The Kumamoto quakes once again exposed the vulnerability of key component supplies for automakers and electronics firms — a problem that was highlighted earlier by the 2011 Great East Japan Earthquake and tsunami. Toyota Motor Corp. had to suspend most of its car production across the country for weeks after the local plants of its group company making engine and door parts for Toyota vehicles were hit by the series of powerful temblors in mid-April. While the disrupted output operations are gradually being restarted, manufacturers should review their supply chains to make them more resilient to natural disasters.
With an abundant supply of clean water and plenty of available land, Kumamoto and Oita prefectures are home to a concentration of plants manufacturing auto parts and semiconductors. Disruption to their output affects auto and electronics manufacturing nationwide, which can seriously hurt Japan’s economy as a whole.
Toyota gradually halted most of its car assembly lines across Japan beginning April 18 after the Kumamoto units of its group firm Aisin Seiki Co. stopped operating due to the quakes. Toyota managed to fully restart its output on May 6 after Aisin began to build the parts made at the Kumamoto units in other plants and secured parts from its overseas operations. Toyota says the disruption is estimated to have cut its car output by some 80,000 units. SMBC Nikko Securities earlier calculated that a production loss of 50,000 units by Toyota alone — or equivalent to 7 percent of the total monthly auto production in Japan — would push down the nation’s industrial output for the month by about 1 percentage point.
Car assembly lines rely on 20,000 to 30,000 parts and components from large numbers of suppliers. After the Pacific coastlines of Tohoku were battered by the giant tsunami that followed the 2011 quake, the long-term suspension of parts supply from plants in the affected areas paralyzed their supply chain over an extended period, halting assembly operation of Japanese automakers not just in Japan but also in their North American and Southeast Asian plants.
Many companies learned crucial lessons from the disaster: to diversify their sources of parts procurement, divide the output of crucial components to multiple locations and beef up the quake-resistance of their production equipment. Still, output was disrupted again by cuts in supplies from Kumamoto since the makers relied on specific suppliers for certain parts. The Aisin unit in Kumamoto, for example, was responsible for 75 percent of the group’s domestic output of the door part for the Toyota vehicles.
Though the supply disruptions are being eased and will be overcome in time, the manufacturers should review their responses to the Kumamoto quakes and see what else needs to be done. Some parts makers are reportedly checking their crisis responses so that they will be able to maintain their supply of crucial parts to automakers during emergencies such as natural disasters. Aisin, which had to retrieve molds from a damaged plant to build the parts at its other units, is said to be considering preparing spare molds so that it can quickly restart production at a substitute plant in future emergencies.
Many large Japanese companies are said to have business continuity plans that detail the procedures for resuming operations that are halted in emergencies. But to establish supply chain networks that are more resilient to severe disasters, efforts by small and medium-size parts suppliers, including subcontractors to large corporations, will be crucial. The latest edition of the white paper on small and medium-size enterprises, released by the Ministry of Economy, Trade and Industry just after the Kumamoto quakes hit, showed that only 15 percent of such firms have business continuity plans. Since many of those companies play key roles in the supply chain, they should be urged to beef up their crisis responses. The government and big companies that do business with those firms should provide support for such efforts if necessary.
Continuity of business operations in times of major disasters is crucial not just for maintaining manufacturers’ supply chains. Retailers and distribution services make up an essential part of the social infrastructure that supplies daily necessities to people affected by severe disasters. Businesses as a whole should see it as their social responsibility to continually improve their crisis responses, given that natural disasters like the Kumamoto quakes can hit anytime, anywhere.
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