While most of the global outsourced electronics manufacturing business has little direct exposure to the situation in Japan, the disaster is likely to have a long-term impact on how companies in this market assess supply-chain risk, IHS iSuppli research indicates.
In one of the most far-reaching developments, as much as 25 percent of silicon wafers used for semiconductor manufacturing was taken offline by the quake, IHS has noted. Already, several large component suppliers have stated that facilities near the epicenter likely will remain inoperative for weeks — and in some cases, months.
Outside of Japan, the global automotive industry is among the first to shutter plants due to shortages of key components. Given Japan's prominence in both finished components as well as major raw materials, it is very possible that further shutdowns of unknown duration will follow in other industries. Supply chains — as the name implies — are really a series of interlinked operations that only function well when all connections remain intact. Clearly, many of those connections are not functioning the same way they did only a few short weeks ago, before the disaster.
To date, many companies across the outsourced electronics manufacturing industry may have suffered little direct impact from the Japanese disaster. However, indirect effects are expected to make their presence felt because of Japan's high market share in components such as memory chips, laminates, capacitors, and rechargeable batteries, to name just a few.
Comments from electronics manufacturing service (EMS) and original design manufacturing (ODM) providers indicate that the near-term supply of components is generally intact, with existing stocks in the range of one to three months. However, looking out further into the future presents many questions that cannot be answered at this point.
For now, the day-in, day-out procurement process has attained an intense level of activity not seen in some time. And in what seems like a ritual of daily calibration, end customers, EMS and ODM providers, as well as component suppliers are all working to sort through even more volatile daily changes in component availability.
But as Japan begins to rebuild after the cleanup and the renovation process ends, supply and local demand will rebound. For the global electronics supply chain, planning for the long term now must account for future major events, IHS believes, which will have an impact much further upstream.
No longer will the stress test of the supply chain simply evaluate component suppliers, distributors, and other near- or long-term issues associated with quality, capacity, and financial viability. Instead, companies must look even deeper into the “suppliers of the suppliers” as to where raw components are manufactured, in order to add another level of risk assessment.
To be sure, the near term remains highly uncertain, and panic buying may ensue because of non-linear supply availability. Just the same, recovery from the tragedy is bound to follow, IHS believes, and Japan will remain a major component of the global supply chain.
— Thomas Dinges is the EMS and ODM analyst at the 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 firstname.lastname@example.org. For non-media inquiries, please contact .