In 2011 an earthquake struck off the coast of Japan. Nissan was impacted by the disaster and suffered damage to six production facilities and about 50 of its critical suppliers were impaired.
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The case identifies several aspects of the Nissan response that were particularly beneficial. Expand on the points made in the case to identify the potential costs and benefits of these actions.
The sharing of information was quite beneficial to Nissan in its response to the disaster. Nissan derived a number of benefits from this action. Firstly, the shared information helped the company in adjusting its production forecasts in different regions. This made it possible for Nissan to align its production calendar in accordance with the production conditions in Japan.
Additionally, it made it possible for other regions to contribute solutions towards the issue. Again, other regions had a clear visibility of the happenings in Japan, and this enabled them to assist Nissan in improving its response to the crisis. The potential costs associated with the action of sharing information included the disturbance of individuals handling the crisis on the scene. In addition, other selfish facilities would use such information to benefit themselves at the expense of Nissan.
The allocation of supply during the disaster was beneficial. Nissan was able to benefit by allocating supplies to goods that had high margins. This helped in increasing the company’s profits and sales. The allocation of component parts helped in meeting customer demands during periods of capacity constraint.
The potential costs associated with the allocation of supply involved the increase in additional planning costs on ways of allocating supplies globally. In addition, the demand for customers of low margin models remained unattended. This could have resulted in dissatisfaction of some customers.
The process of empowering activities helped Nissan to make flexible and rapid decisions. This empowered the management in making decisions quickly without involving lengthy processes from the central authority. This also enabled Nissan to take prompt actions when needed.
The potential costs linked to the empowering action involved the selfish use of information by the delegated individuals for their own personal benefits. In addition, different information generated by the delegated individuals, could have led to confusion. This is because teams operating on the ground could be in a state of confusion because of receiving different and contradicting information related to the disaster.
Nissan managed its production processes that led to several benefits. The slowing of its production lines helped in reducing additional stock costs as well as in managing the anticipated bottlenecks. Moreover, Nissan reduced the costs of overtime because of ramping down bottlenecked operations. Additionally, the shift of vacation times in the months of April and May created additional capacity during the summer.
The potential costs of this action could involve instances in which the company would experience product outages. In addition, since employees were idle during most of the times, they would consider moving to other industries, thereby leading to increased employee turnover for the company.
What else could Nissan have done to prepare for and respond to the disaster? Try to articulate the costs and benefits of your suggestions.
Nissan could have done other activities in preparing and responding to the earthquake. Firstly, the company should have practiced drills that would have enabled its employees and other stakeholders to know the best way to react in the event that an earthquake occurred. This would have benefited the company because employees would have attained adequate skills of handling disasters. In addition, the employees would have reduced the levels of damages that occurred after the disruptions.
The costs of these actions involve the use of additional time and costs in training employees on the drills. Additionally, Nissan should have practiced on evacuation plans. This would have benefited the company by having employees who are ready to respond efficiently after a disaster.
Moreover, Nissan should have gathered emergency supplies for using in the event that a disaster struck. For instance, supplies such as first aid kit, automobiles, medications, workplace survival kit, emergency water and food would assist during the disaster period. The availability of these supplies would have benefited the company by saving not only its employees, but also the lives of people living in the surrounding communities. The cost of this action only encompasses the costs of purchasing the supplies.
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Additionally, Nissan should have undertaken programs for disaster counseling aimed at dealing with individuals and families who had suffered severe losses from the disaster. For instance, employees who had lost their loved ones in the incident should have received counseling in order to reduce their mental sufferings. This would be beneficial to the company in many ways.
This is because employees would not have psychological problems, which might negatively affect them while performing their duties. Costs associated with the counseling programs include the costs of paying counselors presiding on the counseling process and the time taken by employees while undertaking the counseling programs.
What could Nissan have done to assess the risk of disruption in their supply chain?
Nissan should have used several procedures in assessing the level of disruption in its supply chain. Initially Nissan should have identified and assessed its current risk. This would involve the process of quantifying as well as prioritizing risks in order to assist the company in designing a suitable mitigation plan.
Nissan should have evaluated the financial impacts by calculating backwards from the users of their products in order to estimate the overall revenue impacts of any potential disruptions to the supply chain. Through this assessment, Nissan would determine the overall costs associated with the disruptions as well as the way to respond to the interruptions.
Additionally, Nissan should have followed the trail throughout the manufacturing cycle in order to establish the potential sourcing as well as other factors constraining on the logistics. The entire procedure would enable Nissan to establish the way its supply chain was exposed to disruptions in the event a disaster occurred. Moreover, Nissan should have listed down the suppliers they depended on for essential raw materials and other components used in the production process.
Nissan would then establish what might happen to its overall production processes in the event that it lost one of its major suppliers due to a disaster. Furthermore, Nissan should have determined the length of time they would remain operational after the occurrence of the disaster. Additionally, through its assessment, Nissan should have established whether other suitable supplies were readily available to support their supply chain in the event of disruptions.
The company should have evaluated the way its suppliers assessed their risks. Additionally, Nissan should have determined whether its suppliers, had effective plans that could enable them respond properly to disasters. In other words, Nissan should have assessed the immediate impact on the supply chain after the occurrence of disruptions in relation to specific products, suppliers and markets. This would be in terms of financial impact as well as on supply outage.
In brief, Nissan needed to consider the velocity of the interruptions in terms of how fast the company would feel the impact of the disaster after the incidence. Again, the persistence of the interruptions was essential as it pertained to the length of time the company would remain affected in the event that the supplier disruption continued for a longer period. Additionally, the company’s readiness for responding to the disruptions in terms of the way the business was resilient in reacting to the loss of its major supply sources was critical.
How did Nissan’s product line strategy help or hurt its ability to respond to and recover from the disaster?
The company’s line strategy helped it in responding and recovering from the disaster. Nissan had a decentralized and regional supply chain that was well coordinated after the occurrence of the disaster. The product line strategy enabled Nissan to use both build-to-order and build-to-stock strategies in its models. This balancing ensured that the company used each strategy under the most appropriate circumstances. This strategy helped the company in simplifying its operations.
The reduced operations were beneficial to the company during the time of disaster. This happened because Nissan had simplified its production processes. In addition, the simplification of the product offerings made it possible for Nissan to respond with much ease to the challenges that occurred after the disaster.
Furthermore, the strategy ensured that production plants were running throughout even after the disaster. This clearly depicts the way Nissan demonstrated its clarity of purpose as well as its responsibility of ensuring a continued functioning of its business operations. These kind of activities brought confidence as well as decisiveness in its disaster recovery process.
These actions simplified Nissan’s actions in recovering from the disaster. Additionally, the reduction of over-reliance on products in the production plants implied that Nissan’s production processes continued normally in some regions without suffering disruptions after the disaster. This largely helped the company in its ability to both respond and recover from the incident.
How will the operational changes announced in 2012 affect Nissan’s exposure to future disruptions? How will it affect its steady-state operations? What trade-offs is management making and why?
The operational changes made in the year 2012 would significantly reduce Nissans exposure to future disruptions. The increased localization of car production in America would imply that, Nissan would reduce its reliance on cars from Japan. Furthermore, in the event that disasters occurred in Japan, their effects would not affect America’s supply chain.
For instance, the reduction of components originating from Japan to North America implied that Nissan would significantly reduce its over-reliance on components made in Japan. Additionally, the understanding of all dependencies existing in the supply chain would enhance the Nissan’s business continuity plan, thereby mitigating supply risks.
The implemented changes meant that Nissan would maintain a steady state in its operations. This is because the localization of production would mean that different regions would not largely rely on components from Japan. In addition, the construction of a full-bodied supply chain would ensure that the business was more sustainable.
Thus, a sustainable supply chain would ultimately imply that Nissan operations remained in a steady state. In general, the implemented changes would massively ensure that Nissan maintained a steady state in its operations even during times of disaster.
The management focuses on making an active business continuity plan that would cover all its supplies in different tiers. This trade-off would ensure that disruptions reduced after the occurrence of a disaster. The management was also developing risk management programs in order to ensure the sustainability of the business. Moreover, the business has also built a modern and a more synchronized supply chain. This trade-off would reduce future interruptions in the case that a disaster or disruption occurred.