Japanese Earthquake Affecting Global Supply Chain

The Japan Earthquake that took place weeks ago is putting a strain on supplies and is shaking the country’s role as a crucial link in the global technology supply chain.

Some manufacturers rely on a tight circle of Japanese supplies, but the March 11 earthquake has forced some to close down.

"There’s no question people are saying: Look, we may have gone too far. Let’s revisit this and do some different things about just-in-time," Jim Lawton, vice president of D&B Supply Management Solutions, a unit of Dun & Bradstreet Inc, told the Associated Press (AP).

Tsunami damage and power shortages have damaged Japan’s factories that help supply the U.S. with auto parts, graphics chips and other high-end components.  General Motors Co shut down a Louisiana factory that makes pickup trucks due to a lack of parts from Japan.

CEOs embraced "just in time" production in the 1990s, which imitates Japan’s automakers and other manufacturers.  They boosted profits by cutting stockpiles of parts and won discounts by buying more parts from a smaller group of suppliers.

"All these things have made companies lower-cost and much more competitive but they have made them much more brittle in cases like this," Lawton, a former procurement executive for Hewlett-Packard Co, told AP’s Joe McDonald.

Big companies like GM and Nokia said they were closely watching their supply chains in Japan but declined to say how their long-term strategy might be affected.

Suppliers of electronics and other components in Taiwan and Southeast Asia are seeing a spike in orders as customers look for alternatives to Japan or Japanese companies.

"There has been indeed an increase in our orders because many Japanese chipmakers have suffered damage from the quake and tsunami," CEO Morris Chang of Taiwan Semiconductor Manufacturing Co told AP.

According to local news reports, Taiwan’s Foxconn Technology Group, which supplies Apple Inc.’s iPod and other products, have received extra orders from Sony Corp. to produce TV screens and digital cameras.

South Korean companies stand to benefit but have avoided talking about it publicly.

Lee Min-hee, who follows the industry for Dongbu Securities in Seoul, told AP that Samsung and Hynix Semiconductor Inc. could sell more flash memory chips to Apple and other customers that used to rely on Japanese suppliers.

Samsung said in a statement that it was assessing the impact of the disaster but did not respond to questions about how its business might benefit from the event.

Network product provider Ciena said the disaster has had "little to no impact" on its supply chain because it does not source any component exclusively from Japan.

"We are monitoring the situation closely and working with our suppliers to determine what, if any, impact this natural disaster might have in the long term," Philippe Morin, senior vice president at its global products group, told Reuters.

Ovum analyst Daryl Inniss said that Japanese companies generate 25 percent to 30 percent of revenue on the $5.6 billion telecom component market.