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The global supply chain so very fragile
International Logistics And Global Supply Chain Management (MKT 764)
Missouri State University
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The global supply chain: So very fragile December 12, 2011: 11:21 AM ET This article is from the December 26, 2011 issue of Fortune. Manufacturers have spent years building global supply chains. Natural disasters are showing them just how delicate those networks really are. Bill Powell, Cars outside a Honda factory in Thailand, submerged severe flooding. FORTUNE The image to the right is almost surreal: It shows part of a Honda auto factory in central Thailand, one of the largest in Southeast Asia, swamped under 15 feet of water, cars floating in the currents. The devastating November flooding in Thailand, which killed more than 600 people, also knocked out some of key suppliers, including electronics component maker Rohm Co., forcing production delays in plants as far away as Ohio. The Thailand floods alone would test any operational now consider that much of the auto industry and many technology companies are still recovering from the earthquake and tsunami that tore through Japan in March, shutting down dozens of contractors and subcontractors that supply everything from glass to test parts. The twin tragedies in Asia have shone a spotlight on the often anonymous but incredibly important niche companies whose products and parts go into every MacBook or Prius. Invented Toyota Motor Corp., (TM) and perfected in the era of globalization, the lean supply chain completely decentralized manufacturing: Big manufacturers developed a multinational network of specialists to supply them with parts and to make sure those components arrived at assembly plants at the moment they were needed. When things go as planned, the system benefits everyone in the chain: The assembly plant is more efficient (no pesky inventories to manage), suppliers keep the cost of parts down locating in regions with cheap labor, and consumers enjoy lower prices. But natural disasters such as the earthquake and tsunami reveal just how fragile this carefully crafted ecosystem can be. As Bob Ferrari, a leading consultant, puts it: never want to hear about the guys who run the supply chains for multinational companies. When you do, usually it means something really bad has Insurers and companies are still calculating the direct costs of the devastation. Munich Re, the big insurer, pegs the economic cost of the earthquake and tsunami in Japan at billion for the first nine months of 2011 alone. insurance commissioner estimates some billion in losses from flooding in his country to date. Scattered shipping containers in Sendai Shiogama Port in Japan on March 13 Because of the interconnected nature of supply chains, the economic impact of these disasters will be felt well beyond Asia and for many months to come. Computer maker Seagate (STX), which operates two factories in Thailand, predicts disruptions to its customers (Seagate supplies hard drives to makers of PCs and servers) through 2012, and CEO Stephen J. Luczo says the industry back to until 2013. iSuppli, a market research firm, says the computer industry is in need of 175 million hard drives but suppliers can deliver only 125 million units a shortfall of Apple (AAPL), (HPQ) and most recently Intel (INTC) are among the companies that have told investors that the flooding will have an impact on future earnings. The effects of Mother wrath still are being felt in the U. Auto assembly workers in Ohio saw their hours cut in November because Honda (HMC) get parts from Thailand. (In late November, Honda returned those plants to normal production levels.) On the other hand, a factory in Decherd, Tenn., that normally makes engines for Nissan cars sold only in the U. suddenly had to ramp up production after the Japan Nissan had the American plant ship engines to Asia for use in cars sold both in Japan and in Southeast Asia.
The global supply chain so very fragile
Course: International Logistics And Global Supply Chain Management (MKT 764)
University: Missouri State University
