Auto and Aircraft Supply Chain Hit Hard by Japan Crisis

The impact of the disaster in Japan has hit automakers and aerospace companies the hardest. Many supply chains have completely shut down, while others are close to shutting down. And the situation continues to get worse, according to a article and a report.

Some startling statistics have hit home, including the 4% fall in Boeing’s share price upon news of the earthquake, which erased $2 billion in its market capitalization. And because most of Japan’s auto industry is shut down, idled plants are costing companies hundreds of millions of dollars.

While it’s too early to calculate the cost to the auto industry, some experts estimate the shutdowns are costing Japanese automakers more than $150 million a day, not to mention what it’s costing those businesses in other countries that depend on them for product. Japan is also home to hundreds of auto parts suppliers and tiny machine shops in northeastern Japan that make parts for suppliers, and finding replacement parts is not that easy for businesses carrying just-in-time inventory.

GM is one of those companies drastically affected by the disaster, as it plans to stop production at its Shreveport, Louisiana plant next week. According to the report, it’s the first time a US-based automaker will have stopped production in North America over parts shortages caused by the Japan crisis. While most global auto plants have two to six weeks’ worth of supplies, those will quickly dwindle and lead to additional plant shutdowns, the report said.

The aircraft industry has been hit hard as well, which especially brings the risk of single sourcing and depending on just-in-time inventory to light. According to the report, Dirk De Waart, a director of management consultancy PRTM, says, “This latest disaster underscores the realization that just-in-time increases risk to a point where companies are becoming vulnerable.” Top management “is starting to understand that this kind of disaster is worth buffering inventories for.”

Experts predict that aerospace companies may begin looking for second-sourcing deals on the component and sub-assembly level to safeguard against this type uncertainty situation in the future.

For more information about how supply chains are being impacted by the recent disasters, read the following articles in full: