Running head: NISSAN MOTOR COMPANY BUILDING OPERATIONAL RESILIENCY 1

Nissan Motor Company Ltd.: Building Operational Resiliency

Final Written Assignment

BUS 5910: Management Capstone -Unit 8

Professor George Conley (Instructor)

Date: Friday, March 20, 2020

Abstract

In this final assignment, I will be discussing the case of building operational resiliency of

Nissan motor company in light of the sudden disaster that hit Japan on March 11, 2011 which was

three calamities in one – an earthquake, a tsunami, and a nuclear emergency. I will be investigating

the problem of supply chain the Nissan company faced and its causes. I will be examining different

operational solutions together with looking into their pros and cons available for Nissan company.

I will be suggesting the best solution moving forward together the logical explanation and reasons

behind its selection This final solution will help Nissan company to address the needs of multiple

tiers in the supply chain and plan for faster recovery from future disasters. This will be a result

from the establishment of strong operational resiliency in its supply chain which will sustain its

operations than its slower-to-recover competitors. In the end, the reader will realize how building

superior supply chain operational resiliency, rapid response efforts, flexible supply allocation and

production decisions will allow faster recovery of the operations of multinational companies in

times of crises (“Nissan Motor Company Ltd.”, n.d.)

Keywords: Nissan, Production, Supply Chain, Response, Disaster, Allocation

Section One: Introduction & Problem Statement

Imagine that a multinational manufacturing facility location is in a country which accounts

for around 20% of earthquakes around the world with a magnitude 6.0 or more. Not only that, but

around 1,500 earthquakes strike Japan every year and minor tremors occur nearly every day

(Russell, 2018). Yes, that country is Japan. The seismic activity in and around Japan is very high.

On March 2011 -and among the five most powerful on record- a 9.0-magnitude earthquake hit the

coast of Japan (Satake, 2015). According to Nissan Motor Company Ltd (n.d.), the disaster was

three calamities in one – an earthquake, a tsunami and a nuclear emergency. The event was not

just a humanitarian crisis (over 25,000 people dead, missing or injured), but it was a heavy blow

to the Japanese economy where 125,000 buildings were damaged and economic costs were

expected to be ¥16.9 trillion. Toyota, Honda and Nissan as an automotive original equipment

manufacturers (OEM), export a significant amount of its Japanese production to serve foreign

markets. After the disaster, approximately 80% of Japanese automotive plants suspended

production and Mitsubishi UFJ Morgan Stanley Securities estimated utilization at other plants

were below 10%. Toyota, Honda and Nissan were all impacted by the disaster. However, Nissan

company suffered the most because the damage hit six of its production facilities and impaired

about 50 of its critical suppliers. The important two questions here that needs to be answered are,

what solutions Nissan company followed before and during the disaster and what solutions it needs

to implement after the earthquakes. The answers will provide guidance on how to build an

operational resiliency that will reduce the impact of any future calamities that the company might

face and to maintain its operation running in order to comply with its international obligations.

Nissan Company has an old heritage. The name 'Nissan' originated during the 1930s as an

abbreviation used on the Tokyo stock market for the holding company Nippon Sangyo established

by Aikawa Yoshisuke. In 1967, Nissan introduced its new highly innovative four-cylinder
NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY 4

overhead cam Nissan L engine, which was an entirely new engine designed by Nissan and gained

respect in the worldwide sedan market that made a true jump in Nissan position in the automaker

market (“Team Nissan Inc”, n.d.). The Japanese based automaker is now the sixth largest

automaker with net revenues of fiscal year of 2018 of 11,574.2 billion yen and operating profit of

318.2 billion yen (“NISSAN MOTOR Co., Ltd”, n.d.). The big increase in production and export

of Japanese cars led Nissan company to globalize their operations. According to AlHashim, 1980;

Kogut and Kulatilaka,1994 as cited in Manuj & Mentzer, 2008, Global configurations of

companies provide them with access to cheap employment and raw materials, larger product

markets, additional incentives offered by host governments to attract foreign capital and other

benefits However, the uncertainties and consequent risks that managers face in global supply

chains are associated with these benefits that entice firms to go global (Manuj & Mentzer, 2008) .

Examples of the different risks are the increasing consumer expectations about customer

service/product quality, the increasing cost pressure in logistics/transportation, the increasing

pressure from international competition, the increasing complexity in supplier landscape and many

more (“The challenges ahead for supply chains: McKinsey Global”, n.d). The result is that Nissan

company must include a risk management plan to address these uncertainties and increase its

supply chain resilience in case their original plans of global expansion face them

The issue started when Nissan company adopted an aggressive approach of globalization

in addition to expanding their foreign manufacturing footprint(“Nissan Motor Company Ltd”, n.d.)

e.g. in the United States, Nissan first US subsidiary, Nissan Motor Corporation U.S.A, was

established as early as 1959 (“Team Nissan Inc”, n.d.). However, both approaches were still reliant

on Nissan’s Japan local operations. So, the problem can be defined as the failure of Nissan

management to design and implement a risk management plans for their supply chain in order to
NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY 5

mitigate the danger of Japan’s associated high seismic activity(that accounts for 20% of total

earthquakes around the world) (Russell, 2018) which might disrupt their local and international

supply chain operations. According to Manuj & Mentzer (2008). there are four categories of risks

in supply chain: supply, demand, operational, and security risks. I will illustrate the first two risks

and their reflection on Nissan company case. So, when the earthquake hit the coast of Japan on

March 2011 including the areas of Nissan factories (Satake, 2015), the supply risk –[which is

related to adverse events in inbound supply that affect the ability of the focal firm to meet customer

request (in terms of both quantity and quality) within anticipated costs and time] -(Manuj & Mentzer,

2008) was manifested through Nissan company inability to meet their customer demands after the

disaster. This was evident from the Nissan 1st Q financial report ended June of 2011 period which

indicated that “Net special loss of ¥16.7 billion was recorded, for a profit decline of ¥19.2 billion

from the previous first quarter. This loss was mainly due to Loss on disaster with the Great East

Japan Earthquake” (FY2011 1st Quarter Financial Results, 2011). Another manifested risk was

the operational risk which is related to adverse events within the firm that affect a firm’s core

ability to produce goods and services, quality and timeliness of production, and/or profitability

(Manuj & Mentzer, 2008). This is what happened with Nissan company where six of production

facilities were impacted by the disaster. According to Kouzmin (2008), crises such as this can be

treated as either a difficulty or an opportunity, or both. According to Stolker, Karydas & Rouvroye

(2008), this is where the need for resilient organizations stems from in order to able to respond

quickly to low probability/high-impact disruptions and to minimize cost and damage. Otherwise,

the consequences for the company can be severe if it is not able to deal with these disruptions .e.g.

financial & human losses, critical damage to image, lost market share etc.
NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY 6

Section Two – Literature Review:

Building operational resilience as a business concept is discussed using Nissan company

case study based on real world event. It highlights how Nissan company managed its supply chain

operations and the lessons to be learned on how to deal with a crisis after a natural disaster (“Nissan

Motor Company Ltd.”, n.d.). Nissan company was born in Japan and became a worldwide player

in Automotive industry (“Team Nissan Inc”, n.d.), This was evident by Nissan company becoming

the sixth largest automotive producer with 2018 sales of around 11,574.2 billion yen (“NISSAN

MOTOR Co., Ltd”, n.d.).The issue here is that the seismic activity is very high in and around

Japan. e.g. 1,500 earthquakes strike Japan mainland every year and minor tremors occur nearly

every day (Satake, 2015; Russell, 2018).This present a different challenge for companies that are

operating in Japan including Nissan company where on the other side, they either can benefit from

this situation or not. That will depend on how they will deal with this fact as an opportunity or a

difficulty or both (Kouzmin, 2008). This is where the concept of operational resilience makes its

strong hold (Stolker, Karydas & Rouvroye, 2008). On the other side, it is known that a source of

competitive advantage, is the global supply chain despite that it is conceptualized as a complex

system in which demand-related interruptions create substantial and unexpected costs Levy

(1995). Because of Nissan company sales growth, it expanded its operations globally, but that step

was not void of challenges and uncertainties (Manuj & Mentzer, 2008). e.g. after the disaster hit

Japan, the Nissan 1st Q results recorded net special loss of ¥16.7 billion, with a profit decline of

¥19.2 billion (FY2011 1st Quarter Financial Results, 2011). Part of these uncertainties are

associated with the current situation of mainland Japan and the lack of proper global configuration

(Kauffman & Crimi, 2003), and the other part is related to the foreign markets own challenges e.g.

different laws and labor caliber (“The challenges ahead for supply chains: McKinsey Global”, n.d).

In order to improve Nissan company supply chain operational performance and sustainability, the
NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY 7

vulnerability (Stickles, 2002) of Nissan supply chain has to be reduced and resilience of the system

(Elleuch, Dafaoui, Elmhamedi & Chabchoub, 2016) has to be increased. This can be done through

different solutions like moving Nissan factories and accrediting new part supplier outside

Japan(Supplier Development at Nissan, 2012), but these two alternatives have its social, economic

and legal implications (Morgan & Burnside, 2014). In the end, Nissan has to implement both

operational and strategic solutions where it will address the multi-dimensional tier of a resilient

supply chain operation (Munoz & Dunbar, 2015).

Section Three – Case Elements: Statement of Cause(s)

According to Levy (1995), an international supply chain is conceptualized as a complex,

active system in which demand-related interruptions create substantial and unexpected costs in

terms of rushed shipping, high inventories, and lower demand fulfillment. As explained by Nissan

company John Martin company’s SVP of manufacturing, purchasing and supply chain

management that “it is the supply chain management organization’s responsibility to keep the

production plants running” (“Nissan Motor Company Ltd.”, n.d.). So, in order to understand the

causes that put Nissan company in difficult circumstances because of this disaster, we need to

understand two essential requirements that a company needs to do to achieve success in its global

supply chain operations beyond its borders. According Kauffman & Crimi (2003), of the important

objectives to be achieved in order to have in place a global supply chain configuration that results

in meeting or exceeding worldwide customer are the following two:

o First is to optimize supply chain operations (no. of members, capabilities, costs),

o Second is the assurance of supply of right quality items for production and support

activities.

Although Nissan leveraged a regional, decentralized supply chain structure where it imposed

strong central control and coordination when crises affecting global operations occurred, but If we
NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY 8

measure Nissan company performance over Kauffman & Crimi (2003) objectives, we can see that

the first cause that led to the current problem was the Nissan company failure to optimize its

supply chain operations. The rapid expansion in its manufacturing facilities outside Japan

increased the number of members in the chain. This caused Nissan supply chain to be more

exposed since these facilities were still reliant on the support that come from the mainland Japan

to complete its deficiencies. For example, Nissan company failed to expand for more additional

certified part suppliers to secure 100% supply out of Japan to meet the demand of these foreign

facilities. The impact of this cause was compounded when 50 of Nissan critical part suppliers were

impaired. This can be clarified when we know that 20% of the production component were still

coming from Japan (“Nissan Motor Company Ltd” n.d.).

The other cause of the problem is the close proximity of six of Nissan production plants to

the disaster area e.g. Fires broke out at Nissan Tochigi Factory and a foundry in Iwaki that will

take some time to be repaired (“Nissan Motor Company Ltd”, n.d.). This can be explained also

because Nissan company production in Japan to sales in Japan ratio was 1.2, where the damage in

production facilities led to disruption of Nissan Japanese’s supply base and affected its firms and

factories around the world. Japan is well known to the history of its earthquakes. Failure of Nissan

management to includes in their plans a study of the areas and a plan to move the factories to a

safer place over many years indicates ignorance from their side for a fact that is so obvious which

is, Japan accounts for 20% of earthquakes around the world (Russell, 2018), and that particular

area suffered before earthquakes (Satake, 2015).

Both causes, location and part suppliers, led to a high impact of calamity on Nissan

company operation. This event had impacted to a large extent Nissan financial results and exposed

Nissan’s vulnerability to sudden disruption in the supply chain operations because of natural

disasters
NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY 9

Section Three – Case Elements: Possible Alternatives

The possible alternative solution to the problem of the case study are the following:

1. The first alternative for Nissan company is to shift their Japan production facilities from Japan

to other countries with better safety of natural disasters like the US e.g. [In January 2012,

Nissan announced that it would increase the localized production of its cars in the Americas

from approximately 70% to 90% by 2015] (“Nissan Motor Company Ltd”, n.d.). This will

lessen the vulnerability (“supply chain vulnerability can be defined as ‘an exposure to serious

disturbance, arising from risks within the supply chain as well as risks external to the supply

chain” (Stickles, 2002) of the Nissan supply chain. In addition, this alterative will reduce the

risk that Nissan production facilities face because of natural disasters and its impact on the

supply chain. The other positive side of this alternative when adopting an increased localized

production in a country like the US is that, the facilities are already there and operating, so the

costs associated will be less since the work will not start from the scratch, instead it will be an

expansion process only. Not to forget that the US is a huge market where the demand is there.

In addition, this will increase the pressure on the sales and marketing department to increase

their effort to obtain more market share. The downside of this alternative is that the impact on

the Japan economy and the loss of Jobs that will happen as a result of this move. Also, it

become an ethical issue since it will be seen as a betrayal move by the Japanese people since

the interest of the company comes before the interest of its national people. This view is

explained by understating the Japanese culture where people hate disruptions, seek harmony

and are very loyal to their national product and employers (Morgan & Burnside, 2014). Nissan

move will antagonize all that unless it will take counter measures to reduce such result

2. The second alternative is for Nissan company to expand the certified foreign part suppliers to

secure 100% supply out of Japan to serve overseas factories while keeping the ones in Japan
NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY 10

for serving their local factories e.g. [the company was hoping to reduce the number of

components brought in to North America from Japan by 50% by the end of fiscal 2013]

(“Nissan Motor Company Ltd”, n.d.). Any organization needs to consider the resilience of their

supply chain as a component of continuity where resilience is defined as [the ability of a system

to return to its original state or a more favorable condition, after being disturbed] (Elleuch,

Dafaoui, Elmhamedi & Chabchoub, 2016). The positive side of this alternative is that it will

prevent the situation like what happened in the impairment of the 50 of Nissan local suppliers

after the earthquakes. Thus, there will be no impact on the parts supply for Nissan overseas

factories and it will improve the resilience of Nissan international supply chain. In addition,

the local Nissan Japanese factories will have the access of two source of suppliers. If any

impact happened to the local ones because of natural disaster, still Nissan local factories can

access the other suppliers outside Japan. The downside of this alternative is that those new

suppliers might not provide the same quality, price and service as their counter peers in Japan.

Also, it will take time for Nissan to find such a qualified supplier and validate in order to

accredit them as an official supplier (Supplier Development at Nissan, 2012). In addition to

the decrease in job volume Nissan will offer to its national suppliers because of such move

3. The third possible alternative as it is depicted in the case study constitute no change in the

production facilities status quo but to focus on improvement of crisis management measures

by implementing best practices. These measures need to be followed by Nissan company

different department in order to manage successfully such crises. According to the “Nissan

Motor Company Ltd” (n.d), four measures were adopted:

3.1. First measure was about sharing information. Nissan brought all their global regions into

the response process (each region was asked to send two staff members to Japan)in order
NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY 11

to help solve problems holistically. Because of the complete visibility of the region into

what was happening in Japan they could help the company improve the response.

3.2. The second measure was to allocate supply of component parts that was critical for high

end models with good profit gross margins e.g. Allocation of available GPS units was not

done for Low-end models

3.3. The third measure was to manage production lines in a targeted way through slowing

production upstream and downstream of anticipated bottlenecks and using in-stock and

in-transit inventory within their network to face customer demand ;

3.4. The last measure was the management empowerment to make decisions in the field

without lengthy analysis from Nissan headquarters central authority.

The positive side of these measures is that they proved to be successful in handling the

current crises of 2011 and reduced its negative impact, but the downside of it is that they do

not address the root cause of the problem where the reality is that the seismic risk of main land

Japan is of the highest in the world and such catastrophe might occur back in the future with

the same impact where those adopted measure might lessen the impact but will not remove it

(Satake, 2015)

Section Four – Recommended Action Plan

Of the possible alternatives that will be selected as a solution to solve the Nissan company

is a combination of the first alternative with the second alternative as a final recommendation. The

two solutions will be applied taking into consideration that not all the production facilities will

move out of Japan, and no full deletion of spare part suppliers that come from Japan will happen.

For approving new spare part suppliers, the target is to fill the gap of the 20% current Japanese

supplier by other from outside Japan. For the factories side, the focus will be on the ones that are

critical to the supply chain of Nissan automotive manufacturing. The positive side of this
NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY 12

recommended alternative is that it will improve the Nissan supply chain vulnerability and

resilience when it comes to facing natural disasters. In addition, the move will not address all

Nissan factories and still the local suppliers are there, so neither Nissan factories Jobs nor Nissan

company purchases from their local Japanese suppliers will be eliminated, so the impact on Japan’s

economy will be less. However, the downside of this alternative will be the issue mentioned before

of new supplier challenge accreditation by Nissan quality and supply chain department, in addition

to the partial loss of jobs of moving these factories outside Japan. Not to forget the investment

needed to move these production facilities outside Japan and the risk associated with it such as not

having a qualified labor with similar expertise like the Japanese’s employees

The implementation of this alternative will come into two stage A & B. Stage A will

include different steps. The first one is related to the decision of which production facilities is a

must to be moved outside Japan and which are the ones that can be kept. This will depend on the

nature of importance of each production facility and its contribution to the Nissan car production.

The second step is to locate the country with the best investment & the quality of labor conditions

in order to move that facility to. Third is to plan the resources needed for that move and the cost

of it . Forth is to make the gap analysis on the required resources vs. the available ones and to work

on closing this gap by putting an action plan with a deadline. Fifth is to decide when the project of

transition should start, when it should end and how it will decide on the transition step. The sixth

step is to decide if it needs to build or rent the factory building and to buy new equipment or use

the current factory ones and not scarping it. The last step is to make a compensation plan for

existing employee layoff . The preparation of the plan might involve the labor union and the

Japanese government. Also, it might preserve some of these employees by reallocating them to the

new country production facility

The second stage B of the implementation plan will be related to the addition of new spare

part suppliers. The plan will contain the following steps: first it will start by specifying what are

the parts that will be supplied by the new vendors together with its specification and manufacturing

standards; the second step is to list possible suppliers from different countries and send a request

for information from them about their qualifications and prices; the third step is to apply a filtration

system based on Nissan supplier criteria such as their current industrial certifications, product

specifications, prices, reputation and customer base. The ones that meet the criteria of Nissan

company will be selected for the next stage. The last step is to start negotiating with those suppliers

about the different commercial, supply chain, technical and quality terms. After that, the list of

approved suppliers is reached where they will be enrolled in the Nissan spare part supplier system

to start dealing with them soon

Section Five – Case Solution

As we depict from the solutions to the case study that there are two aspects for enhancing

resilience and reducing vulnerability, one which is strategic ( e.g. the first two alternative solutions

for Nissan company moving its plants and sourcing spare parts outside Japan) for pre-empting

systemic reactions to disruptions and re-formulating business models as circumstances change

(Hamel and Välikangas 2003 as cited in Munoz & Dunbar, 2015), and the other is operational (e.g.

the third solution alternative that Nissan company adopted before and during the disaster), which

will be limited to the existing abilities to recover from a disruption by re-establishing essential

business processes (Stolker, Karydas, and Rouvroye 2008). That lead us to the conclusion that

spanning across multiple tiers (e.g. Manufacturer, Customers, Suppliers & Employees ) is what

characterize supply chain resilience as being inherently multidimensional in nature (Munoz &

Dunbar, 2015).
NISSAN MOTOR COMPANY LTD.: BUILDING OPERATIONAL RESILIENCY 14

In summary, this case is very important to the study of the business because it addresses

multiple disciplines of corporate decisions and actions. For example, this case study showed how

Nissan company although had a successful crises management plans but still their supply chain

was not fully resilient and needed to include a new project of relocating their plants. The other

noticeable thing is that Nissan management proved to have an outstanding leadership in

decentralizing the decisions that needs to be taken by their regional offices in order to reduce the

impact of the disaster. In relocating project also, this case study revealed how Nissan company

would expect to manage the human resources issues when deciding to move outside Japan

including the legal, economical and ethical aspect from government and people perspective. Not

to forget that this case study showed the impact of the supply chain crises on the financial results

of Nissan company and how it become important for any organization to adopt a more proactive

approach in building a stronger resilient operation.

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