Automotive lessons learned from the Japan quake apply to other sectors, too!

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I found this post over at Supply Chain Matters (Bob Ferrari’s excellent supply chain blog). The post marks the one year anniversary of the quake and subsequent tsunami in Japan. Bob’s post is based on a Wall Street Journal article that cites some of the steps that Toyota and Nissan are implementing to avoid the losses they recently experienced should a similar disaster happen in the future.Automotive As a reminder, when the quake and tsunami hit Japan, Toyota and Nissan were forced to halt vehicle projection for over a month. Once they started up, however, production was significantly hampered due to supply bottlenecks. Add to this mess the floods in Thailand, and suddenly supply chain issues are top of mind for automotive executives. Toyota and Nissan have asked their suppliers to assess their ability to recover operations after a major disaster like an earthquake. Many suppliers revealed sourcing information that led Toyota to discover that around 300 production locations could be at risk. Toyota has now asked their suppliers to implement risk mitigation measures like multiple sources and strategic inventories of parts (an interesting development for a pioneer of JIT manufacturing techniques). The goal of all this is to get Toyota up and running within two weeks of a natural disaster. I had some observations while reading these posts that I thought I would share;

  • It is a shame that it often takes an event like this to make us see the importance of assessing supply chain risk and developing mitigation strategies. However, one simply needs to ask a random group of people “Who has a working fire alarm and escape plan?” or “Who has enough money saved to carry them through a jobless period?”  to understand that we humans tend to believe these things won’t happen to us, even though we logically know that there is a risk.
  • Bob’s article had a discussion on where accountability for managing risk should lie. Should it be Finance? Procurement? Bob recommends that accountability should have a broader supply chain focus and should lie with senior supply chain executives. I agree with Bob and add that the best way to make this happen is to integrate supply chain risk management into the Sales and Operations planning process. Why?
    • S&OP is a monthly process.
    • It deals with distributed supply chain decisions already.
    • Much of the data used to drive S&OP can be used to support supply chain risk assessments.
    • The people who need to make supply chain risk decisions are already in the room.
  • While this discussion has so far been around the automotive industry, the same risks exist in any global manufacturing entity. So if you make routers or running shoes, you can learn from what happened to Toyota, Nissan and Honda. Just look at how the flooding in Thailand impacted global hard disk sales to get a sense of this.
  • Assessing where your supply chain weaknesses exist can be very difficult in a large distributed supply chain. Determining who you suppliers are isn’t too difficult. Figuring out who your supplier’s suppliers are is harder. Going further can be a real challenge. Looking back at the Thailand flooding example, the disk supply issue was made significantly worse by the fact that the suppliers of critical components for the hard drives were located close to the hard drive assembly plants. Good for efficiency, not good for recovery after a local disaster.

Did you take a look at your own supply chain in the wake of the Japan quake and the Thailand floods? What did you see there? Comment back and let us know.

Discussions

Hossein Naeini
- March 19, 2012 at 11:23am
I have just one comment on your posting.
I do not agree with this statement "the best way to make this happen is to integrate supply chain risk management into the Sales and Operations planning process."
I guess the best way would be to integrate SC risk management into "Strategic Supply Chain Planning Process". As you know, most of the challenges that originate from natural disasters could be eliminates via a well-developed supply chain network structure.
Questions like the followings will be answered in strategic supply chain planning (which is all about designing supply chain network):
Where are my suppliers, manufacturers, customer zones, and distribution centers located?
What is the potential capacity of each of them?
how does my logistic (transportation) system look like?
Why shouldn't I establish my warehouse in a certain area?
What is my supplier selection policy? For a specific part, do I need multi-sourcing or single-sourcing and what would the capacity of each of my suppliers be?
It is true that S&OP planning or tactical supply chain planning is a monthly process but most of the above mentioned decisions that are in-common with risk management or disaster supply chain management has to be taken in a higher level because the period of time it takes to implement them are much higher than a month or a quarter.
John Westerveld
- March 20, 2012 at 10:22am
Thanks for your comments Hossein. I guess the difference between our perspectives is in how we view Sales and Operations Planning. I see S&OP as a strategic planning process where you seem to consider it a tactical process. In the S&OP processes I've been involved with, we made strategic supply chain decisions and managed long term projects through the S&OP meeting structure. Just because the S&OP meeting is monthly doesn't necessarily mean that decision implementation must occur within the month. We had many projects and issues that spanned several months. For these projects, the Executive S&OP meeting was used to report status.
If your S&OP process is more tactical in nature and you have an additional Strategic Supply Chain Planning process, then I see how Supply chain risk planning could fit into that process. Either way, the list of questions you provided around making these decisions are excellent. Thanks for posting.
John
Sohel Ahmed
- March 23, 2012 at 3:26pm
There is always special learning and new learning from critical incidents, as in the case of the quake and subsequent tsunami in Japan. I am pretty sure, Toyota has learned what it couldn't realize otherwise. That's why contingency plans should be in place, preceded by risk assessment and risk mitigation plans and strategies already worked out. I appreciate previous painstaking postings that offered learning scope too.

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