Disruptions in the Global Supply Chain

By failing to prepare for the unexpected, businesses risk everything from interruption to ruin


Still, the ripple moves on, affecting the financial supply chain. “Letters of credit play a big role,” Selle says. “If the banks are closed, you can’t make payments and business stops. There are communication disruptions. I haven’t used a fax machine in 10 or 15 years. If the Internet is down, how do you get critical documents out? In the case of telephone communications, the government had time to shut down the local phone network. If they shut that down, your driver is sitting with a cell phone on his lap. How can he communicate with you?”

Fuel is always a problem, says Bob Rich, CEO of Buffalo, N.Y.-based ROAR Logistics. “In Libya, prices are going through the roof. There’ no crystal ball. They hold the keys in terms of what’s going on in the refineries. Libya is the largest producer of light sweet crude. It’s most in demand for refining diesel, and that will be an issue.”

Every product that goes to market is touched by a mode of transportation. Fuel, as noted, is a problem, but with the political unrest going on, there’s more.

“If you’re moving goods and you get to the airport or seaport and see tanks there, what happens?” asks Selle. “Your goods that normally take 30 minutes to load now take an hour-and-a-half. The longer that truck sits there full, the more money it costs. You read about thousands of people at the airport. If that’s congested with passengers, moving cargo will be difficult also. We had aircraft on the ground, loaded. Hours on the ground is money in the supply chain business.”

And the roads that lead from plant to dock or airport won’t be smooth going, either, he adds. “Your drivers know when the main routes are shut down, but they know the back roads. In Cairo, especially, people were concerned so they put up roadblocks on the back roads. The drivers can’t go that way, now. So many things are at play throughout the supply chain.”

Ripples from Japan

The Japanese crisis is worsening and sending ripples of its own around the world. Factories, ports, roads, railways and airports have been shut down or damaged by the earthquake and tsunami. That means automotive and technology companies have no way of receiving goods from suppliers in the area.

At the time of this writing, Subaru had suspended overtime at its only North American plant in Lafayette, Ind., and Toyota had canceled overtime and Saturday production at its 13 North American plants, primarily to conserve inventory, according to the Associated Press.

A sufficient supply of Japanese-made chips for consumer electronics also is at risk. Toshiba and Renesas Electronics Corp. have temporarily closed facilities because of the quake, says the AP.

The economic impact is enormous. Analysts at IHS iSuppli estimate that Japan accounted for 13.9 percent of all global electronic equipment factory revenue in 2010, producing $216.6 billion worth of electronic equipment. Japanese suppliers accounted for more than 20 percent of global semiconductor production last year, generating $63.3 billion in microchip revenue.

The report adds that a major impact may be on Japan’s production of components for LCD panels, including glass, color filters, polarizers, cold cathode fluorescent lamps and light-emitting diodes (LEDs).

Dale Ford, senior vice president at IHS iSuppli, which focuses on research regarding the electronics industry, said on an IHS Webcast on March 24 that the interruptions to electric power related to damage to power plants in the quake-affected area, and subsequent rolling blackouts that have impacted the entire country, have had a sharply negative effect “that is broad and deep” to every stage of the electronics supply chain.

Ford suggested that it will take many manufacturers four to six months to get back to full capacity, depending on the distance of their plants from the quake’s epicenter and the speed with which Japan is able to get the electric power grid back on line. The disruption, in the meantime, will be particularly acute in the electronics and automotive industries.

None of this even considers the psychological impact of radiation as Japan struggles with its severely damaged nuclear plants, says ROAR’s Rich. “What will be the impact of this on Japan as an export nation? If they get a meltdown, panic will have global impact. Nuclear radiation is a psychological aspect as well as a trade impact.”

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