MMRCDISCUSSION PAPER SERIES
No. 509

Balancing Competitivenessand Robustness
Takahiro Fujimoto
Graduate School of Economics,
University of Tokyo, Tokyo, Japan
June, 2019東京大学ものづくり経営研究センター
Manufacturing Management Research Center (MMRC)
Discussion papers are in draft form distributed for purposes of comment and discussion. Contact the author for
permission when reproducing or citing any part of this paper. Copyright is held by the author.
http://merc.e.u-tokyo.ac.jp/mmrc/dp/index.html

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BALANCING COMPETITIVENESS
1
AND ROBUSTNESSTakahiro Fujimoto
Graduate School of Economics,
University of Tokyo, Tokyo, Japan

1

This discussion paper is a reprint of the content, but not the formatting, of chapter 1, "Introduction: Balancing competitiveness androbustness" in Fujimoto, T. and D. A. Heller (eds.) (2018), Industries and Disasters: Building robust and competitive supply chains,
Hauppauge, NY: NOVA science publishers, PP. 1-30. ISBN: 978-1-53612-905-2, Based on the Agreement Between the authors andNOVA science publishers.

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Abstract:
This chapter presents the overall theme of the book, Industries and Disasters –that supply chain robustness and competitiveness can and must be balanced in thisage of global competition – by describing the huge Tohoku earthquake that struck
Japan in 2011 and the actual responses of some Japanese companies. The chapter
also introduces the core theoretical issues addressed in the book. When should firms
pursue: Buffers or capability building? On-the-spot recovery or substitutive
production elsewhere? Bottom-up continuous improvement (kaizen) or top-down
solutions?

Keywords:
The 2011 Great East Japan Earthquake, supply chain destruction, capability building, buffers,
on-the-spot recovery, substitutive production, automobile industry, globalization

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1. THE GREAT EAST JAPAN EARTHQUAKE AND SUPPLY CHAIN DESTRUCTION
1.1. Building Capabilities or Adding Buffers
Motivation and Purpose of the Book: The 2011 Great East Japan Earthquake (Tohoku
Earthquake), with its main shocks, tsunami, aftershocks, as well as the accident at the
Fukushima Daiichi (Number 1) Nuclear Power Plant, disrupted and destroyed numerous
domestic and international supply chains across several industries. During and after theirrecovery/restoration period, there was much debate among practitioners, the media, thegovernment and academics regarding how the Japanese and overseas supply chains should bechanged and improved, to increase their robustness or resilience against the next big
earthquakes, which seem inevitable in this country of frequent natural disasters.
This book is motivated by such a debate and thus consists of various first-handacademic studies on how firms, factories and facilities responded to the 2011 Earthquake andother large-scale disasters, including floods and big fires, learned from them, and enhanced
their preparedness and robustness against them.
Special attention will be paid to the organizational capabilities of firms, factories andother industrial sites (called genba in Japanese) to achieve a difficult balance between
robustness against disasters and competitiveness against rivals. Various Japanese firms andgenba have already made capability building efforts toward greater robustness, more accurate
initial reactions and shorter production and supply recovery times, by learning from the bitter
lessons of past natural disasters. Many of them have also been building capabilities toimprove their industrial performance vis-a-vis intensifying global competition. Indeed, the2011 Earthquake occurred at a time when firms and genba were simultaneously preparing for
global competition, which is present every day, and big disasters, which may come someday.
We will thus emphasize capabilities, rather than buffers, as the most basic element ofdisaster-robustness of firms and industries. In other words, the recommendations proposed inthis book will be capability-oriented, rather than buffer-oriented, although we will try to
strike a certain balance between the two (Fujimoto and Park 2014).
The 2011 Earthquake and the Robustness of Genba: Let us go back to what happened
during the 2011 Great East Japan Earthquake. The damage caused by this earthquake, one of
the largest in the world’s modern history (moment magnitude scale: 9.02), was in many
respects beyond anyone’s imagination. Its main shocks and aftershocks destroyed numerous
buildings and facilities and a tsunami—over 10 meters high and reaching 30-meter-highpoints in some areas—wiped out cities and communities across more than 500 km2 of coastal
areas in North-Eastern Japan (Tohoku). The toll of dead and missing was over 15,000 and, atthe peak time, nearly half a million people were evacuated from their damaged or destroyed
homes. In addition, the accidents at the Fukushima Daiichi Nuclear Power Plant will
seriously affect the surrounding areas for several decades, at least.
The earthquake’s enormous destructive power also hit local industries. The
government estimated direct damage to be 200 billion USD or more. Besides, production
stoppages in the Tohoku region had significant repercussions on overseas facilities throughglobal supply chains. Production lines for global standard components (e.g., microcomputer
chips) were shut down, seriously affecting multiple industries worldwide, and other impacts
of industrial globalization and digitization in the post-Cold-War era made the recovery andrestoration tasks more complex and unpredictable.
There were sharp contrasts in how the government, firms, factories and communities
responded to this unprecedented natural disaster. On the one hand, misjudgment andmismanagement in the early stages and the subsequent slow response to the Fukushima
2

Magnitude 9.0 according to Japan Meteorological Association; In 2016, the US Geological Survey revised its estimation of theearthquake’s magnitude from 9.0 to 9.1.

4
Daiichi Nuclear Power Plant accident by the government and the electric company were
harshly criticized. On the other hand, the tenacity and orderly behavior of the people in thedamaged communities were praised by the media and observers worldwide. Another group oforganizations that was evaluated positively in relation to its robustness and teamwork were
the numerous genba and other sites operated by people in the affected areas. Many of them,including large and small factories, shops, service centers, public transportation systems andpower supply networks restored their supply chains and facilities significantly faster andmore effectively than expected by many industry specialists and journalists, given the sizeand severity of the damage. For example, most of the disrupted genba of Japan’s automotive
supply chains (except for some critical parts and devices) reopened within two weeks ofMarch 11, 2011, or substitutive production was started elsewhere, demonstrating rather highlevels of anti-disaster robustness.
Disasters and Global Competition: And yet, the 2011 Earthquake left behind
numerous lessons, concerns and problems for practitioners, administrators and academics,
who realized that they need to prepare for the next ‘Big Ones,’ which seem inevitable,
wherever or whenever they may happen. Thus, in the aftermath of the disaster, there has beena great deal of debate over possible approaches aimed at improving the robustness of supply
chains against future natural threats.
The debate was complicated, however, by the fact that it had to take into account theindustrial transformations of the early 21st century. For instance, economic globalization has
expanded the supply network worldwide and the design of weighty and highly functional
products such as cars—facing socio-technical constraints in terms of safety, energy
conservation and environmental protection—has become increasingly complex, with integral
product architecture and many product-specific components which are not easily
substitutable. Moreover, revolutionary digital innovations in relatively weight-free products
and devices with open-modular architectures have resulted in highly concentrated productionof the key components on which they depend across industries worldwide.
In addition, factories of tradable goods (e.g., cars and electronic products) in
relatively high-wage countries like Japan have had to face intense global competition fromlow-wage, emerging countries, such as China in the post-Cold-War era. Besides, in the caseof Japan, the yen rose in value to around 80 yen per USD in the early 2010s, compared with
360 yen in 1970, around 240 yen in 1985, and roughly 120 yen in 2000. This meant that theJapanese factories, or genba, had to find ways to avoid not only temporary plant shutdowns
due to disasters but also permanent shutdowns due to overwhelming competition. Thus, the2011 Earthquake may be regarded as the first huge and wide-area disaster that happened in ahigh-cost country facing global competition.
All of the aforementioned developments have made the problem of minimizing
damage to supply chains caused by major and unpredictable disasters more complex anddifficult to solve. And this can certainly happen anywhere in the world, not only in high-wage,
advanced countries but also in newly industrialized areas where wages are increasing rapidly.
Business practitioners and academics have already started discussing measures suchas BCPs (Business Continuity Plans) to deal with disaster situations. The main purpose ofthis book, however, is not to present general procedures for coping with natural disasters, but
to provide empirical studies on how specific firms and factories have responded to actual
disasters and the lessons they have learned from them. These case studies will focus mostly
on one of the countries and periods in which disasters were frequent and competition was, atthe same time, rather tough, e.g., Japan in the post-Cold-War period. We will analyze
various cases of Japanese firms and genba facing the potential dilemmas ensuing fromdisasters and competition, as well as the theories and logic that may be derived from them.

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Design Information Flow View of Manufacturing: From a theoretical point of view, inorder to analyze the destruction and restoration of industrial supply chains, we adopt a broadconcept of manufacturing, seen as creating, improving and managing the flow of valuecarrying design information to customers in the market. This is also called monozukuri inJapanese. We consider the value added of goods and services to reside in design, which refers
to information about the functions of the artifact in question, as well as its structures and theirrelations. Hence, our concept of monozukuri (manufacturing in a broad sense) is design-flowbased, in that its mission is to produce total flows of value-carrying design information to andfrom customers and firms by integrating engineering chains and supply chains (Clark andFujimoto 1991, Fujimoto 1999).
Here, the competitiveness of a product or factory is its ability to attract and satisfy
customers and firms, as it is continually selected by them. Organizational capability in
manufacturing refers to a system of organizational routines which enable genba (e.g.,factories) to achieve stable, fast, efficient and accurate flows of design information tocustomers. Distinctively strong manufacturing capabilities, such as the Toyota Production
System, tend to have a positive impact on the competitiveness of the product and genba inquestion, other things being equal.
Another important concept in the design-based framework of manufacturing is
product-process architecture (Ulrich 1995, Baldwin and Clark 2000, Fujimoto 2007, 2012).
In this context, architecture means patterns of connections between functional and structuralelements of an artifact, such as a product or production process. If there is a simple, one-toone correspondence between a product’s functions (e.g., performance specifications) andstructures (e.g., components), its architecture is design-coordination-saving and is called
modular. If there is a complex, many-to-many correspondence between them, its architectureis design-coordination-intensive and is called integral.
Modular products tend to consist of common parts that can be shared among different
product variations. When these parts have industry-standard interfaces, the products haveopen (modular) architectures, in which standard components and interfaces are shared across
many firms. On the other hand, integral products require a high level of design optimizationand coordination and are often composed of product-specific parts. Many digital products andservices (e.g., computers, the Internet) tend toward the open-modular architecture, while
high-performing physical products (e.g., cars) tend to be more integral. The structuralcharacteristics of the industries in question may differ depending upon the architectures of
their products.
In this context, a supply chain can be regarded as the flow of design information
about a particular product through multiple suppliers all the way to the end-point customers.
It follows from this concept of monozukuri that the anti-disaster robustness of a given supply
chain resides in its ability to make sure that the flow of design information to its customers
continues or that its breakdown period is minimized. In other words, reconstruction of the
supply chain after a disaster is nothing but the resumption of such design information flow.
Since we define supply chains as flows of design information, we may conjecture that thenature of supply chains differs depending on the architectures and the design processes of
their products. If a product is integral and its product-specific parts are co-designed by thecustomer and its suppliers, such parts may be difficult to substitute by other firms when their
supply stops due to a disaster. If the product is open-modular and its standard design parts areavailable in the market, it will likely be relatively easy to find substitute suppliers. In thefollowing analysis of actual cases, such differences in product architecture and design
processes will be taken into account.
With these theoretical concepts and frameworks in mind, we will analyze how
disasters affect supply chains as flows of design information, and how firms and genba facing

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disasters tackle the challenges of restoring and strengthening their supply chains, while
maintaining and enhancing competitiveness at the same time.
Capabilities rather than Buffers: As mentioned above, the 2011 Earthquake may be
regarded as the first vast disaster affecting a large area in a globally competing high-cost
country, Japan. This implies that a supply chain must enhance its anti-disaster robustness
without sacrificing its international competitiveness if it wants to avoid decline before thenext large disaster strikes. Companies should not forget the fact that, while the next disasterwill come somewhere someday, global competition is here every day.
Globally competing firms and genba have to try and strike a difficult balance between
robustness against disasters and competitiveness against rivals, even when the overwhelming
psychological impact of huge catastrophes like the 2011 Earthquake makes the “disaster-firstmentality” prevail in the minds of those on site. More specifically, this book argues thatbuilding capabilities for anti-disaster robustness should be prioritized over adding buffers as
seemingly easier countermeasures. This is because we believe that the former, if carried out
effectively, can simultaneously enhance the supply chains’ robustness and competitiveness,whereas the latter may only strengthen robustness to the detriment of long-termcompetitiveness.
1.2. Impacts of Complexity and Globalization – The Case of the Auto Industry
The 2011 Great East Japan Earthquake showed how natural disasters impact on 21st-century
industries and firms, particularly in higher-wage advanced countries like Japan in the postCold War era, characterized by product complexity and digitization, as well as global supply
chains expansion and competition.
Special attention is paid here to the automobile and its parts industry, one of thesectors in which Japanese firms and factories have retained international competitive
advantages in the early 21st century. The automobile is a complex physical product whosearchitecture is relatively integral or coordination-intensive and it consists of many productspecific parts. The Japanese automobile and parts manufacturers, with relatively highcoordination capabilities, have enjoyed design-based comparative advantages in thiscoordination-intensive product for several decades (Womack et al. 1990, Fujimoto 1999,
2007, Heller and Fujimoto 2017).
Increasing Complexity and Electronic Controls: The first trend analyzed here is the
rapidly increasing complexity of automobiles and their electronic control systems. Since the1970s, with the introduction of electronic fuel injection, electronic control systems haveprogressed from managing individual functional parts to controlling subsystems and then thevehicle as a whole, thus becoming complex assemblies of many ECUs (electronic control
units), in which semiconductors and discrete electronic components are mounted on printed
circuit boards with embedded software controlling them.
The ECUs of higher performing automobiles contain semiconductor chips calledmicrocontrollers. A microcontroller is a collection of processors and memory on a single chip.
Companies using them, such as automobile manufacturers and suppliers, have to optimize the
ECUs for each individual car by embedding product-specific software. As explained later,
though, even before the embedded software is installed, the hardware of the microcontroller
chip itself may also be product-specific (or customer-specific), as opposed to standardized,
making it more difficult to substitute supplies.
Automobiles themselves, as physical artifacts, have become extremely complex
products. The sheer fact that nowadays an average passenger car is roughly a 1-ton object
which can move faster than 100 kilometers per hour makes the requirements for safety(accident prevention and mitigation), energy conservation and environmental protection
imposed on it ever more stringent. Said requirements cause the design of a car, consisting of

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about 30,000 parts, as well as of its electronic control systems, to be extremely complex, withhigh levels of functional-structural optimizations and architectural integrality (Fujimoto2014).
For example, as of the early 2010s, high-performance passenger cars were controlled
by dozens of microcontroller units with embedded software having 10 million or more lines
of code. Their production processes also became increasingly delicate, capital intensive and,
consequently, difficult to resume if damaged or destroyed.
As a result, in the 2011 Earthquake, one of the damaged plants which took the longest
to recover and affected the widest range of industries was a microcontroller factory located in
the disaster area, namely, the Naka Plant of Renesas Electronics in the city of Hitachinaka,Ibaraki Prefecture. The case of this plant will be discussed later in this book.
Globalization and Localization of Supply Chains: The second trend is the expansionsof global supply chains in both the automotive and other sectors. Consequently, theearthquake of March 11, 2011 caused production suspensions not only in vehicle assemblyand component subassembly factories in Japan, but also in the overseas factories of Japanesefirms (e.g., in Thailand). In addition, certain assembly plants for vehicles and components of
non-Japanese firms using parts manufactured in the damaged area had to halt operations after
exhausting their inventories (after May 2011 or 2 months later, in some cases), which, in turn,created supply shortage problems for Japanese firms purchasing such items. For example,
despite buying certain functional parts from local suppliers, Toyota’s European assemblyplants were also forced to suspended production since their European suppliers imported subparts from earthquake-affected Japan.
Behind this evolution of global supply chains for automobiles and their components is
a complicated process of both internationalization and localization of supplies. First, since the1980s, Japanese firms have internationalized the locations of their large-scale vehicle
assembly plants, due mainly to: cost advantages of low-wage countries in the Post-cold-war
period, appreciation of the yen between the 1990s and early 2010s, protectionist pressures insome advanced automobile-producing nations, as well as other non-price advantages of local
assembly plants. For example, while the Japanese automobile assemblers accounted forapproximately 30% (about 27M units) of world automobile production (about 90M units) as
of 2015, roughly two-thirds of their worldwide production came from overseas assemblyplants.
Second, Japanese first-tier parts suppliers have quickly expanded their overseas
production, following the aforementioned globalization of the Japanese assemblers. Oncethey enter a country or region where Japanese assemblers are located, many of themdemonstrate competitive advantages in terms of quality, stability and flexibility vis-à-vis the
local suppliers. At the same time, however, whenever they have competitive or technologicaladvantages, Japanese first-tier suppliers have continued to export parts from their factories inJapan and other countries.
Generally speaking, bulky and technologically mature parts, such as many ordinary
subassemblies and exterior-interior parts, tend to be produced locally in the countries wherethe vehicles are assembled, due mostly to savings in transportation and other distance-related
costs. On the other hand, parts and materials which are technology-intensive, compact, withlower transportation costs, and have high value-added and/or strong scale economy effects
tend to be exported from the home country if there are technological and scale advantages.
The aforementioned microcontroller chips, discrete electronic components, and compact
piece parts using highly functional chemicals and metals are typical examples of suchexport/import-oriented items, to the extent that they enjoy higher scale economies and lower
transportation costs.

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As a result, the automobile supply network is extremely complex and it is affected by
two principles of international plant location: (1) closeness to the markets/users and (2) itemby-item comparative cost advantages. The former tends to result in compact supply chains ineach country, whereas the latter leads to world-scale supply chains, with factories mutually
linked through global trade networks of products and parts.
Third, the tendency toward both localization and globalization of supply chains canalso be observed among Japanese lower-tier suppliers starting from the 2010s. In detail,whereas parts production is becoming more heavily localized in many emerging countries,
involving not only internal production of the Japanese first-tier suppliers themselves and newentry of local lower-tier suppliers, the overseas production of Japanese lower-tier suppliers is
also increasing. Yet, at the same time, the export of piece parts and sub-parts from theJapanese factories of lower-tier suppliers still remains significant.
As a result of all the above developments, complicated parts supply networks,
characterized simultaneously by intense localization and wide globalization, had emerged in
the auto industry as of March 2011. And wherever global supply chains of such complexity
exist, a disaster causing suspension of operations in a given region may trigger worldwide
chain reactions of plant shutdowns within and across firms.
Intense Global Competition: The third trend to be considered is the intensification of
global competition in the post-Cold-War period. In the early 2010s, the international
competitive environments were extremely tough for the Japanese auto industry’s domestic
factories due to a series of causes. The recession after the financial crisis that originated in the
United States in 2008 resulted in weak domestic demand. US and European companies had
been catching up with Japanese firms in assembly productivity and manufacturing quality
since the 1990s, while Korean automotive manufacturers, such as Hyundai, were quickly
expanding worldwide as fierce competitors. Furthermore, rapidly growing emerging markets
like China were characterized by strong demand for cars with simpler technologies anddesign—a segment in which Japanese firms and factories did not excel. Lastly, the value ofthe yen continued to rise. Hence, the Japanese auto and parts manufacturers were dealing
with a harsh competitive environment back in 2011.
Faced with these challenges, the Japanese automotive assemblers and suppliers(including the lower-tier ones) had no choice but to keep improving the competitiveness of
their domestic genba in terms of manufacturing capabilities, productivity, quality, lead times
and flexibility. Thus, even after the earthquake struck their network of suppliers, they did nothave the luxury of strengthening their anti-earthquake robustness at the expense ofcompetitiveness.

2. CRITICAL ITEMS FOR SUPPLY CHAINS RECOVERY AFTER THE 2011
EARTHQUAKE
Keeping in mind the aforementioned competitive situation and technological evolutions
during the post-Cold-War period and early 21st century, let us briefly analyze the parts andmaterials most affected by the Great East Japan Earthquake – the weak links in the supply
chains. Three industries whose recovery was particularly slow and had a rather strong impact
on the operations of assembly manufacturers are discussed in this section: (i) semiconductors,
such as on-board microcontrollers for controlling devices, (ii) functional chemicals, such assynthetic rubber, and (iii) high value-added, simple piece parts containing advanced materials
technologies.

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2.1. Microcontrollers and ASICs
The first case concerns semiconductor integrated circuits for controlling machines anddevices. In general, products such as automobiles, home appliances, electronic devices, officeequipment and industrial machineries can be controlled by means of any of the following: aprinted circuit board (PCB) with discrete electronic components hardwired onto it; a productspecific integrated circuit (ASIC) mounted on a single silicon chip for use by a specificcustomer; a more generic integrated circuit, or a microcontroller, with customer-productspecific software embedded into it.
Although a combination of the above three types is used in most actual cases,
microcontroller chips, the third type, have become increasingly common in ECUs mounted in
automobiles. In the early 2010s, nearly half of the Japanese manufacturers were utilizing
microcontrollers. At the same time, however, various other types of electronic devices used
the second type, i.e., ASIC, or a customer-specific semiconductor such as SoC (System onChip), which has all the integrated circuit design information needed to control a given
product built into the chip.
The 2011 Earthquake hit a large plant manufacturing semiconductors,
microcontrollers and ASICs used for device control, the Renesas Electronics Naka Plant in
the city of Hitachinaka, Ibaraki Prefecture. This semiconductor factory had two productionlines: one for 200 mm wafers and the other for 300 mm wafers. At the time, the former was
mostly producing microcontrollers for automobiles, while the 300 mm wafer line wasproducing customer-product-specific SoCs for digital products. Both lines were severely
damaged and it was initially estimated that it would take one full year to resume production.
Yet, intense recovery efforts by the inter-firm restoration team of Renesas and user
companies enabled them to regain full production capacity within three months (at the
beginning of June 2011). Also, substitutive production of the semiconductors in question
gradually started in other Renesas factories in Japan and external foundries after April 2011.
Despite these efforts to minimize the impact of its supply shortage, Renesas’s Naka plant
became one of the factories which affected the widest range of industries for the longest
period after the disaster.
There were at least three factors which made the recovery of the microcontrollers
supply chain difficult: production concentration, supply substitutability, and design
information portability.
First, many user firms adopted almost exclusively chips from the Naka plant. Indeed,
these types of leading-edge semiconductor technologies require minute processing on a scale
smaller than 0.1 µ and involve the execution of more than 100 steps, utilizing extremely
expensive semiconductor manufacturing equipment. Consequently, production of advanced
semiconductors, with major entry barriers regarding technologies and capital investment,
tended to rely on a limited number of suppliers.
In addition, production of microcontrollers was concentrated in Japan, partly because
the Japanese manufacturing sites had some architecture-based comparative advantages inrelatively integral and customized semiconductors, and partly because they were close to
their main clients, e.g., Japanese auto manufacturers3. Consequently, Renesas Electronics
held 30% of the world market share of microcontrollers (40% for automobiles) in the early2010s.
3

It is true that production processes of such semiconductor types as DRAMs became modular, since the integral portion of theprocess was “capsulated” into semiconductor production equipment, which itself is highly integral. The coordination-rich Japanesefirms and factories lost competitiveness in such coordination-saving, or process-modular, semiconductor products. In the case ofadvanced ASICs (SoCs) and microcontrollers, however, their internal and external product architectures tend to be relatively
integral or coordination-intensive (to be externally integral means being customized), which fits Japan’s development andproduction sites, with strong coordination capabilities and team collaboration among multi-skilled workers and engineers.

10Second, substitutive supply of onboard microcontrollers for automobiles was not aneasy task. Microprocessors are usually seen as generic semiconductor products, which user
companies can buy off the shelf, thus making it easy to switch to substitutive supplies.
However, the ones produced at the Naka Plant were developed using design rules (e.g.,translation rules among functional-structural-process designs) and methods (e.g.,development tools, design libraries, simulation equipment), which were unique to that plant,so those microprocessors were supplier-process-specific. As a rule, when a user company
develops customer-product-specific embedded software which matches one of Naka’s
microcontrollers, that software takes on supplier-process-specific characteristics, causing thewhole control system—software and hardware—to become Naka-Plant specific, making itvery difficult to switch to other suppliers.
In general, if the structural design of a part (a microcontroller in this case) is either
customer-product-specific (difficult to switch buyers) and/or supplier-process-specific(difficult to switch sellers), its substitutability decreases. In the case of the Naka Plant, theASICs (SoCs) were more customer-product-specific, while the microcontrollers were more
supplier-process-specific. Yet, in either case, from the point of view of the user companies,
the semiconductors in question had relatively low substitutability, i.e., it was almost
impossible to switch to other suppliers in the wake of the disaster.
Third, the design information embedded in semiconductor production equipment (e.g.,
circuit design information on the mask) is difficult to detach from its equipment hardware,
unlike the cases of dies recovered from damaged press machines or NC programs moved
from damaged machine tools. This implies low levels of design information portability,
which leads to difficulties in switching production to other factories or suppliers.
To sum up, as a result of large market shares, low substitutability and low portability of its
microcontrollers, the resumption of production at the Naka Plant was slower and its
economic impact larger than in the case of other factories hit by the 2011 Earthquake.
Having grasped the seriousness of the situation, Japan’s automobile manufacturers
acted just like they had done during the production stoppage at Riken, an automobile piston
ring supplier affected by the Chuetsu-oki earthquake in 2007 (see Chapter 4). All thecompanies which were members of the Japan Automobile Manufacturers Association
deployed restoration assistance teams to the Naka Plant, while domestic and foreign
semiconductor lithography equipment manufacturers commuted continuously between theirfactories and the Naka Plant to speed up the recovery process.
Hence, as mentioned above, Naka’s complete recovery took merely three months
rather than the original estimated time of one year. There were good developments also fromthe viewpoint of business continuity plans (BCPs). The design information controlling theequipment (recipe) for about half of the products manufactured at Naka was transferred toother plants and firms to facilitate substitutive supply of the affected parts. Despite major
obstacles, as a result of all these efforts, the recovery of the Naka Plant and related supply
chains was achieved much earlier than initially predicted by industry observers.
2.2. Functional Chemicals
Other key items used in the manufacturing of automobiles which were seriously affected by
the 2011 Earthquake were functional chemicals, including: rubber for tires and brakes
manufactured at JSR Corporation in Kashima, Ibaraki Prefecture; kneaded rubber at Fujikura
Rubber in the city of Kodaka, Fukushima Prefecture; additives at Ouchi Shinko Chemical
Industrial in the city of Haramachi, Fukushima Prefecture; paint pigments at Merck in thecity of Onahama, Fukushima Prefecture; and condenser electrolytes at Nippon Chemi-Con in
the city of Takahagi, Ibaraki Prefecture, and Tomiyama Pure Chemical Industries in the cityof Okuma, Fukushima Prefecture. It is important to note that functional chemicals are also

11
relatively integral products, in which Japanese genba have achieved architecture-based
comparative advantages with high market shares (30%–100% domestic share for theabovementioned plants that are all located in the Tohoku region).
In case of disasters, the basic nature of chemical products and processes makes theirrecoveries somewhat industry-specific. First, as chemicals are produced by means of capitalintensive processes with large equipment, such as reactors, tanks and pipes, the safe and rapid
repair of said equipment is crucial. When explosive and toxic materials are involved, safety is
by far the most important concern throughout the recovery period. Second, removal of inprocess residuals inside the tanks and pipes often becomes the first critical task to complete,particularly if they are toxic or explosive. Third, if substitutive production is required, it may
prove difficult to transfer the “recipe”—or product-specific design information which
controls the chemical process—from the damaged plant to substitutive production sites and toadjust it to the new facilities (recipe adjustment). This is particularly true for highperformance functional chemicals, requiring complex and integral recipes, which are
extremely product-specific and process-specific.
It is therefore vital for chemical plant managers to accurately and quickly assess
recovery lead times for all items, compare them with inventories and demand, and decide
between on-the-spot recovery and substitutive production, with product-by-product transfer
of recipes. This is a daunting challenge in the middle of post-disaster confusion.
As for substitutive production, the key is whether recipes can be effectivelytransferred from the damaged plant and adjusted to another plant. Ideally, recipes should be
easily portable and active communication should be maintained between potentiallysubstitutable plants as well as the plants and the headquarters prior to disasters.
During the 2011 Earthquake, the most notably affected chemical plants were thosearound Kashima Harbor, Ibaraki prefecture, which were damaged by the tsunami, and thosewithin the evacuation zone surrounding the Fukushima Daiichi Nuclear Power Plant.
One of the remarkable cases of effective recovery in this area (although not related toautomobile parts) was that of Kaneka’s vinyl chloride production line damaged at thecompany’s Kashima Plant. It manufactured materials for infusion solution bags, which are inhigh demand at times of wide-area disasters, and supply shortages could be avoided by
rapidly transferring its recipes to the main plant in the city of Takasago, Hyogo prefecture, inWestern Japan. Let us briefly look at what they did after the 2011 Earthquake:







March 11, 2011: The earthquake, tsunami and soil liquefaction damaged the tanks, pipes andmaterial handling facilities of Kaneka’s Kashima Plant. Fortunately, its main processing
equipment did not suffer major damage, as it was set up high above ground.
March 12: The Plant Manager, Masahiro Kozai, returned from the company’s Osaka
headquarters to Kashima, and after first verifying the safety of the plant’s employees, he readthe damage reports, inspected the damaged areas in person, and checked secondary disasterprevention. Kozai judged that restoration would be difficult if carried out solely by the plant
employees, so he immediately reported to the headquarters and divisions the extent of thedamage and requested water and food from the rescue team dispatched by the headquarters.
Kozai continued to have daily contacts with the Kashima Plant managers from then on.
March 13: Trucks from Osaka reached the Kashima Plant carrying rescue goods, which werequickly distributed to the employees and their families.
March 14: Kaneka’s vice president arrived at the Kashima Plant and inspected the damaged
area. Details of equipment failures were checked and, after discussing the best way to do so,
the removal of potentially dangerous residuals between the reactors and tanks was initiated.

12






Engineers and maintenance staff from the Takasago Plant in Western Japan, Kaneka’s main
plant, reached Kashima to help in the restoration.
March 31: Equipment repair and removal of the residuals were completed.
April 2: Substitutive production of vinyl chloride for medical use (infusion solution bags)
started at the Takasago Plant, after the recipes were moved from Kashima and adjusted to theexisting equipment. This decision to opt for substitutive production was made by Kozai after
he received a joint report from Kaneka’s engineering and marketing divisions that, because of
the sharp increase in rescue-related demand for medical products due to the earthquake, theresumption of Kashima’s own production for this particular item would not occur in time forinventory replenishment.
April 5: The Kashima Plant resumed operations at 50% utilization ratio, using the remaining
raw materials (new supplies of raw materials were not available at this time).

This is a typical example of what we may call “virtual dual sourcing” in response to majordisasters, but the meaning of the measures taken in such a case will be discussed later in thisbook (see Chapters 2, 3, 6, and 10).

2.3. Piece Parts and Consumables
The third example of automotive products affected by the 2011 Earthquake is simple pieceparts, such as screws and small springs, used in the roughly 30,000 parts of which an
automobile is composed, as well as materials, such as washing fluids, that are consumables
used in the manufacturing process. In general, automobile makers pay little attention to these
suppliers at the far end of the supply chain (fifth tier or lower), but quite a few of these small
to medium enterprises operated in the Tohoku area and suffered heavy damage, especially
suppliers for Toyota, which had opened a new assembly plant in the Tohoku region in 2010.
For very small suppliers such as these, the main challenge is not so much
substitutability or concentration but visibility to the automobile assemblers. In short,regardless of how powerful Toyota’s supplier recovery assistance might be, if the locations ofthese damaged suppliers are not identified, their recovery cannot be assisted.
The automobile supply chain is extremely complex; hence, it is difficult tocomprehend it in its entirety, all the way down to the manufacturing of simple piece parts. In
addition, during normal periods without disasters, there is no need, contractually as well as
technologically, for automobile manufacturers to know about the product-process details of
second-tier and lower-tier suppliers, because first-tier suppliers will take care of detailed
component designs and purchases from sub-parts suppliers. In fact, this decentralized
system—in which the first-tier suppliers handle the second tier, the second tier handles thethird, and so on—functions very well at times of routine operations.
However, in an emergency such as this, when wide-area disruption of the supply
chain is caused by a disastrous earthquake, it is crucial for automobile assemblers to gather
accurate information on which suppliers are making what and where, all the way down to the
8th or 9th tier, so that they can be helped directly, if necessary, to avoid stoppages of vehicle
assembly lines. Besides, some consumables, such as washing fluids for the heat treatment ofa tiny spring, are even less visible, since they are not even listed in the product design
information (e.g., bill of materials) of the assemblers or suppliers.
In previous disasters, automobile assemblers like Toyota could provide effective
recovery assistance by being able to identify quickly which suppliers were damaged, because
the disaster-affected areas were rather concentrated. However, this time, due to the huge scaleof the disaster, even a month after the earthquake, the complete picture of exactly which

13
suppliers suffered damage was not yet available to the assemblers. For example, one monthafter the earthquake, Toyota’s headquarters reported that more than 100 parts manufacturers
had been hit by the disaster, but they could not tell exactly how many, although they
eventually calculated the accurate number within two months. This was certainly a weak spotin Toyota’s supplier system, known as one of the most competitive in the world in periods
without disasters of this magnitude. Nonetheless, Toyota moved quickly and improved its
supply chains in terms of visibility, which will be discussed later in this book.
To sum up, the 2011 Tohoku Earthquake’s heaviest repercussions on global supply
chains were due to the following aspects: products and parts with high technologicalcomplexity requiring longer recovery times; higher concentration of production; lower
substitutability of supplies; lower portability of design information; and lower visibility of the
suppliers themselves. In the following chapters of this book, a framework for analyzing
supply chain disruptions caused by disasters and effective recovery strategies will bepresented in detail.

3. SOME PRACTICAL AND THEORETICAL ISSUES
Finally, let us discuss some of the practical and theoretical issues that may be derived fromthe cases described above of how firms and genba respond to difficult situations of disasters
and disruptions. Three issues are discussed here: whether we should add buffers or build
capabilities in preparation for the next major disasters; whether we should focus on quick, onthe-spot recovery of production or shifting quickly to substitutive production; and whether
we should utilize kaizen capabilities or set up separate emergency teams in response todisasters.
3.1. Buffers or Capabilities?
First, let us consider whether we should add buffers or build capabilities in preparation for
the next major disasters. A quick answer is that we will need both buffers and capabilities,
but this book gives priority to the latter, i.e., capability building. That is, firms and sites
should first build capabilities to simultaneously cope with disasters and competition and thendetermine the appropriate level of buffers, given their capabilities.
Buffers and slack have been recognized as effective measures for organizations dealing withenvironmental uncertainty (Cyert and March 1963, Thompson 1967). For instance,
Thompson (1967) called an organization’s central value-creating process its “technical core”
and argued that this core pursues stability and efficiency and, when facing environmental
uncertainty, an organization tries to insulate its technical core by setting up boundary
spanning units as buffers between the stable core and the fluctuating environment.
Note that disasters, such as big earthquakes and fires, are the ultimate form ofenvironmental uncertainty, so buffers are needed to alleviate shocks to organizations. Typicalexamples of such buffers and slack against disasters are inventories of products and materials,
as well as duplication of production lines manufacturing the same product.
However, we should also observe that, given the level of environmental uncertainty,
the level of buffers is affected by the available organizational capabilities of the technicalcore to deal with environmental uncertainties. The Toyota Production System, for example,emphasizes continuously improving manufacturing capabilities (kaizen). The level of workin-process inventories in its kanban or just-in-time systems, in turn, depends on the level of agenba’s manufacturing capabilities, as efforts are made to continually decrease the inventory
levels.
In this book, we share the capability-first perspective inherent in the Toyota
Production System. Our focus is on the capability building efforts of firms and factories to14effectively respond to damage caused by disasters before and after they actually happen, andto maintain or improve competitiveness at the same time. We do not deny the essentialfunctions of buffers in times of disasters, but we reject the idea of depending solely on
buffers as preparatory measures against disasters.
Note also that large-scale disasters are almost completely unpredictable, in that wecannot assign probability to such events. It is, therefore, impossible to make rational
estimates of optimal buffer levels against them. There are uncertainties in competitiveenvironments too, but they are not as unpredictable as large disasters. So, for example,
Toyota sets its target inventory levels from the standpoint of competitiveness, given predictedlevels of uncertainty in normal market-production conditions. Toyota may add to its
inventories when supply chain disruptions are predictable to some extent, as in the case ofheavy snows in specified areas stopping supply chains in winter, but this method would not
be applicable to something almost entirely unpredictable like big earthquakes.
To sum up, one way for firms and factories to simultaneously deal with disasters andcompetition is to focus on improving competitive capabilities first, set inventory levels
according to the competitive capabilities achieved, and then try to improve supply chain
recovery capabilities accordingly. If, for instance, today’s competitive environments andcapabilities call for two weeks’ inventories for a particular product, then said two weeks will
become a target for the capability building efforts of recovering supply chains in times ofdisaster.
3.2. Recovery or Substitution?
Given that capability building is the key to enhancing the anti-disaster robustness of firms
and genba, the second question is whether, in preparation for future disasters, they should
strive to build capabilities for (i) quick on-the-spot recoveries of production sites or for (ii)quick shifts to substitutive production. Our straightforward answer is both (i) and (ii). The
main reason for this is that, as shown in the 4 cases below, both (i) and (ii) can be a rational
choice for the damaged suppliers, depending on the situation, and no one knows which casewill present itself when the next large disaster strikes.
From the clients’ point of view, supply chain recovery for a given product can beachieved either by restarting the damaged production line itself or by commencing
substitutive production elsewhere. It is irrelevant to them which option the supplier chooses,
as long as their requirements regarding quantity, quality and delivery are met. So, if the
supplier has accurate estimates of lead times for both on-the-spot recovery and substitution
and is able to make rational judgments, the supply stoppage will be avoided or minimized.
Case 1: Suppose that, when the disaster happens, the client has 30 days worth ofinventory on hand (Tinv = 30) and all other inventories are damaged. Let us assume that the
supplier’s estimated lead time is 20 days for on-the-spot recovery (Trec = 20) and 10 days for
substitutive production (Tsub = 10). Let us also assume that the damaged production line hascost advantages vis-à-vis the substitutive line in normal times (which is why this line waschosen) and that delivery is by far the main priority during the emergency. For the sake ofsimplicity, recovery costs and substitution costs are assumed to be equal (Crec = Csub).
In this case, the rational supplier would choose on-the-spot recovery, despite the factthat substitutive production can start earlier, because supply shortage can be avoided anyway.
In more general terms, if Tinv > Trec, then the supplier’s choice would be on-the-spot recovery,
even when substitution lead times are shorter (Trec > Tsub).

15
Case 2: Suppose that the client has 20 days of inventory on hand (Tinv = 20), and thatthe estimated lead times are 30 days for on-the-spot recovery (Trec = 30) and 10 days for
substitutive production (Tsub = 10), respectively. Hence, the times are as follows: Tsub < Tinv <Trec. In this case, supply shortages affecting the client can be avoided only if the supplierchooses substitutive production (Tinv < Trec; Tinv > Tsub). When the damaged production line isready to reopen (Trec), however, production will be moved back to its original place, so
substitutive production will last for 20 days in this case (Trec - Tsub =30- 10 = 20).
Case 3: Now, suppose that the client has only 10 days of this product’s inventory on
hand (Tinv = 10) and that the estimated lead time for on-the-spot recovery is 20 days (Trec =20), while it is 30 days for substitutive production (Tsub = 30). In this case, the supply chain
cannot be restarted in time (Tinv < Trec < Tsub), and there is a supply stoppage period of 10days (Trec – Tinv = 20 – 10 = 10). It is obvious that a rational supplier should choose on-thespot recovery, since it makes for faster reopening of the supply chain (Trec < Tsub), thereby
reducing the supply stoppage period to 10 days.
Case 4: If, as before, the client’s inventory is enough only for 10 days (Tinv = 10) but
lead times are 30 days for on-the-spot recovery (Trec = 30) and 20 days for substitutive
production (Tsub = 20), then the supplier will rationally chose temporary substitutive
production, because the supply chain can reopen faster (Tinv < Tsub < Trec) and delivery is the
top priority in this case. If production restarts on the original line as soon as its recovery iscompleted, this will result in the client using its inventory for 10 days (Tinv = 10), followed by
10 days of supply stoppage (Tsub – Tinv = 20 – 10 = 10), 10 days of temporary substitutive
production (Trec - Tsub = 30 – 20 = 10), and production on the original line after that.
Note that, in some situations under case 4, restarting the damaged line may take avery long time, so that the period of substitutive production will be considerably extended.
Large-scale fires and chronic flooding are such examples (Nishiguchi and Beaudet 1998,
Chapter 5, Chapter 7). In extreme cases, the supplier may forego on-the-spot recovery andpermanently move production to new or substitutive lines if the former takes too long or is
too difficult (Chapter 6). After the 2011 Tohoku Earthquake, for example, the plants that
happened to be located within the evacuation zone of the Fukushima Daiichi Nuclear Power
Plant had no choice but to close down.
To sum up, assuming that the manufacturing of a particular product goes back to its
original factory, the above cases represent the four basic recovery patterns:
Case 1: If Trec < Tinv, then choose on-the-spot recovery (no supply shortage).
Case 2: If Tsub < Tinv < Trec, then choose substitutive production (no supply shortage).
Case 3: If Tinv < Trec < Tsub, then choose on-the-spot recovery (supply shortage occurs).
Case 4: If Tinv < Tsub < Trec, then choose substitutive production (supply shortage occurs).
With the above assumptions, these four cover all of the logically possible patterns.
Clearly, we do not know which case will come to pass when the next major disaster strikes,
and this is the reason why firms and genba should build capabilities for both (i) quick andeffective on-the-spot recovery and (ii) quick and effective substitutive production. As thecases in this book will show, all of the four patterns have actually occurred in real
cataclysmic situations, such as earthquakes, floods and fires.
Cases 1 and 3 (on-the-spot recovery) and cases 2 and 4 (substitutive production) areillustrated graphically in Figures 1 and 2, respectively.

16

Figure 1 Simple Model of On-the-spot Recovery
Condition: Substitution Lead Time Tsub > On-the-spot Recovery Lead Time Trec
or Inventory Time Tinv > On-the-spot Recovery Lead Time TrecＡ
damagedDamaged Line Ａ

Ａ’s
recoverystartsＡ’s fullrecoveryachieved

normalnormalSubstitutive Line Ｂ

no substitution (assistance only)

Supply Chain Ａ+Ｂ

full supply recovered

RecoveryStarts= Trec1

RecoveryComplete= Trec2

Figure 1. Simple Model of On-the-spot Recovery.

Figure 2 Simple Model of Substitutive Production

Condition: Substitution Lead Time Tsub < On-the-spot Recovery Lead Time Trec
and Inventory Time Tinv < On-the-spot Recovery Lead Time TrecＡ
damagedDamaged Line Ａ

Ｂ’s
substitution
startsnormalＢ’s fullsubstitution
startsＡ’s fullrecoveryachieved

normalline stoppage
full
substitution

Substitutive Line Ｂ
Supply Chain Ａ+Ｂ

Ａ’s
recoverystartssupplydisruption

Substitution
Starts= Tsub1

end ofsubstitution

full supply recovered

Substitution
Full= Tsub2

RecoveryStarts= Trec1

RecoveryComplete= Trec2

Figure 2. Simple Model of Substitutive Production.

3.3. Kaizen or Top Down?
The third question concerns organizational design and leadership in response to big disasters.
One opinion is that a large-scale disaster can cause an unprecedented crisis across the whole
company, requiring special organizational units and strong top-down leadership. Others
believe that recovering from a disaster is a process of problem finding and problem solving,so experts in kaizen, Toyota Production System (TPS), Total Quality Control (TQC) and so
on can be effective leaders in helping the recovery activities, particularly at the genba ofsmall and medium manufacturing enterprises.
Thus, some may argue that dealing with big events like rescue, recovery andrestoration following large-scale disasters requires extensive organizational design, withcompany-wide emergency taskforces led by the top management. On the contrary, others
claim that what the damaged firms need are people who can observe, analyze, decide and17physically initiate actions at the actual genba, and these are usually kaizen experts rather thancorporate staff.
These contrasting views may be related to another matter of debate, that is, whether or
not organizations which are good at many small changes, such as incremental innovations
and kaizen, are able to handle infrequent big changes, such as radical innovations andrecovery from unprecedented disasters (Abernathy and Utterback 1978). Organizational
ambidexterity—or the organizational ability to pursue both incremental and discontinuous
innovations at the same time (Tushman and O’Reilly 1996)—is closely related to this issue.
We take these arguments from innovation management and apply them to anti-disastermanagement.
The case studies in this book confirm the coexistence in some organizations (e.g.,
Toyota, Kaneka, Honda) of: (i) strong leadership of executive or upper-middle managers (e.g.,vice presidents, plant managers and project leaders) in emergency teams involving multiple
factories or firms and (ii) quick analyses and actions carried out by shop floor managers andkaizen experts. Hence, we may call these organizations ambidextrous in managing situationsof disaster. The next question then is whether (i) groups working on big changes and (ii)groups focusing on many small changes coexisted separately within the same firm, orwhether (i) and (ii) coexisted as a continuum sharing the same philosophy and routines. Ourcase studies on Toyota tend to support the latter hypothesis. We will see if this is the casemainly in the last part of this book (Chapters 8 and 9).
3.4. Summary
This chapter introduced the motivations, purpose and background of the present book on
industries and disasters. The ways in which firms and factories responded to the supply chain
disruptions caused by the 2011 Great East Japan Earthquake were described and discussed asa preliminary analysis. The concepts of genba, capability building, competitiveness, disasterrobustness, architecture, as well as the design-flow-oriented approach to manufacturing, or“monozukuri,” were presented as the book’s analytical framework. The cases of
microprocessors, functional chemicals and automobile piece parts were illustrated as
preliminary case studies. Then, some key criteria were derived from them, most notably,
concentration, substitutability, portability and visibility, which may make recovering fromdisasters more difficult. Finally, some practical issues were outlined: buffers versus capability,
recovery versus substitution, and kaizen versus big changes. All of the above will beelaborated and discussed further in the following chapters.
In brief, this volume is about the simultaneous pursuit by modern firms of disasterrobustness and global competitiveness. Indeed, one of the most important lessons which theJapanese industrialists learned from the 2011 Tohoku Earthquake and the subsequent
recovery period is that they must strengthen their supply chain’s robustness against majordisasters but they must also not forget that, at the beginning of the 21st century, firms inindustrialized, high-cost countries like Japan face severe cost competition.
Against this background, the present book discusses the ways in which today’s
manufacturing firms deal with disruptions in their supply chains caused by disasters, such as
earthquakes, floods and fires, and how they balance robustness against such disasters withcompetitiveness vis-à-vis their rivals. In Chapter 6 and the concluding chapter, we will
discuss the potential and effectiveness of an approach called “virtual dual sourcing,” whichattempts to cope with big disasters without losing competitiveness before and after the actual
occurrence of supply chain disruptions.

18

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