The Worldwide Ripple Effect of Japan's Disaster

By Edward Tenner

The tsunami has exposed a weakness in global logistics long recognized in principle but disregarded in practice. Lean manufacturing plus heavy reliance on a single plant equals vulnerability to disruption. The Wall Street Journal reports:

Outside of Japan, auto makers can get most of the thousands of parts needed to make cars, but production could still be disrupted if only one of them becomes scarce. Worry is increasing about Japanese firms that make microchips, chemicals and other materials that are used in auto production, or are needed in key components such as controllers that manage how an engine or transmission operates.

GM, France's PSA Peugeot Citroen SA and others have already slowed production because of concerns about a shortage of air flow sensors made by a crippled Hitachi Ltd. plant in Japan. A big supplier of microchips for autos, Renesas Electronics Corp., has also stopped production at several plants.

It's understandable that a Japanese company would have its sole plant for a critical pigment in Japan. But a global German giant like Merck? Nuclear power, seismic activity, and extreme weather are world realities. As the former head of Fukushima Daiichi put it, "We can only work on precedent, and there was no precedent." Now there's a precedent. Will strategies change, or will this just be another anecdote in the decades-old saga of supply chain risk?

This article available online at:

http://www.theatlantic.com/business/archive/2011/03/the-worldwide-ripple-effect-of-japans-disaster/73082/