Following legal issues related to supply chain management.


Wednesday, March 23, 2011

The Impact of the Japanese Disasters on Global Supply Chains

In the wake of the terrible and multiple disasters in Japan, global markets and companies everywhere are being reminded of the impact disruptions anywhere, and especially in key markets like Japan, have on supply chains. The New York Times published an article earlier this week, highlighting this issue and it is a definite “must read.”

One of observations the Times makes that I find intriguing is this: Commenting on the potential disruptions of global businesses, the Times noted “The good news for the world’s manufacturing economy is that the sectors where Japan plays a vital role are fairly mature, global industries. Consider computing and electronics. For major components, like semiconductors, production is now spread across several countries. By contrast, in the early 1990s, virtually all 486-microprocessors — the engines of the most powerful personal computers of the time — were made at a single Intel factory near Jerusalem.”

The disruption in the computing and electronics sector is muted due to strategic diversification of production. The lesson is clear – review your supply chain now, identify those weak links (sole or single-source, heavy concentration in a single geographic location, etc) and take steps to start diversifying sourcing. It may not be a tsunami, a nuclear reactor accident, or other major tragedy. It could be a labor strike, flu epidemic or other less dramatic event that could disrupt your supply chain.

Consider disruption planning to be a requirement in your supply agreements for key vendors, and review those plans. Have your key suppliers identify their alternatives to keep your supply intact. If you are the sole source vendor to a key customer, discuss with them how they can help you diversify (warehousing, maybe even some capital investment to set up parallel production).

- Greg Chabon

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