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The largest earthquake ever to hit Japan had detrimental effects on its economy. It also crippled Japan's top automakers, causing millions in lost revenue and almost a complete shutdown of the automakers' plants. What caused this supply chain disaster was the Just-In-Time production model that many automotive manufacturers have turned to in the recent years to decrease carrying costs and inventory. For the most part, this model is very safe but during times of supply shortages, having little on hand causes a big problem. As such, one vehicle contains roughly 50 to 100 microchips that control everything from brakes to navigation systems. To continue the car on the assembly line, not one part can be missing. During the earthquake, the main vendor of microchips had damage at its production facility creating a large shortage of a very hard to manufacture product. This shortage of microchips caused the automotive companies to cut production down to 20 to 50 percent of full operating capacity. Consequently, Japanese automakers are losing market share to American car manufacturers because of this shortage.
This raises questions of just how well the JIT model works. Having multiple suppliers for one product would buffer against this risk but in the long run, it would raise operating costs and decrease efficiency – the exact opposite of what the JIT model tries to accomplish. While they realize one failure could shut down the whole manufacturing process again, the Just-In-Time model will most definitely remain in place. It’s one of the risks you choose to take when implementing JIT.
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