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Business

The chance may be tiny, but it pays to be prepared

Koichi Saura, president of a 300-year-old sake brewery, was well prepared to minimize the damage to his business caused by the 2011 disaster.

TOKYO -- No one can predict when the next big natural disaster will strike, but that doesn't mean a business cannot prepare for the eventuality. Just how far a company is prepared to take precautions can be the difference between life or death, not just for the employees, but for the very business itself. 

     On Feb. 8,  all 16 of Toyota Motor's domestic production sites lay silent. A January explosion at Aichi Steel cut the supply of metal used for thousands of parts that make up Toyota's vehicles and the company was forced into a 6-day shutdown across the country. This was the first time the automaker decided to halt its domestic production entirely since the earthquake and tsunami that struck Japan five years ago. Many of Toyota's suppliers were located in the affected region at the time.

     The world's leading automaker had seemingly either failed to learn the lessons of March 2011, or simply not built a strong enough supply chain. But, when asked about the suspension, a Toyota executive seemed far more optimistic, saying the business has "managed to resume the production within a week," thanks to a little help from its suppliers.

     Soon after the 2011 disaster, Toyota began building a comprehensive database of its long and complicated supply chain. The process made the business even consider increasing its inventory in preparation for a potential holdup in supplies. But the idea simply did not sit well with the "just-in-time" policy -- involving minimum levels of inventory -- which famously propelled Toyota to its position as the world's largest automaker. Having stuck to the policy so successfully for so long, changing at this stage could significantly affect competitiveness.

     Keiji Masui, senior managing officer in charge of procurement, insists Toyota should stick to keeping the inventory "as small as possible." He argues the company should identify what the effect of a disaster would be on each link in the chain and take the necessary preventative action, even if the process involves suspending production.  

     Masui explains that the business was able to identify immediately which part of the supply chain would be affected by the Aichi Steel accident. Maintaining its "just-in-time" policy, the automaker was forced to stop the line for 10 days in 2011 and again 6 days last month. But Masui maintains the policy should be retained and improved, rather than changed or replaced. 

     In a country prone to frequent earthquakes, typhoons and even volcanic eruptions, businesses are compelled to prepare for the worst, but there is no one-size-fits-all solution.

Prepare replacements

One story of a successful contingency plan comes from a much smaller business, but one with a much longer history. 

     The 300-year-old Saura brewery in the Tohoku region, the area hit hardest by the March 2011 disaster, is the brewer of Urakasumi, one of the country's best-known sake brands. Koichi Saura, the 13th chief of the family business, was confident the company would survive, despite extensive damage to facilities. The business had split its brewing and storage buildings between two locations. One of the sites survived relatively unharmed, allowing production to continue.

     The brewer had also had the foresight to protect the very lifeline of the business. Yeast is an essential ingredient in the brewing process and different strains determine products' characteristics. Many brewers have developed unique and irreplaceable cultures that are essential for their brews and are guarded jealously.

     Much of Saura's precious yeast was lost when the tsunami and subsequent flooding damaged its facilities. But many years before the disaster, the business had exchanged a portion of yeast for safekeeping with another brewery in Nagano Prefecture, some 300km away. 

     Thanks to the company's forward thinking, Saura has managed to maintain its centuries-old reputation and continue production. The brewery's sales have even surged about 10% since 2011.

Precaution pays

Preparing for an invisible danger can often seem like a big financial decision for any company.

     "The probability might be once in 100 years," says Osamu Suzuki, the chairman and chief executive of Suzuki Motor, "but we still have to prepare for the worst-case scenario." 

     Currently, Suzuki's production sites in Shizuoka, southwest of the capital, lie mainly along the coast of Suruga Bay, an area that has suffered magnitude-8 earthquakes in the past. 

     The automaker now plans to move some of its design and production functions to a new location -- within the same prefecture, but at a safer, higher altitude further inland in the city of Hamamatsu. The new site is slated to begin full operations in summer 2018, and will accommodate more than 2,000 workers.

     The business will spend about 60 billion yen ($526 million) on the relocation. The size of the investment raised objections even within the company. But the chairman insists that, in its present state, the business will not be able to cope with a disaster on the scale of 2011. 

(Nikkei)

 

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