The electronics industry has been here before, and it will be here again. Natural disasters and supply chain disruption are a fact of doing business in a global economy.
Every company in this global industry has some link to Japan. First and foremost, we all must think of the people affected by this disaster. No one yet knows the full extent of the human toll of the earthquake, tsunami, and nuclear reactor damage. Speculation is inevitable, but the flow of information out of Japan has been consistent and as accurate as possible under the circumstances.
The supply chain community should keep this in mind in the coming weeks and months. Already, spot market prices, particularly in memory, are soaring. Many DRAM makers have stopped quoting prices to avoid excessive speculation in the memory market, reports Asian trade publication DigiTimes.
Even though the cessation of price quotes adds uncertainty to an already unstable market, it's the right thing to do. Many of these companies say it is necessary to confirm how the earthquake will affect the supply chain before they make any price adjustments.
Members of the purchasing community should do the same: Wait for a full assessment from your supply base before placing orders extending beyond your most recent forecasts. The initial reaction following the 1999 earthquake in Taiwan was similar to the situation in Japan: DRAM prices soared, but as weeks passed, it turned out that actual disruption to the electronics supply chain was minimal. There's no way of telling how the drama in Japan will unfold, but panic buying will only make it worse.
In short: Work as closely with your suppliers and distributors as possible. Stay informed.
Last week, about 400 participants in the supply chain community convened for a live chat with Lytica CEO Ken Bradley. Bradley, a developer of the price benchmarking tool Freebenchmarking.com, has long advocated that buyers understand the difference between cost and price as they enter supply chain negotiations.
A number of participants asked Bradley — before news of the quake broke — how economic uncertainty affects component pricing. In summary: A strategic relationship between a supplier and a customer is more likely to have an impact on pricing than a natural disaster. “When shortages crop up, supply is more important than price,” Bradley said. “Who gets that scarce part will most likely be the customer with the best relationship. Price will only enter into the discussion if the supplier has added costs to deliver or both customers have equal relationships without strategic value.”
Another point from Bradley: “Regional events tend to be time sensitive. If it affects our analysis in Freebenchmarking.com, it would probably be within a given quarter and would not represent a sustainable change. Our data is time-stamped and we can look at trends in pricing from quarter to quarter.”
Information — both long-term and short-term — will be all-important as the Japan disaster continues to unfold. The electronics industry has been here before, and it has weathered regional and natural disasters. The only way the earthquake will become an industry-wide disaster is if we fail to learn from the events of the past.