Crisis In Japan Shakes Up Aircraft Supply Chain

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Dirk De Waart, a director of management consultancy PRTM, points to the 4% fall in Boeing’s share price on the news of the earthquake, erasing $2 billion in its market capitalization.

 Noting that 35% of the 787 and 20% of the 777 are from Japan, De Waart says Boeing reduced financial risk at the cost of uncertainty in its supply chain. “Japan consistently ranks as one of the riskiest countries in the world to do business from a location perspective. The country has a history of earthquakes and natural disasters,” he adds.

“This latest disaster underscores the realization that just-in-time increases risk to a point where companies are becoming vulnerable.” Top management “is starting to understand that this kind of disaster is worth buffering inventories for.” De Waart says aerospace companies in the future may look to do second-sourcing deals to safeguard against uncertainty. “Fasteners, etc., can be dual-sourced. And it’s vital to ensure that both suppliers are using a variety of sub-suppliers.”



The leader of Bain & Co.’s global aerospace and defense practice, Mike Goldberg, says: “It’s pretty unrealistic to double-source large aircraft structures.” But, he adds, “in the component and sub-assembly level, companies should look at distributing work more” widely. “The trend in supply-chain management has been toward single-source supply for the low cost. This disaster will cause companies to revisit the trade­off between lowest cost and availability. It may make sense to double-source components to avoid a global supply chain putting all their eggs in one basket.”

While the earthquake, tsunami and threatened nuclear disaster at the Fukushima No. 1 power station also resulted in power shortages, Fuji, Kawasaki and Mitsubishi, far to the south, were unaffected. Fuji says it incurred minor damage. With the other two heavies, as they are nicknamed, it resumed operations three days after the catastrophe.

But the whole Japanese archipelago is seismically active, which leaves open the danger that one day an earthquake could hit Japan’s aerospace heartland in and around Nagoya. The risk should not be overstated, however. Japanese factories, even those making equipment of extraordinary precision, are designed to cope with earthquakes of powerful magnitudes.

Boeing’s Seattle facilities coped well with a magnitude 6.7 earthquake in 2001, while its South Carolina plant is built to ride out hurricanes. On the other hand, that is a reminder that production is exposed to a seismic fault line in the U.S., fault lines in Japan and South Carolina’s weather.

Among the infrastructure damaged on March 11, Sendai Airport was flooded by the tsunami and covered in mud. The field was needed for relief flights, however, and 1,500 meters (4,900 ft.) of a runway had been cleared by March 17. Until all the mud is removed, the Japanese Civil Aviation Bureau will not know whether the rest of the runway was badly damaged by the earthquake, says an official of the bureau’s safety and security division.

Japanese aerospace company Jamco has an aircraft maintenance, repair and overhaul firm at Sendai Airport and it also was damaged by the tsunami.

The magnitude 9.0 earthquake had its epicenter 130 km off the coast of northeast Japan’s Oshika Peninsula near Sendai city. More than 15,000 people are believed to have died.

Source: Aviation Week Magazine