Japan Disaster: Manufacturing Takes Stock

SINGAPORE (Bernama) - Economists have already started to build
scenarios to assess the final impact of the unfortunate disaster in Japan on the
world’s economy this year.

Most analysts do not foresee a major change from the predictions made
earlier this year, and estimate the impact to be in the range of 0.1 per cent to
0.2 per cent at best.

Also, it is expected that the reconstruction efforts will spur the growth
process later in the year, compensating for some of the loss.

According to Satish Lele, Vice President, Industrial Technologies Practice,
Asia Pacific, Frost & Sullivan, what is more interesting to see is the effect on
global manufacturing.

He said modern day manufacturing relies extensively on globalised supply
chains and Japan plays a key role across a number of sectors.

"How will this impact the manufacturing outlook for the year? Will the
impact be felt by the consumers or is the supply chain resilient and diverse to
manage this crisis?" he asked when commenting on Japan Disaster – Impact on
Manufacturing here Monday.

Over a period of time, Satish said, Japan’s contribution in the world
manufacturing output has reduced. Today, China accounts for about a fifth of the
world’s output, while Japan now contributes a tenth.

It is no longer leading the growth engine for Asia. Thus the impact of this
disaster would be much lesser in the current context compared to a few decades
ago.

However, he stressed that Japan is a very important link in high technology
products in electronics, automotive, high end machinery and engineering.

In the immediate aftermath of the twin tragedy of the earthquake and
tsunami, a number of plants were shut down.

Satish said leading Japanese manufacturers like Sony, Toyota, Nissan,
Hitachi and Mitsubishi announced suspension of manufacturing activities to
assess damage and evaluate the ability to resume production.

"While it would be premature to indicate the real impact of these shutdowns,
it has started creating gaps in the supply chain.

"The resumption of production activities is compounded by the breakdown of
transport links, fuel and electricity," he said.

In such a scenario, he explained, it seems likely that there will be an
impact on the final consumers as the stock of critical components dries up and
is not adequately replaced from other sources or locations.

Satish said Japan led the world to the just-in-time concept as the most
efficient way to produce.

He said Japanese companies, especially in the automotive sector, have
perfected this over time to achieve near zero inventories on the assembly lines.

Parts and components come directly to the assembly line-side on hourly
and daily supply runs.

While this system of production is extremely effective in cost, quality
and delivery during normal times, this very concept may prove to be the biggest
bottleneck is resuming normal flow of components and parts.

As inventories dry up, he said, it will be the most inefficient who would be
able to support the fastest!

He said that Japan has been able to bounce back very quickly as demonstrated
by the earlier earthquake in Kobe in 1995. However, even then, it created a
serious dent in Japan’s confidence to battle natural disasters.

Some analysts link the disaster in 1995 to the gradual decline of Japanese
manufacturing as it lost ground to China and Korea.

"Will this disaster also be more far reaching for Japanese manufacturing
that what it seems? Only time will tell," added Satish.