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Global Supply Chain Rises to Japan Disaster Challenge

In a testament to the resilience of the global technology supply chain, the electronics manufacturing services (EMS) industry appears to have weathered the impact of the Japan earthquake and tsunami with admirable aplomb.

Conditions on both the supply and demand sides of the equation appear to be better than expected. Meanwhile, the electronics supply chain has pulled together to mitigate the impact of supply disruptions caused by the disaster.

As IHS iSuppli noted last month, the global EMS business had little direct exposure to the situation in Japan. (See: Japan Disaster Rewrites Book for Manufacturing Risk Management.) True, EMS providers were expected to be hit by constrictions in the availability of electronic components and raw materials, but that impact is still being assessed. And despite supply issues, reports so far reveal reasonably solid results and a healthy outlook for the second quarter across the global electronics supply chain.

Excluding companies with direct manufacturing or revenues in Japan, aggregate demand appears to be holding up slightly better than many experts had feared when the disaster struck. EMS providers with direct manufacturing assets in Japan are noting that production has restarted, but activity is likely to remain lower than previous levels because the basic infrastructure is still recovering. The only glaring shortages at the moment are to be found in the global automotive market, where Japanese sub-suppliers command very high global share.

The impact on parts procurement also has been slightly less than expected, as EMS providers are not citing component shortages as a reason for revenue shortfalls in the first quarter. As opposed to a couple of years back when every market was declining, EMS providers are generally noting strong bookings on new business opportunities. This is because OEMs once again are placing increased outsourcing back on the table.

One takeaway of the tragic events in Japan is the supply chain's capability to adjust to the lost production there during the month of March. It appears that the sharp focus of EMS providers in 2011 on improving inventory velocity has taken a backseat to their efforts to secure component availability on behalf of their OEM customers.

Several of the larger EMS providers already are receiving advanced deposits from customers in order to offset pre-purchased buffer inventory. The fact that OEMs are helping to shoulder the burden in this area is a positive development, IHS believes.

Just the same, a very large “what if” still looms in the third quarter, and the potential exists that supply shortfalls arising from the Japan earthquake could collide with the start of the rise of strong demand for EMS during the period before the peak holiday selling season. So far, however, the global electronics supply chain is rising to the challenge of the Japan earthquake.

— Thomas Dinges is the EMS and ODM analyst at market research firm IHS iSuppli in El Segundo, Calif. For more information on the contract manufacturing market, see Dinges’s new report, “EMS and ODM See Near-Term Pause on Road to Recovery.” For media inquiries on this article, contact Jonathan Cassell, editorial director and manager of public relations, at jonathan.casell@ihs.com. For non-media inquiries, please contact .

6 comments on “Global Supply Chain Rises to Japan Disaster Challenge

  1. DataCrunch
    May 4, 2011

    Although it may take some time for Japan to reach production levels to where they were before the disaster, it is good to hear that production has restarted and that the electronics supply chain is agile enough to bounce back more rapidly than most had expected.

  2. jbond
    May 5, 2011

    It is great news that the electronics supply chain in Japan is running strong and appears to have gotten past the disaster without too many problems. It is going to be a long and tough road for the automotive business. With the gas prices sky rocketing and many people looking to buy new fuel efficient vehicles, this delay in production is bound to not only hurt the auto companies, but also hurt the consumers who can't buy the vehicles they want.

  3. Taimoor Zubar
    May 5, 2011

    “The fact that OEMs are helping to shoulder the burden in this area is a positive development”

    It's a great sign to see the conditions in Japan are getting better. An important lesson to learn from the incident is the fact that there is a strong link between the manufacturers and the OEMs. It's important that both of them collaborate together to strengthen the supply chain and keep it smooth. Had the OEMs not been so cooperative with the Japanese manufacturers, such a speedy recovery may not have been possible.

  4. saranyatil
    May 6, 2011

    This action of Japan is as expected, they being a well planned country. Supply chain in advance would have worked on ideas for them to rise if any natural calamities occur. Now it gets a little easy for them to plan their supply chain management from where they have already thought and work on the same platform to return back to the same levels in production as they were previously. If any other nation would have been in such a critical one they would have taken a longer time when compared to Japan. Its a great relief to know the change.

  5. Anand
    May 6, 2011

    “a very large “what if” still looms in the third quarter”

    Thomas,

    What other options does  electronics manufacturing services (EMS) have if there is supply shortfalls in future. What other options do they have to overcome this shortfall ?


  6. tioluwa
    May 6, 2011

    Are we assuming of do facts point to the fact that Japan's recovery will not be able to meet up with demands in the coming months?

    Recovery is already in progress, but if there is now way Japan will be able to catch up with deman, what are the options (as anandvy    is also asking)?

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