SUPPLY-CHAIN CHALLEngES IN POST-EARTHQUAKE JAPAN Japanese automakers have long been known for the quality of their products, and especially for the efficiency of their streamlined manufacturing and supply processes. Thus, few people could have predicted how severely the destructive earthquake and tsunami that struck Japan in March 2011 would disrupt the country's entire auto industry. Matters were further complicated by the damage the quake and floodwaters caused to one of Japan's nuclear power plants, interrupting power supplies around the country for an indefinite period and creating a dangerous radiation zone for miles around the plant. Following the quake and ensuing floods, most automotive factories in Japan were closed for at least several weeks, bringing to a halt about 13% of worldwide auto production. Toyota, Honda, and Mazda shut down many of their parts and manufacturing plants in Japan, and Toyota also announced plans to suspend production in at least one North American plant because of parts shortages. The company said it would make plant improvements and run training programs in its other U.S. facilities while the assembly lines were idle or run operations on a part-time basis to conserve its parts inventory. Honda, Nissan and Subaru also reduced their North American output as they anticipated and tried to deal with expected parts shortages. Since one of the guiding principles of Lean production is to keep parts inventories as low as possible, it wasn't long before these shortages occurred. "The supply chain in the automotive industry is so fragile, said one legal advisor to the global auto industry. "It's based on just-in-time principles, where you don't have a lot of inventories built up, so you leave yourself without much margin for error when a supply interruption happens. Industry observers predicted that about half of Japan's auto capacity would remain closed for at least eight weeks after the disaster, which would eventually put about one-third of worldwide production in jeopardy, as the effects of parts shortages made themselves increasingly felt in manufacturing facilities far from Japan. One auto industry research firm predicted X + Q that about five million cars that the industry had expected to sell in 2011 would never be made. By spring and summer 2011, in fact, U.S. auto dealers were reporting what one called "a lot of emptiness" in their showrooms. Many logged dwindling sales as supplies fell to as little as one-fifth their normal levels, and popular cars such as the Honda Civic and Accord went out of stock. Without new cars to sell, even trade-in sales were slowing, and all the Japanese carmakers were anticipating huge financial losses for the year. Honda posted a 27% decline in sales for August, and Toyota anticipated a dramatic 31% profit decline for the year. One reason Nissan was relatively less hard-hit is that it had been anticipating a big sales year before the disaster and so had increased its inventory above normal levels, which reduced the impact of the parts shortages on its ability to fill dealers' orders. After the earthquake, the company simply built what it could with the parts that were available until shortages eased. Although the Japanese auto industry worked hard to quickly return to full capacity, output was still not fully restored some six months out. The disaster's long-lasting ripple effects thus motivated industry executives to consider some changes in their vaunted manufacturing and supply operations. Tradi-tionally, Toyota had used a single source for many parts that were common to more than one of its car models. Although the company locally sources about 85% to 90% of parts and materials needed for its North American manufacturing opera-tions, a strategy that should make it less vulnerable to supply interruptions in Japan, it actually builds a larger proportion of its vehicles in Japan than do the other automakers, so the March disaster was a serious blow. In response to these problems, Toyota's management began putting together a plan for a "foolproof" supply chain, one that would enable it to recover from a disaster like the March quake and tsunami in as little as two weeks. The plan has three parts. First, Toyota will try to increase standardization of auto parts so all Japanese carmakers can share the supply. These parts will be made in several locations to ensure uninterrupted sup-ply. Next, the company plans to ask its upstream suppliers of highly specialized parts, or parts that are sourced from only one location, to hold larger inventories than they have been carrying and it will also try to open up new options for manufacturing such parts to reduce its dependence on single sources. Finally, and perhaps most ambitiously, Toyota hopes to make each of its global regions independent of the others in terms of parts sup-ply. so supply chain disruptions in one area will not spill over into the operations of any other areas. These plans will take several years to implement. What remains to be seen in the meantime is how well Japanese au tomakers can recover their financial losses and also recoup the loss of market share they suffered when they could not meet the global demand for their cars. Questions 1. What are some of the advantages of the supply chain used in the Japanese auto industry before the March 11 earthquake and tsunami? What were some of its disadvantages? 2. Is Toyota's plan for a "foolproof' supply chain consistent with the Lean production philosophy? Explain. 3. Can you think of any additional ways Toyota (and its competitors in the Japanese auto industry) can improve upon the company's plan to make a "foolproof" supply chain? 4. What impact do you think Toyota's plan will have on the way it handles relationship management in its supply chain