Supply Chain Disruptions Force Delays

Japan's three first-tier aerospace firms -- Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and Fuji Heavy Industries -- "all have major roles in the Boeing 787 program and all have 787-related production facilities in Nagoya, as do the subcontractors that supply them," the company said on Wednesday in a report.

"Considering the fact that 35% of the 787 and 20% of the 777 are from Japan, Boeing faces considerable financial risk at the cost of uncertainty in its supply chain."

Mitsubishi shares fell 1.4% on Wednesday. Kawasaki shares rose 1.2% and Fuji shares fell 6.

Mitsubishi, Kawasaki and Fuji have said that their plants in Nagoya are unaffected by the earthquake and are not suffering any production disruption, the report added. Boeing has also "categorically" said it has enough inventory to cope with any short-term disruptions its Japanese suppliers may face.

Frost & Sullivan said the catastrophe had raised some big questions about the globalised supply chain and just-in-time manufacturing.

"Aerospace companies have realized that a global supply chain is a double-edged sword, with the losses almost nullifying the gains. This disaster will cause companies to revisit the trade?-off between lowest cost and availability."

LEAN VERSUS ROBUST SUPPLIES
Echoing those comments on the global supply chain was Paul Kleindorfer, the Paul Dubrule Professor of Sustainable Development at the INSEAD business school in France.

The crisis would encourage more resilient and robust supply chains, he said.

"We'll see greater attention paid to the finding of additional sources of supply, but those sources in other countries will face high hurdles because of the high quality of Japanese manufacturing and that's not going to be easy to do in other countries in Asia. Japan will continue to occupy a special role along with South Korea and Taiwan."

Kleindorfer also said all companies, not just in Japan, should use the crisis there as an opportunity to focus on selecting or "pre-qualifying" alternative sources of supply that they can rapidly switch to in case of a disaster.

Companies also need to invest in a "war room" infrastructure so that when a crisis happens, "they have the ability to respond and to ascertain and rehearse and switch and tell their customers and their boards what they can expect. It shouldn't take a month to figure out what happened."

Frost & Sullivan