How a good crisis went to waste

The earthquake and tsunami that took Japan offline in 2011 broke supply chains and created widespread bottlenecks for automakers around the world.

Fast-forward to 2021, and global supply chains are disrupted again, this time as a result of critical shortages of microchips among suppliers and automakers. Were there lessons learned 10 years ago that made today's crisis less painful?

Apparently not.

"I don't think there was any real substantial change as a result of the Fukushima disaster," Mardi Snipes, manager of supply chain excellence at consultancy Umlaut, told Automotive News.

Even if lessons were learned that could have mitigated today's issues, he said, they were overlooked in the industry's bigger quest for lean, efficient operations and better operating margins.

"There have been some incremental changes, but there's also been mainly a reactive approach, and I think that reactive approach more or less has continued," Snipes said.

Before the 2011 supply crisis, risk mitigation was not much of a priority, said Genki Uemura, product director of automotive business development at supplier Sharp Electronics, a subsidiary of Japanese company Sharp Corp.

"Before the tsunami, manufacturing industries weren't really focused on contingency plans," Uemura said. "You would produce at one location based on cost factors and quality factors."

But as the industry recovered from the Fukushima crisis, some in the auto industry considered more cautious supply chain strategies, such as implementing dual sourcing and warehousing and reevaluating the just-in-time production model, as a way to mitigate the risk of natural disasters and other industry surprises.

Sharp made changes in its production. After spending the first few months after the 2011 crisis trying to catch up on supply, the company eventually began to identify disaster plans with customers, including shifting a larger percentage of production from Japan to China, Uemura said.

"After the tsunami hit, a lot of our customers, and even Sharp, realized there needs to be a contingency plan for production and also procurement of our supply," Uemura said.

Since then, the company has added multiple production sites to mitigate disruption risk.

Adding production sites and employing other methods that suppliers considered, however, bring a lot of challenges.

Dual sourcing was considered unfashionably wasteful in the lean production system of automakers such as Toyota until recently. Even in the past five years, crises that could have been somewhat mitigated by dual sourcing have caught the automaker and others off guard.

Warehousing also was viewed as an inefficient, costly and risky practice for suppliers when compared with just-in-time production procedures. Only in the face of the COVID-19 shutdowns have manufacturing executives begun to seriously consider returning to the old practice of keeping caches of product stored in the event of a disruption.

"There seems to be a move to standardize more parts across vehicles to improve efficiencies and have an alternate for production during emergencies," Snipes said.

But just as in 2011, changing global sourcing methods is not quick and simple to implement, Marelli CEO Beda Bolzenius said.

"Dual sourcing was a big topic after the disaster in Fukushima made it difficult to get semiconductors, which are in short supply again because of the pandemic," Bolzenius recently told Automotive News Europe.

"In reality, it's not easy to start buying processors from a different player within a matter of months. A lot of planning goes into your semiconductor strategy."

The Japanese-Italian powertrain and electronics supplier has been making adjustments to its supply chain to stay on top of the shortage and meet automakers' demands.

"We currently keep organizing a lot of premium freight and last-minute deliveries," Bolzenius said. "I have scheduled numerous crisis calls because every day another customer is talking about this."

For a variety of reasons, supplier responses to any crisis are often short-lived, Uemura said.

"The cost of products is very competitive, and everybody focuses on this disaster every couple of years, but quickly the focus becomes cost," he said.

"Mitigating risk is definitely a good thing, but it's always going to cost more than just having one plant," Uemura added. "Having two plants costs more. Having to dual-source costs more. People have, I wouldn't say 'forgotten,' but shifted, the focus more towards cost than risk mitigation. There's a lot more that can be done, but it's a balance."

As automakers and suppliers assess their options to address this year's chip shortage, cost continues to ring critical.

"There's a price for everything," Snipes said. "If you go from a dual-sourcing strategy to a single-sourcing strategy, whether you're focused on just-in-time or you're going to carry more inventory, there's a price to pay. It could be more cost, or you expose yourself to more risk."

Whether the industry's fresh desire for risk mitigation will fade just as it did 10 years ago is yet to be seen.

Bill Diehl, who was CEO of advisory firm BBK during the 2011 crisis and is now an independent industry consultant, believes that many of the solutions considered after the Fukushima disaster would not apply today.

Part of the current predicament is that the auto industry must now compete for microchip supply against the needs of Big Tech — a reality that did not exist to any great extent 10 years ago.

"The chip issue we have today is a new dynamic for the automotive industry," Diehl said. "The OEMs 10 years ago should have been more proactive in trying to understand their supply chain."

This year's crisis is a challenge that the industry should have taken steps to mitigate, Diehl said. "I'm just not sure that they've taken advantage of the lessons learned that they should've."