply of parts,” the company said.

US OEMs, which have been slowly recovering from the recession’s punch in the gut, will also feel the pinch. Citing industry analysts and company spokespeople, the Wall Street Journal said the US auto sector will likely encounter “sporadic production shutdowns for several months,” as a result of the shortages. Supplies of microchips, sensors, rubber, and forged metal parts were tight before Japan’s massive earthquake and tsunami, and the situation will be further exacerbated in the disaster’s aftermath.

General Motors, for instance, said it suspended production at its Shreveport, La. assembly facility for the week of March 21 because of “a parts shortage resulting from the crisis in Japan.”

The company also said: “We are constantly assessing the situation and anticipating adjustments in our plants around the world as needed. These adjustments may include optimizing the usage of parts that are — or will be — in short supply, modifications to manufacturing schedules and temporary suspensions of production.”

Very likely in the coming weeks and months, we're going to see companies in many other sectors talk about the impact of shortages from suppliers in disaster-struck regions of Japan. I’m curious, though: What supply chain lessons stand to be learned from this? Which practices are going to be implemented to stave off significant revenue and profit loss if supplies can’t be replenished quickly and factories go black for extended periods of time? And what kind of worst-case scenario planning will kick in to avert future situations?

I, for one, think the 21st century supply chain is encountering one of its most extreme pressure tests. Tried and true practices that have forged lean supply chains, just-in-time inventory models, and a stripped-down number of key supply partnerships have met their match in a big way. While I would say the world could do without disasters of this magnitude, I’d like to see if Japan’s recovery also sparks innovative thinking around new and much-needed manufacturing, supply chain, and cross-industry collaboration initiatives.

13 comments on “Automakers Hit by Components Shortages

  1. Anand
    March 23, 2011

    Jennifer,

      Factory disruptions caused by the earthquake came on top of rising gasoline prices that had already started pushing up prices for the fuel-efficient cars Japanese automakers are especially known for. Tough time ahead for automobile industry.

  2. tioluwa
    March 23, 2011

    This is one disaster that has hard such tremendous effect beyond home and abroad.

    What lessons can be learnt?

    This is not like an economic recession caused by some economic factor or the other, but something that could not be anticipated, or prevented so to speak, but i also would be interested in what lessons can be learnt from all these as it affects the supply chain, and i would like to see how quickly things can be stabilized.

    I think an “over-concentration” of industries in one area is an issue to look into. i know there is the issue of economies that they enjoy but  risking an event like this wipping out one major sector of world economy will be a disaster too great to handle.

  3. AnalyzeThis
    March 23, 2011

    I don't mean to be harsh, but in response to the, “What supply chain lessons stand to be learned from this?” question… I think the lesson to be learned here is pretty simple:

    If you had planned your supply chain correctly, Japan's issues are only causing you a minor inconvenience right now.

    Of course everything that has happened in Japan is horrible, but I was prepared. I didn't have a “Japan Earthquake Emergency Plan” specifically, but I already had plans in place that could be executed if for some reason suppliers in that region were not able to deliver.

    You need to be prepared for supply chain disruption at any point at any time. If you aren't, then you aren't truly a professional in this business. You need backup plans and backup plans for those backup plans.

    Again, I don't mean to be harsh! But that's how I feel.

  4. Taimoor Zubar
    March 23, 2011

    While the loss to small and mid-size Japanese manufacturers is understandable, to me, it's surprising to note that multinational giants like Toyota and Honda are also facing supply chain issues. It seems to be bad planning on the companies' part and lack of disaster management plans. Since these multinationals have production plants all over the world, it's easy for them to distribute the manufacturing so that one component is not produced in only one region of the world. This way, it would be easier to maintain the supply of goods in disaster situations.

  5. Ashu001
    March 23, 2011

    Jennifer,

    EBNOnline(in particular Barbara) has already done a very good job of answering your questions here

    http://www.ebnonline.com/author.asp?section_id=1071&doc_id=204905

    http://www.ebnonline.com/author.asp?section_id=1071&doc_id=205052&

    Companies have no choice but to rethink their entire Supply Chain dynamics after the twin disasters in Middle east and in Japan.Nobody knows and can predidct which region will explode next.

    Regards

    Ashish.

  6. Barbara Jorgensen
    March 23, 2011

    It's easy to forget the automotive industry when you are so involved in the electronics industry (as I am). Not only are auto makers facing shortages, but a lot of finished goods were destroyed. The image of all those cars floating away wasn't in a parking lot, it was a staging area for auto shipments. No doubt a lot of inventory in fabs was ruined, but that was a lot of cars.

    The automotive industry was the home of the assembly line which was revolutionary in its time. The electronics industry moved from vertical integration to outsourcing. The supply chain was supposed to minimize the risk of too much supply being concentrated in one place, and yet, we find ourselves in that situation. With all due respect to Ashish (thank you!) the answer has to borrow from the best practices of both models. I wis I could envision what that will look like.

  7. Jennifer Baljko
    March 24, 2011

    Hi Everyone,

    Thanks for the comments.

    DennisQ –  You raise several good points. Master plans, back-up plans, back-ups for the back-ups – all are critical and part of the sc professional's job these days. Glad to hear that this may not cause major disruptions for you. Sincerely, being able to responding to crisis with a level head while quickly and effectively executing against plans on paper is an enviable talent. Curious to hear – how do test your various back-up plans and worst-case scenario response? Do you run spot drills with suppliers? How frequently do you evaluate and update the disaster management plan? Over the years, many people say thay have these plans and can work through all sorts of world disruptions, but no one ever really explains what that looks like. Also, I imagine that while plans look good in the binder sitting on the shelf or in some online company database, real life seems to suggests that

    And like Barbara, Ashish, and other mentioned, melding best practices from vertically-integrated, outsourced, and cross-industry models and forging more dynamic supply chains are always discussion points. But, which practices are currently standing out as stellar examples?  Which emergency management supply chain practices are failing miserably and have outlived their usefulness? And, how much of the supply chain truly can become formulaic, mapped by exceptions, alerts, and red flags? Reversely, how much of it depends on very talented  people who have some instinctive way of fitting different puzzle pieces together. What's the balance between practice, skill, foresight, and rapid but thoughtful execution?

     

     

  8. jbond
    March 24, 2011

    From the distance you have a valid point. Keep supplies up and allow multiple manufacturing points for various parts. There is one main problem with that theory, money. Not only would companies have millions of dollars invested in parts that are sitting on shelves, which many companies were reducing their supplies in wake of the recession. You also have the issue of the machines to manufacture these parts. The tooling alone for some of these parts can run in the millions, let alone the cost of the machines themselves. Many companies have helped their bottom line by interchanging parts and not making some many individualized pieces for specific models.

    Bottom line is that in theory this is an easy fix, when in reality it's an expensive fix.

  9. Taimoor Zubar
    March 24, 2011

    @jbond: You are right on the fact that companies can't afford to have excess capacity be it in the form of machinery or parts. It really can become a huge cost for them. However, I also feel that one approach companies can take is to have plants that are capable of producing multiple products. I am not an expert on the industrial side, but it does seem to be a viable solution to have production plants on which production can be easily switched so that the goods that are most in demand can be produced on priority. This would be one effective way of maintaining smoothness in the supply chain.

  10. elctrnx_lyf
    March 26, 2011

    I think no one can do much about this. Such natural calamaties affecting the country like Japan where lot of electronics manufaturing is done can't e considered in planning the manufacturing. This might incur losses to the automakers because of not running the compete production.

  11. Kunmi
    March 27, 2011

    Japan's earthquake will definitely have impact on the production of some electronic and motor parts. This will be for awhile until most of these plants re-open for normal business operation. This is when the sister company or alternative resource is very useful in order to meet the supply and demand.

  12. stochastic excursion
    March 28, 2011

    It may seem straightforward to have back-up supply chains, but cultivating relationships with second-tier suppliers means diverting a certain amount of business their way.  Forcing supply-chain managers to juggle their suppliers highlights one of the paradoxical benefits of adversity, it does test your abilities!

  13. Backorder
    March 29, 2011

    In the hindsight, no one industry or player has come out with a statement mentioning any contingency plans that were in place and had helped one dodge this bullet! I am not a supply manager, but for their own good, supply chain managers for big companies, like the auto giants, SC fabs and consumer electronic goods majors, should atleast have some sort of contingency plans. Earthquakes in Japan are not too unlikely, per se.

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