Japan Earthquake: Global supply chains to suffer extensive disruption

Aftershocks to global economy expected to unfold slowly

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Organizations need to prepare for the possibility of an extended disruption to global supply chains resulting from the earthquake and tsunami in Japan, Marsh warned today. Thousands of multinational companies that rely on Japanese manufacturers for goods and services, as well as for sales, can expect significant global supply chain disruptions lasting up to several months.

Gary Lynch, Head of Supply Chain Risk Management at Marsh Risk Consulting, said: “Given that the immediate priorities in Japan are likely to be social not economic, the aftershocks to the global economies from this disaster may unfold very slowly; many of the economic consequences have yet to be seen. A multinational company whose supply chain could be impacted by the catastrophe should start now by assuming that its business is severely disrupted for an extended period and develop an effective mitigation strategy.”

Rather than the physical destruction of the production facilities, most of the supply chain disruption from this catastrophe is likely to be caused by issues associated with infrastructure, energy, utilities, transportation, and restrictions on highway/port access.

The most significant initial impact will be to the hi-tech, steel and auto industries quickly followed by those that depend on these industries such as medical devices, communications gear suppliers, car dealerships, solar, ship building, aviation and consumer electronics.

Mr. Lynch added: “This is yet another wake-up call for companies that have yet to strengthen the resiliency of their global supply chains. Despite substantial supply chain disruption losses from past events, many companies operating in the global marketplace continue to manage the risk of supply chain disruption ineffectively.

“Multinational companies need a thorough understanding of their supply chain, including the markets they sell to, the suppliers they rely on and the critical dependencies that exist along the supply chain. Effective planning can sometimes make all the difference whether a company survives or not.”

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Marsh

- Edited by Amanda McLeman, Plant Engineering, www.plantengineering.com