CSCMP's Supply Chain Quarterly
December 17, 2017
Supply Chain Executive Insight E-Newsletter
Each week the Supply Chain Executive Insight e-newsletter will include brief articles about developments that are often overlooked by other supply chain publications. We will present you with summaries of the latest research as well as new ideas on how to make your supply chain operations more effective. And we'll offer commentary that sheds light on what's happening in supply chains today.
Sign up now!

Most Read Articles

News from our sister publication
DC Velocity
Perspective
Perspective

Lessons from Japan's earthquake

Comment
The supply chain disruptions resulting from the tragedy in Japan clearly demonstrate why it's important to diversify sources of supply.

The shortage of metallic paint that Ford Motor Co. experienced as a result of the earthquake and tsunami in Japan illustrates a problem confronting many supply chain managers today: too many manufacturers have become too dependent on too few suppliers.

Ford sources black and red metallic paint from Japanese suppliers. For the time being at least, the automaker has had to halt production of trucks, cars, and sport utility vehicles painted "tuxedo black," and it has limited production of red-painted trucks. So if you're in the market for a black F-150 Ford pickup, you're out of luck right now.

Ford is hardly alone in suffering a shortage of Japanese-made materials. As was widely reported in both the business press and the general news media, the earthquake disrupted the supply chains of a host of multinational companies that obtain parts or components from Japanese suppliers.

In the past decade many companies have winnowed the ranks of their suppliers in order to reduce costs. But when a manufacturer goes so far as to become dependent on a sole supplier located in one country, it becomes vulnerable to all sorts of supply chain disruptions—whether it's a natural disaster like an earthquake or political upheaval like a national labor strike. Indeed, many companies that depend on lean sourcing strategies are rediscovering the wisdom in that dusty old adage, "Don't put all your eggs in one basket."

The supply chain disruptions resulting from the tragedy in Japan clearly demonstrate why it's important to diversify sources of supply. Every company should have a backup supplier for every product or material. But simply having auxiliary suppliers is not sufficient. Companies also need to make sure that their suppliers have operations in different geographic locales. In other words, if a supplier is only producing parts or components in a single country, then it behooves manufacturers to encourage that supplier to set up shop in a second country. Thus, for manufacturers that rely on Asian suppliers for products they sell in North America, maybe it's time to ask them to consider establishing a presence in Central or South America. Signing a long-term contract with a supplier could provide an incentive for it to expand production to a second country.

The lesson from Japan's earthquake is painfully clear. For global manufacturers, the time has come to reexamine and reset their lean supply strategies. In essence, that means adding buffer stock in addition to diversifying suppliers.

Although corporate financiers have pushed lean supply chains as a way to control costs, perhaps it's time supply chain chiefs pushed back a little. The addition of one or two suppliers around the world and some buffer stock just might provide the extra support they need to withstand disruption and keep their supply chains intact.

James A. Cooke is a supply chain software analyst. He was previously the editor of CSCMP's Supply Chain Quarterly and a staff writer for DC Velocity.

Join the Discussion

After you comment, click Post. If you're not already logged in, you will be asked to log in or register.


Want more articles like this? Sign up for a free subscription to Supply Chain Executive Insight, a monthly e-newsletter that provides insights and commentary on supply chain trends and developments. Click here to subscribe.

We Want to Hear From You! We invite you to share your thoughts and opinions about this article by sending an e-mail to ?Subject=Letter to the Editor: Quarter 2011: Lessons from Japan's earthquake"> . We will publish selected readers' comments in future issues of CSCMP's Supply Chain Quarterly. Correspondence may be edited for clarity or for length.

Want more articles like this? Subscribe to CSCMP's Supply Chain Quarterly.