A Rare Glimpse Into The Cracks In The Japanese Supply Base
For days, I have been trying to get a clearer picture of what is really going on outside of the largely intact gates of the major Japanese carmakers. Nobody is talking. Most keep mum because they don’t know. Some don’t talk because they don’t want to.
Now there is a rare glimpse into the matter. It has been written by Kevin Krolicki with the help of two colleagues at Reuters. Kevin is the Detroit bureau chief of Reuters. He writes about cars a lot. Comes with the territory. Kevin and I share a common affliction: A Japanese wife. A week ago, Kevin found himself going against the stream of expats that were mobbing the planes out of Japan.
Two days after the quake, Kevin went from Detroit to Tokyo to help the team of Reuters reporters in Japan.
On Sunday, Kevin stopped sitting in TEPCO press briefings. He ventured out as far as he could. He visited factories, or what used to be factories.
He writes about Texas-based Freescale, which made accelerometers, pressure sensors and other chips for cars in Sendai, the city hardest hit by the tsunami. Japan may only make 20 percent of the world’s semiconductors. Kevin points out that Japan makes, or made, 57 percent of the wafers semiconductors are made from.
He writes about ball bearing giant NSK, whose “list of automotive customers obtained by Reuters reads like a who’s who of global automakers.” None of the factories are damaged, but most are down “due to uncertainty over power supply.” If I recall right, NSK owns more than half of the European automotive ball and roller bearing market alone.
The article is titled “Disasters show flaws in just-in-time production”, and you should not just read it carefully. You should not just bookmark it for later reference. You should print it out on paper, as a reminder that the power can go out.
However rare and insightful, the article remains a glimpse. I haven’t talked to Kevin yet, but when I will, he will probably tell me that he has no idea of the extent of the damage. Nobody does.
Will the tsunami be a game changer? Will we go back to the times of Henry Ford, when iron ore entered the factory on one side and cars exited the other side? After talking to many involved, Kevin and his fellow authors don’t think so:
“If there is any debate on whether the Japan quake will force a rethink on suppliers, there is apparently none about just-in-time production,” they write. “No one interviewed for this article expected any change.”
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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I read the Reuters article you referred to. I don't think the situation is an indictment of JIT. The reason that you do JIT, is that inventory piled up costs money. Someone has produced that inventory, and they expect to be paid for it . . . because their workers who built it expect to be paid and their suppliers who supplied the parts/raw materials for it expect to be paid. JIT requires greater integration and coordination of the supply chain . . . which is now possible with modern communications and computers. The situation in Japan is more an indictment of the violation of another basic principle: never rely on a sole source supplier. There are lots of reasons for that, having nothing to do with earthquakes, tsunamis and the like. Rather, if you rely on a sole source supplier, then that supplier has pricing power over its product that it sells you . . . not a good thing. And for all of those who just can't seem to understand why the United States transportation system -- for both stuff and people -- relies primarily on roads and motor vehicles, the answer is simple. It works the best, because it is flexible and responds quickly to changes in consumer demand, in terms of both time and location. Capital intensive, fixed transit systems like trains do not -- and can not -- do that. That's why trains only make sense as haulers of bulk cargo. Consider that intermodal transportation in the United States that uses ships for intercontinental transportation interfaces with trucks, not trains. Container ships carry containers sized to be placed on purpose-built truck trailers for delivery to the recipient. Railroads are an inefficient 19th century technology. And by "inefficient" I mean in terms of total cost -- not just fuel cost. For a railroad, the biggest cost is not fuel, its the capital investment, much of which, literally is "sunk" i.e. unrecoverable and not redeployable elsewhere in the event of a change in demand.
On the other hand, DC, the flexible road network for cargo transport is massively subsidized by the taxpayer. If transport companies had to pay for the wear they inflict on roads, there would be no long-haul trucking. As for trains being unprofitable, well, I think all the highly profitable cargo hauling companies in North America would disagree with you. As for JIT, I'd be wary about trying to generalize about it being just "good" or "bad". JIT is good in certain contexts, as is Fordist production methods. Turning either into some sort of moral imperative that must be applied everywhere would be folly, since context is what determines if they make sense or not. The American Military in the Iraqi war tried just in time supply methods to disastrous effect; it turns out the old ways of supply have a few advantages that the generals forgot about.