For global supply, read local

Posted on 25 Mar 2011 by The Manufacturer

Factors other than natural disasters are reshaping the entire global supply chain system, says Judge Business School's Matthias Holweg.

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A side effect of the devastating earthquake, tsunami and subsequent energy crisis in Japan has focused attention on worldwide supply chain systems.

Dr Matthias Holweg, of Cambridge Judge Business School, says that in the short term there will be disruptions in the global automotive, electronic and aerospace industries that rely on Japanese manufacturers.

In the medium to long-term it will be business as usual for businesses outside Japan as they outsource and find alternative suppliers beyond the ravaged country.

He predicts that an immediate impact on Japan’s own car-makers will be a recession.

“Demand for cars is driven by household disposable income and economic prosperity. Post-crisis, Japan will see neither great prosperity nor a lot of disposable income. I would expect a recession in the passenger car market and not a great opportunity for external manufacturers to enter.”

However, worldwide supply-chain systems are changing, and not just as a result of the recent natural disasters in Japan which Dr Holweg calls the ‘four sigma’:

“These are rare, once-in-a-lifetime events. Worldwide companies are reconsidering their global supply chains which have been built largely on the premise of cheap energy costs – cheap oil prices.

“The structure of supply-systems is changing, not because of an earthquake but because of the turmoil in oil prices and energy costs and we will see a change from global supply to products made locally in response to local demand.”

Dr Holweg is a Reader in Operations Management and Director of Research at Cambridge Judge Business School, University of Cambridge.

His research focuses on the design and management of supply chain systems, with a particular focus on the automotive industry.