How Tohoku Caused Global Supply Chain Disruptions

In the year 2011, the island country of Japan witnessed the eruption one of the most devastating natural disasters in its history.

Impact on Business

In the immediate aftermath of the massive 9.0 magnitude Tohoku earthquake in Japan, a subsidiary business unit of an automotive multinational had to temporarily stall production of bismaleimide triazine. This chemical is a crucial raw material that is goes into the making of rigid substrates which in turn are used in chip packaging. The implications of the supply chain disruption were going to be far reaching as the company catered to half the world’s demand for bismaleimide triazine through extensive networks that spanned the entire globe. The manufacture of this chemical itself depended on sufficient stocks of other raw materials supplied by external vendors whose operations had also been impacted by the disaster. Additionally, the company had to address the damage done to its production facilities and infrastructure. Many customers who relied heavily on the supply of the chemical had already started looking at alternate provider options.

Numerous IT corporations with a global presence rely heavily on Japanese companies for their flash memory supplies. From the moment an order is placed, at least two months elapse before delivery is completed. Large organizations can count on preferential treatment when crisis situations of catastrophic proportions such as Tohoku occur. This is mainly due to the huge volume of raw materials and components they purchase and for the same reason their inventories are well stocked up throughout the year. But even they experienced a lull in production during the Tohoku earthquake.

Japan & Manufacturing

Japan is a major contributor to the hardware and component requirements of industries such as information technology, electronics and automobiles. Multinationals with operations that run into tens of billions of dollars rely heavily on providers located in the island country. More than half of the world’s silicon wafer supply – a vital component that is used to produce computer chips – comes from two Japanese companies. One of these two companies was severely hit by the earthquake. Despite the availability of alternate production centers in other countries, operational failover could not be effectuated as most of the state of the art manufacturing procedures could be conducted only in the production centers located in Japan.

The impact on most of the nation’s production output was limited as many of the facilities were located at a fair distance from the earthquake’s epicenter. However, prolonged suspension of utility services such as power and transport in the immediate aftermath was bound to have operational repercussions that would reverberate across the business world.

There was however some respite from the fact that not many emerging industries and sectors depended on the Japanese raw materials whose production suffered a temporary lull due to the natural disaster. For instance, in the case of semiconductors, organizations could easily switch to backup options spread across different countries. The same held true for multinationals with various facilities in different regions who could quickly switch operations to alternate locations. Business operations had certainly come a long way since the nineties when, for instance, one standalone manufacturing unit in the city of Jerusalem catered to almost the entire world’s 486 microprocessor needs.

Japan’s dominance in the manufacturing arena had diminished to some extent in recent times, owing to the emergence of countries like South Korea, Taiwan and China whose market share had been steadily increasing. But having said that, Japan’s production volume was still substantial and even a minor interruption to the supply of their products could not be ignored.

How Just in Time (JIT) Exacerbated the Crisis

Many experts attributed the severe business impact of the Tohoku earthquake to the Just in Time (JIT) management strategy that had found wide acceptance in the island country. This operational model’s primary objective is to increase business efficiency through a reduction on investment and expenditure on storage and inventory needs. Enterprises that had adopted this methodology had seen huge timeframe reductions across all their deliverables.

Nevertheless, the Tohoku earthquake exposed the JIT model’s innate glitches as corporations with limited stocks quickly ran out of supplies once production was interrupted and, as a consequence, suffered losses in revenue.

A counter argument to how JIT reduces production timeframes is that the model makes the timely delivery of products and services from vendors extremely crucial. And the risks that impede thirty party providers from sticking to their deadlines are more often than not beyond an enterprise’s control.

Besides, in the case of businesses with fluctuating or seasonal demands, the low inventory levels in the JIT model would increase the workloads across all forecasting, planning and monitoring activities.

The Supply Chain Evolution

The manner in which goods and merchandize are exchanged between various businesses has undergone many changes over the last twenty odd years, thanks largely to the advent of technology and favorable policies that have encouraged international trade on a global scale.

The movement of goods through intricate networks that are spread across geographic regions and transcend frontiers is fuelled by a wide range of technological infrastructure such as high speed networks, RFID tags, sensors, software and much more. Workflows are monitored in real time. Implemented decisions take immediate effect and can be assessed instantly through a variety of performance metrics. Isolated operational segments are synchronized into consolidated production efforts.

So how do these recent changes make present day supply chain models more resilient. Are organizations in a better position to deal with catastrophes like Tohoku? Contrary to what most might expect, the factors arising due to technological innovations that are counterproductive to operational resiliency far outweigh those that insulate business processes from supply chain disruptions.

The availability of skilled labor and competitive price options are the two driving factors that determine the location of any manufacturing facility. A Smartphone or desktop today, for instance, consists of items that have been procured from around the world. While an advantage on many levels, this scenario also implies that the logistics of business operations have attained new and heightened levels of complexity that has obliged entrepreneurs to reevaluate their supply chain resiliency models.

Earlier, events like Tohoku had a more localized impact because the number of channels that put a specific city or location on the global map of commerce was limited. Today, businesses, industries and economies are more interconnected than ever and this makes responding to events like Tohoku more complicated than one would imagine.

Monitoring supply chains calls for an investment in technology, infrastructure and skilled personnel. The longer the chain through which goods and merchandize travel the greater is the challenge of managing the network. Corporations can keep a constant tab on their primary sources of raw materials and components. Stringent measures can be taken to minimize the risks involved. However, problems arise when they have to negotiate with providers who are next in line – the alternate and backup sources. Here, the risks involved are not easily identified and solutions are even harder to implement. And there are many manufacturing items for which alternate suppliers are hard to find. In fact, there have been instances when the unavailability of specific components has even forced production centers to permanently close operations.

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