This blog post will give you plenty of ammunition to use against someone who tells you that material handling and logistics are boring—especially if that someone owns a business.
Just ask them how their inventories are weathering the crisis in Japan. They might look a bit confused for a moment and than say, “Japan has nothing to do with our business. We don't source from there.”
Then ask them if they're sure—because they can't be unless they've taken a deep dive into their supply stream. Brett Wood has done that and it has improved his relationship with all suppliers, offshore and onshore. Brett is president of Toyota Material Handling USA, one of the top lift truck suppliers in this country. We had dinner together a month ago in Chicago during ProMat—not long after the earthquake and tsunami devastated parts of Japan. At that time he told me none of Toyota's locations in Japan were devastated and that the people working at these sites were OK. He did say, however, that just as a tsunami's impact isn't felt immediately after a quake, the repercussions of this disaster for U.S. companies sourcing from Japan might not be felt for another month. We made a date to revisit our discussion in a month.
That visit happened last week, by phone. I wanted to let you in on our discussion in case you run into someone who thinks they're not affected by Japan's situation—or in case that someone might be you.
Andel: So, Brett, give me an update on what's happened since our discussion last month. What do you know now that you didn't know then?
Wood: It looks like the electronics industry is being affected most, with components like chips, microcircuits and boards. You see more of those in cars now than in forklifts. It's almost like we got lucky with our products compared to the automotive industry. So far we're weathering the storm a little better than our sisters and brothers in the automotive world.
Andel: So is this time to breathe a sigh of relief?
Wood: Think of it this way: You have a board that goes into both forklifts and cars, then you have the chip that goes on that board. The company in Japan that makes that board might be OK but what about the manufacturers making a chip that goes on that board—they might have been impacted by the quake. Beyond that, even if they're both OK, what about the chemical that goes into that chip, or the glue that holds the chip together? The message is to learn from this. Supply chain professionals may need to better understand their supplier dependencies throughout the chain. This can help them react a little faster than some other companies that don't go that deeply into their chains or develop alternative sources. Speaking for Toyota, our relationship with suppliers, both in Japan and the U.S., will be better than ever after this.
Andel: How is Toyota Material Handling USA monitoring the situation in Japan?
Wood: We formed a Japan Supplier Task Force and we meet every day to chart the number of containers shipped from Japan--their vessels, their departure times, their status, arrival dates and the progress of each of the shipments that goes through our systems. We look at status from ocean to Chicago's port, through customs until it arrives at our factory in Indiana.
Andel: Are U.S. customers concerned?
Wood: Some have asked if some of our components have radiation on them. We purchased a Geiger counter to test the parts and components and verified that none of them have radiation on them. We even put together a letter we can show customers if they need to see proof of that.
Andel: Should they be concerned about component availability?
Wood: We do an inventory check on all our critical part numbers in our entire system—finished and unshipped parts at the supplier, parts availability at our factory in Japan, we've even checked for critical part number availability in Europe. So the message there is if you're a manufacturer with facilities around the world you might want start seeing what's in inventory at your other facilities if you get to a critical point you may want to call on them and see if they have something you can use. We check on our in transit parts and we have our own storage facility on line side for production. It's a deep inventory check on all critical part numbers and we monitor it daily.
Andel: So it looks like the supply situation is stabilizing?
Wood: We are also looking at the demand in inventory levels for aftermarket parts to see if any measures are needed. That's an area I thought we might have some issues with but so far it has been good. But I don't want to paint too rosy of a picture. There are some months ahead of us that may affect our inventory and stocking. It's been four or five weeks since the earthquake and ships are just arriving in the U.S. after leaving four weeks ago, so we're probably not at a critical key date yet. I'm talking to my friends and competitors in the industry and they also say so far we're getting parts to our customers and there are no problems with part shortages at our dealers. Our fill rates are still at 97% and our backlogs are normal. But I told my staff to keep an eye on this because there could be some negative impact ahead.
Note to Readers: It's been widely reported that several regions in Japan are still dealing with rolling blackouts and the pressures on their electrical grid. This has interesting implications with regard to alternative power sources, particularly hydrogen fuel cells. I spoke with Ruth Cox, president and executive director of the Fuel Cell and Hydrogen Energy Association, the other day, after she visited Northeast Ohio for the annual Ohio Fuel Cell Symposium held on the campus of Kent State University. Here's what she said about the situation in Japan, and then you'll read Wood's take as we continue our Q/A.:
Ruth Cox: “Given that their electricity grid is crippled for years now how could they roll out millions of battery powered vehicles that will put all that pressure on the grid? They can't. They were already committed to the rollout of fuel cell vehicles and the hydrogen infrastructure and committed to 100 fueling stations being operational by 2015 and they are looking at whether that can be accelerated now. They still have to lower their dependence on imports, and fuel cells still provide the most efficient mechanism to process fuel, no matter if it's a fossil fuel or bio fuel. I can't imagine they'll go to a battery infrastructure that will put more pressure on the electric grid when they could immediately turn to fuel cells and hydrogen to get their operations back up and running. They already lead the world in residential fuel cell deployment.”
Wood: Interesting take. Hydrogen fuel cells in the lift truck industry are more prevalent in the U.S. than in Japan and one of their challenges has been the infrastructure. In Japan there are more hydrogen suppliers and infrastructure put in place--not for lift trucks, but to power the country. For material handling there might be some tangential benefits from that. There might even be more government support. However, it might be a bit of a stretch in Japan because there are more internal combustion lift trucks than electrics. And remember, the whole country has not shut down, just the parts devastated by the earthquake. It could have been a lot worse. Here in the States government subsidies are helping the fuel cell and lift truck industries. The fuel cell itself is still more expensive than an electric battery but subsidies have helped encourage people to purchase fuel cells and to get a hydrogen source to their facilities. The industry still needs to get its price points down, and that will come with volume.
Andel: Let's wrap things up with any further lessons we can learn from the situation in Japan.
Wood: We just mentioned the grid situation. It's a good idea to know the suppliers' production conditions, which plants are operating, which aren't, and which ones are having rolling blackouts. If you find a supplier plant with issues, make arrangements, maybe even at the supplier's sister plant when necessary. The blackouts aren't much of an issue any more. A lot of companies took it on themselves to conserve energy. The Toyota factories are fine, but there were a couple days when they shut down to conserve electricity to help the rest of the country. People don't often think about electricity and power until a natural disaster strikes and you start running into it.