The old management question of make or buy seemed to have been settled with the advent of globalization. Why make every cog in your widget when you can buy them cheaply from component makers, especially those with manufacturing plants in low-cost locations such as China? Toyota and Dell are two obvious examples of firms that used global supply chains to the hilt.
But the practice of outsourcing work to a few suppliers can be risky, as two recent events show. The deadly earthquake and tsunami in Japan disrupted the production of several car and electronics firms that did not have factories in the affected areas, but their key suppliers did. A blast on Friday at one of the two factories in China that produce Apple’s iPad2 has led to worries about disruptions in gizmo deliveries to eager consumers.
The upshot: Global supply chains are a huge positive, but they can also be very fragile.