Did the Japan earthquake impact your supply chain? What if something similar happens in China?

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We have all been awestruck by the human impact the quake and tsunami had (and is still having) on the good people of Japan. The impact of the quake is also financial, however, and impacts people and companies around the world.  Toyota cites the quake as being responsible for a drop in earnings for 2011.  As a photography enthusiast, I watched as Nikon and Canon both stopped production after the quake.   The quake didn’t just impact companies based in Japan, it also impacted manufacturing companies that source from Japan. I thought that from a supply chain perspective, the quake in Japan was bad.  Really bad. Until, that is, I came across this post from the @risk blog.  The post highlights a study from commercial/industrial insurance company FM Global.  The study examines how reliant the companies involved in the study were on China for some or all of their manufacturing and supply.  Some interesting points from the study;

  • 86 percent of companies surveyed are more reliant on China than Japan for key product lines
  • 83 percent of companies surveyed think supply chain disruption is a moderate or higher risk to the financial wellbeing of their companies
  • 94 percent of companies surveyed are concerned about natural disasters in China as a result of the Japan earthquake
  • Over 60 percent of companies surveyed are evaluating their supply chain risk in China as a result of the Japan earthquake

The study goes on to suggest you assess your resiliency to a disaster in China by asking the following questions;

  1. Does your senior management view resiliency as a competitive advantage and has it made the necessary commitment?
  2. Has your organization examined how it can mitigate risk within its products and processes?
  3. How well does your company collaborate with its suppliers to assess and mitigate risk?
  4. Does your corporation have appropriate business continuity and disaster recovery plans for supply chain disruptions emanating from emerging markets such as China?

A significant earthquake in China is going to happen.  China shares many Geologic features with Japan and a quick Google search shows significant seismic activity including earthquakes over the last several years (2011, 2010, 2009). So, the question is when (not if) will an earthquake hit a major manufacturing center?  When this happens, it doesn’t take a doctorate in supply chain to see that the impact to unprepared businesses will be devastating.  Do you agree this is a concern? What steps are you taking to mitigate the impact of an event like this?  Comment back and let us know.

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Discussions

Alicia Weir (Recruiter focused on Food Manufacturing Jobs)
- January 10, 2012 at 3:46pm
This is a great post...it seems to me that having a backup 'local' supply chain (as opposed to one that is geographically spread out) is the only way to mitigate risk, isn't that true? I'd love to republish this in our newsletter, a lot of supply chain professionals in food manufacturing, beverage, CPG, etc. read it. Do you mind?

Alicia
Devin Ransom
- January 11, 2012 at 10:42am
John,

The earthquake hit me personally in the Ford Supply Chain. I wanted to by a mustanf but could not get the color I wanted because the Ford supplier of paint could not get that color to for because they were in Japan.

I really hate to see what would happen to the Wal-Mart stories if a earthquake takes out China's ability to produce and ship product.

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