Japan: The Convenient Culprit

A few days ago {complink 38|Acer Inc.} president Jim Wong, who runs the world's third-largest PC brand, created a minor kerfuffle when he told the Financial Times that July would prove a “stress test” for electronics supply chains.

Wong's argument is based on the fact that the traditional slow sales season for electronics is March to May, which happens to be the same period in which Japan has been recovering from its horrific March 11 earthquake and tsunami. He argues that since the Japan incident coincided with an annual period of modest orders, supply chains looked artificially resilient post-disaster. But in the next few weeks, when sales generally pick up again, those supply chains will have to speed up. It will be the first test of whether factories are prepared to meet real demand.

If he's right, then the question isn't only what effect the Japan disaster has had, but whether Japan really was the issue in the first place. Some evidence exists that the Japan tragedy isn't really what we're testing next month. Rather, we'll be finding out whether Japan was blamed for problems that already existed, and most knew about, long before the quake.

We already know that last fall electronics manufacturers were facing acute supply problems. Raw materials availability constraints and a spike in demand following signs of recovery from the global economic crisis had caught the industry off guard.

A chart from Cyclops Electronics showing shifts in supplier lead times through May 2011 indicates more than half of the companies surveyed will need to extend their delivery times by as long as two extra months. (Download a pdf of the chart here.) The statistic that jumps out on the chart is that some of these orders would have been placed long enough ago to have been nearly ready to ship before the tsunami, if everything had been working well.

So though some of the delays we'll see in July will have to do with Japan, some may get blamed on Japan, but have origins in other problems. The delays are curiously inconsistent, and not uniform across competitors, though most of the companies listed do business in quake-affected regions, and many source materials from the same suppliers.

So if the disaster isn't affecting everyone equally, what's behind the delays? With similar surveys conducted last fall showing the same pattern of delays, what emerges is a picture of post-crisis miscalculations, and pressure from commodities price fluctuations, that we can now bury under the glaring headlines of the Japan disaster. Without the disaster, would we be having a frank discussion about why parts are going to be back-ordered this summer?

With companies getting back on their feet already (giant Sony, for example, just re-opened the last of 10 Japan factories that had been offline since the tsunami) some of the shortages we're seeing look less like an aberration related to a natural disaster, than a structural problem within the electronics supply systems.

Did assemblers and manufacturers with Asian operations blame Japan's tragedy for what really are systemic flaws? Put slightly more charitably, did Japan's tragedy expose those flaws, and make their effects so acute, that they're now harder to ignore?

The short answer appears to be “yes,” but we shall see in a month.

2 comments on “Japan: The Convenient Culprit

  1. saranyatil
    June 7, 2011

    I disagree that Japan is the culprit, they are always perfect in  their timelines and also plan ahead for their future deliveries. Tsunami could have caused a little lag in time but even today they are supporting most of the customers from the stock they have .

  2. mfbertozzi
    June 7, 2011

    An experienced point of view: delay is a part of supply chain life; it is an intrinsic component and maybe for some suppliers operating in those region, it was already in place. Earthquake has been probably the most convenient way to keep calm customers on one hand and to present them, on the other hand, an event beyond any possible recovery plan. This is what happened and experienced for example about plastic boxes for telco equipment.

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