Thread Started by #balajisynergy

Lesson for the world auto industry from the Japanese Tsunami

Parts shortages and increased prices across a range of products, from tablet PCs to components for computers, cameras and cars - Japan’s recent disasters, followed by concerns over nuclear plant meltdowns have put the world to re-think the business model of supply chain network.

The extent of the situation is not very clear and is speculative based on little information on manufacturing plant disruptions and no timetable for when electric power and infrastructure problems will be fully resolved. One could only predict that these issues will become more acute in the ensuing months.

World over, most of the companies have an overall planning process in place with established long-term goals and short-term contingency plans. But, rarely do they result in quick and decisive action when it is most needed. The most common measures you can take proactively, to limit risk exposure and enable rapid effective crisis management are:

1. Form a contingency team composed of key supply chain partners and identify contingency scenarios:

Re-examine sourcing partnerships and identify alternatives

Model the impact of disruptions on your sourcing and inventory strategies

2. Evaluate all networks linking trading partners on visibility. In this way you can monitor supplier performance in real-time and address any variances in your risk management system.

3. Evaluation of opportunities to alleviate current supply chain bottlenecks, alternative transportation configurations and alternative sources of supply.

"Many global supply chains are not equipped to cope with the world we are entering," McKinsey says. "Most (companies) were engineered, some brilliantly, to manage stable, high-volume production by capitalizing on labor-arbitrage opportunities available in China and other low-cost countries. But in a future when the relative attractiveness of manufacturing locations changes quickly—along with the ability to produce large volumes economically—such standard approaches can leave companies dangerously exposed."

It makes perfect sense to argue that most supply chains as currently constructed are not well-suited to this new environment.

"The ability of supply chains to withstand a variety of different scenarios could influence the profitability and even the viability of organizations in the not-too-distant future," McKinsey says. Going further, it says that "The goal should be identifying a resilient manufacturing and sourcing footprint—even when it’s not necessarily the lowest-cost one today."

The crisis due to supply chain break is most evident in the case of automobiles because of the large number of components involved, i.e. about 25000 components required to make an average car, and the non standard fitments for each model. The companies have to rely on the specific component supplier. The only leverage is development of alternate suppliers and divide the business. This has been the model to defend breaks in the supply chain. But, this model does not work if we have to develop on optimal cost and resources. To save on cost and resources we need to restrict the number of suppliers for each component.

As a solution to the above we could look at a two prong strategy. One: redesigning the components with a universal fitment standard. Like make any type and size of bulb, as long as it can be fixed to the universal holder. Define the universal holder. This would help in interchangeability. This is not easy nor is it cheap. This will help in reducing the dependability during crisis. This will also enhance the options for customers. This will reduce the pressure of inventory in the spares parts market.

Two: Move from a global sourcing concept to building a village. This is again not going to be cheap in the short run, but is definitely going to take fewer resources in the long run.


HEAD Strategic management

Synergy Management Advisors p Ltd.
14th April 2011 From India , Hyderabad
They quoted in HBR, they taught us Just In Time (JIT) years before and now the incident happened in Japan taught us to learn the lesson.
25th April 2011 From Saudi Arabia , Jiddah
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