Supply chain impact
The nuclear crisis in Japan, continuing to unfold 2 ½ months after the deadly earthquake and tsunami, has reminded us of several important lessons. On a human level, we are reminded of the dreadful risks posed by nuclear power. The impact to human health, agriculture, and ecosystems (not yet fully known) is utterly devastating. On a business level, it reminds us of the fragility of our global economy, particularly our supply chain, and the importance of communication.
Much has been written over the past two months about disruptions to the electronics sector in particular. 70% of the world’s silicon wafer starts are manufactured in the affected zone surrounding the Fukushima Daichi plant, and only 8-9 months of inventory survived the earthquake/tsunami. Until we are able to rebuild capacity in this region or locate it elsewhere, production will be limited for two-to-five years. The effects in terms of higher prices, longer lead-times, or delayed product introductions are already being felt.
For those who live and breathe supply chain management, this is a nightmare of the worst kind. But there are some important lessons we can learn and apply today to protect our companies against future disruptions. Given the devastating floods and tornadoes witnessed by the mid-west and south this spring, it’s evident that natural disasters of this kind are becoming more commonplace.
Tips for managing (and avoiding) supply chain crises:
- Communicate often – in good times and bad.
- Source locally when possible.
- Embrace lean manufacturing processes.
The Monday after the Japanese disaster my first phone calls were to our top suppliers, especially those who source Japanese components, to discuss lead-times and potential gaps. From those conversations, we created contingency plans and identified alternatives to keep supplies steady. What made this possible was the long-standing relationships we had build over the years.
At NRG Systems we take great care to communicate early and often, not just when something goes wrong or when we’re negotiating on price. Some of our communications tools include quarterly supplier updates, annual surveys, regular conference calls, and in-person supplier summits. Constant and transparent communication about our level of activity, our business philosophy, and the broader market in which we operate has been critical.
Local and Lean
Certainly disasters can happen anywhere at anytime, but when they happen closer to where you operate, you can respond and communicate with suppliers much more effectively. Sourcing locally supports lean manufacturing and regular flow of components between facilities. This provides suppliers and customers with the predictability they need for effective planning. It helps to reduce costs by eliminating non value-added activities, to keep inventory stable, and to improve quality and service due to the repeatable nature of lean processes.
While no one can predict the next natural disaster, using the tried and true techniques of supplier communication, local sourcing, and lean manufacturing can be a life saver when the next big one hits.
John Kerr, CPM, NRG Systems Purchasing Manager, has 32 years of supply chain experience. He’s our “go-to-guy” for working with suppliers and getting the goods we need to keep the manufacturing line running smoothly.