Single Source Single Factory MEGA FAIL

dlandsman's picture
Submitted by dlandsman on Thu, 04/19/2012 - 1:03pm

Despite all the attention that the global supply chain received after the tragic events in Japan last year, the global auto industry is once again scrambling around because a disruptive event has caught them off guard.

When will we learn?

“The looming resin shortage resulted from an explosion and fire at a plant that made at least one-fourth of the world's supply of PA12, a key component in plastic fuel lines and other connections. The ingredient is crucial because it helps the tubes resist deterioration from carrying fuel. It is also used in seats and in products for other industries. Evonik Industries said the plant will be out of commission for at least three months.”

Can we ignore for a moment that ¼ of the global supply of this critical resin is made by one factory?  I mean who is watching the store here?  Evonik is probably extremely proud of the fact that they can make so much resin in one place, but anyone who is responsible for reducing risk in the supply chain knows this is a pretty poor idea. The repercussions are staggering.

For at least the next 90 days, at least, 75% of the global supply of PA12 has to be sufficient for 100% of the globally produced products that use it.

Doesn’t this sound eerily familiar?

Oh wait, it does…

Yours truly highlighted an extremely similar scenario that faced Apple last year:

“The major resin used in the battery for the iPad 2 is called Polyvinylidene Fluoride (PVDF). 70 percent of the PVDF market is controlled by the Kureha Corporation in Iwaki, Japan, which is 37 miles south of Fukushima Daiichi. Additionally, Kureha’s export hub was the port of Onohama, which was more or less destroyed by the tsunami. The result of the disruption of the supply locale was that the 30 percent of the PVDF global market not controlled by Kureha became 100 percent of the global market, and customers were thrown into disarray as they scrambled to secure additional supply.”

Major earthquake, massive tsunami, nuclear disaster… You can kind of forgive Apple for not seeing that coming. However, a FIRE at a CHEMICAL PLANT seems reasonably predictable, doesn’t it? 

  • What other plants make PA-12?
  • How much spare capacity do they have?
  • How quickly can they ramp production to fill the void?
  • More importantly, did any automotive manufacturer who is dependent on this material to produce their products even bother to ask the question?

Don’t let avoidable disruptions happen to your supply chain. Plan to mitigate disruptions. Test your plans. Be ready, because disruptions are going to happen.

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Comments

AJ (not verified)

Thu, 04/19/2012 - 1:58pm

I hear of two approaches to foreseeing &mitigating supply-chain risk these days, and both are passionately defended. The first is to select alternatives for all critical suppliers and hold them in abeyance. The second is to deal with it as it happens, since these disruptions are 'so rare.' Both sides tell me that cost, investment and momentum/innovation are the key to their strategies. Almost eerie that they both sound identical, and are convinced they're absolutely right.

David Landsman (not verified)

Mon, 04/23/2012 - 4:18pm

AJ, In an ideal state 80/20 awarding to multiple suppliers is going to be the way to go. A lot of times this isn't cost effective or possible and you have to make a risk /reward decision. However, the true failure is the lack of preparation for the disruption in a single source environment. If you make the decision you have to single source there must be a back up plan. To say, "the plan is to react when the sky falls," is silly. That's not a plan. Also, anyone who says supply chain disruptions are "rare" seems to be living in a different world than I do. Japan, Thailand, & Germany represent 3 massive global disruptions to the automotive supply chain in the last 18 months. MFG Watch has told us time and again that companies are experience disruptions substantial enough that they need to seek a new source of supply on a shockingly regular basis. (@ 40% linear average quarter over quarter) 68% of all disruptions are due to supplier insolvency according to Marsh & McLennan. I don't see rarity in any of those numbers. I see regularity. Regularity requires proper contingency planning and not the head in the sand, "hope it doesn't happen to me" methodology most companies seem to adopt. I am going to spin this response into another blog post because there is so much more to say. Thanks for the comment!

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