Natural disasters are, by their very nature, events that companies cannot plan for with any degree of precision. Strategies that address the possibility of natural disaster, therefore, must be oriented towards overall resilience, shoring-up weak links and contingency planning. The main event in recent memory that affected the global auto industry (apart from COVID responses) was the earthquake and ensuing tsunami in Japan in 2011 that caused the Fukushima Nuclear Disruption. The exact nature of this event could never have been predicted. However, systems could have been in place (and have since been implemented) to address the most common natural disasters in that area of the world. Manufacturers in other geographical regions must evaluate their greatest vulnerabilities to natural disasters and create plans to prevent, mitigate, and deal with the aftermath.
Analyze The Situation
One of the lessons learned during the Fukushima disaster is that suppliers beyond Tier 1s matter a great deal to the rest of the health of the supply chain. However, very rarely is it obvious which other suppliers lie upstream of Tier 1s. As long as all of the materials arrive on time, it doesn’t really matter where everything else is coming from. This is true until materials from Tier 2, 3, and 4 suppliers (and so on) stop flowing and affect the rest of the downstream supply chain. The first thing that any automotive manufacturer must do is observe and understand the supply chain and where lower-tier goods come from, how they get there, and what intermediate steps are.
Toyota, in response to the Fukushima disaster, made extreme and positive changes to supply chain transparency. Toyota built a supply chain database and collected information for each item produced by each supplier. This allows the OEM to understand almost immediately which parts of production will be affected in the event of a natural disaster. Furthermore, Toyota requested its Tier 1 suppliers to collect information for Tier 2 suppliers and beyond to ensure as much transparency as possible.
Having access to this kind of information allows Toyota to understand the extent of the disaster’s effect on production and plan for alternative production methods. This approach has significantly accelerated their ability to adapt and respond to natural disasters.
Beyond implementing plans for supply chain transparency, one of the best things that OEMs and even Tier 1 suppliers can do is to diversify their own stream of suppliers. The main kind of diversification to protect against natural disasters is geographical diversification of the different suppliers. Not only will this mitigate the effects of natural disasters, but it will also help to reduce the effects of other negative events like political unrest, recessions, and more.
Toyota, in response to the Fukushima disaster, made a concerted effort to diversify its supply chains and component sources. Essentially, Toyota took a distributed approach to inventory management and distributed production among several different suppliers from which they now order. The goal in doing this is to establish a backup system before any natural disasters ever happen. This ensures that production can still be done from a variety of different locations. Even if one goes offline, production levels can still be maintained.
In addition to diversifying suppliers, Toyota is also taking the initiative to share information, case studies, and best practices to help suppliers to make their own plans. While some may consider this information as proprietary and sensitive, sharing it contributes to a more robust supply chain. By teaching and sharing ideas with critical suppliers, Toyota has been able to create a highly stable supply chain that can continue working even during natural disasters.
The topic of maintaining a certain amount of inventory must also be addressed when evaluating production capacity. Just-in-time inventory can reduce inventory costs to the lowest possible level. However, there is a commensurate danger that, if the supply chain suffers for any reason, adequate inventory may be unavailable. Manufacturers must therefore understand the different risk levels associated with each supplier (especially critical suppliers). Their understanding of these risks will inform, in part, the amount of inventory kept on at any given time. Toyota as well as many other OEMs have reevaluated the amount of inventory kept on hand (or at auxiliary warehouses). JIT/JIS certainly has its benefits. However, critical supplies that exist in a zone of frequent natural disasters should have extra buffer inventory.
Deploy Recovery Teams
Finally, several OEMs (Mazda, Nissan, Toyota, and more) and Tier 1s have created disaster response teams to support continued production in areas affected by natural disasters. To make these lists as relevant as possible, yearly monitoring for natural disaster vulnerability is necessary. The members of recovery teams should also be comprised of highly skilled managers who know how to run a plant, can think creatively, and communicate effectively.
Applied to COVID
While many of these preventative measures were developed by Asian car manufacturers to mitigate the risks of an earthquake, they proved to be quite effective during the COVID pandemic. Supply chain visibility and transparency helped these OEMs whether the pandemic better than other manufacturers. Cross-referencing the areas affected most by pandemic restrictions gave Toyota and Mazda an advantage to begin planning production at alternate sites. Global shutdowns and force majeure ultimately brought all production across the world to a standstill for several weeks. However, those companies that understood their supply chains and could move with agility to replace production were those that performed the best.
How Seraph Can Help
Natural disasters are rare events that may or may not ever affect a manufacturer. However, every company has crises from time to time that affects production schedules and productivity. Organizations in these positions often turn to Seraph to help control, stabilize, and improve the situation in as little as 12 weeks. Our team of specialized operational consultants works alongside manufacturers and acts as a support structure to optimize logistics and operations. Our advisors are former management at many suppliers and OEMs and are experts in production, operational efficiency, and crisis management. Contact us today to schedule a discovery call, or see our case studies for more information.