Monday, 18 April 2016

Japan's Critical Supply Chain Paralyzed

Japan's Economy Grinds To A Halt After Earthquake Paralyzes Critical Supply Chains

17 April,, 2016

Earlier today Toyota was one of many Japanese companies to announce that it will suspend most car production across Japan as a result of critical supply chain disruptions caused by the recent destructive earthquake and numerous aftershocks. All of the major assembly lines will be shut down across its four directly-run plants, and Toyota will be halting production in stages at other group companies as well.

According to the Nikkei Asian Review, most of the Toyota group in Japan will be effectively shut down through at least the end of this upcoming week, with a production loss of as many as 50,000 vehicles, including brands such as Prius, Lexus, and Land Cruise.

"Decisions regarding recommencement of operations at plants in Japan will be made on the basis of availability of parts," the company said in its announcement.It isn't just Toyota.

Numerous other manufacturers also announced extended stoppages due to damage to factories. More details from Reuters:
  • Honda Motor said it would keep production suspended at its motorcycle plant near the quake-hit city of Kumamoto in southern Japan through Friday, though Nissan Motor Co 7201.T said it would resume operations at its plants north of the epicenter from Monday.

  • Sony Corp said production would remain halted at its image sensor plant in Kumamoto, as the electronics giant assessed structural and equipment damage. But the company said it had resumed full operations at its plants in nearby Nagasaki and Oita which also produce the sensors - used in smartphone cameras, including Apple Inc's AAPL.O iPhone.

  • Semiconductor manufacturer Renesas Electronics Corp confirmed it had sustained damage to some equipment at its plant in Kumamoto which produces microcontroller chips for automobiles. Having suspended operations following the first earthquake on Thursday, the chipmaker said it would assess damage at the entire facility before deciding when to resume production.
The earthquakes on Thursday and Saturday, which killed at least 41 people, reflected the vulnerability of Japanese companies to supply chain disruptions caused by natural disasters, and also highlighted the "just in time" philosophy pioneered by Toyota and followed by many others.

The problem is when as a result of a massive unpredictable event, the supply chain grinds to a halt, so does the economy, which incidentally is a topic we covered back in 2012 when we presented a paper on "A Study In Global Systemic Collapse", where we showed just how little margin of error there is in global supply chains, and how quickly the global economy can devolve into pure chaos if an unanticipated, global event were to strike.

o be sure, as a result of the stoppages, Japan's GDP will take a substantial Q2 hit as firms such as Toyota are forced to shut down, dealing yet another blow to Abenomics; the good news is that this event may give U.S. carmakers an opportunity to burn through much of the piling up excess inventory that has been building up over time.

But the best news is for none other than Abe and Kuroda: with Japan soon facing another recession, which for those who are keeping count will be approximately the sixth in the past 7 years...

... at least Japan's authorities will have nature to blame it on, instead of the far more devastating than any Earthquake could ever possibly be Keynesian lunacy that is Abenomics.

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