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What We Learned From Japan Earthquake

During the spring of last year, the global business community was shocked and saddened to learn of the devastating earthquake and violent tsunami that struck the northeast coast of Japan, crippling the operations of local manufacturers and suppliers and causing significant supply chain disruptions on an international scale.

To measure the impact of the disasters on the high-tech supply chain, as well as how the events impacted future supply chain plans, UPS asked high-tech manufacturers based in the Asia-Pacific region about the supply chain aftershocks they experienced as part of its annual high-tech industry survey, called “Change in the (Supply) Chain,” fielded by IDC Manufacturing Insights. Targeting senior-level decision makers at high-tech companies, the survey explores top industry trends and challenges that are driving change in the high-tech supply chain.

Perhaps not surprisingly, risk management was a key topic emerging from the 2011 survey, which was fielded soon after the natural disasters. Risk management was identified as a “weak link” in the supply chain by 42 percent of companies surveyed, overshadowing other issues such as inventory management, which has long been a top concern within the high-tech industry. However, only 27 percent of survey respondents said they planned to improve their supply chain resilience through risk management.

If anything, the natural disasters in Japan speak to the importance of companies being prepared to handle unexpected supply chain disruptions. And yet, the Change in the Chain survey showed that, while most companies in the Asia-Pacific region have some form of risk management plan in place, the majority do not have the resources or readiness to react fully in times of significant disruption.

While there is nothing that can predict or prevent disasters like the one in Japan, there are ways that high-tech manufacturers can move forward to reduce the impact of unforeseen events on their operations in the future. A key strategy is to create flexibility within the supply chain. Below are some suggestions for companies looking to achieve more flexibility in their supply chains to address fast-changing business needs while simultaneously managing any risks involved.

  1. Avoid sacrificing flexibility for efficiency:
  2. For years, and especially following the recent recession, companies have focused on lean manufacturing. By streamlining manufacturing, lowering inventory, and converting to a just-in-time model for the movement of goods, manufacturers stand to benefit from lower and often more predictable costs and increased profits due to higher efficiencies. While manufacturers benefit greatly from lean manufacturing processes, they must walk the fine line between efficiency and inflexibility.

    For example, relying on a single source or route for materials and parts might be more cost effective, but in this scenario, operations can quickly break down if the supply chain is disrupted. Utilizing supply chain partners with large networks is one strategy manufacturers can follow in order to minimize potentially negative effects on lean operations. With access to more resources and experience, these supply chain partners can develop flexible supply chain solutions to normalize operations as much as possible.

  3. Think business continuity vs. disaster recovery:
  4. An additional step manufacturers can take in an effort to minimize the impact of catastrophic events on their operations is to develop plans that focus on business continuity in the wake of major disruptions. Many manufacturers have basic disaster recovery plans in place to handle emergency scenarios, but true business continuity plans should identify the operations that are critical to maintain and focus on strategies for maintaining them. These areas usually include production, fulfillment, distribution, accounting, and customer service.

  5. Use visibility technologies to your advantage:
  6. It's critical that companies plan ahead to manage risks, especially in highly competitive industries such as high-tech, in which companies cannot afford disruptions in operations. Visibility tools and technologies enable manufacturers to track and monitor supply chain events and patterns as they happen (or even before they happen), putting companies at a significant advantage when it comes to risk management. Investing in the latest visibility technologies will help protect your supply chain and your company's ability to stabilize operations quickly if a disaster or other unexpected event should occur in the future.

Disasters like the one in Japan are beyond our control. This is why manufacturers must focus on the things that are in their control and make supply chain adaptations wherever possible to prepare for the unexpected. A flexible supply chain should be a priority for every high-tech manufacturer and embraced across the company for supply chain and business impact.

12 comments on “What We Learned From Japan Earthquake

  1. Jeffrey_Williams
    May 2, 2012

    Carla has zeroed in on why and how many companies have neglected their responsibilities during the current downturn in the world economies.  Running a too-lean operation and neglecting business continuity leaves companies vulnerable to small and large disasters.

  2. Barbara Jorgensen
    May 3, 2012

    The UPS/IDC research is excellent, and really enlightening.  I'm glad it is continuing. One of the notable comments lsat year was as much as executives recognize the limitations of the supply chain, executing real change is a challenge. Every time I get beyond the surface issues–stuff from point a needs to get to point b — I appreciate the complexity of the global logistics network. I'm happy to leqve the logistics up to someone else!

     

  3. Daniel
    May 4, 2012

    “It's critical that companies plan ahead to manage risks, especially in highly competitive industries such as high-tech, in which companies cannot afford disruptions in operations”

    Carla, I agree with this point. But in economic slowdown and recession scenario, most of the companies won't try to invest more on the inventories. For them such investments are like dead investments, without an immediate return. I know most of our clients are following the same line and normally they stocks materials only for another one or two months production.

  4. FLYINGSCOT
    May 4, 2012

    I would like to hear more about “visibility technology” as it is not a term I am familiar with.  Sounds like alchemy perhaps.

  5. _hm
    May 4, 2012

    It depends on type of industry you are working in and who pays for this exepnsive approach. For most industtry, they soon forget the this disrruption and cary on with day to day business.

     

  6. prabhakar_deosthali
    May 5, 2012

    While I was working in the Atomic Energy domain, we came across a term “maximum credible accident”  , a factor to be considered while designing the cooling system of the nuclear reactors . 

    In my opinion the disaster such as the Japan earth quake falls under that “maximum credible accident” category  and we have seen that even the nuclear reactor at Fukushima , designed to wthstand such accidents , could not survive the onsalught of the resultant Tsunami.

    So what measures the electronic supply chain can take to take care of such disruptions?  In my opinion  nothing !.

    We have to just forget such natural incidents as one-off unavoidable events in our life.

    It will be too expensive for small and medium companies to plan for alternative strategies for disasters of such a magnitude.

     

  7. itguyphil
    May 6, 2012

    “Running a too-lean operation…”

    What does a too-lean operation look like OR what is it?

    I thought running lean was a good thing that helps the maximize profitability. Isn't that good for the economy?

  8. Daniel
    May 8, 2012

    “So what measures the electronic supply chain can take to take care of such disruptions? In my opinion nothing!”

    Prabhakar, “as much as possible” that's the answer. Certain things are beyond our control, where the super natural forces have to act. The same thing happened for Titanic, they build and claimed that it's one of the most advanced and secure luxury ship and we know finally what happens to it.

  9. syedzunair
    May 8, 2012

    Rightly said, certain things are beyond our control. We cannot natural disasters but what we can control is minimizing the downtime and ensuring protocols that will enable a speedy data recovery so that the transactional details are not lost. 

  10. Anand
    May 11, 2012

    UPS asked high-tech manufacturers based in the Asia-Pacific region about the supply chain aftershocks they experienced as part of its annual high-tech industry survey

    @Carla, just wondering why this survey was specific to Asia-pacific ? Is it because Asia-pacific is more prone to supply chain disruption ?  Do we have any similar compiled data for other regions too?

  11. Anand
    May 11, 2012

    So what measures the electronic supply chain can take to take care of such disruptions? In my opinion nothing !.

    @Prabhakar, I think it would be too extreme to say that “we can't do anything about such supply chain distruptions”. I think companies can do a lot of things which can help them during supply chain breakdown. For example everyone knows that Japan is prone to earthquake, one of the the things they can do is to move part of their businesses outside japan so that they can significantly reduce the risk.

  12. Anand
    May 11, 2012

    For example, relying on a single source or route for materials and parts might be more cost effective, but in this scenario, operations can quickly break down if the supply chain is disrupted.

    @Carla, why do you think the companies are so hesitant to build backup so that supply chain is not disrupted during down time ? Is it because the companies don't have extra money to take such saftey measures or is it because companies dont expect prolonged supply chain disruption which will impact their revenue flow ?


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