Tags: US | Volcano | Manufacturing

Low Inventories, Volcano Hurt Some U.S. Manufacturers

Wednesday, 21 Apr 2010 10:57 AM


The strategy of keeping inventories lean paid off for U.S. manufacturers during the recession. Just-in-time delivery of parts makes even more sense when budgets are tight.

Now that a giant ash cloud from a volcano in Iceland is disrupting global air freight, some manufacturers are finding that this strategy is backfiring. Nissan suspended production at two Japanese auto assembly plants Tuesday and BMW was forced to idle three plants in Germany because of shortages of critical parts. Computer maker Dell is experiencing delays in getting notebook computers to European customers.

These kinds of production delays could lead to higher prices for a number of everyday items — from cell phones to seat covers, experts say. And some say the disruption from the volcanic ash cloud will lead companies to make changes in the way they do business.

Bill Carreira, CEO of Carreira Consulting LLC, who works with companies to develop and implement lean inventory plans, expects some manufacturers will revert to less-efficient methods. He thinks that would be an overreaction to a once in a lifetime event.

"If you have a volcano shutting you down, you're going to be in trouble no matter what you do," he said. A company should have "a bullet proof safety net," or emergency inventory. "You've got to throw a little reality on top of the math."

The concept of just-in-time manufacturing has been around for decades — dating back to the days of the Model T. Ford is credited with bringing one form of the concept to the U.S. in the early 1900s. The method allows manufacturers to use less warehouse space, streamline transportation and delivery processes and save money on raw materials.

Today, nearly all major industrial producers in the U.S. use this method to keep supply in line with demand, according to Daniel J. Meckstroth, chief economist for the Manufacturers Alliance, a public policy and economics research organization in Arlington, Va.

"A lot of productivity improvements (lead to) lower prices," he said. "And everybody benefits — from the supplier to the consumer."

Except when an ash cloud covers Europe.

Eight or nine months ago, the disruption to air freight in Europe wouldn't have had such an impact, Meckstroth said. But manufacturers have worked through the stockpiles that built up in the recession and now have very little stock on hand.

The products most affected have been automotive and computer parts. In general, air freight is comprised of high-value, low-weight products including computer chips, medical supplies and textiles.

Both BMW and Nissan typically ship vehicles and components such as engines and transmissions from Europe to North America by sea. But some of the parts used in components are shipped to European factories by air.

Toyota, which popularized its own just-in-time methods in the 1980s, said its hasn't experienced parts shortages at its North American plants.

Deere & Co., the world's largest manufacturer of agricultural equipment, is rerouting critical parts into open airports, prioritizing freight as airports open and trucking parts in some cases.

Advanced Micro Devices Inc., the world's second-largest maker of microprocessors, is seeing a "slight delay" in some shipments, but it said it has enough inventory in its warehouses to prevent hiccups for customers.

© Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
Zip Code:
Privacy: We never share your email.
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
Top Stories
You May Also Like

Scott Walker Sets Up Fundraising Committee and Groundwork for a Run

Tuesday, 27 Jan 2015 18:14 PM

Wisconsin's Republican Gov. Scott Walker isn't wasting any time - with a new website that just went online today, and a  . . .

Obama Surrenders on College Savings Tax Proposal

Tuesday, 27 Jan 2015 17:53 PM

The White House said Tuesday it is dropping a proposal to scale back the tax benefits of college savings plans amid a ba . . .

ABC News: Why Is Hillary Missing in Action?

Tuesday, 27 Jan 2015 17:48 PM

Former secretary of State Hillary Clinton has made very few public appearances, especially compared with last year, but  . . .

Most Commented

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

America's News Page
©  Newsmax Media, Inc.
All Rights Reserved