When the triple disaster of the earthquake, tsunami, and Fukushima meltdown hit Japan in 2011, the global car industry was stricken, with 80% of the country’s automotive plants suspending their production. One of the companies supposed to be worst hit was Nissan, with six production facilities and 50 suppliers severely affected, and a resulting loss of production capacity reportedly equivalent to approximately 270,000 cars.
And yet over the next six months, Nissan’s production in Japan decreased by only 3.8%, compared to an industry-wide decrease of 24.8%. Incredibly, Nissan ended 2011 with an increase in production of 9.3% compared to a reduction of 9.3% globally.
So just how did Nissan manage to emerge in so much better shape than the rest? The company’s
story – a lesson in exemplary supply chain risk management against the odds – is highlighted in Making the Right Risk Decisions to Strengthen Operations Performance, a study by the MIT Forum for Supply Chain Innovation, in collaboration with PwC, published in August 2013.
The report, based on the results of MIT’s 2013 Global Supply Chain and Risk Management Survey, points out that Nissan had a forward-thinking supply chain risk management strategy, with a focus on early risk identification and analysis, and rapid implementation of countermeasures. Nissan also had a continuous readiness plan – including an emergency response plan, business continuity plan, and disaster simulation training – which it deployed along its supply chain. Plus, crucially, Nissan’s supply chain was flexible, with visibility embedded across its entire operations and with good coordination across internal and external business functions. As a result, it was able to rise, phoenix-like, to get ahead of the competition. Others weren’t so lucky, with one carmaker in the region reporting a staggering 99% drop in quarterly profits.
“Our survey indicates that supply chain disruptions have a significant impact on company business and financial performance,” says MIT professor David Simchi-Levi, founder of the MIT Forum, “and companies that invest in supply chain flexibility are more resilient to disruption than mature companies that don’t.” To which the only sane response can be: why wouldn’t a company invest in supply chain flexibility? Well, since the 1990s, “lean” has been the name of the supply chain game. In the rush toward cost optimization, businesses have, for example, based production where labor costs are lowest, introduced outsourcing, employed just-in-time inventory, and reduced their distribution facilities. Measures such as these may make a big difference to an organization’s bottom line, but the downside is often a lack of supply chain flexibility, resilience, and increased risk. When it comes to assessing and dealing with risk, the strategy for many companies over the last 20 years seems to have been: cross your fingers and don’t think about it too much. It’s been low priority, at best.
Increasingly, however, something happens to focus minds. The 2010 Icelandic ash cloud, for instance, which closed European airspace; the 2011 floods in Thailand which caused massive loss of life and disruption to the global supply chain; and the aforementioned Great East Japan Earthquake, tsunami, and Fukushima disaster.
Getting the Big Picture
These are headline-making events, of course; but supply chain disruption comes in many other – and thankfully more mundane – forms, from power outages and IT failures, to outsourced services provision failure, loss of talent and skills, and new laws or regulations. It is part of business and, particularly in a globalized economy, will never be eliminated. Yet the fact is that supply chain disruptions can cost a company in both sales and loss of reputation. Resilience, therefore, has to be the watchword.