Today’s New York Times (March 20,2011) article opens: “Tony Prophet, a senior VP for operations at H-P, was awakened at 3:30am in California and told an earthquake and tsunami had struck Japan. Soon after, Mr. Prophet had set up a virtual ‘situation room’, so managers in Japan, Taiwan, and America could instantly share information. Mr. Prophet oversees all hardware purchasing for H-P’s $65 billion-a-year global supply chain, which feeds its huge manufacturing engine. The company’s factories churn out 2 PCs a second, 2 printers a second and one data-center computer every 15 seconds. ‘It’s like being in an emergency room, doing triage’ “, he says.
Today’s global supply chains indeed mirror complex biological systems like the human body. At times they can be quite vulnerable to a seemingly small weakness; it’s like a tiny tear in a crucial artery causing a heart attack. But the disaster in Japan (see our blogs on March 14 and 16) presents a first-of-a-kind challenge. Plants around the world, some not even knowing their 3rd tier suppliers were in Japan, are starting to close (eg., the GM truck plant in Louisiana).
The buying and shipping of supplies has been transformed in the past 20 years. Manufacturing is outsourced around the world, with each component made in locations chosen for expertise and low costs. That means supply lines are longer and more complex—called the thin strands phenomenon— or the difficulty and cost of seeing deeper into the supply chain. “Major companies have constant communications and deep knowledge of primary suppliers”, says Harvard Prof. David Joffe. “It’s the secondary layer of suppliers where the greater risk is”.
“Lacking some part (and the new Apple iPad2 has 5 from Japanese 
suppliers), even if it costs just dimes, can mean shutting a factory,”‘ says a former Apple exec. Will the Japan quake prompt companies to re-evaluate risk in their supply chains? Will there be a shift from JIT to a “just-in-case” mentality? This is a great article to share with your class.
Discussion questions:
1. How has the production of electronic components evolved in the past decades?
2. Why does Apple treat its supply chain as a trade secret?
3. What is the role of “smart technology” in solving the “thin strand” problem?