The impact of Japan’s tsunami and nuclear crisis on supply chains and production networks worldwide – especially in the auto and electronics sectors – is mounting.
The “just in time” production system will have to be rethought, Standard Chartered chief economist Gerard Lyons told Emerging Markets on Tuesday.
“The supply chain reaction across Asia has been very apparent.” South Korea and Taiwan, which have partly filled supply chain gaps left by Japan, “have been beneficiaries”.
With “completely interlinked” supply chains there is “no redundancy in the system. This is an issue for not just companies but countries going ahead,” Lyons added.
“What we have seen in recent years is the desire to run everything close to the wire. ‘Just in time’ has been the issue. In future it will need to be more ‘just in need’ or ‘just in case’.” Better inventories and better “shock absorbers” are needed.
Michael Buchanan, Goldman Sachs chief Asia economist, said: “This is a serious issue for some sectors. And we don’t know what happens after inventories run out after around two months.” Even with a relatively small value-added component there can be a relatively big impact, such as with semiconductors for the auto industry.
Switching suppliers may not be feasible, especially for vehicle manufacturers that have to take safety-related factors into account, Buchanan added. “Auto companies will be sensive to fast-tracking a change of input.”
ADB chief economist Changyong Rhee said it would probably take up to “two years” to put together a database cataloguing how supply chain linkages between Asian countries and industry sectors operate. The IMF and the World Bank, along with the OECD, are working on their own versions of such an anatomy.
The Japanese disaster has severely impacted output at car makers including Toyota, Nissan and Honda, and electronics majors including Panasonic, Canon and Sony. Toyota is unable to source some 150 parts and does not expect to resume full production until the year end; Panasonic blames the disruption in part for its decision to slash its global workforce by 350,000 over the next two years.
In China, joint ventures with Japanese partners – such as FAW Xiali Automobile’s with Toyota and and Dongfeng Motors’s with Honda and Nissan – are suffering from delays in imports of engines and transmission from Japan.
Electronics firms such as Lenovo and ZTE are sourcing components from Korea and Taiwan to make up for shortfalls from Japan.
Thailand’s industry minister has said that car production there will plunge by around 50% in the second quarter.
Global production of cars is forecast by some analysts to drop by around one third and in the USA, Ford has reduced output of some vehicles because of lack of parts from Japan.
ADB president Haruhiko Kuroda told Emerging Markets that supply chains were only as strong as their weakest link. Companies should examine the feasibility of having alternative supply sources to fall back on, in cases of disasters of the type that have hit Japan, he said.
Donna Kwok, economist at HSBC in Taipei, said: “Supply disruptions from Japan are starting to feed through, but there is an unexpected silver lining: orders are being switched from Japan to Taiwan.”