Summarizing the Procurement, Supply Chain and Commodity Fallout From the Japanese Disaster

Over on Supply Chain Matters, Bob Ferrari posted an excellent piece last week summarizing the latest news and giving his recommendations for managing through the Japanese post-earthquake/tsunami crisis. Bob suggests that "procurement teams should be planning for price increases and secondary qualification and sourcing of impacted components as global supply chains scramble to compensate for supply and demand shortfalls. In this regard he notes that "larger, high volume OEM's will fare better in insuring supply, while other manufacturers will probably have the challenge for securing other sources of supply." What industries will feel the pinch the most?

Here Bob suggests that within automotive, "it would appear that most of the impact will be felt in the Tier Two or Tier Three components that feed production of other components and final assembly of actual autos, trucks and other vehicles." In addition, "two other supply chain areas, rubber products and plastics, along with electronic components as heavily reliant on Japanese manufacturers" will also face potential shortages/price spikes in the weeks to come. One of the major challenges is that in certain cases, lower-tier suppliers, especially in specialized applications, are often concentrated with specific suppliers and/or specific regions. Consider how Hitachi Sawa Automotive Systems, "which accounts for 60 percent of the global supply for airflow sensors," has already noted delays/shortages in the days that followed the initial disaster.

Even though the emphasis in situations like these are likely to cause management to focus on immediate challenges and maintaining continuity of supply at whatever cost, if possible, it is Spend Matters' belief that leading organizations will use the crisis as a means to accelerate broader supplier management initiatives to help reduce supply chain risk in the future. Many of these new programs should start by understanding lower-tier commodity exposure/concentration, and developing alternative sources of supply. We also believe the current crisis may help reverse some of the trends around the "supplier rationalization at all costs" types of programs we've seen in recent years.

Jason Busch

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