Supply Chain Impact of the Japanese Disaster

Japan and the Global Supply Chain

Stuck in the Muda

 

Lean Production & the Elimination of Waste – Muda in Japanese

Japan is the point of origin of Lean Manufacturing – one of the three major quality systems widely used in manufacturing today throughout the world. One of the central tenants of Lean is adherence to the elimination of the 7 Mudas, 1) Unnecessary motion, 2) Excessive inventory, 3) Excessive processing, 4) Excessive transportation, 5) Waiting (down time), 6) Overproduction, and 7) Production of defective products. The concepts of Lean are also broadly referred to as the Toyota Production System (TPS).

Worldwide adoption of these techniques has been complete in some of the most competitive and global industries including electronics, specialty materials and aerospace equipment. The recent Tsunami and related disaster in Japan have exposed the inherent weakness in the Just in Time (JIT) supply chains which minimize inventory, transportation and waiting time in these systems and industries.

“Second Supplier” arrangements have recently proven to be wholly inadequate to this awful challenge as the second suppliers (when used) do not have the capacity to meet the sudden increase in demand, and are frequently geographically not diversified from each other. The suppliers have gone through exquisite qualification procedures, and will be very difficult to replace. Consider the horrible quality issues that Toyota faced in the last several years when it attempted to dramatically increase production through new suppliers. Given the scale of destruction in the Tsunami it will be years before production which has been affected can be replaced.

The major Japanese automobile producers began shutting in production within a day of the Tsunami, and today even GM announced production curtailment related to Tsunami related delivery problems. Stay tuned as this washes through all major auto and electronics producers. If you want that iPad – you had better buy it now.

This will not impact all products equally – watch for announcements of production curtailment. It will have a major quarterly impact on selected earnings – watch out!

Wes Chapman
Written by Wes Chapman