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Reg#317134789

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 and Nissan’s Supply Chain Philosophy

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.”

This philosophy is wise intergraded, holistic approach.

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Risk Management at Nissan

Nissan follow the risk management principles as follow:

 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

How Nissan responded to the disaster situation?

As a response to the disaster, the Recovery Committee (established by Nissan to coordinate


global recovery actions) laid emphasis on few significant actions:

 Information Sharing Policy: Since Nissan is a globally operating Company; it ought to


share information with their global operational regions about the disaster-affected
situations. Being a global company the calamity situation might directly or indirectly affect
non-Japanese firms associated with the operations of the Company. Hence, sharing
reasonable information will give a great insight to others to understand the real situation
and respond positively. However, there are certain risk factors faced by the Company
regarding this. Those are, an additional effort to provide information to the third parties
might distract the people handling on the ground crisis and the information provided could
be used for self-interestedly for their own personal interests. These two risk factors were a
major concern to the Company. To overcome these, Company decided upon asking each
region to send two staff members to Japan to gather information concerning their interests
rather than providing them unwanted information which could be later misused. This idea
of sharing information led to valuable contribution from global regions instead of
becoming a burden on the Company. This is very effective way of communication adopted
by the Nissan company on creating clarity, transparency and trust among stakeholders and
partners.

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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.

SWOT Analysis for Nissan:

STRENGTHS WEAKNESSES

 Strong brand recognition  Recall of various model cars


 Strong financial performance in  Weak hold of emerging markets
 Excess dependency in overseas
terms of increasing revenue
markets
 Leading innovator
 Strategic partnerships (with Renault)
 Well-prepared proactive disaster
recovery plan beforehand
 Flexibility in operations
 Effective strategies adopted post
disaster
OPPORTUNITIES THREATS

 Growing demand for eco-friendly,  Drop in fuel prices


electric cars  Global competition prevailing in the
 Partnerships with other companies industry
 Producing fuel-efficient cars in light  Increasing cost of raw materials
of increasing fuel prices  Natural calamities
 Technical glitches
 Human threats
 Appreciation of yen currency
 Dynamic business environment

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Additional Measures as a Response to the Disaster:

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

Assessing the risk of disruption in Supply Chain:

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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 Selection of vendors in different geographic regions supplying through secondary


ports: The Company must maintain a diverse profile of suppliers even if equivalent parts
are available in the same region. This will help in case of the country experiencing
disruption.
 Involvement with the suppliers: The Company must engage itself in supplier
relationships. This is because the Company has to depend excessively on its suppliers if
disruption arises and monitor them for any potential risk or problems. Therefore, the
Company must know about all risk factors associated with the suppliers, which include
their financial strength, compliance with regulations, risk managing practices and political
stability in their respective country.
 Flexibility of processes: The Company must be flexible enough in terms of its processes.
This is because business environment is dynamic; therefore every Company must
constantly adapt itself to the changes in the business environment. This helps the Company
in taking prompt actions to changes with lesser impact on its operations or processes.
 Control of logistics processes: The Company should not rely entirely on suppliers’
delivery rather bring critical components closer to home country where it makes economic
sense and source globally only when there is an assurance of supply.
 Optimization of buffer inventory or safety stock levels: The Company must make sure
that it has enough supplies to keep producing even if disruption arises. This is imperative
for the continuity of business and generation of revenue for the Company.
 Be proactive: Lastly, the Company must proactively enhance its visibility into supply
chain operations to get a clear picture of flow of material as it happens.

Product Line Strategy:

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:

The biggest advantage of build-to-order strategy is to gain specializations of products


manufactured. This occurs by manufacturing the product as per customers’ specifications and
expectations.

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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