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04/04/2011

Between piety and profit

It's considered taboo to talk about business in times of human tragedies. That's why nothing much leaks out to the public concerning the other side of Japan's disasters – while many thousands of Japanese are still fleeing from radiation.

 
 

At Elmos Semiconductor in Dortmund, nobody, of course, really wants to talk about the consequences of the disasters in Japan for their own business. The listed company manufactures integrated circuitry for the automotive industry, among others. Elmos could step in sooner or later for Japanese vendors, if necessary. In tactful self-restraint, Elmos conceded that there had been first inquiries from car makers or their suppliers, "but within manageable limits".

The staff of Munich's chip maker Infineon also discreetly reported about "inquiries". It was rumored that a German car manufacturer sounded out whether Infineon would be able to step in as a second supplier if the Japanese problems continued.

Economic consequences reach far beyond the event
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It's true that, in recent years, strikes and natural disasters like the ash from the eruption of Iceland's Eyjafjallajokull volcano had also disrupted worldwide supply chains and, as a consequence, production as well. This time, however, the length and the development of the disruptions due to the nuclear disaster are incalculable; power shortages and power failures threaten to have a crippling effect on the economy for an indeterminate period of time.

"We'll feel bottleneck effects only in a few months", predicts Gerd Kerkhoff, corporate consultant and purchasing expert from Düsseldorf. The affected companies would be looking for alternatives and fall back on other suppliers. "Many companies contact us because they are thinking about alternative sources of procurement", also says Paul Graham, managing director at DHL in Asia, the logistics division of Deutsche Post. "Some of them are only looking for short-term solutions, others are thinking about a fundamental backup for the Japanese market or they are looking even for permanent alternatives."

Thus, chances are increasing for many companies – either short-term or even for a longer period of time – to stop those gaps left by Japanese competitors damaged by the nuclear disaster. Suddenly, second-rank vendors are getting the chance of doing better business in the long run. Company executives are readjusting their inadequate risk management by developing additional, secure sources of supply. And especially end manufacturers are waiting impatiently for the moment when they can capture market shares.

Low risk awareness
As much as companies now go all out to find substitutes for parts failing to come from Japan, experience of the past three weeks has basically shown that the majority had been hit unprepared by the disaster. A survey conducted by the Institut für Demoskopie (Institute for Public Opinion Polls and Research) in Allensbach recently showed that only 29 percent of German companies have a comprehensive risk management system for purchasing. Even in the automotive industry, often considered a trailblazer, it's only 36 percent of the companies. "Only about one third of the companies is halfway comprehensively prepared for a potential crisis", says the consultant Kerkhoff.
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Company Sick in the Black Forest community of Waldkirch shows how it's done. The family-owned business with annual sales of about € 750 million manufactures electronic devices which, for example, control safety barriers or measure flue gas in waste incineration plants. Sick uses processors for that, as well as light and photo diodes from Toshiba and NEC in Japan whose plants are now partly shut down.

But that's exactly what the company had been 100 percent prepared for. Because for Sick, earthquakes are among their firmly planned risks – ever since the disaster in 1995 near Kobe in the more southern part of Japan. That's why the Black Forest company, since then, has been keeping stock of diodes and processors from Toshiba and NEC to last them for three months. When the earth trembled near Fukushima, Sick immediately reordered parts for another three months so that inventories now cover their production for half a year. But that's not all. Chairman of the Board Robert Bauer also has his buyers scour electronic dealers worldwide for NEC and Toshiba parts. He is moreover confident that they can also switch to other suppliers, if necessary.

"Actually, the components cannot be replaced one-to-one, but it works in terms of their function", says the head of Sick. "Chances are good that we'll also find U.S. or European vendors." One candidate would be Infineon, he said.

Not a lot of the companies have come that far. Apparently, many of them still put themselves at the mercy of a single supplier. This risky strategy is called single sourcing – as opposed to the so-called multi sourcing where several suppliers are getting their chances. "For many small and medium-sized businesses, multi sourcing is still a foreign word", says the expert Kerkhoff.