9-12 Months For Japanese Supply Chain Recovery…What Can We Learn in the Meantime? (Part 2)

In the first post in this series, I added a bit of fuel to the debate around one of Paul Martyn's assertions in a recent Forbes article about whether holding greater inventory in the wake of the Japanese crisis -- and as a potential best practice in certain supply chains -- is necessarily the right move for companies, depending on circumstance. I personally learned awhile ago that after a few years of "leaning out" my own personal food and fitness supplier that thinner athletes may be at higher risk for partial or full lung collapses -- no one tells you that when set out to get in better shape -- but I still don't believe we should toss the notion of inventory reduction in the supply chain rubbish bin. Still, it's a worthy debate to have. Regardless, Paul makes two other predictions in his column about what we'll learn about the intersections of supply chain and global sourcing post Japanese earthquake/tsunami, and I think readers will find the insights much less debatable.

One scenario Paul tosses out is that we're likely to see a greater number of "rookies" on the procurement and operations playing field. Yet rookies in this case aren't the individual folks we put out there in our hometown threads (for the minimum salary package). No, rookies are other emerging markets -- countries and regions -- that may become more attractive in the wake of the crisis. As Paul suggests, "like rookies, South Korea and India have been eager to become part of the electronics supply chain -- and have invested in market. Diversifying to a broader portfolio of partners will improve the likelihood that when (not if) disaster strikes, alternate sources can be secured quickly and cost-effectively."

Paul's Korea example is spot on. Even though I would never describe a country in which the typical sushi is safer and better than NYC as "emerging" -- moreover, I think a number of Koreans may find the sophistication of their business climate in comparison to China and India to be somewhat off-putting -- playing the Korea card may make sense, just as it did for a company our firm on the MetalMiner side of the equation worked with a few years. This company had huge spend concentrated in a very esoteric metals product (semi-finished) in Japan. The organization, that was buying mill-direct, was more concerned at the time that without competition, their suppliers might take advantage of them.

But they also realized the potential of identifying an alternative source of supply to reduce risk. Sure enough, the manufacturer was able to loosen their tolerances and specifications for their own line just enough to allow a Korean mill to bid on the business. Despite the headaches the process involved, they shifted just enough spend to this supplier to develop it into a viable alternative at the time. And you can probably guess the outcome of the rest of the story. The recent crisis not only gave them an opportunity to pat themselves on the back for the decision and assure continuity of near-term supply, but it also allowed them to save face with their Japanese supplier when they transitioned additional spend over to the alternative supplier in Korea (on what will likely be a permanent basis) based on the justification of reducing geographic concentration of a key supplier/commodity input.

Jason Busch

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