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

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. 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.