We are now entering the sixth day of the Icelandic ash cloud impacting air travel in Europe. The plight of travelers has been well documented, but the discussion on the impact on manufacturing and retail businesses has not been highlighted.
As more and more companies adopt lean supply chains, with just-in-time production methods, any disruption to that chain can have disastrous consequences, whether it results to quality issues in the factory or disruption to the logistics network. It is the disruption to the logistics network that we are now experiencing.
Shipping manufactured products by air is normally seen as the most expensive option, and is traditionally used only for high value, low weight / volume products, or perishable goods. The impact on these sectors is now starting to be felt by companies in the region. In the automotive sector, Nissans’ production of three models in Japan will stop on Wednesday (21/4/2010) because it was unable to import air pressure sensors from Ireland. Production of the three models, which are targeted at the North American market, will be reduced at its Oppama plant in Yokosuka outside of Tokyo.
Manufacturers also rely on air freight to deal with problems in the supply chain such as shortages in parts and quality issues. Normally, these parts would be shipped by sea, but when there is a problem and a fast response is required, air freight is used. With the unavailability of this option at the present moment, many companies will be feeling the impact in their supply chain where the opportunity to have a fall-back option is removed.
The export focused factories countries of China and Korea are now also being impacted as factories in China's Guangdong province have seen air shipments of clothes and jewellery delayed. In South Korea, Samsung and LG said they were unable to airfreight more than 20% of their daily electronics exports. On the import side, lovers of fine food in Hong Kong are now being impacted as hotels and restaurants in the country are facing shortages in French cheese, Belgian chocolates and Dutch fresh-cut flowers.
The Icelandic ash cloud is also providing opportunities for some – customers are looking for alternative sources, particularly for food and fresh produce. Australia and New Zealand food manufacturers are now seeing orders increase from SE Asia, the Middle East and the U.S. For technology vendors, providers of video conferencing technology are seeing a boom in demand, as executives stuck in different parts of the world seek to cope with travel disruptions.
In the long term, impact of the ash cloud will drive manufacturing companies to rethink their supply chain disaster plans. This may lead to a change in inventory holding policies, suppliers' selection and support, and/or a shift to more regional production centers. But, one thing is certain: manufacturers will be looking at this latest challenge and taking steps to deal with this type of challenge in the future.