by Claudia Bruemmer

The unprecedented earthquake and tsunami in Japan has not only resulted in the tragic loss of thousands of human lives and triggered a possible nuclear disaster, it has also affected the electronic manufacturer supply chain in the U.S. and abroad.

Japan is the worlds’ third largest economy, behind China and the U.S. Vital supplier parts and equipment for major industries such as computers, electronics and automobiles come from Japan. The disastrous earthquake and tsunami has created a problem for brands that depend on manufacturing facilities in Japan. Most of the damage is northeast of Tokyo near the quake’s epicenter, although Japan’s manufacturing core extends further south. However, the country has continued to endure aftershocks, electrical blackouts and disruptions in transportation.

Many manufacturing plants have been closed all over Japan with uncertainty as to restart dates. The effects are being felt in the U.S. as a General Motors truck plant in Louisiana announced it had to shut down temporarily for lack of Japanese-made parts. The supply chain for parts made in Japan will continue to wane as Japan struggles to deal with this unprecedented disaster.

The only saving grace for the world manufacturing economy is that the product sectors in which Japan is dominant are mature, global industries such as computing and electronics. Major components such as semiconductors are also produced in several other countries, and Japan’s dominance in that industry has dwindled in recent years as production has shifted to countries like South Korea, Taiwan and China. Currently, Japan accounts for about 20 percent of total semiconductor production, down about 8 percent since 2001.  

However, Japan dominates production of certain important chips used in smartphones and tablet computers, like the lightweight flash memory chip. Japan makes about 35 percent of these memory chips with Toshiba as the major producer. Currently, Samsung in South Korea also produces flash memory chips.

Major electronics companies like Apple consider their supply-chain operations a trade secret. However, industry analysts estimate that Apple gets about one third of its flash memory chips from Toshiba with the remainder from South Korea. The lead time from chip order to delivery is about two months. Analysts estimate Apple has inventory for several weeks, which avoids an immediate impact; however, it could be hit with a shortage of crucial components in Q2. Of course, a big brand like Apple would likely be the first in line for supplies. While Apple products use components from around the world, its new iPad requires at least five parts from Japanese companies.

Over the last 20 years, the buying and shipping of goods has been transformed due to globalization and technology. Manufacturing is outsourced worldwide with product components produced in different locations based on cost and supplier expertise. That means supply lines for computers and smartphones are spread out worldwide and more complex to manage than in earlier years.

The ability to manage today’s complex manufacturing networks is possible because of technology and sophisticated software for tracking and managing the flow of goods around the world. The technology includes Internet communications, RFID tags and sensors attached to valued parts. This geographic and technological evolution should help corporate supply chains adapt to the disaster in Japan.

Since the Japan earthquake, big brands may want to re-evaluate the risk in their supply chains, shifting from just-in-time inventory management, which is focused on reducing inventories and costs, to an inventory management system that places more emphasis on avoiding risk by increasing inventories and sourcing from both major and backup suppliers.