As northeastern Japan lies in ruins following the biggest earthquake in its history, companies around the world are conducting business as usual. But even if you didn’t feel Friday’s earthquake, disasters of this magnitude often have sweeping global impact—so you can expect to feel the effects of this crisis for some time to come. Shortages and suspended operations have already halted production across several industries, and at this point we can only guess what the total economic impact will be. Although our primary concern at Arena is for the people of Japan, our thoughts are also with the manufacturers who will most certainly be impacted by the fallout of this tragedy.
Japanese manufacturers suspend production
So far, Japan’s highly developed and unusually complex auto industry is taking the biggest hit. Companies like Honda and Nissan, who produce 22 percent of their cars in Japan, and Toyota, who produces 38 percent of its cars in Japan, reported immediate losses. Following Friday’s earthquake, Toyota Motor Co. suspended production at all of its 12 domestic plants, while Honda Motor Co. suspended production at all of its domestic plants through Sunday, resulting in a projected output loss of 16,600 vehicles. Nissan Motor Co., Suzuki Motor Corp., Mazda Motor Corp., Isuzu Motor Ltd. and Mitsubishi Motors Corp. also suspended production at some or all domestic plants. While it is still too early to determine the total impact of these shutdowns, we know that the effect will be global. For example, Deutsche Bank estimates that approximately 12% of all vehicles sold in North America originate in Japan, so the United States can expect to see reduced availability and higher prices for automobiles through the summer.
The global automotive industry has taken some of the biggest initial hits, but a growing list of companies—from consumer electronics manufacturers to steel makers and retail store operators—are reporting gaps in production as well. Hitachi Ltd. announced on Monday that operations are currently suspended until further notice at its six manufacturing facilities in the quake-struck areas, which produced home appliances, auto parts, elevators and power generation systems. Heavy machinery maker IHI Corp. has also lost two plants producing aircraft engine parts, gas turbine and aerospace-related parts; recovery of the plants is not expected. Canon is dealing with damaged plants as well, and is hoping to re-start production at three plants making lenses, inkjet printers and equipment for manufacturing LCD screens soon. Panasonic Corp. said a combination of aftershocks and a shortage of water and power were preventing it from inspecting two factories in northern Japan which produce optical pick-ups and other electronic parts, digital cameras and audio equipment.
Complicating the ability of supply-side organizations to return to a regular operations schedule is the widespread destruction of rails, roads and harbors, and most importantly, fuel and electricity sources. For example, Tokyo Electric lost 27 percent of its electricity generation capacity which means it is 10 million kilowatts short of demand. As a result, eight prefectures including Tokyo—home to many consumer electronics companies—are rationing electricity until the end of April. This impacts companies like Sony, who produces the magnetic tape, optical films, laser diodes, and lithium-ion rechargeable batteries used in electronics products everywhere, and the CD, DVD and Blu-ray discs used in homes worldwide.
Earthquake predicted to have a lasting impact on manufacturers and consumers
Although much of the destruction has been done, in many industries the impact is yet to be seen. Because of the complicated relationship between suppliers, manufacturers and distributors, supply-side destruction can derail production and delivery schedules and affect consumers for months to come. In particular, industry watchers are predicting major delays and price increases for high-tech gadgets, as Japan manufactures over 40 percent of the worldwide NAND flash, which lives inside the iPad 2, among other popular consumer gadgets. Much of the world’s NAND supply is produced at Toshiba, which is currently non-operational throughout parts of Japan. And with an earthquake of this magnitude, aftershocks for one to two months are common, so it’s impossible to know when Toshiba will be able to resume uninterrupted production.
It’s difficult to be prepared for unexpected and unpredictable global events of this magnitude—even with the most resilient risk management strategies in place—so it’s no surprise that this disaster will have a lasting global impact. It is too early to assess the damage for sure, so we will continue to provide updates as we learn more about how this natural disaster will impact both local and global manufacturing supply chains over the weeks and months ahead.
- Japanese Quake Will Likely Affect Global Supply of Gadgets
- Aftershocks Shake Japan Auto Industry
- Japanese Disaster Could Disrupt Supply Chain for Wireless
Photo Credit: Aly Song, Reuters