manufacturing capability

manufacturing capability

magnitude earthquake, among the five most powerful on record, struck off the coast of Japan. Tsunami waves in excess of 40 meters high traveled up to 10 kilometers inland and three nuclear reactors at Fukushima Dai-ichi experienced Level 7 meltdowns. The impact of this combined disaster was devastating, with over 25,000 people dead, missing or injured.1 Governments, non-government agencies, corporations and individuals in Japan and around the world responded with relief teams, supplies and donations to help ease the suffering and support the recovery.2 In truth, the disaster was three calamities in one – an earthquake, a tsunami and a nuclear emergency. Recovering from such a catastrophe was unprecedented. The event was not just a humanitarian crisis, but also a heavy blow to the Japanese economy: 125,000 buildings were damaged and economic costs were expected to be ¥16.9 trillion.3 In the weeks following the disaster, approximately 80% of Japanese automotive plants suspended production and Mitsubishi UFJ Morgan Stanley Securities estimated utilization at other plants were below 10%.4

1 Ministry of Foreign Affairs, Government of Japan, http://www.mofa.go.jp/j_info/visit/incidents/index2.html, accessed July 15, 2012. 2 Ministry of Foreign Affairs, Government of Japan, http://www.mofa.go.jp/j_info/visit/incidents/pdfs/r_goods.pdf, accessed July 15, 2012. 3 Ministry of Economy, Trade and Industry, Government of Japan, http://www.kantei.go.jp/foreign/policy/documents/2012/__icsFiles/afieldfile/2012/03/07/road_to_recovery.pdf, accessed February 27, 2012. 4 Tsuyoshi Mochimaru, “Auto sector: Our Stance in Wake of Recent Earthquake,” Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., April 12, 2011.

NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY William Schmidt, David Simchi-Levi

August 27, 2013 2

Across the industry, monthly production dropped nearly 60% in March and April 2011 compared to 2010, and did not fully recover until October.5 Production for all of 2011 was down 9%.6 Markets outside of Japan were affected as well. Toyota, Honda and Nissan, the three major Japanese automotive original equipment manufacturers (OEM), exported a significant amount of their Japanese production to serve foreign markets (Exhibit 1). Declines in Japanese production impacted product availability in those export markets. In addition, overseas production had expanded in recent years, but only 70% – 80% of the production components were sourced locally with the remaining 20% coming from Japan.7 Disruption to the Japanese supply base affected firms and factories around the world. Toyota, Honda and Nissan were all impacted by the disaster (Exhibit 2). In particular, Nissan suffered damage to six production facilities and about 50 of its critical suppliers were impaired. Nevertheless, the company was prepared to withstand the shocks.

History of the Japanese Automotive Industry

Prior to the 1930’s the domestic automobile manufacturing capability in Japan was essentially limited to military-sponsored initiatives, hand-built models and imported automotive kits.8 The industry’s nascent steps toward mass production started in 1933 when Aikawa Yoshisuke established Jidosha Seizo Company, the predecessor of Nissan Motor Company.9 Around the same time, Toyoda Kiichirō established an automobile department within Toyoda Automatic Loom, which would eventually grow into Toyota Motor Company.10 In spite of protectionist government policies restricting imports and direct foreign investment, prior to World War II the Japanese subsidiaries of Ford and General Motors dominated the automobile industry in Japan. After the war, Nissan and Toyota were hobbled by low production productivity and were at risk of slipping into bankruptcy if not for a combination of huge governmental loans and special orders from the United States Army during the Korean War.11 Japanese automotive firms initially relied heavily on technology transfer from the United States and Europe. Toyota was more aggressive in developing internal research and development capabilities, a strategy eventually adopted by other Japanese automobile manufacturers.12 Japanese automotive manufacturers also concentrated on process improvements, with Toyota being an early innovator. In

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