AFPM: Supply chain lessons follow tsunami

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Courtesy of 3E Company

Last year's tsunami in Japan disrupted supply chains globally, even shutting US car plants. What has the chemical supply chain learned from the experience?

The earthquake and associated tsunami that devastated Japan in March 2011 also devastated the commerce that flows in and out of the country. Supply chains were cut and companies all over the world scrambled to find replacement materials and parts.

For most companies, it was not until several days after the disaster that they realized the full extent of the disruption.

Bob Ferrari, vice president and managing director of The Ferrari Research and Consulting Group and executive editor of the 'Supply Chain Matters' blog, said most companies were focused on their direct suppliers. But it was the indirect suppliers that got hit the hardest, Ferrari says.

'Most of them thought they were OK in a sense that they were only looking at their first tier supply chains,' he explains. 'It wasn't until a few days later that they really got the magnitude of the disruption.'

The Japan disaster was most devastating to companies that relied on just one source for a certain material. Ethox Chemicals is a South Carolina-based manufacturer that makes alkoxylates, esters and phosphate esters, amides and amphoterics. 'We have a material we buy that is supplied by only three companies in the world, one of which is located in Japan,' says Chuck Hinton, president of Ethox. The other two suppliers in Europe and Malaysia were unable to make up for the supply lost from Japan.

Hinton says his European supplier was having its own supply problems because of the Japan tsunami. 'The lesson learned here is that one should carefully evaluate the geographical logistics of their supplier,' Hinton notes.

'Ethox was also purchasing a raw material from Japan when the tsunami hit, which created a shortage of the material and raised its price globally.'

Prices also rose for different reasons. Pingxin Wang, president of Varsal, a specialty and fine chemicals firm based in Pennsylvania, says some companies created a false shortage to help drive up prices. 'In many cases, these companies were the primary supplier and took advantage of their position in the market to double their prices, unbeknownst to their customers, who thought their operations were impacted by the disaster,' Wang believes.

'Now, we're seeing companies begin to drop their prices, but in some cases, they should never have gone up in the first place,' he adds.

'Also, as a result of these events, Varsal has started to bring production in-house to avoid similar situations in the future,' Wang says.

Robert Christie, chief executive of 3E Company, says the Japan disaster exposed the importance of companies having access to accurate product data from suppliers. 3E Company provides data and information services to help chemical companies meet regulatory requirements. He says accurate and complete product and supplier data bolster business continuity and limit supply chain disruptions.

'We have seen companies without proper systems in place scramble to find suitable and compliant replacement products from sources other than their impacted suppliers, which was difficult without rapid access to critical global product, substance and regulatory data,' Christie says.

'The number of raw materials and suppliers can vary wildly from company to company. Many factors influence this number such as geographical diversity of operations and customers, the complexity of the product line, and availability of required raw materials.'

Ferrari adds that it is essential for firms to reassess supply chain mitigation plans. 'In some cases, they are beginning to figure out how they can get visibility to lower tiers in the supply chain a lot quicker than before,' he says.

Companies have also started to reassess the risk value of every component that goes into their products. 'They need to be proactive about communicating to the end customer what could be a potential impact,' he says. 'Companies don't like to acknowledge the fact that they may have a significant problem.'

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