US and Europe escape wordt of quake's aftershock

US and European companies have generally suffered only minor and short-lived disruption as a result of the March 11 earthquake in Japan, executives and analysts have said, showing the resilience of global supply chains.

The catastrophe led to severe problems for many Japanese companies such as carmaker Toyota but for companies in the US and Europe, however, the effects have generally been minimal.

Moreover, logistics and management experts say the trend towards complex global supply chains will not be stopped by the disaster, just as it was not ended by previous incidents such as the 9/11 terrorist attacks.

Dale Ford of IHS iSuppli, the analysis firm, said companies would look again at building more spare capacity into their supplier networks. However, he added: “One of the positive things we have learnt out of this is the ability of the supply chain to heal itself.”

That assessment was echoed on Thursday by Moody’s, the rating agency, which said: “While it is too soon to count the full cost of the disaster, nine weeks later, it seems clear that the supply chain disruptions were less severe than the worst fears suggested.”

One reason why fears ran high was that the complexity of modern manufacturing networks means companies typically have little insight into their supply chains, according to Yossi Sheffi, director of the MIT Center for Transportation and Logistics.

“Even the best companies have very good visibility into their Tier One [direct] suppliers, but little or none into their Tier Two and Three suppliers,” he says.

As a result, it was always possible that problems would crop up in unexpected places. Ford and Chrysler, for example, had to stop or slow production of some red and black vehicles after the closure of a Merck factory in the earthquake zone that supplied pigment to paint manufacturers used by the motor industry. That plant reopened this month.

As time has passed, however, it has become clearer that US and European manufacturers have been able to respond to any problems by helping suppliers restore production or finding alternative sources, sometimes teaching new suppliers to provide the products they need.

As a result, recent corporate statements in the US and Europe have shown at most modest losses of production and earnings.

This week, the computer makers Hewlett-Packard and Dell both said they expected only small effects.

HP said the earthquake would hurt revenue by $700m this year out of a projected $130bn in annual sales – roughly 0.5 per cent – but that included decreased demand as well as supply chain disruption.

Brian Gladden, Dell’s chief financial officer, told analysts: “We continue to watch components, but in general it is pretty solid.”

Apple, which had been the focus for much of the speculation about possible supply chain impacts, said there had been no effect in the second quarter, and it did not expect any in the third quarter, even though it sources hundred of components from Japan.

Tim Cook, the company’s chief operating officer, said on April 20 that the situation remained unpredictable, but paid tribute to the “incredible resilience” of Apple’s Japanese suppliers.

That message has been repeated by other companies in a range of manufacturing industries.

Ford, for example, said the effect of earthquake-related supply disruption was not material to its earnings.

In Europe, Infineon, which makes computer chips, said it had “not experienced any shortage of materials.”

Siemens, the German industrial group, has several important direct suppliers in the earthquake-hit region, and said it faced challenges at “complex sub-supplier level”: the myriad smaller companies that feed into the supply chain. However, it has not had to stop any assembly lines and does not expect significant manufacturing delays in May or June.

Professor Sheffi of MIT said the benefits of complex globally integrated manufacturing chains were too great for companies to want to move away from them.

“These things are resilient,” he said. “The disruption is not really a big deal, and companies cannot just start working differently.”