The recent earthquake and tsunami devastated the Japanese people and land. This disaster is also affecting the global economy. Quality experts are saying contingency planning and risk management are key in mitigating the effects of the disaster.
As the mainstream business media increasingly reports plant shutdowns and production slowdowns, supply chain managers worldwide are increasingly worried about the ripple effects of the Japanese earthquake-tsunami and subsequent nuclear plant emergency.
Especially hard hit are automakers and purchasers of highly technical parts such as semiconductors that come from Japan. There are even concerns the effects could halt the economic recovery that seemed to be occurring prior to the March 11 disaster.
Four members of ASQ, all experts in the area of supply chain management, agreed to talk to ASQ Weekly about the situation, its causes, and its possible cures. The four are:
Schoenfeldt said he expects huge economic ramifications from the disaster. “U.S. companies haven’t looked at the risk associated with buying from international corporations,” he explained. “While this disaster couldn’t have been foreseen, such catastrophes have to be considered when looking at international or sole-source supplier contracts.”
Risk management is in place at most organizations but the magnitude of this disaster far exceeds most of these plans, according to Atkinson. He also pointed out the hazards going forward. “This risk can be managed by procedures for validating new suppliers and facilities that have been shut down for a period of time and are reopened. But these processes take time.”
Atkinson offered the reminder that Toyota testified before Congress that shortcutting these processes led, in part, to its quality problems last year. “The current danger lies in how much shortcutting will occur as organizations return to production,” he said.
Atkinson and Bossert both mentioned the importance of contingency planning. Bossert expects U.S. companies will continue with just-in-time (JIT) inventories and outsourcing but that many, including automakers, will begin to look for alternative sources within the United States.
“When you go to a global economy there are always risks, so you must look at alternatives to the cheapest supplier,” Bossert said. “That might be a company that can supply parts on a regular basis.”
“In fact, business continuity plans and JIT go hand in hand,” continued Bossert, “Everything depends on the availability of alternative suppliers, and this will impact pricing.”
Reid was practical, looking at increasing inventory, dual sourcing, and dual tooling as possible risk management techniques in the aftermath of the earthquake. “Organizations may even migrate to using suppliers outside of earthquake zones,” he commented.
Reid agreed with Bossert, foreseeing no decrease in the use of JIT. “It’s an effective way to manage inventory, Reid explained, “The Japanese disaster was an unprecedented event, so while organizations might increase buffers, JIT will still be in vogue because excess inventory adds cost.”
Risk management and supply chain management must go hand in hand, continued Reid. He will discuss at length some lessons already learned from the disaster in an article in the May issue of Quality Progress, emphasizing the use of an auto industry quality tool, failure mode and effects analysis (FMEA), to manage risk.
RASIC charts are another good way to document responsibilities following a disaster, according to Reid. RASIC stands for responsible for, who approves, who supports, who informs, and who is consulted.
“A RASIC chart allows you to define a very complex process for disaster planning on one sheet of paper,” Reid explained.” Everything, including the important communication plan, is preplanned.”
Schoenfeldt blamed much of the current supply chain crisis on the leadership of corporations that “are always looking at the short-term.”
JIT puzzles Schoenfeldt. “If a corporation is buying from an international supplier, it takes three weeks to a month for shipping,” he explained. “If a whole container is bad, you’re stuck. This means you’re no longer managing for supply—you’re managing for logistics.”
Schoenfeldt was particularly critical of U.S. automakers. “They’ve turned their backs on lean for short-term gain,” he said. “They’re just beginning to feel the repercussions of the Japanese disaster, but they’re going to be in trouble.”
Looking at the big picture, Schoenfeldt commented that rather than focusing on managing their supply chains, companies have looked only at price in recent years.
“Instead of looking at quarterly profits, corporate leadership’s job should be to ask, “Where do I want to see this company in five, 10, or 15 years?” he said. “Many don’t even know how to define a supply chain and give no thought to the fact that a one-person shop could shut down immediately if the owner decides to close or dies.”
Atkinson said the effects of the Japanese earthquake, tsunami, and nuclear plant disaster are just beginning to be known. “We haven’t even looked at public utilities as part of the supply chain, he explained. “There are already blackouts in Japan, but because manufacturers don’t know when those will occur, they’re simply shutting down.”
“Only long-range planning with blackout periods scheduled far ahead of time will prevent these electricity shortages from being devastating to Japanese industry,” he added.
Other unmentioned aspects Atkinson noted are that manufacturing machines will likely be out of adjustment from the earthquake, and measuring machines will need to be recalibrated. “No one will know this is a problem until the product is made and the customer finds it’s out of specification.”
On a more visionary note, Atkinson concluded that the situation in Japan is definitely shocking and, “We need to honor those directly affected by learning from it.”