Friday Rant: A Post-Tsunami Survival Guide for Plugging Holes in Your Supplier Information Vacuum

Though it's impressive how much has managed to stay online in Japan in the wake of last week's earthquake and tsunami, one can't help but be awash in the overwhelmingly speculative coverage of the supply chain. Apple is worried. BMW is worried. GM has already cut production on one US line because of a lack of parts. From Toyota to Toshiba and everywhere in between -- stories abound. And fear over supply disruptions is mounting. We were especially drawn to this story in the New York Times: Long Pause for Japanese Industry Raises Concerns About Supply Chain, reporting that the aftermath leaves "many overseas customers and trading partners in something of an information vacuum, unsure how soon the effects of any supply-chain disruptions would make themselves felt -- and how long they might last."

The article pinpoints specific examples of potential supply disruption from GE, Air Liquide, BMW, and Texas Instruments, speaking to the effects of seaport damage and shipping. The bigger point of the article, however, is that many companies sit in a holding period until damage can be further assessed and plans can be implemented. "It will probably be many days or perhaps many weeks before we can assess the entire situation," said Mike Wong, a SanDisk spokesman. Furthermore, "The situation is quite bad" for the northeastern ports, said Yoshiaki Higuchi, director of planning for the Japan Port and Harbor Association, "but at the moment we aren't even certain about the extent of the damage."

After reading this NYT article and speaking with a handful of companies at SIG's Global Sourcing Event this week (whose supply chains may indeed be impacted by the tragedy and crisis), we advise that organizations should prepare for the worst in the coming weeks – especially in such uncertain times. Tactics should include:

  1. Stepping in logistically for your suppliers. Even if you're not buying FOB today, offer to handle both the outbound (and potentially even the inbound) side of logistics. Make sure you understand the airfreight possibilities, regardless of whether you're used to expediting on a regular basis in the region. Engage your 3PL as required to assist. Quick involvement on the logistics front may reduce the impact of production delays and supply chain bottlenecks, especially on the commodity level
  2. Buck up, take your iodine pills (if you're concerned) and get on the ground as quickly as possible. Send key resources to suppliers and stay with them through the crisis. Offer to assist in any way possible. The buying organizations that put in direct face-time in situations like this are the likeliest to be the customer of choice when supply comes back online (and even in the meantime, being there before full production capacity is back on track can provide invaluable intelligence)
  3. Even if you're not dealing with Japanese suppliers directly, understand all possible touch points you may have with regional supply chains in Northern Japan (and even those in the central and southern parts of the country which may be impacted by the North)
  4. Letting customers know about potential price increases in semiconductors and other products that will be impacted by shortages as soon as possible -- this may help avoid having to assume the price spikes on your own account
  5. It's all about energy. Or power to be more specific. Understand how rolling black outs may impact your suppliers even if their factories and supply chains are otherwise unscathed
  6. Move quickly -- very quickly -- to invest in alternative sources of supply if you already have alternative supplier or facility relationships (e.g., if a supplier in Korea is currently getting 10% of your business for a SKU, understand how quickly they can ramp up production on your behalf). If you don't already have these alternative supply relationships -- or if your suppliers don't -- it's unlikely you'll be able to move quickly enough to secure alternative supply
  7. Use the earthquake and tsunami as an opportunity to enable everyone to "save face" in evolving Japanese/Asian supply relationships. Use the tragic events to insure against supply risk in the future by permanently shifting a percentage of spend to suppliers in different geographic locations. During this crisis, you can pursue this strategy without harming existing relationships -- the saving face part -- by providing a logical rationale to reevaluate your supply chain design and contingency planning by creating dispersed geographic redundancy in your supply network (hat-tip: Lisa Reisman, who just advised a client on this very strategy in a steel category)

For other supplier management tips to deal with the crisis in Japan, please see our original column on the subject from last Friday.

- Sheena Moore and Jason Busch

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