Supply Chain Disaster Preparedness: Diversifying Your Supply Base

This past week, a 6.5 earthquake and a 7.3 magnitude quake hit Japan. A total of 41 people were confirmed dead in Kumamoto and many more have taken temporary shelter. While these quakes have caused problems for many families, they have also disrupted operations of many businesses located in the area.

Since it is not a matter of if, but when, it is always important to prepare your supply chain for unexpected weather. In Japan, Toyota said it would gradually halt vehicle production this week at most of its plants due to a shortage of components following the quakes. Additionally, production will halt for the car plant in Fukuoka where Lexus vehicles are made and at the Tsutsumi plant where Prius vehicles are produced.  While these quakes affected production, Toyota followed protocol for preventing a supply chain disaster, among those being taking into consideration potential threats and filling the gaps. To accommodate for the halted production at these plants, Toyota is set to increase production at other factories in Japan and in other countries to minimize the impact.

Another company in Japan affected by the quakes was Sony Corp. Sony’s plant in Kumamoto was also damaged; this plant manufacturers image sensors for smartphones including Apple’s iPhones. Consequently, Sony’s shares fell 7 percent, the biggest decline since Feb. 9. The Kumamoto plant is Sony’s main chip factory and typically operates 24 hours a day, and this stoppage due to the earthquake hit Sony hard. Sony still has plants operating in Nagaski, Oita, Kagoshima and Yamagata however, the proximity of these facilities is a supply chain risk. Should the same natural disaster affect all of the plants, production could potentially come to a complete halt. This is a potentially devastating practice that can be avoided by diversifying plant locations as to prevent a natural disaster from halting all production.

In addition to diversifying manufacturing locations to keep up production should a facility go down, there are also logical concern for a diverse supply base. As a result of the quake, Japan’s Kumamoto airport was closed Sunday, canceling all flights. In addition, the Kyushu Railway Co. said its bullet-train service on the island remained halted. For Sony these logistical challenges caused more of a disruption since this was Sony’s main manufacturing plant, in contrast, Toyota has operations in other cities in Japan as well as other countries and was able to increase production at these facilities to offset the loss of production in Kumamoto.

With 40 percent of businesses not reopening after a major disaster, preparedness is crucial. Even a small amount of planning can be the difference from maintaining continuity in your company and having to halt operations entirely.