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'Just In Time' Manufacturing Tested By Japan Crisis

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'Just In Time' Manufacturing Tested By Japan Crisis

'Just In Time' Manufacturing Tested By Japan Crisis

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NPR's business news looks at snags in the auto supply chain.


INSKEEP: Toyota said today it is delaying the launch in Japan of two new Prius models, a wagon and a minivan. The delays are because of production problems cause by the earthquake. Toyota has suspended all 12 of its domestic assembly plants. Many other companies have suspended operations at their factories because of damage or power cuts, and this is reverberating around the world because Japan makes so many components for goods assembled outside the country.

NPR's John Ydstie reports on how manufacturers are responding.

JOHN YDSTIE: Andrew Palmer is a senior vice president for the Nissan Motor Company. He was on the 27th floor of the company's building near Tokyo when the quake struck. That afternoon was spent making sure workers were safe. The next day was spent assessing the challenges the company faced: damaged factories, blocked roads, a lack of electrical power for trains and a shortage of fuel for cars and trucks. That meant workers couldn't get to their jobs and parts couldn't be delivered to factories. And some of Nissan's suppliers faced more daunting obstacles.

ANDREW PALMER: Some badly damaged in the earthquake, much closer to the epicenter. And as I mentioned, some of our suppliers are in the exclusion zone around the nuclear plant, so we're not able to get people in, obviously.

YDSTIE: Nissan's supply chain, that complex web of parts producers and shippers, had ruptured. The good news, says Palmer is that damage to Nissan's factories was limited and 90 percent of its workers can now get to their jobs. He expects all but one of the company's plants to be up and running by the end of the week. But getting the right parts to the right places remains a huge challenge.

PALMER: A crisis like this reminds one how complex putting together an automobile is. It's an incredible logistics exercise and obviously you're putting, well, you're pulling together thousands of parts into a single car.

YDSTIE: Nissan's competitors, like Toyota and Honda, and electronics producers in the region, including Sony, face the same challenge. It's also one of the biggest tests ever for just in time manufacturing - the practice of having parts delivered just when they're needed, instead of carrying large, costly inventories at assembly plants.

Right now manufacturers are scrambling to get the components they need. Andrew Palmer says for Nissan that means first, helping its suppliers in the region get up and running. Second, the company is scouring its overseas facilities for parts.

PALMER: Of course, there is a third case, which we haven't had to resort to yet, which is temporary resourcing.

YDSTIE: And there's another strategy: building the car you can with the parts you have on hand. But, that's means some customers might not be able to get the trim level or feature they want.

PALMER: Bit like taking a car off the lot rather than building it to order, which is still a large part of our production anyway.

YDSTIE: The risk for Japanese carmakers is that consumers will find an American or European manufacturer who can give them the features they want. And that may mean companies in Japan will have to take drastic action to compete.

NAOYUKI YOSHINO: In the short run it may accelerate many companies move from Japan to outside of Japan.

YDSTIE: That's Naoyuki Yoshino, director of the government of Japan's Financial Resource Center and a professor at Keio University in Toyota. He says physical damage to supply chains may not be the only catalyst for moving. The strong Yen is also making it hard for Japanese companies to compete.

YOSHINO: And even the small and the medium size companies wants to move, so that is a very serious problem for Japanese economy.

YDSTIE: The most likely areas of relocation? Not surprisingly, China and Southeast Asia.

Andrew Palmer says Nissan isn't planning a move. But he says there are lessons it will learn from this disaster. Foremost, a reminder of the importance of having common parts for cars built in different regions.

PALMER: A car that's made let's say in the U.S., has parts which are inter- changeable with cars made in Japan. I think this crisis has reinforced that need.

YDSTIE: But Palmer says Nissan will not abandon the just in time model of manufacturing pioneered in Japan. He's says with profit margins on vehicles paper-thin, carmakers can't afford the luxury of big parts inventories.

John Ydstie, NPR News, Tokyo.

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