There is more of a sense of urgency in the electronics supply chain as the industry enters the second week following the March 11 earthquake. The ongoing uncertainty over factories' ability to operate with rolling blackouts is fueling fears that the quake is not merely a short-term disruption in the supply chain.
Electronics distributors — which are talking to both their component suppliers and OEM customers — report that companies are still seeking information that will help manage demand.
“Last week our larger customers were setting up conference calls so they could understand how much inventory we had,” says Michael Knight, vice president for corporate marketing and product management for TTI. “This week, we are hearing from small and midsized companies that maybe didn't have the resources last week to be proactive — this week is definitely busier than last week.”
Among the issues being raised this week is the nature of the electronics supply chain itself. The electronics industry has increasingly been moving toward just-in-time deliveries and lean inventory management, which means few companies actually own and hold inventory. Even distributors, basically the warehouses of the supply chain, don't necessarily stock every component that's on order. Depending on leadtimes, ordered parts may not actually hit the warehouse until the OEM is close to taking delivery. At the moment, a portion of distributors' orders are placed with factories that have shut down because of the quake.
Catalogue distributors, which specialize is small-volume orders, are also hearing from companies concerned about production-level inventory. Catalogue distributors stock every component they say is available, but not in production-level volumes. So OEMs that aren't sure they are going to get everything they need are checking with catalogue distributors on availability.
What this all boils down to, suggest several industry experts, is that the supply chain is more of a concept than a reality. Forecasts and open orders aren't any good if products are not available for shipment.
“People have lost touch with the real supply chain dynamics — even big firms [like Nissan last year],” says Malcolm Penn, president and CEO of market research/analyst firm Future Horizons. Penn in the past has questioned the fab model of the semiconductor supply chain. “Deluded by just-in-time, they forget its six months from wafer schedule to module in the car. Plus, everyone outsources everything to everyone with no one taking care of the whole chain. This is the fallacy of outsourcing: There is no security of supply.”
TTI's Knight says that even if you are able to communicate with your suppliers, they have a supply chain that could be in jeopardy. “The further back you get [in the supply chain], the harder it is. Let's say you are looking for information about materials — it's all sketchy and incomplete.”
Penn says the supply chain is not as diverse as everyone thinks. “On paper, it looks that way. But when you peel back the onion you start to see lots of mega-dependencies on one or two key suppliers. Real supply chain management would sort this out. When was the last time anyone did a 'what if' scenario?”
It's possible nobody could have envisioned the scenario that's currently facing Japan. But now that we are experiencing it, isn't it time we reexamined some commonly held beliefs? For example, on a balance sheet, a high level of inventory isn't a good thing, even for distributors. Yet, it's inventory-heavy companies that are going to benefit as supply is disrupted and prices increase. Will the financial community reward these companies for this foresight?
If so, it won't last — an inventory buildup will come back to haunt the supply chain. But “just-in-time” and “lean” are only great concepts until the unthinkable happens. It might be time to revisit some of those concepts.