Supply Chain Resilience Management: Is the Japanese Automotive Supply Chain resilient enough?

Analysis of Resilience Capabilities of Readiness, Response and Recovery - A Case Study of Riken Corp.


Seminar Paper, 2010
39 Pages, Grade: Distinction

Excerpt

I TABLE OF CONTENTS

II LIST OF FIGURES

III LIST OF TABLES

IV LIST OF ABBREVIATIONS

V ABSTRACT

VI COPYRIGHT AND INTELLECTUAL RIGHT STATEMENT

1. Introduction

2. Overview of the Japanese Auto Manufacturing Industry

3. Japanese Automotive Supply Chain and Theoretical Resilience Framework
3.1 Generic Japanese Car Manufacturing Supply Chain
3.2 The Impact of Supply Chain Disruptions on Japanese Automotive Industry
3.3 Theoretical resilience model
I. Event readiness
II. Efficient Response
III. Recovery
IV. Competitive Advantage

4. Testing the Resilience Model and Identifying Potential Competitive Advantage
I.Was the Japanese automotive industry ready enough for the earthquake event?
II. How does the Japanese automotive supply chain response to disruption events?
III. Is the Japanese automotive supply chain capable of recovering from its losses?
IV. What competitive advantage can the Japanese automotive industry gain from a more resilient supply chain?

5. Conclusion

VII REFERENCES

VIII APPENDIXES

II LIST OF FIGURES

Figure 1: Generic Japanese car manufacturing supply chain map

Figure 2: Supply chain resilience theoretical model

Figure 3: Kraljic matrixhelps identifying the criticality of the product part

Figure 4: Vulnerability of Japanese car manufacturing supply chain regarding the piston ring supply

III LIST OF TABLES

Table 1: Impact on physical good flow, financial flow and equity of the three main car manufacturers

IV LIST OF ABBREVIATIONS

Abbildung in dieser Leseprobe nicht enthalten

V ABSTRACT

Since 1980’s the Japanese car manufacturing industry has been celebrated as the most efficient car industry in the world regarding production systems and processes. However, on 16 July 2007 this efficiency of the entire Japanese automotive industry was challenged when an earthquake hit the Chuetsu region in Japan and decimated a small but critical portion of its supply chain. Riken Corp., a supplier of automobile engine components such as piston rings, was this critical supply chain bit. Its failure to operate after the event caused a chain reaction of plant closures of the main eight Japanese car manufacturers and parallelised nearly 70 per cent of the world biggest auto production industry. The underlying qualitative study adopts some conceptualsupply chain resilience management models available in the academic literature as theoretical lenses to analyze the Riken Corp. case. The main argument of this research paper is that while the Japanese automotive supply chain is capable of delivering an efficient and effective response to and recovery from an interruption, it, however, lacks the capability of event readiness, which is the active resilience preparation for a supply chain disruption.

VI COPYRIGHT AND INTELLECTUAL RIGHT STATEMENT

Copyright (2009) in text of this dissertation rests with the author, Wladimir Wiegel. Copies (by any process) either in full, or of extracts, may be made only in accordance with instructions given by the author. This page must form part of any such copies made. Further copies (by any process) of copies made in accordance with such instructions may not be made without the permission (in writing) of the author.

The ownership of any intellectual property rights, which may be described in this thesis paper, is vested with the author. It is subject to any prior agreement to the contrary, and may not be made available for use by third parties without the written permission of the author, who will prescribe the terms and conditions of any such agreement.

1. Introduction

Since 1980’s the Japanese car manufacturing industryhas been celebrated in the academic communityand the media as the most efficient car industry in the world regarding production systems and processes.Now, Japan is the largest auto manufacturing industry in the world (JAMA, 2008).

However,on 16 July 2007 this efficiencyof the entire Japanese automotive industry was challenged when the Niigata-ken Chuetsu-Oki earthquakewith the magnitude of 6.8 JMA (Japan Metrological Agency Magnitude) hitthe Chuetsu region in Japan and decimated a small but critical portion of its supply chain[1] (Pawling, 2007). Riken Corp., a supplier of automobile engine components, with its 50 to 60 per cent domestic market share of the highly specialized and customized piston rings, represented this critical supply chain bit[2]. The earthquake on the one side resulted in Riken’s instant production haltin all of its Japan-based plants due to damages in plant and equipment. Subsequently this caused on the other sideachain reaction of plant closures of the main eight Japanese car manufacturers, Riken’s main customers(Chozick, 2007a).The suspensions cost of the entire Japanese automotive industry accounted to a physical production lost of around 125,000 units anda financial loss of around US$1.6 billion[3] in revenueduring this period (Kim, 2007).However, the impact of this disruption was short-lived, as the eight car manufacturerswere able to resume production lines in within one week as Riken cameback on-line(Chozick, 2007a).

The Riken case indicates how small disruptions within the automotive manufacturing supply chain and in the production of a small components, such as a piston ring, costing US$1.50 a piece, can temporarily parallelise nearly 70 percent of the world biggest auto production industry(Chozick, 2007b).Consequently, this case emphasizes the importance and necessity of supply chain resilience management within the automotive industry.

The main argument of this research paper is that while the Japanese automotive supply chain is capable of delivering an efficient and effective response to and recovery from an interruption, it, however, lacks the capability ofevent readiness, whichis the activeresilience preparation for a supply chain disruption.

In the following, first a brief overview of the Japanese automotive industry is provided. Then, a supply chain is mapped out and a theoretical resilience framework introduced. After, this resilience frameworkis tested against the Riken case and potential resilience improvements and competitive advantages identified.

2. Overview of the Japanese Auto Manufacturing Industry

Since 1970s, and the two major oil crises, Japan’s car industry realised their global competitive advantage of their advanced production systems and of their small, efficient and relatively low cost cars. With this advantage-base the domestic strategy moved towards an export-oriented strategy, which resulted in 54 percent of the domestic production to be exported in 1980 (Shimokawa, 1994, p. 5-17). With the following higher appreciation of the Yen and saturation of the domestic car market in the 1980 the local export oriented operations strategy was redesigned towardsa global production strategy. The main car manufacturers, together with their main partsuppliers, set up production plants in North America and Europe and followed the same operations model as in Japan,which provided them with a competitive advantage in the home markets of their western competitors(Shimokawa, 1998). The Japanese competitive advantage in the global environment, contributed thatJapan remained its position as the world’s top automotive producing countryfor the last 30 consecutive years[4] (OICA, 2010).

In 45 years, the Japanese automobile industry was able to increase its annual production one hundredfold – from 111,000 units (including trucks and buses) in 1956 to 11,597,000 units in 2007 (Shimokawa, 1994, p. 9; OICA 2007).The industry represents also Japan’s biggest exporter, totaled US$54.5 billion of export value in 2006, which represented 17.2 percent of the total value of Japanese exports (JAMA 2008).By any measure, the automotive industry plays a key strategic role not only in the Japanese economy but also in the global auto market(Shimokawa, 1994; OICA 2007; JAMA 2008).

Some of the key structural features of the Japanese automotive industry, which contributed to thiscompetitive advantage, are theKeiretsu concept, the close and long-term relationship ties to key suppliers, and the lean production system.

The key structural feature of the Japanese automotive industry is the coexistence of eight automotive firms known as the ‘competitive coexistence’. Japan has eight passenger-car companies that also produce trucks and busses(Shimokawa, 1994, p. 18). The big three auto manufacturers have been Toyota, Honda and Nissan, which account to 57.3% of the total Japanese production for the years 2007 to 2009.Despite intense competition, a strategic path of collaboration or grouping known as Keiretsu is being made for survival, but without consolidation or mergers. The Keiretsu concept refers to clusters of interlinked Japanese companies and the specific ties that bind them(Lincoln, Gerlach and Takahashi, 1992; Lincoln and Ahmadjian, 2001).Keiretsu networks reduce costs, risks, facilitate communication, ensure trust and reliability, and provide cover from outside competition (Banerji and Sambharya, 1996; Lincoln, Gerlach and Ahmadjian, 1996).

Further key characteristic of the Japanese automobile industry is its efficiency in the organization of the parts and components supply system (Pegels, 1983). Around 70 percent of the parts and components manufacturing is outsourced to parts suppliers. Here an important Japanese success factor in the competitive environment has been the ability of assemblers to sustain close and long-term relationships with their suppliers. This contributedto higherefficiency in the organization of the component supply system as compared to other Western supply systems at that time. These relationships are characterized by a high degree of two-way dependence, risk and reward sharing, reciprocal equity holding, information exchange, technological and management transfers as well as stable and long-term commitments. These close ties of assemblers and suppliers allow the Japanese car manufacturing industry to maintain a low base of suppliers and contribute a great deal to the highly efficient supply chains and production systems which characterize the Japanese automobile industry(Dyer andOuehi, 1993; Martin, Mitchell and Swaminathan, 1995).

Moreover, the efficiency of the Japanese car manufacturing industry is also characterised through the affiliationof the lean philosophy throughout their supply chain(Gereffi, 1996).The lean production encompass goals such as reduction of non-value adding activities, JITdelivery, low inventories, zero defects,flexible production in small batches, and continuous improvement in quality.Consequently, the material between supply chain entities is characterized to be very frequent on a daily or even hourly tact(Sohal, Ramsay and Samson 1993; Shah and Ward, 2003; Womack and Jones, 2003).

Consequently, one of the major Japanese advantages can be attributed to the efficiency insupply chain. However, as the efficiency of the supplychain increases the risk for high-impact supplychain disruptions increases simultaneously (Chopra and Sodhi, 2004).Astrong, close and stable supplier network greatly enhances the resilience of the Japanese automotive supply chain. However, with a small group of core suppliers, Japanese companies musthave a deep knowledge of each supplier because the unexpected failure of one could be disastrous(Sheffi, 2005).In previous disasters, Japanese automotive companies, such as Toyota, relied heavily on its Keiretsu concept to respond and recover fast (Sheffi and Rice, 2005). However, being able to respond and recover fast is not enough. The companies need to build the capabilitiesthat can enable them to beready to face unexpected disruption events (Ponomarov and Holcomb, 2009). Having this event readiness capability is important for the Japanese automotive industry as it accounts for 13 percent of Japan’s total manufacturing output and eight percent of employment of the 64 million total workforce(Shimokawa, 1994, p.9; JAMA 2008).Consequently, any major supply chain disruption can be disastrousfor the entire Japanese economy.

[...]


[1] See Appendix A.

[2] See Appendix B.

[3] Estimation was provided by Macquarie Securities. A rough estimation was made that each car gives approximately $12,615 in revenue.

[4] See Appendix C.

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Details

Title
Supply Chain Resilience Management: Is the Japanese Automotive Supply Chain resilient enough?
Subtitle
Analysis of Resilience Capabilities of Readiness, Response and Recovery - A Case Study of Riken Corp.
College
University of Manchester  (Manchester Business School)
Grade
Distinction
Author
Year
2010
Pages
39
Catalog Number
V167383
ISBN (eBook)
9783640846023
ISBN (Book)
9783640849055
File size
1536 KB
Language
English
Tags
Resilience, Readiness, Response, Recovery, Automobile Industry, Japan, Supply Risk Management, Disaster Recovery Planning, Keiretsu, Japan Automobile Manufacturers, Supply Chain Breakdown, Supply Chain Management, Supplier, Competitive Advantage
Quote paper
Wladimir Wiegel (Author), 2010, Supply Chain Resilience Management: Is the Japanese Automotive Supply Chain resilient enough?, Munich, GRIN Verlag, https://www.grin.com/document/167383

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