Japan has been considered the standard-bearer for worker and production efficiency ever since the 1980s -- the era of movies like Wall Street and Rising Sun. One Japanese invention that acquired wider acceptance around the world, and indeed even in the U.S., was the concept of "just-in-time delivery." It's the idea of ensuring that supplies arrive at the factory as close as possible to the day (hour or minute) that they'll be needed for processing or assembly -- ensuring that less money is spent on warehousing raw materials and less working capital is tied up in inventory on the shelves and in the warehouses.
Problem is, when Mother Hubbard's cupboards are bare and the grocery store runs out of doggie biscuits, doggie goes hungry. That's what appears to be happening at Japanese automaker Nissan (NASDAQ:NSANY) these days, as "just-in-time delivery" of the steel it needs to build its cars has turned into "not-in-time delivery," with Nissan unable to obtain the steel it needs by the time it needs it.
Yesterday, the company's CEO warned that Nissan may need to cut production by 15,000 cars in March of next year; this on top of a Nov. 25 warning that the company will cut 25,000 units in 2004. Both cuts were attributed to difficulties that Nissan is having in obtaining steel for its vehicles, and combined, could add up to about $150 million in profits foregone.
Interestingly, no other automakers are reporting problems similar to Nissan's. Not even Japanese peers Toyota (NYSE:TM) or Honda (NYSE:HMC), or Japanese peer and Ford (NYSE:F) partner Mazda.
As bad as this news is for Nissan, you have to hand it to the company for making a smart business decision on how to handle it. In order to minimize lost profit, Nissan will localize most of its factory shutdowns to ensure that its lowest-margin cars are the ones that don't get produced. Thus, the steel the company does have will get allocated to high-margin vehicles such as the Murano SUV and various cars from its Infiniti luxury brand.
Who will benefit from Nissan's faux pas? Its competitors, certainly. But also two steelmakers that Nissan will approach to help make up its shortfall in supplies: Korea'sPosco (NYSE:PKX) and Luxembourg's Arcelor. Assuming Nissan buys from these two suppliers at today's high spot rates, either or both steelmakers could experience a small, but noticeable, profit boost (not that any steelmakers are exactly hurting, these days).
For more on the No. 2 Japanese automaker, read:
Fool contributor Rich Smith has no position in any of the companies mentioned in this article.
