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We’ve Been Here Before

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.

8 comments on “We’ve Been Here Before

  1. Adeniji Kayode
    March 15, 2011

    I was wondering if this could be an opportunity for other electronics manufacturing industries in other part of the world to gain recognition in Market.

  2. Barbara Jorgensen
    March 15, 2011

    This would be an opportunity for other players in electronics to raise their profile. There will certainly be gaps in the supply chain. As log as there isn't price gouging and other questionable practices, this could be a good thing. Unfortunately, someone is always willing to capitalize on a disaster.

  3. Adeniji Kayode
    March 16, 2011

    I see it as an advantage for players in electronics market to prove their worth.

    Probably we should still look forward to seeing a more stable electronics in market that will offer same quality as those from Japan and Much more since there will always be increase in demand for eletronics.

  4. Anand
    March 16, 2011

    Barbara,

     Any idea Which country/company do you think will capitalize on this distaster especially w.r.t electronics industry ? Do you think this will benefit chinese companies ?

  5. Nemos
    March 16, 2011

    “The only way the earthquake will become an industry-wide disaster is if we fail to learn from the events of the past” Indeed, every disaster uncover a lot of problems that we must fix. And only if we are united and with cooperation we can overcome the speculation.

    Also I want to mention that although the information from Japan government was accurate , some media here say that the information from Japan it was few.

  6. Barbara Jorgensen
    March 16, 2011

    Hi Anandvy, On the legit side, there are a lot of small components makers, particularly in the connector business, that are looking to penetrate large OEM and EMS accounts. Many of these companies sell through reps and small or non-authorized distributors.

    On the not-so-legit side, I'm afraid that companies that have component inventory may sell it to unauthorized channel at a steep markeup, or that components shortages will tempt counterfeiters. Both of these issues are already problems in the supply chian, but component shortages will only exacerbate them.

     

  7. Adeniji Kayode
    March 17, 2011

    I am hoping to see more from the Chinese companies taking advantage, It just that i have question about  the quality of the consumer goods.

    I hope to see more companies apart from chinese's.

  8. prabhakar_deosthali
    March 17, 2011

    Agreed that, as the supply chain professionals , it is our duty to safeguard the interests of our businesses and ensure uninterrupted supplies for our factories to continue running, But let us not forget the humanity angle.  The calamity of such proportion has happened to a nation, which is reliving those horror times it witnessed after the world war II. In this scenarion let us not be narrow minded and just worry about our own disrupted supply chain. Let us help those Japanese suppliers which have been badly hit by this natural calamity, to restart their manufacturing, their supplies. Give them a helping hand and let them manage for you the alternate supplies. Don't just desert them and run to  other suppliers . In the long run it will help both.

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