International Business Advisory Firm BBK has run the rule over the fall-out from the recent catastrophic events in Japan and their effects on the supply chain.
BBK CEO Bill Diehl outlined some of his thinking about how Tier 2 to Tier 4 suppliers could mitigate the enormous effects following the magnitude 9.0 earthquake and consequent tsunami.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
Diehl highlighted three key messages for coping with the crisis: evaluate by getting as much data as you can, communicate to your key constituents and take prompt action.
Noting the importance of gathering as much information from as many sources as possible, Diehl said the further down the supply chain, the more complicated it became to determine any business impact.
Conceding the “Detroit Three” automakers had made a “very nice job” of mitigating their risk, Diehl nonetheless cautioned a great deal of work remained for suppliers to do and maintained open communication with what he referred to as “key constituencies” was essential.
“The customer is key, you need to make sure you are aligned with them,” he said. “You need to make sure you are communicating the good, the bad and the ugly. Everybody is in the same boat here, I can bet your customer has as many people working on this crisis as you do. This crisis is changing daily, it is a constantly changing environment.”
Turning to financial institutions, Diehl said lenders were observing many challenges for automotive suppliers but needed to see companies were taking “the appropriate actions to protect viability”.
“Nobody likes surprises,” he said. “Surprises are never going to be to your benefit.” Open communication was essential and “one of the biggest things we suggest” added Diehl, noting customers need to communicate to suppliers their own challenges to avoid any ripple effect when demand returns.
“The longer you wait to take a decision, the less flexibility you have to adjust your cost structure,” he said. “If you let revenue decline without cost reduction, that will have an impact.”
Diehl also highlighted the fact the Japanese crisis was different from that in 2009 due to the lack of parts to meet demand. “As soon as parts become available, customers will try to recover lost volume,” he said. “The shortfalls in your supply chain are critical.”
The BBK chief equally emphasised other difficulties for suppliers not directly related to the situation in Japan, such as increasing commodity and petrol prices. “You don’t want to lose the gains made in 2010 because you did not manage the supply base properly,” he said. “It is a balancing act.”
As for staffing issues, Diehl warned against aggressively laying off people, noting: “Your good people will find jobs elsewhere.” However, no action at all could impact viability – “there is no perfect answer.”
