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(originally published by Booz & Company)


Lessening the Impact of Natural Disasters on Supply Chains

Sangyo is an engineering company that produces industrial equipment and machines. Before the earthquake hit, the firm had lowered production costs by shifting some of its manufacturing to China, making sure to share supply chain information between the mother factories in Japan and its overseas plants. As with Kenki’s moves, these steps proved to be a valuable cushion, facilitating close coordination among Sangyo’s dispersed production sites and making the company “better able to handle the potential damages” from the disaster, the authors write. Still, Sangyo’s domestic production line was closed for two weeks for lack of components. Since the crisis, the company has begun to manage its suppliers’ inventory directly. It has also conducted a corporation-wide risk analysis of natural disasters, set aside one month of stock to shield itself from future logistical hitches, and increased its use of generic components.

Zyuden, one of the largest conglomerates in Japan and a producer of vehicles and generators, was the hardest hit of the four companies. Its plants in the affected region, heavily rocked by aftershocks, were cut off from electricity, communication, and transportation. More than a month and a half after the initial quake, they were still being repaired. Yet Zyuden was able to recover quickly and comprehensively, again thanks in large part to an earlier move involving an information tracking system. Six months before the quake, the company had installed sensors on its production lines. Once power was restored and damaged sensors were replaced, managers were able to monitor real-time recovery via Excel graphs, allowing the company’s Tokyo headquarters to better allocate resources and response efforts. In effect, the tracking system served as a “restoration roadmap for Zyuden’s production lines,” the authors say, helping the company to integrate “all sectors of its business, including those in the damaged region.”

One major lesson from Japan is that companies need to disperse the flow of information along with the physical locations of production. Developing ways to capture and share information throughout an existing or expanding supply chain can benefit the overall manufacturing process in addition to mitigating risk.

As the case studies also show, companies can be hamstrung by power outages and other shortfalls in local infrastructure. Therefore, it is vital for firms to anticipate a range of short- and long-term external disruptions and plan around them.

Bottom Line:
The calamitous earthquake, tsunami, and nuclear meltdown in Japan in 2011 posed enormous challenges for the country’s businesses. The recovery effort of four manufacturers highlights the importance of information dispersion, in addition to physical diversification, along the supply chain.

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