Nissan Recovering Supply Chain Operations M3 Team Project Draft PDF

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Nissan: Recovering Supply Chain Operations M3 Case Study Team Report

Omar Blagrove Krystal Brown Arlene Motley Angela Przybysz Ashley Vanderhall

SUNY Empire State College Operations Management

NISSAN: RECOVERING SUPPLY CHAIN OPERATIONS

Problem Statement Natural disasters such as earthquakes and tsunamis are hard to predict and be prepared for. Nissan lost 2,300 vehicles that were ready to be shipped to the United States due to the natural disaster. Disaster plans are key to business survival and should be defined as a business strategy to minimize damage and lost production time during disasters. With Nissans preparedness, they were able to resume production in a short period of time allowing them to begin recouping lost financials quicker than their competitors. This eliminated some of the $25 million they would have continued to lose each day. Nissan did face some problems in trying to get back lost inventory some of them were stockpile inventory, diversify supply, backup supply, manage demand and strengthen supply chain. Having an emergency supplier and expand on using more than one supplier would help solve the problem. Being flexible on where your parts come from, when a disaster hits can reduce the chance of your company being affected. Having multiple vendors globally will help because if one area of the world is affected by a natural disaster the other locations can help by filling in on the work. Even though Nissan had drills since 2003 it is documented that the organizational approach was to put the safety of its employees first and understanding the safety of its suppliers, dealers, and affiliated companies before engaging in the best ways of restoring the operations. None of the strategies above could have succeeded. Nissan failed to gather its key executives and analyze the disaster and sketch out possible solutions quickl

Nissan's business continuity plan (BCP) Every organization should have an organized plan to react to disasters. Disaster plans are key to business survival and should be defined as a business strategy to minimize damage and lost production time during disasters. Disaster recovery plans are also essential to business recovery efforts and can be found as a subset of an organizations business continuity plan (BCP). The main goal of business continuity plans is to minimize business downtime in the event of a disaster and resume all operations as quickly as possible. In response to the disaster, recovery plans should include the required steps needed to restore vital support systems. Systems which are greatly impacted by disasters are mostly communications, hardware, and IT assets. Organizations should follow the steps below to define their disaster plan if they have not already done so: 

Establish a disaster-recovery team, consisting of knowledgeable employees, assign responsibilities to execute the disaster plan.

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Identify potential risks based on previous disasters.

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Prioritize critical business functions and define hierarchy of importance to re-establish in the event of a disaster.

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Identify a disaster-recovery location where employees can access back-up systems so that they may continue performing duties.

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Update and test the plan quarterly or earlier if required.

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Define satellite locations at designated homes or possibly hotels.

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Procure & test back-up for critical equipment such as power generators, computers, etc.

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Maintain accurate inventory of fixed assets.

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Initiate building and property safety (Ex. Building, equipment, computer systems, etc.) test to confirm all will withstand a disaster.

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Ensure that employee & vendor contact information is updated on a quarterly basis to ensure that communication can be made during a disaster.

Regarding Nissan, they proactively set up a disaster recovery plan within their business continuity plan (BCP) housed at their Global disaster control center in Yokohama due to the prior natural disasters faced in Japan. Due to their preparedness, they were able to resume production in a short period of time allowing them to begin recouping lost financials quicker than their competitors. This eliminated some of the $25 million they would have continued to lose each day. Nissan’s first course of action was to set up a disaster control center in Yokohama, which allowed for updated information to be shared on disaster management and employee safety thus allowing for business continuity in an efficient timeframe. Due to Nissan’s advanced preparation and testing of seismic mapping, they were able to proactively react to the devastating earthquake which occurred on March 11, 2011 and ensured that advance planning was in place to react. The vital information that was stored, generated and shared with employees included evacuation plans and exit routes. Nissan’s management team ensured that the utmost priority was provided to ensure

employee safety during a disaster. Hence, Nissan’s BCP is considered one of the industry’s best disaster recovery and crisis management plans. Operational Strategies The major operational strategies for managing supply chain disruption are stockpile inventory, diversify supply, backup supply, demand management and strengthening supply chain. Stockpile inventory is inventory that is held and later used to fill customer demand even if supply is interrupted. During crisis or natural disasters, the major strategy is piling up inventory which can be used during crisis conditions. Nissan had ordered parts in bulk and the delivery time coincided with the time just before the earthquake. The risk management plan is very important for having this strategy of stockpile inventory. Nissan has proper risk management strategy in place which gives strong edge in piling up inventory during a crisis phase. Diversify supply is when we source product from multiple vendors/facilities so that a problem at one vendor/facility does not affect the entire supply. Nissan has great alignment between partners in supply chain and thus diversified its supply to manage its supply chain. Nissan used common parts on a global scale and standard parts worldwide: resulted in low cost manufacturing. Nissan delivered a wide range of models under Nissan and Infiniti brands. Developed exciting and innovative products. This helped Nissan at the time of crisis as it could choose to manufacture only its bestselling models. Demand management influences demand to better match the actual supply by, for example, adjusting prices or offering incentives to encourage customers to purchase products that are less supply constrained. Nissan has great information management

system and good intelligent and analytical management systems. Nissan had a good data analytics system which can help managing demand and thus had good operational strategy. Nissan decided to manufacture only the bestselling models. Nissan prioritized delivery of vehicles to the U.S. and Chinese markets. This was advantageous for Nissan as it could deliver cars when its competitors could not. This resulted in a better sale. Backup supply is having an emergency supplier (or logistics provider) that is not normally used but that can be activated in the event of a supply problem. Nissan had good upstream and downstream supply integration system which presents opportunity to have proper backup supply. Employees from other sites were called upon to assist in recovery of damaged parts. Cross functional and cross regional manner helped in fostering better ideas. The company operated at nighttime and generated electricity inhouse. There was a change in the workweek that could take into the adverse effects of power shortage. The first step that Nissan undertook was to ensure the safety of the suppliers, dealers and the affiliated companies. It had been keeping trailing drills to ensure priority decision making instead of panic creation when the situation arises. There was quick and precise communication indicating operational bounce back. The strength of the company was at aid: the ability to work together in a quick and focused fashion. Strengthening supply chain or work with suppliers to reduce the frequency and/or severity of supply problems. Nissan has implemented disruption supply chain strategies to strengthen its supply chain. They have flexible and redundant supply chain strategies and proper alignment and integration in value chain functions. Nissan has managed supply chain disruptions with proper operational strategies. Nissan’s board comprised of different nationalities; unlike other Japanese automakers whose board members were

exclusively Japanese. They also had a Chief Recovery Officer. Nissan made sure that it’s Tier 2 and Tier 3 suppliers generated alternate sourcing for their parts. This was to ensure that suppliers could manufacture the same component in different factories across the country and ensure free flow of supply even during disruption. It adopted a supply risk management chain (it had components of risk management). Post the analysis of losses incurred due to the disaster, they re-evaluated and modified their disaster strategy.

Resilience Strategies The well-organized crisis management system adopted by Nissan is the core reason behind the company’s active reactions to the occurrences presented in the case. This system was comprised of numerous factors including but not limited to the quick decision making and the firm’s earlier developed capabilities that would make speedy recoveries. To begin with, Nissan established a clear order of importance as well as its diagnosis that is significant in aligning and sharing the disaster management vision with all stakeholders for rapid actions attributing to the process of making quick decisions after the occurrences. Besides, Nissan used the capabilities of making speedy recoveries that it had developed earlier. According to Aggarwal and Srivastava (2016), Nissan had already well prepared its evacuation centers and routes in advance, and the company had been applying seismic retrofitting as well as requirements in all the plants and facilities in the areas prone to earthquakes since 2003. This means that Nissan had already established an efficient plan to counter the disaster long before it occurred. It is documented that the organizational approach was to put the safety of its employees first and understanding the

safety of its suppliers, dealers, and affiliated companies before engaging in the best ways of restoring the operations. However, none of the strategies above could have succeeded. Nissan failed to gather its key executives and analyze the disaster and sketch out possible solutions quickly. Based on Aggarwal and Srivastava (2016), the company had the ability to work together in a quick and focused way, making it possible for the hundreds of workers from other sites developing an interest to assist in the recovery mission. Analysis Although Nissan’s disaster recovery efforts were hailed as the industries best disaster recovery and crisis management plans, there is still much improvement required from Nissan to reduce the production impact. Nissan’s future course of action should include an evaluation and subsequent update to its current disaster recovery plan to include additional safety guards during a disaster. The initial improvement should be directly to employee training employees. A disaster recovery training program should be established to ensure that employees should receive additional training on reacting during a disaster. This training program should also include a guideline of how to prioritize business activities in the event of a disaster. Within this guideline, a road map of delegated tasks should be shared. This road map should include the process for assessment reporting and how they will be communicated and to whom. Senior management teams should also be involved and identify provided as to who will arrive at the disaster area to assess any damages and as well, provide real-time decisions on critical business activities (Should employees continue, cease or pause). With these changes, Nissan will have a more comprehensive

disaster recovery plan with an increased reduction in production loss in the event of future disasters.

Recommendation Select Nissan Financials, 2009-2011, (millions of yen)

[ CITATION Sch13 \l 1033 ] Nissan's overall performance for the calendar year 2011 was phenomenal compared to the calendar year 2010. Because of their performance, Nissan has proven resilience to maintain in times of natural disaster- its ability to strategize, evaluate, and implement during times of crisis. With strict Business continuity plans in place, they have the power to make demand from their tier suppliers to ensure they can always meet their needs especially in times of crisis. What Nissan has done is historical in terms of supply chain management.

Nissan's structural and resource issue after natural disasters: 

A fire broke out at Tochigi Factory and a foundry in Iwaki

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Damage to the Tochigi Factory, Iwaki factory (engines), Yokohama Factory (engines, etc.), Oppama Factory and Zama Works (lithium-ion batteries, so forth)

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Part suppliers have difficulties to restore operations

Overall, recovery efforts were executed appropriately by Nissan. They understood where resources need to disburse and identified key links necessary to restart operations. But what I do recommend are, identify ways to protect foundries and structural assets (waterproofing and fireproofing). Conclusion The earthquake and tsunami of 2011 were severe natural disasters that caused major damage to parts of Japan. Although a natural disaster is not something you can predict, one must always be prepared. “The foremost effect of the disaster, however, was suffered by Japanese automakers. Their assembly plants were shut down for weeks (Rafferty & Pletcher).” Additionally, Nissan lost 2,300 vehicles that were ready to be shipped to the United States. Given the severity of the storm, it seems to be unpredictable. However, knowing these vehicles had to go to the United States, Nissan should have arranged for most of them to be shipped before the disaster occurred. This may have resulted in a smaller loss. Setting up the Global Disaster Control Headquarters (GDCH) provided updated information on disaster management, work for employee safety and ensured business continued. Although it took no time to set up, this is something that should have been set up in preparation for a disaster. Toshiyuki Shiga of the Global Disaster Control Headquarters mentioned that the company has been providing training drills since 2003.

Based on Nissan’s total loss after the disasters, improvements need to be made to their training drills. Using what they learned from the earthquake and tsunami, they can create a more realistic training to prepare for any future events that may occur. In the end, natural disasters are unforeseen challenges that companies must approach heads-on to ensure they protect their assets and or supply chain. Without proper measures, companies may sustain a total loss or minor correction. However, with Nissan, they handled recovery efforts for the 2011 earthquake and tsunami to the best of their capacity through practice and proper implementation of risk/crisis management, along with learning and systematic improvement for future events.

References: Schmidt, W., & Simchi-Levi , D. (2013). Nissan Motor Company Ltd.: Building Operational Resiliency. MIT Sloan Management, 13-149.

Aggarwal, S., & Srivastava, M. (2016). Nissan: Recovering Supply Chain Operations. Management Development Institute https://www.britannica.com/event/Japan-earthquake-and-tsunami-of-2011[ CITATION Sch13 \l 1033 ]...