We all want to be loved. And respected. And considered irreplaceable. But the global supply chain plays no sentimental favorites.
A few months after the devastating earthquake and tsunami, businesses are learning that Japan's tragedy has not had as great an impact on global production as many feared it would. Despite its role as a crucial supplier of certain electronic and automotive components, western companies are reporting few bottlenecks. Other suppliers have been able to meet whatever needs have arisen.
What happened? First, supply chain management has become a science. Corporate statistical models proved to be adept at predicting and working around logistical problems. Secondly, technology and communication have made sourcing a easier. Finally, the Japanese penchant for controlling suppliers has meant that companies in other countries were forced to either develop or find alternatives years ago. Initially thought to be a competitive disadvantage, in this situation it proved fortuitous.
This is not to suggest that Japan's place as the world's third largest economy is immediately threatened. What it does emphasize is the tenuous nature of any operational or logistical franchise in an economy where relief is just a pushbutton away. JL
Steve Lohr reports in the New York Times:
"Maybe Japan is not as crucial to the global supply chain as those first weeks after the earthquake made it seem. After the earthquake and tsunami struck Japan in March, STMicroelectronics, like many global companies that buy parts and materials from Japan, quickly set up a crisis task force to assess the health of its supply network there. But the sense of crisis gradually passed. When necessary, suppliers outside Japan have been lined up, and the company’s production has not been disrupted.
The big European company’s experience is widely shared. More than two months after the disaster, any lingering impact on industries outside Japan from shortages of crucial supplies is limited. Beyond their concerns about a very short list of components, like certain automotive microcontrollers, companies around the world are cautiously breathing easier. After the earthquake and tsunami struck Japan in March, STMicroelectronics, like many global companies that buy parts and materials from Japan, quickly set up a crisis task force to assess the health of its supply network there. But the sense of crisis gradually passed. When necessary, suppliers outside Japan have been lined up, and the company’s production has not been disrupted.
And even though STMicroelectronics’ sales to Japan — about 4 percent of total revenue — will decline this year because of lower demand, “it is going smoother on the supply-chain side than we had thought,” said Carlo Bozotti, chief executive of STMicroelectronics.
STMicroelectronics has more than $10 billion a year in sales. Its major customers span a variety of industries — consumer electronics, autos, mobile phones and computers — and include Apple, Bosch, Hewlett-Packard, Nokia and Sony Ericsson.
After the earthquake and tsunami struck Japan in March, STMicroelectronics, like many global companies that buy parts and materials from Japan, quickly set up a crisis task force to assess the health of its supply network there. But the sense of crisis gradually passed. When necessary, suppliers outside Japan have been lined up, and the company’s production has not been disrupted.
“The global supply chain has been able to weather the storm,” said Hau Lee, a professor at Stanford University’s graduate school of business. Barring further unexpected shocks, Mr. Lee said, “This has not been as bad as most people initially worried it might be.”
The resiliency of global supply networks and quick action by companies are part of the reason. But another explanation was provided by a study published last week, led by Mr. Lee and Kevin O’Marah, a supply chain specialist at Gartner, an information technology research and advisory company.
Their report used data from a survey of 750 supply chain managers across a spectrum of industries worldwide, sponsored by SCM World, a professional organization and Web site. As it happens, the survey was done in February, shortly before the quake and tsunami. It found that Japan, despite being the world’s third-largest economy (behind the United States and China), plays a relatively small role in the global supply chain.
The supply managers gave a telltale sign when asked to name the most important source of supply of manufactured parts and materials outside of the corporation’s home country. They were then asked to name their second and third most important nonhome source.
China was the leader, with 37 percent of the managers saying it was their leading source beyond the home nation. Next came the United States with 20 percent, followed by Germany with 7 percent. The same order was evident in the combined totals.
Japan fell well down the list, tied for eighth with Canada.
“What’s remarkable is how relatively isolated Japan is,” said Mr. O’Marah, an author of the report. “It’s far less integrated into the world’s manufacturing supply chains than you would expect, given the size of Japan’s economy.”
Another supply-chain specialist cautioned that the country survey data may understate Japan’s role. China’s rise as a manufacturer has tilted toward low-cost assembly operations, which often rely on Japan for important components, said Hal Sirkin, a senior partner at the Boston Consulting Group. “There is a Japan-inside-China element that might be missed here,” Mr. Sirkin said.
Japan specialists are likely to find the survey data — and Japan’s modest place in the global supply network — more revealing than surprising. Japan’s manufacturing prowess and global competitiveness are focused in a few industries, like automobiles and consumer electronics, they note. In those industries, the traditional Japanese model has been that a supplier would sell almost exclusively to one large manufacturer, like Toyota or Nissan.
The big, household names of corporate Japan preferred to have essentially captive suppliers as well. “They value the trust and flexibility that those close bonds with suppliers give them,” said Edward J. Lincoln, professor of economics at the Stern School of Business at New York University.
The shared experience and constant communication have contributed to the development of manufacturing innovations and efficiency techniques for which Japan’s leading companies are renowned, Professor Lincoln said. Those tight, cooperative bonds may also help Japanese industry recover more quickly from the earthquake than it would have otherwise.
But he said the close arrangements among domestic companies have also meant that Japanese manufacturing suppliers have been less likely to sell to foreign corporations. As disruptive as the Japan disaster was to the auto industry’s Japanese transplants in North America, for example, non-Japanese carmakers were relatively unaffected.
The deep and lasting supplier relations among Japanese manufacturers, Professor Lincoln added, are also a byproduct of a business culture that often places social stability above profits — despite changes in recent years meant to make companies more focused on profits and pleasing shareholders.
“Things have changed some,” said Professor Lincoln, director of the Center for Japan-U.S. Business and Economic Studies at New York University. “But business in Japan is still tempered by a desire for social cohesion, far more so than in the United States and even Europe.”
Analysts say that in the aftermath of the earthquake, Japanese industry may loosen the domestic corporate networks somewhat. Big manufacturers will increasingly look to buy supplies and even set up production in countries less prone to tsunamis and earthquakes than Japan, they say. And Japanese suppliers, in turn, might have to seek buyers abroad more than in the past.
At STMicroelectronics, in fact, Mr. Bozotti sees that as an opportunity to sell more to Japanese companies when the economy recovers. “It could be positive for us,” he said.
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