Five years after Japan quake, rewiring of auto supply chain hits limits

Wed Mar 30, 2016 1:36am EDT
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By Naomi Tajitsu

TOKYO (Reuters) - Five years after a huge earthquake temporarily crippled parts of Japan's auto supply chain, some companies have adjusted the industry's famed "Just in Time" production philosophy in a bid to limit any repeat of the costly global disruption.

The quake exposed the vulnerability of a system pioneered after World War Two by Toyota Motor Corp (7203.T: Quote), under which companies aim to boost efficiency by receiving small quantities of parts from suppliers only when needed.

But even with the risk of new disasters in one of the world's most seismically active countries businesses have had to balance efforts to disaster proof the supply chain due to concerns of the cost of, say, storing more inventory in case of an emergency which may or may not strike.

"Holding more inventory, or adding another production line as a business contingency measure may improve a company's robustness in the face of disaster, but it won't necessarily improve its global competitiveness," said supply chain expert Takahiro Fujimoto.

"Companies which take such steps at the cost of competitiveness would probably go bust even before the next disaster occurs," said Fujimoto, a professor and executive director at Tokyo University's Manufacturing Management Research Center.

Since the 2011 disaster, global auto suppliers have changed the way they produce and source the 30,000 parts required to assemble a single car, including raising stocks, diversifying production and creating alternative manufacturing capabilities.

German drugs and chemicals maker Merck KGaA (MRCG.DE: Quote) said it has "significantly" increased its supplies of Xirallic, a pigment which creates the shimmery effect in vehicle paint, since the quake.

Merck's plant in Fukushima Prefecture, which at the time produced the firm's global Xirallic supply, escaped major damage, but its warehouse was inaccessible immediately after the quake, prompting automakers including Ford and Chrysler to suspend sales of vehicles in certain colors.   Continued...

A Toyota dealership is seen at a devastated area after the earthquake and tsunami, in Minamisanriku town, Miyagi prefecture, March 22, 2011 file photo. REUTERS/Carlos Barria/Files