Supply Chain Recovery from Japan’s Earthquake/Tsunami: An Update

Stephen DeAngelis

August 5, 2011

Back in March 2011, supply chain professionals were just beginning to grapple with the effects of the devastating earthquake/tsunami combination that struck Japan. One thing was clear, however, sectors that were going to be impacted included: high tech and electronics, automotive, aerospace, specialty instruments, and agriculture. Although Japan has made a remarkable recovery to date, lingering challenges remain. For example, the crippled Fukushima Daiichi nuclear plant has reduced power generation capacity that could affect manufacturing for years to come. In addition, the Japanese government has abandoned its plans to become even more dependent on nuclear power plants for generating electricity. There have been some success stories, however. Reader and fellow blogger Michael Koploy directed me to one of his posts on this subject entitled The Post-Tsunami Supply Chain All-Stars | Who Recovered the Fastest and How? [Software Advice, 15 July 2011] Koploy writes:

“Many will not forget the sights of the March 2011 earthquake and tsunami in Japan. These natural disasters tested Japan and the manufacturing prowess upon which the country had been built. Unfortunately, the manufacturing methods that led to glorious growth in post-war Japan are what led to post-tsunami crippling. Lean manufacturing – established as the gold standard by Toyota and other Japanese manufacturers – relies on the knowledge that processes and conditions will stay the same day after day. Harnessing this predictability and empirically analyzing results have allowed our global economy to become what it is today. Yet the very nature of our global economy makes ‘leaning out’ difficult. Disasters can halt production for weeks. War and social struggle put business on the back burner. And the default on sovereign debts threatens to rip apart the supply chain one link at a time.”

Shortly after the enormity of the earthquake and its consequences were understood, Paul Martyn, a VP of Supply Strategy at BravoSolution, a provider of supply chain management software, wrote, “Lean is Dead, Long Live Lean. Well, maybe not dead. No one will ever go back to the days of bloated inventories. The cost benefits of holding down inventory levels are just too compelling. We will, however, see a lessening of the rigidity of the rule of thumb that zero inventory makes the best business sense.” [“Supply Chain Lessons From Japan,” Forbes, 6 April 2011] Martyn’s assessment of the impact of the Japanese disaster agrees with Koploy’s. “Supply chains today,” he writes, “are attenuated and extremely vulnerable to repercussions from events far outside the control of those who manage and rely on them.” Koploy doesn’t focus on impacts, however, he discusses companies that beat the odds and demonstrated their resilience. He continues:

“Fast-forward four months after the destruction of the March tsunami began, and select Japanese manufacturers have not only begun to rebuild, but emphatically rally back. So, who are these all-stars, and how did they do it?”

Koploy begins his discussion in the automotive sector. He claims that the traditionally secretive “Big 3” automakers, Toyota, Honda, and Nissan, saved themselves by sharing secrets. He writes:

“The ‘secret sauce’ of many supply chains is their connections, relationships, and deals with suppliers. Ironically, the Japanese Big 3 of Toyota, Honda, and Nissan were forced to share these secrets and work together to help assist the auto parts suppliers affected by the earthquake and tsunami. The result? Parts in high demand and short supply have been reduced from 500 to about 30 for Toyota, who is now operating at 90% of its normal capacity. Nissan is reportedly operating at near-normal production levels, while many Honda plants are ramping-up production to pre-earthquake production levels. While production levels are still less than desired, and certain models’ availability is limited, this is a positive movement for the industry.”

Koploy reports that the Japanese Big 3 continue to face some challenges, including regaining marketshare; but, he believes that their situation “could have been much worse without all three players’ cooperation.” He believes they “are laying the foundation for future cooperation in the event of additional disasters.” Another all-star identified by Koploy, from a different industrial sector, is Canon, “the Japanese producer of many of the world’s printer and camera products.” Koploy indicates that “diversified production centers put Canon ahead of schedule.” He explains:

“Canon … has been one of the great success stories of production post-disaster. Although it was initially expected to take the remainder of the year to recover, Canon is now at pre-disaster production levels. These results even surprised Canon, whom initially announced it wouldn’t be until the end of the year before production reached desired levels. How did they do it? One of Canon’s overall strategies and focal points has been diversifying its parts production efforts, including focusing on plants in southern Japan and mainland China. Diversification is a central, reoccurring theme within Canon; general business diversification is core to Canon’s strategy. Canon’s success is a great example of how investing in supply chain redundancy can be fruitful both today and tomorrow.”

Diversity and redundancy can increase resilience, but they can also increase supply chain costs and complexity. For years, however, supply chain professionals have argued that efforts to reduce supply chain resiliency in favor of cost-cutting efforts that they saw as risky. Canon’s resiliency may provide the example they need to bolster their case. Koploy’s next all-star company, Apple, has been recognized as having one of the best (if not the best) supply chains in the world (see my post entitled Gartner Publishes Its Supply Chain Top 25). Koploy reports:

“Apple’s iPad 2 was announced days before the earthquake and tsunami hit Japan. Many expected the disaster to greatly affect availability of Apple’s newest tablet model. In reality, supplies for U.S. markets and other parts of the world were largely unaffected. Apple’s investment in its supply chain has made it seem almost impermeable to disaster. In fact, Apple’s supply chain has been called one of the secrets to its success. The company’s ability to produce large amounts of high-quality tech products – at a price that consumers are willing to pay – has helped Apple become the third-largest vendor of PCs in the world. Apple has found the right combination of investing in technology manufacturers and negotiating attractive supplier contracts to effectively mass produce its high-quality products. Reinvesting its profits in its supply chain has ensured Apple continued access to key components, even in light of natural disasters and increasing competition.”

In the report about the Supply Chain Top 25, Gartner analysts wrote, “Leaders took some very clear lessons from the events of the past couple years, with one of them being the need for supply chain resilience: the ability to deliver predictable results, despite the volatility that many have pointed out is now here to stay. Speed, agility, efficiency, responsiveness and innovation — all remain critical, but equally important is a resilient supply chain.” As Koploy points out, Apple’s supply chain is a great example and it explains why it has topped Gartner’s list for the past several years. Koploy’s final all-star company is Fujitsu. He writes:

“One of the major manufacturers of semiconductors in Japan, Fujitsu, has wafer fabrication operations near the heart of the earthquake disaster zone. Yet, the company recovered more quickly and efficiently than any other semiconductor supplier. In fact, five plants dedicated to manufacturing the chips were back at pre-earthquake production levels in less than three months. How did they do it? iSuppli notes that Fujitsu was actually ready for a such a disaster before the earthquake. The company had developed an emergency response strategy after an earthquake rocked Iwate three years earlier. Fujitsu quickly weathered the storm by shifting front-end product manufacturing to unaffected plants in central Japan and back-end product manufacturing to southern Japan and China. Fujitsu also included redundancy in its manufacturing capabilities, such as preparing its plant in Mie to handle processing 150mm, 200mm and 300mm silicon wafers.”

I have written a number of posts concerning emergency planning (including continuity of operations and disaster recovery planning). In those posts, I have cited numerous experts who claim that having a plan on the shelf doesn’t necessarily guarantee that they will work as expected when disaster strikes. Fujitsu obviously did more than just put a plan on the shelf. It made sure the plan worked in reality not just in theory. Koploy, referencing the Martyn article cited above, concludes:

“Back in April, supply chain software executive Paul Martyn blogged for Forbes that he expected full recovery to take 9-12 months. These supply chain all-stars have beat these expectations by collaborating with other businesses and suppliers in crisis, focusing on redundancy in the supply chain and effectively preparing for disaster situations. For the organizations that are willing to learn, there are some great lessons in how these companies recovered. Today, businesses must identify and plan for the vulnerabilities in one’s supply chains now to prevent future weaknesses. This focus is the most sound way of balancing disaster-readiness while still focusing on profits. Have you analyzed your supply chain and assessed which points are most vulnerable? What have you done in terms of developing a disaster action-plan?”

As I note above, it is not enough to develop a disaster action plan you must exercise it. No plan will survive a disaster intact because no disaster will unfold exactly as anticipated. Having exercised the plan, however, people are better prepared to deal with exigencies of the situation when the unexpected happens. As Koploy writes, “For the organizations that are willing to learn, there are some great lessons in how these companies recovered.”