Orange County companies with global operations report that they have for the most part worked through the disruptions caused by the suspension of air service that followed in the immediate wake of the Sept. 11 terrorist attacks. Most of the companies say they have no plans to change drastically the way they assemble and move products around the world.
At the same time, many of the companies are taking more precautions, modifying some shipping procedures and taking a “wait and see” posture in case other problems do arise.
“We do plan to implement considerably more contingency planning built into our efforts going forward,” said Scott Nelson, spokesman for Edwards Lifesciences Corp., an Irvine maker of products used to treat cardiovascular disease. “We’ll have additional vendors available for ground transport,we’ve learned a lot more about what our alternatives are.”
However, Nelson indicated that these were not significant changes to Edwards’ international supply chain management strategy.
The heightened risk of terrorist attacks has prompted predictions that companies would source more production closer to home and begin stockpiling inventories instead of relying on a just-in-time inventory strategy with production cycles closely in sync with when sales actually occur.
Fountain Valley memory module maker Kingston Technology Co. Inc. provides a textbook example of just-in-time inventory management. The company can have product good-to-go with same-day shipments,thereby enabling its customers and distributors to carry as little as one or two days of inventory.
Stephen Rodriguez, Kingston’s director of strategic marketing, said the company has no plans to change from its just-in-time style of inventory management or grow inventory as an anti-risk strategy.
“We will continue to buy from our suppliers as per our forward contracts with customers,” he said.
About 80% of Kingston’s cost of goods is in DRAM chips, which it uses to make its memory products.
“Having excess inventory of that and the volatility of that just would not be a very smart business decision,” Rodriguez said.
Newport Beach-based chipmaker Conexant Systems Inc. has made changes to the way it assembles certain products internationally.
“We’re now shipping some partly-assembled products directly from our plant in Mexicali to subcontractors in Asia to perform final tasks,” said Conexant spokeswoman Gwen Carlson. “What we used to do is take those products back from Mexico into the U.S., put the finishing touches on them and ship them out to our customers.”
Fullerton medical diagnostic equipment maker Beckman Coulter Inc. also is adopting a business-as-usual stance.
“At this point we don’t anticipate any disruptions given the current situation,” said Beckman spokeswoman Nancy Everhart.
Gordon Benhard, chief executive at Irvine electronics power supply maker Elpac Electronics Inc., said the company has no plans to alter its international supply chain management strategy.
“For the kinds of things we do, we haven’t modified our inventory strategy,” Benhard said. “We keep a minimal stockpile of finished goods here in Irvine.”
The company already had cut back its Mexico production significantly,now it relies on its maquiladora assembly plant in Tijuana only for 10% to 20% of its total production in response to significantly lower-cost labor in China. And the Sept. 11 attacks will not alter that strategy, Benhard said.
“Also, China has a components-making infrastructure that is substantially stronger than Mexico for our products,” Benhard said. “We’ve been able to source about 70% of product components out of East Asia, and that reduces our need for stocking and final assembly work in Irvine.”
In terms of shipping, things are approaching the business-as-usual stage, according to local company officials.
Edwards Lifesciences’ Nelson said the company typically relies mostly on air for shipping.
Apart from looking at ground transport options, the Sept. 11 attacks have spurred Edwards to look more to ocean shipping as an alternative to air for moving its products around globally.
Nelson said things have pretty much returned to normal for air transport,a trend more-or-less universally echoed by local company officials.
“Things are getting back to normal,” said Elpac’s Gordon Benhard. “Although overall, shipping-wise, things are about 20% to 30% slower since Sept. 11.”
Most of Elpac’s international shipping consists of finished products coming from China to its facility in Irvine. Most of the international shipping for the company travels by ocean, with 10% to 20% traveling by air in urgent cases.
“Trade flows are back on track after some delays,” said Lee Harrington, president of the World Trade Center Association of Los Angeles-Long Beach. “Goods are getting to people again.”
However, U.S. Customs is inspecting all commercial ships, with the U.S. Coast Guard boarding all ships in the harbor as they approach the L.A.-Long Beach port system.
“But delays now are in hours not days, although we expect trade flows are likely to lessen for some time because they are going through tighter security now,” Harrington said. “We’re putting in a lot more manpower into security activities, so that’s reducing the delays.”
Kingston’s Stephen Rodriguez also said things are starting to get back on track for shipping.
“That first week, of course, was pretty traumatic to us,” he said. “About 90% of our goods are shipped through FedEx or UPS and their planes were grounded at first, so we had finished goods that sat for about four days after Sept. 11 before we were able to ship, and we also had problems getting circuit boards and chips coming into the country.”
All of the company’s shipping goes by air, which is common for many of OC’s high-tech firms and medical device makers.
“But we’re back to normal,” Rodriguez said. “We’ve had people working overtime to accommodate customers who had delays and that backlog is completely gone, but we’re still seeing problems getting overseas product in from places like South Korea and Taiwan, since there is more diligence by U.S. Customs looking at products being brought in.”
Kingston has plants in other countries that vendors can ship to directly, reducing the number of international border crossings required and minimizing potential delays due to heightened security checks. n
