A tale of two earthquakes: In Japan, some lessons learned, others deferred

Editor's note: An earlier version of this story attributed a quote to the incorrect Subaru executive. It should have attributed the quote to Kazuyuki Muneta, senior general manager of Subaru’s purchasing division.

TOKYO — A massive earthquake strikes off Japan's northeast Pacific coast, rattling buildings as far away as Tokyo, triggering widespread power outages, shutting down trains, unleashing landslides and sparking concern about tsunamis and radiation leaks from a nearby nuclear plant.

In its wake, a critical Japanese semiconductor plant is thrown offline, and a broken supply chain forces Japanese automakers to suspend production at plants across the country.

For those who remember, it sounds a lot like the devastating March 11, 2011, temblor that rocked Japan and the global auto industry 10 years ago this week. But in an eerie flashback, this quake struck only last month — on Feb. 13 — in almost the exact same place.

The aftermath of this latest convulsion was a jolting reminder about just how fragile automotive supply chains remain, despite the best efforts to fortify them after the 2011 disaster.

Back then, double sourcing, inventory stockpiling and supplier transparency were urgent focal points of improvement as "business continuity plans" became all the rage.

The industry thought it would be better prepared for the next crisis. It was only half right.

Recent upheavals — including the COVID-19 pandemic shutdown, the ongoing global microchip shortage and last month's haunting earthquake in Japan — show that in an industry as complex, interconnected and massive as the auto business, it is impossible to plan for everything.

"There is no magic of outsmarting the market, as some had in mind. It's not really practical," says Dominik Luczak, an automotive consultant and partner at McKinsey & Co. in Tokyo.

As imperfect as the troubleshooting is, automakers rolled out many improvements to better buttress supply chains after Japan's 2011 earthquake-tsunami-nuclear meltdown triple whammy.

In that deadly calamity, a 9.0-magnitude quake — the biggest ever recorded in Japan — unleashed a towering tsunami that swept hundreds of miles of the country's coast, flooding the Fukushima Daiichi Nuclear Power Plant and triggering meltdowns at three of its reactors.

Aside from killing nearly 20,000 people and obliterating entire towns in a swath along the shoreline, the catastrophe hammered global auto production for much of that year.

Japanese automakers alone lost more than 1.5 million vehicles of output at the peak of the crisis. Through heroic efforts, some companies — such as Nissan and Mitsubishi — managed to recoup that loss by early 2012. But others — including Toyota, Honda, Mazda and Subaru — still couldn't catch up. Toyota alone was still down 370,000 vehicles a year after the quake.

All told, the 2011 disaster cost Japanese automakers more than $5.60 billion.

An automobile has up to 30,000 parts — if even one is missing, no matter how small, a vehicle can't be built. The industry learned this lesson the hard way when the 2011 earthquake rattled a semiconductor plant run by chipmaker Renesas Electronics Corp., knocking it offline for months.

The resulting chip shortage broadsided production of 17 of the top 20 Japan-made nameplates sold in the U.S., and idled General Motors and Peugeot factories in the U.S. and Europe, respectively.

Meanwhile, Ford Motor Co. had to suspend orders of certain vehicles with paint jobs in tuxedo black and several red hues because it couldn't get a glittery metallic pigment. That additive, called Xirallic, was made at only a single plant, by a supplier called Merck KGaA that was little known before the 2011 disaster. Its factory, right in the quake zone, also was down for months.

After the quake, automakers worldwide reinforced their disaster planning. But the focus on strengthening supply chain links was especially acute in seismically active Japan, which has long been expecting another major quake in the industrial heartland along this country's central coast.

Countermeasures in Japan focused on both preventing crises and mitigating their impact.

Automakers tried to avoid future emergencies by reinforcing factories and other facilities to better withstand natural disasters or even human-made ones such as fires or explosions. In some cases, they even moved facilities out of areas flagged as potential flood zones in future tsunamis.

Mitigation tactics included better supply chain tracking, faster communication with suppliers, more flexible methods of double sourcing and bigger stockpiles of key components.

A key improvement was better visibility of the flow of auto parts from Tier 3 or 4 suppliers. In the past, few automakers bothered to track components that far down the chain. But the derailing of Renesas suddenly threw a spotlight on items as seemingly insignificant as microchips.

"Before the earthquake we had no information on suppliers beyond the Tier 2 level," Toyota Motor Corp. spokeswoman Shiori Hashimoto said. "We were forced to start from scratch."

So Toyota created a huge supplier database called RESCUE, short for REinforce Supply Chain Under Emergency. It covers a whopping 400,000 parts, up to the Tier 10 level in some categories.

Japan's automakers also realized the importance of quick communication with suppliers when something goes down. In a crisis, every minute counts, especially when racing against rivals.

Subaru, which now logs tens of thousands of parts in its new database, formed a unit that monitors global news for flashpoints that could kink supply chains.

As a result, it now takes Subaru just a day to get supply chain information that used to take a week to gather. Subaru now uses a third-party Web-based system to check in, a step up from the old phone-based approach.

When the latest quake hit at 11:08 p.m. on a Saturday, for example, Subaru was able to reach out the next morning, and by Monday it was getting the first status reports.

"By capturing information sooner, it gives us a clearer picture of what we need to do," said Kazuyuki Muneta, senior general manager of Subaru’s purchasing division. While this may not prevent a disruption, it helps determine which lines and products are affected so that early decisions can help avoid an across-the-board suspension.

Industry players are adopting new tracking systems, some of which use blockchain technologies, such as that developed through a company called Mobi, to map supply networks in real time.

"The solution will come not through yet another crisis but from these technologies," said Matteo Fini, vice president for supply chain and technology at IHS Markit. "The challenge is scalability. If you apply it to 100,000 suppliers or 100,000 sites, that will be very difficult."

Indeed, not all lessons were fully absorbed. For example, multisourcing was suddenly a big topic. Yet, the industry's initial enthusiasm for hedging its bets across different suppliers gradually waned when the economic realities of higher costs sunk in.

To this day, Toyota still says its biggest risk is "ordering from a single supplier or producing at a single site."

For most manufacturers, duplicate sourcing is simply too costly on a large scale, said an executive at one major Japanese supplier.

"Automakers would come to us and ask us to double-source a part — can we make the same part we're making in Japan also at our plant in the U.S.," he said. "Sure, we can do that. But to have double the capacity, it's going to cost. I don't remember many OEMs actually willing to pay.

"It's a balancing act between cost and efficiency," he said.

Better inventory management was another reset undertaken after 2011. Keeping more stock on hand — or asking suppliers to — was a big departure for Japanese automakers, which pride themselves on ultralean, just-in-time delivery systems that waste little money on storage.

Nissan Motor Co., for example, has a new system that monitors inventories so it can react more nimbly to blips. And Toyota CFO Kenta Kon was so pleased with his company's new approach to inventory management that he credited larger inventories for helping Japan's biggest automaker avoid the factory suspensions afflicting so many competitors in the current microchip shortage.

Toyota, long the poster child for lean manufacturing, secured stockpiles of up to four months' supply of semiconductors, Kon said at the company's Feb. 10 financial results announcement.

It helps that Toyota has tight relations with suppliers, bolstered by close and constant communication, Kon said. Suppliers are willing to prioritize Toyota business, he said, because a procurement order with Toyota is considered "a sure order based on a sure production plan."

Toyota stood out in the latest earnings season for claiming the chip pinch would have no impact on its output. Toyota even raised its fiscal-year sales forecast, as industry watchers such as IHS Markit predicted the semiconductor crunch would crash global industry output by 1 million vehicles in the first quarter alone.

In Japan, for example, Honda was bracing for a 100,000-vehicle hit, while Nissan trimmed its sales outlook by 150,000 vehicles and Subaru expected to lose 48,000.

But Kon's crowing was a tad premature.

Just three days later, Japan was rocked by the latest temblor. The Feb. 13 earthquake injured hundreds, rather than killing thousands as in 2011, and its meager tsunami was measured in centimeters, not meters. But at magnitude 7.1, it still packed a potent punch.

Renesas, the chipmaker whose Naka factory was hammered a decade earlier, was once again in the crosshairs. This time, the Naka plant temporarily lost power, and the company was forced to suspend operations to confirm factory safety and the status of its fragile clean room operations.

Renesas restarted front-end manufacturing in its clean room on Feb. 16, but the company wasn't able to resume its full pre-quake production pace until a week after the disaster.

Bigger problems loomed at a Hitachi Astemo factory also in the quake zone. Damaged by the shaking, it suspended operations on Feb. 15 and didn't resume shipments until Feb. 22. Japanese media reported that a power outage torpedoed production of suspension systems.

Toyota, despite having dodged the chip shortage, was now among the worst affected. It had to suspend output at nine plants in Japan for several days. The downtime hit 14 of its 28 lines in the home market and affected nameplates such as the Toyota RAV4, C-HR and Harrier crossovers, and several Lexus models, including the LS and IS sedans and NX, UX and RX crossovers.

Toyota said the shutdowns would dent output by about 31,000 vehicles.

Nissan also felt the blow; it suspended production at two plants for two days.

Automakers in Japan concede that bulletproofing supply chains is an imperfect science. But analysts say today's interruptions would be even worse without the lessons of 2011.

"The industry responded very well," McKinsey's Luczak said of the chip shortage. "And it was clearly a result of 10 years back, and that increased transparency helped them to react much faster. I felt the players were doing exceptionally well around the globe in how they managed."

Indeed, each new upheaval brings fresh insight, said Keita Yamanashi, Nissan's general manager for business continuity planning. "Every time a natural disaster occurs, we go through a review and identify some challenges we faced. Then, we apply that to the next disaster," he said.

To be sure, Japanese automakers have made big strides in reinforcing the supply chain in the home market. But they also are global players with a growing international supply base.

The next big challenge will be replicating the Japan safety net overseas.

Naoto Okamura contributed to this report.