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

Business Day - Motor News - - MOTOR NEWS -

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.

Pic­ture: REUTERS

A man re­acts as he looks around at dev­as­ta­tion af­ter an earth­quake and tsunami in north­ern Ja­pan last month.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.