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Territory Disputes: Coming to a Factory Near You

By APICS CEO Abe Eshkenazi CSCP, CPA, CAE | 0 | 0 | September 21, 2012

APICS Operations Management NowCan an uninhabitable group of islands that covers less than four and half square miles cause serious supply chain disruptions? Yes, if the islands in question are the source of a longstanding territory dispute between Asia’s biggest economies__China and Japan.

The clash erupted again last week when the Japanese government bought the East China Sea islands, known as Senkaku by Japan and Diaoyu by China, from a private Japanese owner. The islands boast oil reserves, fishing grounds, and close proximity to shipping lanes. In China, the transaction prompted the worst anti-Japan demonstrations in decades, including violent attacks on well-known Japanese companies, such as Honda and Toyota. The protests “forced frightened Japanese into hiding and prompted the Chinese state news media to warn that trade relations could be in jeopardy,” the New York Times reports.

While Toyota representatives said their Chinese factories were operating normally on Monday, Honda stopped its production in China for two days. Mazda adjourned production four days in its Nanjing factory, which it operates with Chongqing Changan Automobile and Ford.

The disruption reaches beyond carmakers. Camera and copier manufacturer Canon stopped production at three of its four Chinese factories for one day. Representatives from Panasonic, an electronics maker, reported that one of its plants had been sabotaged by its Chinese workers and remained closed Tuesday. The New York Times also reports that on Tuesday the top Japanese general retailer, Seven & I Holdings, planned to close 13 of its supermarkets in China and 198 of its 7-Eleven stores.

China and Japan’s trade with each other reached $345 billion last year, but the clash could easily impact businesses and supply chains worldwide. Even the temporary closures listed previously will significantly influence schedules and deliveries. Consider also that in 2010, after the Japanese Coast Guard detained a mainland Chinese fishing vessel, China stopped exports of important rare-earth materials to Japan and its manufacturers for nearly two months.

Managing risk

Suddenly, over the course of a week, these islands have triggered a major supply chain issue, causing many factories to temporarily shut down. Predicting this problem with any accuracy would have been nearly impossible; however, it doesn’t appear it will be resolved any time soon. Risk management, at one time, concentrated on coordination risks, which are managed by tools such as safety stock, safety lead time, and overtime. Increasingly, risk management is about using concepts and tools that manage disruption, which often is random and impossible to predict.

Consider the risk management section of the APICS Operations Management Body of Knowledge (OMBOK) Framework. It contains detailed instructions for creating a risk management framework as well as risk mapping. The APICS OMBOK Framework is a free resource to anyone in the APICS community. Visit apics.org for instructions on how to get your copy.

If you are ready to take your risk management to the next level, think about earning your APICS Risk Management certificate. This comprehensive, forward-looking program will prepare you to lead risk management activities or participate in the development of global risk mitigation strategies.

APICS is committed to helping you and your organization navigate the increasingly complex world of risk management. Visit apics.org for more information about the APICS OMBOK Framework or the APICS Risk Management certificate.

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