MANAGING SERVICE AND MANUFACTURING OPERATIONS (GDGMSI402)

Submitted on: 12.11.2013 Submitted by: Punita Gadhok (120180) PGDBM 2

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ACKNOWLEDGEMENT:
I would like to express my heartiest gratitude towards my project supervisor and guide Mr S Das whose support and guidance has led to the successful and timely completion of the project.

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TABLE OF CONTENTS

Introduction Response of Nissan to the Disaster and its Relative Costs and Benefits SWOT Analysis Additional Measures as a response to the Disaster Assessing the risk of Disruption in Supply Chain Product Line strategy Future Approach References

04 04 06 06 07 08 09 10

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Introduction:
The case talks about natural calamities such as earthquake, tsunami etc posing a great threat to the functioning of a business and affecting its operations on a large scale. On March 11, 2011 an earthquake struck off the coast of Japan. The impact of such disaster was devastating. The automotive industry comprising big Companies such as Toyota, Honda and Nissan were hugely impacted by the disaster. The case particularly talks about Nissan, damage caused to the Company by the earthquake and consequently its response to the disaster. Several protective measures were taken up by the Company post the disaster to gain back the momentum of business operations and generate considerable flow of income to stabilize situations. These include sharing information with global regions, allocating supply given capacity constraints and excess dependents across national boundaries, managing production processes and making speedy decisions without lengthy analysis which consumes time. Also several operational changes were announced by the Company in 2012, post the disaster to make the business more sustainable and less prone to severe disruptions.

Response of Nissan to the Disaster and its Relative Costs and Benefits:
As a response to the disaster, the Recovery Committee (established by Nissan to coordinate global recovery actions) laid emphasis on few meaningful practices such as: Sharing information: Since Nissan is a globally operating Company; it ought to share information with their global operational regions about the disaster affected situations. NonJapanese firms associated with the operations of the Company might directly or indirectly get affected by the mishap. Hence, sharing reasonable information can keep them informed for the betterment of their own interests. However, there are certain limitations faced by the Company regarding this. These include, an additional effort to provide information to the concerned global regions might distract the people handling on the ground crisis and the information provided could also be used selfishly for their own personal interests. These two issues were a major concern to the Company. Hence, to overcome these, Company decided upon asking each region to send two staff members to Japan to gather information concerning their interests rather than providing them unwanted information which could be later misused. Holistic approach was adopted by the Company in solving problems which is good for the Company as a whole. This idea of sharing information led to valuable contribution from global regions instead of becoming a burden on the Company. Allocating Supply: Post the disaster, several consequences were faced by the Company. Such as: capacity constraints and dependencies across the Nissan operational network. However, allocating component parts was a critical decision for the Company. Allocation of supplies is another important area of aspect which is to be considered by the Company and seriously looked into. This determines continuity of operations and vigilance. The Company particularly focussed on high margin goods for allocating supplies instead of low margin Page | 4

goods. For example, the supply of Integrated Global Positioning System (GPS) was confined to high-end models of cars rather than low-end models. This helps in optimal utilization of scarce resources available, enables manageable supply allocation in different regions and further enhances revenue generation of the Company during the time of such catastrophe. Managing Production: In such a situation, the production process of any Company gets affected. Hence, Nissan slowed their production upstream and downstream considering anticipated bottlenecks. This further saved them from costly overtime. For any Company, in such a situation, in-stock and in-transit inventory would be the first priority than producing new goods. Hence, the Company focussed on these. The Company also used the in-transit inventory time to identify and implement supply alternatives of critical components. This indicates effective time management by the Company. The Management of the Company could also secure air freight to get the critical parts out of their country faster and reduce the apprehension towards in-transit stocks. Empowering Action: The well-developed emergency response plan established beforehand helped the Company in making quick decisions after the disaster. Foreseeing situations arising from a major disaster and preparing well for them enabled the Company to take prompt actions when the time came. Management of the Company was empowered to make decisions without any lengthy analysis from a central authority. The Company also used flexible approach by modifying its delegation of authority to speed up critical decisionmaking process for recovery concerns. One of these decisions includes launching the Global Disaster Control Headquarters after mere 15 minutes of the disaster. The team further, worked upon the situation effectively by assessing damage while overseeing restoration efforts at various facilities. Latest information including details about employees safety and damage caused was absorbed and appropriate actions based on this were taken. Hence, the Company used proactive measures post the disaster situations rather than consuming time and delaying decisions which were indispensable. This was possible only through preparing a backup recovery plan well before the disaster, integrating tasks and taking several imperative decisions timely.

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SWOT Analysis:
STRENGTHS STRONG BRAND RECOGNITION STRONG FINANCIAL PERFORMANCE IN TERMS OF INCREASING REVENUE LEADING INNOVATOR STRATEGIC PARTNERSHIPS (WITH RENAULT) WELL-PREPARED DISASTER RECOVERY PLAN BEFOREHAND FLEXIBILITY IN OPERATIONS EFFECTIVE STRATEGIES ADOPTED POST DISASTER WEAKNESSES RECALL OF VARIOUS MODEL CARS WEAK HOLD OF EMERGING MARKETS LIKE INDIA EXCESS DEPENDENCY IN OVERSEAS MARKETS

OPPORTUNITIES GROWING DEMAND FOR ECO FRIENDLY CARS PARTNERSHIPS WITH OTHER COMPANIES PRODUCING FUEL-EFFICIENT CARS IN LIGHT OF INCREASING FUEL PRICES

THREATS DROP IN FUEL PRICES GLOBAL COMPETITION PREVAILING IN THE INDUSTRY INCREASING COST OF RAW MATERIALS NATURAL CALAMITIES TECHNICAL GLITCHES HUMAN THREATS APPRECIATION OF YEN CURRENCY DYNAMIC BUSINESS ENVIRONMENT

Additional Measures as a Response to the Disaster:

Nissan had well developed an earthquake emergency-response plan beforehand. This is extremely important for any Company to develop an appropriate recovery plan keeping in mind various unforeseen natural calamities such as earthquakes, floods, tsunami etc. Therefore, several other measures which could have been undertaken by Nissan to respond to the disaster include: Maintaining data centre: Data centre is nothing but a collection of routers, switches, firewalls, gateways, network and security solutions etc which helps in storing information or Page | 6

maintaining a physical backup of the information. Therefore, the Company should maintain a database involving all the information regarding stock details, production processes, manufacturing operations, materials required, in-transit inventory, employee details and other business concerned activities. This database should be kept away from the disaster prone area to ensure safety of critical documents and vital records. Involvement of top management or higher level executives: Top management or senior level executives must actively participate in the disaster recovery planning process. They should further be responsible towards coordinating various processes of the plan in order to ensure its effectiveness within the Company. Adequate time and resources should be committed towards developing such a plan. Resources include both financial as well as efforts of personnel involved. Risk assessment: The recovery committee as established by the Company should undertake risk analysis and its impact on the business. This involves foreseeing possible disasters, including natural, technical or human threats. Every functional unit of the organization must be analysed to determine the consequences or impact of disaster scenarios on them. Even worst case situations such as destruction of the whole building should be effectively planned for. Proper measures should therefore, be taken up by the committee to face these catastrophic situations by assessing the impacts or consequences and further analysing the costs of reducing potential exposures. Organize and document the plan: A formal and detailed plan should be prepared which follows a standard format and provides for detailed procedures. The plan should therefore, follow a consistent format to ensure its flexibility. It should further include detailed procedures which are to be used before, during and after a disaster. These detailed procedures can be developed by defining backup alternatives. The procedures must also specify methods for making changes or updating the plan in case of significant changes in the system. Test the plan: It is essential to test and evaluate the plan thoroughly on a regular basis (annually) before implementing it actually when the time comes. Therefore, procedures to test and evaluate the plan should be formed and documented. Such an effort provides assurance to the Company whether all the necessary steps are included in the plan or not. Other benefits of testing the plan include: To determine the feasibility of the plan and compatibility of backup facilities within the Company To identify or pin-point red areas in the plan which need proper modification To understand the ability of the Company to recover from the disaster To motivate the personnel in maintaining or updating the disaster recovery plan To provide proper training to the managers or team members

Assessing the risk of disruption in Supply Chain:

When a Company like Nissan is extensively involved in global operations, its supply chain also becomes vulnerable to several disruptions. These disruptions further hamper the smooth flow of operations in the business and disturb the whole system of the organization. Such increase in the risk factors of supply chain and the rapid propagation of disruption have placed many companies in a

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challenging situation as they have to operate in a more risky business environment. Therefore, to assess the risk of disruption following measures can be taken by the Company: Identify current risk and assess it: The Company must identify the risk in first place. Then it should quantify and prioritize the risk and further develop a mitigation strategy to make it less severe. Starting from the customer, the Company must gauge the impact of such risk of supply chain disruption on its revenue. This trail should be followed through the manufacturing cycle to the potential logistics constraints. Identify alternatives for supply and delivery: The Company must build collaborative relationships with its primary and secondary suppliers in order to know which suppliers serve the best alternative sources. Empower trading partners: This can be done by instituting a collaboration platform and designing communications framework to facilitate exchange of information between the Company and its traders while simultaneously cutting costs and reducing potential errors. Selection of vendors in different geographic regions supplying through secondary ports: The Company must maintain a diverse profile of suppliers even if equivalent parts are available in the same region. This will help in case of the country experiencing disruption. Complete involvement with the suppliers: The Company must engage itself in supplier relationships. This is because the Company has to depend excessively on its suppliers if disruption arises and monitor them for any potential risk or problems. Therefore, the Company must know about all risk factors associated with the suppliers which include their financial strength, compliance with regulations, risk managing practices and political stability in their respective country. Flexibility of processes: The Company must be flexible enough in terms of its processes. This is because business environment is dynamic; therefore every Company must constantly adapt itself to the changes in the business environment. This helps the Company in taking prompt actions to changes with lesser impact on its operations or processes. Control of logistics processes: The Company should not rely entirely on suppliers delivery rather bring critical components closer to home country where it makes economic sense and source globally only when there is an assurance of supply. Optimization of buffer inventory or safety stock levels: The Company must make sure that it has enough supplies to keep producing even if disruption arises. This is imperative for the continuity of business and generation of revenue for the Company. Be proactive: Lastly, the Company must proactively enhance its visibility into supply chain operations to get a clear picture of flow of material as it happens.

Product Line Strategy:

Nissan had adopted a simplified product line strategy in comparison to its rivals. Given the capacity constraints after the disaster, the Company went for a build-to-stock strategy for models with greater demand and build-to-order strategy for models with higher customization and lesser demand. Since, the disaster had affected the production process of the Company to a great extent; such a strategy helped the Company to produce goods which assured of generating revenues instead of increasing its burden. The production of models with lower demand were confined to build-toorder strategy so as to avoid any wastage of materials, maintain efficiency of operations and also earn good revenues. Limited resources or affected supplies encouraged such strategies and proved Page | 8

beneficial in such crucial time for the Company. Apart from the above mentioned benefits, these strategies further helped Nissan in simplifying its business operations and product offerings along with substantial increase in its sales. This was urgently required by the Company to boost its sales and earn sufficient amount of revenues to enable persistent business operations without any barriers. Flow of income also improved the financial strength of the Company arising from such crisis which is a major concern. Several functions such as sales, marketing and supply chain management were integrated to decide upon allocation of supply globally so as to generate greater revenues. As per the case, Nissans six production facilities had been damaged and about 50 of its critical suppliers were weakened. Hence, the strategies adopted definitely pulled the Company from such draining scenarios as they addressed exactly the issue witnessed by Nissan. The various benefits of build-to-order strategy can be described as follows: The biggest advantage of build-to-order strategy is to gain specializations of products manufactured. This occurs by manufacturing the product as per customers specifications and expectations. This strategy eliminates unnecessary inventory from the Company by making goods which are actually demanded by the customers. This further gives no scope for dead stock.

Future Approach:
Post the disaster, Nissan adhered to several operational changes in its business to face the future challenges of disruption. These involve increasing the localized production of its cars in several regions of America from approx. 70% to 90% by 2015. Efforts were made by the Company to reduce dependency on Japanese-made components in its foreign factories. The Company had also put sincere efforts to better understand the dependency of secondary suppliers apart from primary suppliers within its supply chain. The disaster taught many lessons to the Company which stimulated them to adopt a modifying approach for the betterment of the future of the Company. This included modification of their purchasing process particularly of critical components to enhance continuity of business and making the supply risk concentration beyond tier 1 level less severe. Every Company strives to work even better next time; therefore, Nissan had to prepare even better to protect itself from the next disaster struck. An actionable business continuity plan which comprises of all level suppliers must be prepared as a response to any natural calamity or threat. Also developing a more effective supply chain and risk management techniques make the business more sustainable. These changes, if correctly brought up and executed can clearly contribute towards a better future disaster recovery plan and make the business less prone to severe disruptions.

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References:
Drj.com. 2013. Disaster Recovery Planning Process Part 1 of 3. [online] Available at: http://www.drj.com/new2dr/w2_002.htm [Accessed: 11 Nov 2013]. Inboundlogistics.com. 2013. Minimizing Supply Chain Risk - Inbound Logistics. [online] Available at: http://www.inboundlogistics.com/cms/article/minimizing-supply-chain-risk/ [Accessed: 11 Nov 2013]. Small Business - Chron.com. 2013. Advantages and Disadvantages of a Build to Order Strategy. [online] Available at: http://smallbusiness.chron.com/advantages-disadvantages-build-order-strategy18276.html [Accessed: 11 Nov 2013]. Strategicmanagementinsight.com. 2013. Nissan SWOT analysis 2013 | Strategic Management Insight. [online] Available at: http://www.strategicmanagementinsight.com/swot-analyses/nissan-swotanalysis.html [Accessed: 11 Nov 2013].

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