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MSP 9304/
MCP1604
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Summary
One of the most powerful tsunamis in world history struck Japan in March 2011. It caused
enormous calamity not only in terms of loss of human lives but also economic impact and
infrastructural damage. Three nuclear reactors in Fukushima Dai-ichi faced level 7 meltdown,
causing nuclear emergency. In subsequent weeks, majority of the automotive plants in Japan
suspended production, while other plants were forced to hugely reduce their operations. As a result
monthly production started dropping and did not recover until October that year.
This disaster and resultant crisis disrupted supply of automotive products to foreign markets by
Toyota, Honda and Nissan in Japan. Particularly Nissan suffered huge loss as 6 production
facilities operated by the company got affected and its suppliers weakened. Yet the company had
the capacity to withstand the shock.
It took until after end of World War ii for Japan’s automobile industry to take giant leaps and
boom. With Toyota leading the way, Japanese companies moved away from techniques utilized in
the United States and adopted different strategies. Toyota eschewed push manufacturing technique
which was widespread in the US and focused on catering to the demands of the market. However
this approach required close coordination and attention to details.
Through gradual progress, Japan was able to overtake US as the world’s leading automobile
manufacturing country by 1980. Japanese companies expanded foreign production. All three major
players – Toyota, Nissan and Honda – expanded their foreign production but Nissan and Honda
were more aggressive.
While Toyota’s policies known as the Toyota Production System (TPS) adhered to close supply
chain control, Nissan allowed flexibility in regional supply structure, following a decentralized
system while imposing strong centralized control when required during global crises. They
advocated diversity, allowing their workforce to include professionals from other countries with
exposure to different market situations around the world.
In production, its approach was largely based on build-to-order strategy and followed build-to-
stock method in a very limited way only.
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Nissan’s risk and emergency management is largely informed by the huge challenges the company
faced during hard times – situations such as when it had to save itself from closure by partnering
with Renaults in 1999. The company had devised strategies on how to deal with disasters such as
earthquakes and it helped them during the 2011 catastrophe.
In the aftermath of the disaster, Nissan put to practice the emergency response plan it had drafted
to implement restoration as well as optimizing the entire supply chain.
After the disaster, The Recovery Committee emphasized four key points to focus; such as sharing
information, allocating supply, managing production and empowering action.
After six month of earth quack 24% of production drop compare to forecast was observed. Toyota
had significant exposure due to its large size and its high rate of Japanese production. Nissan had
several plants in close proximity to the disaster area. While Honda was partly insulated due to its
large localized U.S. production, recovery from the disaster was still slow. Honda attributed its
production problems to constraints in its supply chain.
In going forward plan, Nissan announced that it would increase the localized production of its cars
in the Americas from approximately 70% to 90% by 2015.28 The company also set aggressive
targets to reduce its reliance on Japanese-made components in its foreign factories.
Earth quack experience teach the automobile industry in the necessity of an actionable BCP
(business continuity plan) that encompasses all suppliers, including whoever in the second and
third tiers. Development of a more robust supply chain and comprehensive risk management are
imperative to make business more sustainable.
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Background
This case study debates about natural disaster such as earthquake, tsunami and its impact pretention
a great threat to the functioning of a business and affecting its operations on a large scale. On
March 11, 2011 an earthquake struck off the coast of Japan. The impact of such disaster was
overwhelming. The automotive industry comprising big Companies such as Toyota, Honda and
Nissan were hugely impacted by the said disaster. The case particularly talks about Nissan, damage
caused to the Company by the earthquake and consequently its response to the disaster. Several
protective measures were taken up by the Company post the disaster to gain back the momentum
of business operations and generate considerable flow of income to stabilize situations. These
include sharing information with global regions, allocating supply given capacity constraints and
excess dependents across national boundaries, managing production processes and making quick
decisions without delaying and depending on lengthy analysis that consumes time. In addition, the
Company announced several operational changes in 2012, post the disaster to make the business
more sustainable and less prone to severe disruptions.
TPS focus of close control SC philosophy in contrast Nissan focus of flexibility approach. Nissan
leveraged a regional, decentralized supply chain structure, however it was controlled by strong
central control and coordination when crises affecting global operations occurred. Maintaining a
flexible organization and integrating a variety of perspectives were important cultural attributes at
the company. Answer for how it is successful is maintaining the diversity in work force. Nissan’s
corporate officers represented a range of nationalities and most of them had extensive experience
in overseas operations.
In Nissan’s statement
“Our supply chain philosophy is one of vigilance and extreme responsiveness allied with single
point responsibility. It is the supply chain management organization’s responsibility to keep the
production plants running. This clarity of purpose and responsibility engenders confidence and
decisiveness both of which are crucial to disaster recovery.”
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Each division was empowered and expected to take preventive measures to minimize the
realization and impact of risks that did not require corporate coordination.
Strategic partnership with Renault
Continuous readiness process included activities such as ongoing seismic reinforcement of
facilities, improvement to its business continuity planning (BCP), and disaster simulation
training.
had an earthquake emergency-response plan in place well in advance
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Allocating Supply with effective resource allocation: the Company faced several issues
on allocating supply after the disaster situation, first issue is capacity limitations and
dependencies across the Nissan operational network. Second issue is allocation of supplies.
This determines continuity of operations and caution for the future market leadership. In
this situation Nissan particularly focussed on high margin goods for allocating supplies
instead of low margin goods. For example, the supply of Integrated Global Positioning
System (GPS) was confined to high-end models of cars rather than low-end models. This
helps in optimal utilization of scarce resources available, enables manageable supply
allocation in different regions and further enhances revenue generation of the company
during the time of such catastrophe. This is a smart management decision.
Managing Production and clearing the stocks: Nissan slowed their production
anticipating the constraints. This gave a good outcome on managing overtime costs. This
type of crisis, to any company in-stock and in-transit inventory would be the first priority
than producing new goods. Because products need to be turn into cash. Nissan also
focussed on the same strategy. Nissan also used the in-transit inventory time to identify
and implement supply alternatives of critical components. This indicates effective time and
resource management by the Company. The Management of the Company could also
secure airfreight to get the critical parts out of their country faster and reduce the
apprehension towards in-transit stocks.
Empowering Action: one of the key factor of Nissan is already they had well developed
and tested disaster response plan. Expecting the situations which arising from a major
disaster and preparing well to respond them enabled the Company to take quick actions
when real situation occur. Management of the Company was trained and empowered to
make decisions without any lengthy unwanted analysis from a top management, Nissan
also used flexible approach by modifying its delegation of authority to speed up critical
decision-making process for recovery concerns. One of these decisions includes launching
the Global Disaster Control Headquarters just after 15 minutes of the disaster. The team
further, worked upon the situation effectively by assessing damage while overseeing
restoration efforts at various facilities. Latest information including details about
employees’ safety and damage caused was absorbed and appropriate actions based on this
were taken. Hence, the Company used proactive measures post the disaster situations rather
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than consuming time and delaying decisions, which were indispensable. This was possible
only through preparing a proactive recovery plan well before the disaster, integrating tasks
and taking several imperative decisions timely.
STRENGTHS WEAKNESSES
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Nissan had well developed an earthquake emergency-response plan as their proactive measure.
This is very important proactive action for any Company to face the situation and develop a proper
recovery plan assuming unexpected natural disasters such as earthquakes, floods, tsunami etc.
Therefore, several other measures that could have been undertaken by Nissan to respond to the
disaster include:
Maintaining data and information centre: this centre is an idea to collection of routers,
switches, firewalls, gateways, network and security solutions, which helps in storing
information or maintaining a physical backup of the information. Then, the Company
should maintain a database involving all the information regarding stock details,
production processes, manufacturing operations, materials required, in-transit inventory,
employee details and other business concerned activities. This database should be kept
away from the disaster prone area to ensure safety of critical documents and vital records.
Involvement of top management or higher-level executives: Top management or senior
level executives must actively participate in the disaster recovery planning process.
Delegation of authority should not take as stay away from responsibility. They should
further be responsible towards coordinating all processes of the plan in order to ensure its
effectiveness within the Company. Adequate time and resources should be committed
towards developing such a plan. Resources include both financial as well as efforts of
personnel involved.
Risk assessment: Normally company don’t have lenghtly analysis procedures, however to
be more accurate in plan recovery committee as established by the Company should
undertake risk analysis and its impact on the business. This involves foreseeing possible
disasters, including natural, technical or human threats. Every functional unit of the
organization must be analysed to determine the consequences or impact of disaster
scenarios on them. Even worst-case situations such as destruction of the whole building
should be effectively planned for. Proper measures should therefore, be taken up by the
committee to face these catastrophic situations by assessing the impacts or consequences
and further analysing the costs of reducing potential exposures.
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Test the plan: It is essential to test and evaluate the plan thoroughly on a regular basis
(annually) before implementing it actually, when the time comes. Therefore, procedures to
test and evaluate the plan should be formed and documented. Such an effort provides
assurance to the Company whether all the necessary steps are included in the plan or not.
Other benefits of testing the plan include:
To determine the feasibility of the plan and compatibility of backup facilities within
the Company
To identify or pin-point red areas in the plan which need proper modification
To understand the ability of the Company to recover from the disaster
To motivate the personnel in maintaining or updating the disaster recovery plan
To provide proper training to the managers or team members
When a Company like Nissan is extensively involved in global operations, its supply chain also
becomes vulnerable to several disruptions. These disruptions further hamper the smooth flow of
operations in the business and disturb the whole system of the organization. Such increase in the
risk factors of supply chain and the rapid propagation of disruption have placed many companies
in a challenging situation as they have to operate in a more risky business environment. Therefore,
to assess the risk of disruption following measures can be taken by the Company:
Identify current risk and assess it: The Company must identify the risk in first place.
Then it should quantify and prioritize the risk and further develop a mitigation strategy to
make it less severe. Starting from the customer, the Company must gauge the impact of
such risk of supply chain disruption on its revenue. This trail should be followed through
the manufacturing cycle to the potential logistics constraints.
Identify alternatives for supply and delivery: The Company must build collaborative
relationships with its primary and secondary suppliers in order to know which suppliers
serve the best alternative sources.
Empower trading partners: This can be done by instituting a collaboration platform and
designing communications framework to facilitate exchange of information between the
Company and its traders while simultaneously cutting costs and reducing potential errors.
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Nissan had adopted a simplified product line strategy in comparison to its compatitors. Given the
capacity constraints after the disaster, the Company went for a build-to-stock strategy for models
with greater demand and build-to-order strategy for models with higher customization and lesser
demand. Since, the disaster had affected the production process of the Company largely; such a
strategy helped the Company to produce goods which assured of generating revenues instead of
increasing its burden. The production of models with lower demand were confined to build-to-
order strategy so as to avoid any wastage of materials, maintain efficiency of operations and also
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earn good revenues. Limited resources or affected supplies encouraged such strategies and proved
beneficial in such crucial time for the Company. Apart from the above mentioned benefits, these
strategies further helped Nissan in simplifying its business operations and product offerings along
with substantial increase in its sales. This was urgently required by the Company to boost its sales
and earn sufficient amount of revenues to enable persistent business operations without any
barriers. Flow of income also improved the financial strength of the Company arising from such
crisis which is a major concern. Several functions such as sales, marketing and supply chain
management were integrated to decide upon allocation of supply globally so as to generate greater
revenues.
As per the case, Nissan’s six production facilities had been damaged and about 50 of its critical
suppliers were weakened. Hence, the strategies adopted definitely pulled the Company from such
draining scenarios as they addressed exactly the issue witnessed by Nissan. The various benefits
of build-to-order strategy can be described as follows:
This strategy eliminates unnecessary inventory from the Company by making goods which are
actually demanded by the customers. This further gives no scope for dead stock.
Future Approach:
Post the disaster, Nissan adhered to several operational changes in its business to face the future
challenges of disruption. These involve increasing the localized production of its cars in several
regions of America from approx. 70% to 90% by 2015. Efforts were made by the Company to
reduce dependency on Japanese-made components in its foreign factories. The Company had also
put sincere efforts to better understand the dependency of secondary suppliers apart from primary
suppliers within its supply chain. The disaster taught many lessons to the Company which
stimulated them to adopt a modifying approach for the betterment of the future of the Company.
This included modification of their purchasing process particularly of critical components to
enhance continuity of business and making the supply risk concentration beyond tier 1 level less
severe. Every Company strives to work even better next time; therefore, Nissan had to prepare
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even better to protect itself from the next disaster struck. An actionable business continuity plan
which comprises of all level suppliers must be prepared as a response to any natural calamity or
threat. Also developing a more effective supply chain and risk management techniques make the
business more sustainable. These changes, if correctly brought up and executed can clearly
contribute towards a better future disaster recovery plan and make the business less prone to severe
disruptions.
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