x Abu Dhabi, UAEThursday 27 July 2017

When flow of parts becomes drought

The Life: Companies have dealt with numerous disruptions lately that have affected the product manufacturing process. But there are ways to lower the risk of running into product shortages.

Unlike earlier, many companies in Japan acquire pieces and parts they need for products from different factories. Haruyoshi Yamaguchi / Bloomberg News
Unlike earlier, many companies in Japan acquire pieces and parts they need for products from different factories. Haruyoshi Yamaguchi / Bloomberg News

Many companies spend years perfecting their products, hoping to create enough demand to fill a pipeline full of goods and boost their brand in the process.

But business executives have had to contend with numerous disruptions lately that have affected how their products are manufactured and supplied to customers. In Japan, the earthquake and tsunami in March last year "led to a major meltdown in the supply base", says David Noble, the chief executive of the Chartered Institute of Purchasing and Supply, a professional organisation with 65,000 members globally, including more than 1,000 in the Middle East.

"Even today, companies are still struggling with shortages in parts because of what happened a year ago," he says. "Toyota, even now, is still struggling to get back to full operation."

In Japan, he says, too many companies relied on a single factory to supply parts. "So if you lose a factory in Japan, it's gone forever - there's no alternative," Mr Noble says.

Since the Japanese disaster, there has been a slight shift, with more companies sourcing the parts they need for their products from different factories, thus lowering the overall risk of manufacturing shortages or delays.

It might seem an unnecessary expense, especially if nothing bad happens, although product shortages can hit not only revenue projections but also a brand's overall reputation as well.

Some good old-fashioned schmoozing, and building close relations with parts suppliers, can help companies jump ahead of the line if shortages do occur.

"In times of shortages, suppliers will choose who they want to give product to," Mr Noble says.

But with a shortage of semiconductors, some suppliers have recently "allocated what was left to their preferred customers", Mr Noble says. "That was good supply management."

nparmar@thenational.ae