Tsunami to hit global supply chain
Mark Smyth recently attended a media briefing outlining the real potential impact of the Japanese disaster on global supply
AFEW weeks ago I attended a media briefing by the president and CEO of Toyota SA, Johan van Zyl, who is also a managing officer of the global Toyota Motor Corporation.
He had just returned from witnessing the devastation in Japan first hand and wanted to advise the media on the latest state of affairs. We were told that the company would be closing its plant in Durban for an extended shutdown until May 4, which apparently was planned before the disaster, in light of the current spate of public holidays. Subsequently we were informed that when the plant re-opens the company will decide on whether its ongoing production levels will be impacted.
So according to Van Zyl, the impact would not be so bad. Members of the media all left relatively relieved with the news and focused on the truck that was being launched at the Hino event instead.
A week later though, we received a very different picture from the chief operating officer of Isuzu Trucks SA, Craig Uren, at his company’s media briefing on the subject. The picture Uren painted was far more dire, being summed up by his first and brutally honest statement: “There is shit on the horizon.”
He explained that “what you read in the Tokyo Times is very different to what we see on Sky or CNN”, adding that other automotive companies have a strategy to say as little as possible, mainly because they don’t really know what is going to happen.
Uren said from January to April, the industry has had a “flying start” to the year but the effect of the disaster in Japan will be felt globally, including here in SA, over the next six months. “Whether you stick your head in the sand or not, there is definitely going to be a gap in availability,” he said, pointing out that the effects of this will initially be felt over the next 30 to 60 days.
Many of Uren’s fears were actually borne out last week when the BBC began reporting on the 22% decline in exports from Japan. Like Uren, the news service advised that the major problem comes not from the actual exporters, but from those who supply the “components for the components”. It is obvious really.
Where major assembly plants such as those of Toyota, Isuzu, Honda or Nissan may be fine, what about the family business in the north of the country that makes a normally insignificant plastic part. In some cases that business may no longer exist. A company may be in a position to assemble a whole car or truck, but if that little plastic switch is not available then no matter how capable the final assembly plant may be, the vehicle cannot be completed.
“In terms of worldwide supply, Just in Time becomes a questionable practice,” said Uren. He advised that his company has a map of suppliers in Japan showing the ones that are ok and the ones that are “simply not there anymore.” The Nikkei even stated that the world has been focused on the first and second tier suppliers, but what about the , third, fourth and fifth tier suppliers. Many supply components to the electronics industry which has been hardest hit and this day and age vehicles are full of electronics. Suddenly companies are unable to finish their products and even as far afield as the US, companies are having to close their doors already because they cannot supply finished product and their cash flow is drying up.
Uren stressed that at some point soon the existing stock of parts will dry up and then the real impact of the disaster on global industry will be seen. He expects that the “blue sky will probably only be visible next year”, emphasising that “we have to act and communicate responsibly” to both customers and the media. “We are living in a land of very respected business people who are not actually paying attention,” he said.
One of the major questions then is what effect all of this will have on production here in SA. Toyota says very little at this stage but advises that it is assessing the matter on an ongoing basis. Uren says that at the end of May the last 30 day window of component availability will come to an end and his company will have nothing to build. “We will have a mini shutdown over that period,” he advised pointing out realistically that while hourly workers in particular will have to face challenges, these challenges should be put into perspective when you consider those people in Japan who suddenly have no homes and whose families have been taken away from them.
He emphasised that Isuzu Trucks is trying to stretch its component availability as far as it can in terms of production, but he only expects things to ramp up again at the end of July or in early August. He also expects to see retail sales effected from May, with the biggest impact happening in June and July. Isuzu Trucks is therefore putting plans in place for those whose rental, finance, leasing and maintenance contracts will expire during this period and beyond. This involves getting agreement from banks, financial institutions and maintenance providers to ensure the customer, particularly in the truck market, are properly looked after. Fortunately and by pure coincidence he says his company doubled up on parts stock in February ahead of a parts price increase so it would appear they are in a stronger position than others.
I must admit that having spoken to a number of automotive executives in the local industry in recent weeks, it appeared that both production and parts supply in SA was going to be in a fairly good position. There can be no doubt that I and the other journalists who left Uren’s media briefing are now looking at things from a very different perspective.
Perhaps it is a matter of looking at the worst case scenario, but at least it appears that someone is, and for that we should not only appreciate the honesty, but question those who choose instead to give us the spin view.
There is much said about the global supply chain and SA’s role in it, but as is so often the case, a chain is only as strong as its weakest link. Japan is made up of some of the most resilient people in the world and the country will rebuild itself faster than most, but in the meantime alternative plans will be made to fix the chain. It is a lesson that many in SA would do well to take note of.
A man reacts as he looks around at devastation after an earthquake and tsunami in northern Japan last month.