U.S. factories are already shutting down in several industries because of parts shortages due to the recent earthquake in Japan – this has the potential to become a major global economic disaster.
One of the first major casualties is a GM truck factory in Louisiana which has run out of some parts because factories and ports are not operating in Japan.
Although the modern assembly line was essentially invented in the U.S. (Henry Ford is the most famous example but there were others before him), American industries found themselves falling behind Japanese businesses because of the just in time inventory management system developed and implemented at Toyota.
Just in time, see http://en.wikipedia.org/wiki/Just-in-time_(business)
Assembly line, see http://en.wikipedia.org/wiki/Assembly_line
In recent years factories around the world have been forced to adopt the same system to manage costs but that meant even small delays in shipping or at parts manufacturers would quickly shut down production, often in as little as a few days if just one component was delayed.
When major winter storms are predicted it isn’t unusual to see factory managers try to build up inventories of supplies and parts which may be delayed which shows just how critical a constant supply of new inventory is in many industries.
Just in time manufacturing means just what the name implies – parts are scheduled to arrive at the assembly line just in time to be assembled.
The economic advantage of just in time inventory management is that it reduces the amount of storage space needed and also the amount of money tied up in inventory.
Although we have seen problems associated with this system other times, we are just beginning to experience the beginning of a massive world-wide shutdown of car and electronic factories because the parts of Japan which have been most effected by the recent disaster include major automotive and electronic component manufacturing centers.
Even factories which have not been damaged or are in other parts of the country are unable to produce as many parts because of the rolling blackouts which are being implemented due to the electricity shortage caused by the shutdown of so much of Japan’s electric production capacity which is at nuclear plants.
But even when the workers are able to get to the factories north of Tokyo and power is available, the tsunami has destroyed the ports which were used to ship the parts.
Although this is a disaster for Japan and the economic consequences will have a profound effect on the world’s current recovery from the depression, in the longer term it may mean more U.S. jobs as factory owners realize that they need to turn to more localized parts manufacturing to get back into production.
There could also be a worldwide economic benefit from a buildup of inventories when parts do become available.