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Supply chain disruptions from Japan disaster easing

Toyota's plant in Woodstock, Ont.


The supply shocks that rippled through the global manufacturing industry after Japan's massive earthquake and tsunami are easing much more quickly than initially feared.

While there are shortages of vital parts for cars and electronics - including some computer chips, silicon wafers and batteries - the big surprise is that the March 11 natural disaster wasn't more of a disaster for the complex and time-sensitive global supply chain.

The system is proving remarkably resilient - in part because Japan is far less connected to the global economy than many other advanced countries. That's because Japanese manufacturers moved faster, and earlier than most, to lower-wage countries offshore, most notably to China.

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The worst-case scenario envisioned after the Japanese disaster, including widespread and lengthy shutdowns of plants around the world, hasn't happened.

"In hindsight, maybe there was an overreaction," acknowledged Paul Beamish, a business professor and director of the Asian Management Institute at the University of Western Ontario's Ivey business school.

"They went in there like gangbusters," Prof. Beamish said of the Japanese manufacturing shift to China. "That's where a lot of traditional Japanese manufacturing now takes place."

Manufacturers are already breathing easier, realizing the worst is over.

Even for Japan's automakers, life is gradually returning to normal. Toyota Motor Corp.'s Canadian auto assembly plants in Woodstock and Cambridge, Ont., for example, are expected to be back to 70 per cent of targeted output this month, with a complete return to normal in the fall.

"My sense is that they'll be back on track sooner than they thought a couple of months ago," said David Worts, executive director of the Japan Automobile Manufacturers Association of Canada.

Even more surprising, there's been almost no impact on the availability of both parts and cars in Canada, he said.

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"There hasn't been a noticeable impact for the customer," he added, pointing out that car makers generally had two months' worth of supply in the pipeline.

Japan's role in the global supply chain isn't what it used be. A recent survey of 750 supply-chain managers in various industries around the world found that Japan punches well below its economic weight as a foreign source of supply for companies. Despite its economic might, Japan is the top foreign source for fewer than 2 per cent of respondents, according to the survey by SCM World, a professional organization for supply-chain executives.

"China, the U.S.A. and Germany appear far more integrated into the world's manufacturing supply chains than competing territories, most notably Japan," SCM concluded.

China was identified as a leading source for 37 per cent of respondents, followed by the United States (20 per cent), Germany (7.4 per cent), France (3.9 per cent) and India (3.2 per cent) and Britain (2.9 per cent). Japan and Canada were tied at 1.9 per cent.

Another factor that insulated the world from what happened in Japan is that many companies have diversified their source of supply for critical inputs. Even in a world of just-in-time deliveries, where companies try to keep inventories at a bare minimum, many companies wisely lined up back-up suppliers for the things they need most.

A string of disasters in recent years - including Hurricane Katrina in 2005 and the 2001 terrorist attacks - forced companies to become a lot smarter about risk management, argued Garland Chow, a professor and director of the Bureau of Intelligent Transportation Systems and Freight Security at the University of British Columbia. So manufacturers made a point of learning more about their suppliers, finding alternatives and building in additional redundancy to deal with the unexpected, he said.

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"Ten years ago, this kind of disaster would have been twice as bad because they weren't ready," Prof. Chow said.

Single-sourcing and just-in-time systems are less prevalent now. Companies are making a point of learning more about their supply chain, particularly second- and third-tier suppliers they don't deal with directly.

And for those that still didn't have back-up plans, Japan was a wake-up call.

"Every company tries to avoid a situation where they're dependent on a single source of supply, for all sorts of reason," Western's Prof. Beamish explained. "This was an extreme example of why you want to avoid single-source supply."

In the wake of the Japanese disaster, auto makers and electronics companies set up supply crisis centres to deal with expected supply disruptions. And in most cases, companies found new suppliers or adjusted production schedules to cope with temporary shortages. Many auto plants, for example, cut overtime shifts and temporarily halted production to adjust to incoming deliveries of key parts.

STMicroelectronics NV, the giant European semiconductor maker, said recently that supply disruptions have had much less of an impact than it had expected.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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