CSCMP's Supply Chain Quarterly
May 21, 2019

Lessons from Japan's earthquake

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.

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