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Japan disaster puts supply chain at risk

The disaster in Japan has exposed a problem with how multinational companies do business: The system they use to keep supplies rolling in is lean and cost-effective -- yet vulnerable to sudden shocks.

Factories, ports, roads, railways and airports in northern Japan have been shut down or damaged because of the stricken nuclear plant in the region. So auto and technology companies are cut off from suppliers in the disaster zone. Some have had to stop or slow production.

"When you're running incredibly lean, and you're going global, you become very vulnerable to supply disruptions," says Stanley Fawcett, a professor of global supply chain management at Brigham Young University.

The risks are higher because so many companies keep their inventories low to save money. They can't sustain production for long without new supplies.

Subaru of America has suspended overtime at its only North American plant, in Lafayette, Ind. Toyota Motor Corp. has canceled overtime and Saturday production at its 10 North American plants. The two companies are trying to conserve their existing supplies.

Among the auto plants damaged by the quake was one in Miyagi prefecture that supplies parts for hybrid batteries in Toyota Prius, Camry and Lexus hybrids. It's unclear when the plant, a joint venture of Toyota and Panasonic, will start running again.

Even companies whose Japanese suppliers escaped damage have scrambled to ensure supply lines remain intact. Ford, for example, relies on a Japanese plant for hybrid batteries for its Fusion, Escape and MKZ hybrid vehicles. That plant wasn't damaged in the quake. But Ford isn't taking any chances because of the transportation troubles in Japan. It's looking for alternate supplies and is looking into airlifting parts if shipping shuts down.

The disaster is also threatening the supply of Japanese-made chips for consumer electronics, from washing machines to TVs to iPads. Factory shutdowns and crippled shipping routes pose a risk to companies that depend on chips for storing data. Japanese semiconductor giants Toshiba Corp. and Renesas Electronics Corp. have temporarily closed facilities because of the quake.

The electronics companies that depend on chips from Japan are trying to assess the depth of the supply disruptions. Chip prices have already jumped on fear of shortages.

For consumer electronics, supply chains are complex. Some cell phones have dozens of chips. Apple Inc.'s iPad requires parts from around the world. The insides of the device show how much coordination Apple must have with suppliers around the world to ensure there are enough parts.

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