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Production and Supply Chain Management Information Systems
and technology has driven many manufacturers to reduce their level of vertical
integration. According to Steve Rodgers, president of AMPA, the Canadian Auto Parts
Manufacturers’ Association, “65 to 75 percent of the overall component cost of a car
comes from outside suppliers.” The auto manufacturers now focus on overall design of
the vehicle and allow the suppliers to develop the expertise in the braking systems, 111
interiors, and so on, which are then plugged into the designs.
A third trend is supply base rationalization, an effort to determine the “appropriate”
number of suppliers a company should have. Many large firms have thousands of
suppliers. However, the rationalization concept says that better supplier relationships
can be developed when there are fewer suppliers to manage, and costs will be reduced
when a smaller number of suppliers have higher production volumes. In 2008, Ford’s
Senior Vice President of Global Purchasing announced that Ford would be reducing its
supply base from over 2,000 suppliers to 700 to 800 over a period of years.
These trends—lean manufacturing, reduced vertical integration, and supply base
rationalization—have been implemented by manufacturers in a number of industries
over the past 30 years and have resulted in higher efficiencies and reduced cost. But
these savings have not come without a cost: increased exposure to disruption. This
increased risk was highlighted by the earthquake and tsunami in Japan on March 14,
2011. In addition to the tragic loss of human life and destruction of property, the
disaster forced many global companies to severely reduce or shut down production.
Japanese-based companies such as Toyota were obviously affected, but the integrated
nature of global supply chains meant that the effect of the earthquake rippled
throughout the world. For example, the three largest shipbuilders in the world are
located in Korea and are dependent on Japanese steel, and the Japanese steel industry
was significantly impacted by the Fukushima nuclear power plant disaster, which was
triggered by the tsunami that followed the earthquake. (The explosions, fire, and core
meltdowns at the power plant made it the worst nuclear disaster since the 1986
Chernobyl explosion.)
Toyota, which has led many of these supply chain trends, is now planning to lead
the way in reducing supply chain risk. In September 2011, they announced plans to
create a robust supply chain that would recover within two weeks in the event of
another massive disruption. This plan consists of three fundamental steps. First, Toyota
intends to push for further standardization of parts across Japanese automakers so they
can share common components, which could, in turn, be manufactured in several
locations. The second element in the plan is the development of technology that would
provide more options for parts that require unique materials or components that are
only available from one source. Finally, Toyota plans to make each region in the world
independent in its parts procurement so that a disaster in Japan would not affect
production overseas.
Supply chains have always been complex, but now in addition to speed and
efficiency, flexibility and risk reduction must be considered priorities.
Question:

1. What are other potential causes of supply chain disruption? How can ERP
systems help minimize the impact when disruptions occur?

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