Running head: NISSAN MOTOR COMPANY BUILDING OPERATIONAL RESILIENCY 1

Nissan Motor Company Ltd.: Building Operational Resiliency

Final Paper – First Part

BUS 5910: Management Capstone -Unit 3

Professor George Conley (Instructor)

Date: Wednesday, February 19, 2020

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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 that impacted

the whole Japan economy. I will be examining how the organizational structure and operational

decisions that Nissan Motor Company made, allowed the company to recover from the disaster

more rapidly than its peers. In doing so, Nissan was able to increase production and capture

market share from its slower-to-recover competitors. The reader will realize how superior supply

chain visibility, rapid response efforts, flexible supply allocation and production decisions will

allow faster time to recovery for multinational manufacturing companies in times of crises

(“Nissan Motor Company”, n.d.)

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

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Introduction

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

accounts for around 20% of earthquakes around the world with of a magnitude 6.0 or more. Not

only that, but around 1,500 earthquakes strike the island nation every year and minor tremors

occur nearly every day (Rachel 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 (n.d.), the disaster was three calamities in one – an earthquake, a tsunami and a nuclear

emergency. The evert 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

question here that needs to be answered, is how Nissan Motors company managed such a disaster

in order to maintain their operation running and comply with their international obligations

despite the big impact that the mother nature caused.

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
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established by Aikawa Yoshisuke. In 1967, Nissan introduced its new highly advanced four-

cylinder overhead cam Nissan L engine, which was a totally 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.). It comes only behind General

Motors, Volkswagen, Toyota, Hyundai, and Ford. The big increase in production and export of

Japanese cars led Nissan company and their Japanese rivals to globalize their operations. From

one side, this was a positive step in terms of increasing their global market share, but on the other

side, it places different challenges to the company that are different from what they could face

from their local operation. Some of these challenges are the increasing consumer expectations

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

the increasing pressure from global competition, the increasing complexity in supplier landscape

and many more (“The challenges ahead for supply chains: McKinsey Global”, n.d)

 Problem Statement

The problem is summarized by the Nissan company approach that was more aggressive

than its rivals in expanding their foreign manufacturing footprint. For example, in the United

States they started very early back in 1959 where Nissan established their US subsidiary,

Nissan Motor Corporation U.S.A (“Team Nissan Inc”, n.d.). Globalization of the company does

not come without cost. So, when the disaster happened, it affected six of Nissan production

facilities because several of them were in close proximity to the disaster area), in addition to

impairment of about 50 of its critical suppliers. That happened led to disruption of Nissan

Japanese’s supply base and affected its firms and factories around the world (“Nissan Motor
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Company Ltd” n.d.). According to Levy (1995), an international supply chain is conceptualized

as a complex, dynamic system in which demand-related disruptions created substantial and

unexpected costs in terms of expedited shipping, high inventories, and lower demand fulfillment.

According to Kouzmin (2008), crises as a dilemma, opportunity, or both is still an unresolved

and relatively undebated, but the mentioned before challenges by Levy are the ones that Nissan

company must deal with in order to manage the impact of the disaster on its international

operation.

 Statement of Cause(s)

Despite that Nissan company had faced more sever crisis from impending bankruptcy back in

1999 where it was rescued by Renault in the 2007/2008 Global Liquidity, the current crisis took

Nissan by surprise because of the magnitude of the impact (“Nissan Motor Company Ltd” n.d.).

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”. 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:

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

 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
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we measure Nissan company performance over Kauffman & Crimi objectives, we can see that

Nissan company had failed to optimize its supply chain operations. The rapid expansion in its

manufacturing facilities increased the number of members in the chain. It also exposed Nissan

more because of the lack of full capabilities and integrations of these new sits in the new

locations outside Japan which required support from mainland Japan to complete its deficiencies.

In addition, Nissan company failed to expand the additional certified part suppliers to secure

100% supply out of Japan. Both causes led to a high impact of calamity on its operation. In

addition, although Nissan overseas production had expanded in recent years, but still 20% of the

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

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

disaster area. 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 (Rachel Russell, 2018), and

that particular area suffered before earthquakes (Satake, 2015).

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References

Kauffman, & Crimi, Thomas. (2003). Global Supply Chains Step by Step: How to Develop.

Kouzmin, A. (2008). Crisis Management in Crisis? Administrative Theory & Praxis, 30(2), 155-

183. Retrieved February 19, 2020, from www.jstor.org/stable/25610919

Levy, D. (1995). International Sourcing and Supply Chain Stability. Journal of International

Business Studies, 26(2), 343-360. Retrieved February 19, 2020, from

www.jstor.org/stable/155544

Nissan Motor Company Ltd.: Building Operational Resiliency | LearningEdge at MIT Sloan.

(n.d.). Retrieved from https://mitsloan.mit.edu/LearningEdge/operations-

management/nissan-motor-company/Pages/default.aspx

NISSAN MOTOR Co., Ltd. (n.d.). NISSAN | For Investors | Financial Announcements.

Retrieved from https://www.nissan-global.com/EN/IR/FINANCIAL/

Rachel Russell. (2018, June 22). Japan earthquake: Why are there so many every year? How can

people stay safe in earthquake? Retrieved from

https://www.express.co.uk/news/world/978227/Japan-earthquake-why-so-many-Osaka-

stay-safe-earthquake
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Satake, K. (2015). Geological and historical evidence of irregular recurrent earthquakes in Japan.

Philosophical Transactions: Mathematical, Physical and Engineering Sciences,

373(2053), 1-15. Retrieved February 19, 2020, from www.jstor.org/stable/24506325

Team Nissan Inc. (n.d.). Team Nissan NH's History of Nissan. Retrieved from

https://www.teamnissannh.com/history-of-nissan.htm

The challenges ahead for supply chains: McKinsey Global Survey results. (n.d.). Retrieved from

https://www.mckinsey.com/business-functions/operations/our-insights/the-challenges-

ahead-for-supply-chains-mckinsey-global-survey-results