When the earthquake and subsequent tsunami struck northern Japan in mid-March, killing hundreds and causing major damage to that country’s infrastructure, supply chain specialists sensed immediately it would cause significant disruptions in many global electronics supply chains.
After all, Japan produced $216.6 billion worth of electronics equipment in 2010, accounting for 13.9 percent of all global electronics equipment factory revenue, according to research firm IHS iSuppli, which factored in computers, consumer electronics devices and communications gear. Japanese suppliers also accounted for more than one-fifth of global semiconductor production in 2010.
“There was a great deal of concern and a lot of damage,” said Dale Ford, senior vice president at IHS iSuppli.
Among the hardest-hit producers were makers of microcontrollers used in the automotive sector, such as Renesas Electronics, which supplies about 40 percent of the world’s demand. Such companies operate under tight just-in-time schedules, Ford said. Although long praised for their emphasis on lean, low-cost inventories, this approach wound up causing huge disruptions in the supply chains of companies that depend on them, including automaker Toyota.
Since the earthquake hit, automotive production in Japan has slowed significantly as a result of the shortage of microcontrollers. The chips, which act as the brains of electronic control systems, are customized to the specifications of each automaker, making it impossible for automakers to find alternative suppliers right away.
Automakers haven’t been the only producers affected by supply problems. In March, Japanese computer exports declined 19 percent, video equipment exports dropped 23 percent, audio gear fell 31 percent, and telephone and telecommunications equipment exports fell 17 percent.
Sony’s plant in Sendai, which makes professional videotapes, was damaged severely, while Ricoh’s production lines of office equipment slowed because of a shortage of microcontroller chips. Other major brands suffering production delays included Sony Ericsson in smartphones, and Toshiba, in a broader range of businesses.
Nevertheless, “not everyone was impacted equally” by the quake and tsunami, Ford said. Two factors also helped generate some relief. First, some of the producers affected by the quake already were working off inventories, and those inventories provided a buffer, allowing them to meet some of the demand for their products. Second, the second quarter of the year is normally a slow quarter, so demand for the output was already relatively slack in March and April. If the disaster had happened during a busier season, the disruption could have been much worse.
Call it blind luck, but some of the most important suppliers of electronics products made in Japan weren’t damaged at all by the quake and subsequent tsunami. James Flaws, vice chairman of Corning, a leading maker of optical fibers for flat-panel screens, surprised investors by announcing that none of his company’s operations suffered from the quake, tsunami or rolling power outages.
Where does this leave supply chains that depend on Japanese electronics? Some suppliers of key electronics will need several more months to get their production lines fully up to speed. Until then, their buyers could suffer shortages that impede their production schedules. But if Japanese companies that supply key electronics products and components to global supply chains can get their production levels back up to 80 to 90 percent of normal by the third or fourth quarter, Ford said, then “we should be OK.”
All bets are off on bringing supply chains back to sound health, however, if key suppliers suffer another serious setback. Aftershocks from severe earthquakes are hardly a rare event, and one such quake on April 11, for example, set some suppliers “back to square one,” Ford said.
Contact Alan M. Field at email@example.com.