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Question

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Explain the steps used to develop a forecasting system. How would these steps be specifically utilized by this company? What do you predict would be the result of implementing a forecasting system for the top-selling product line at this company?

List the major categories of supply chain risk and associated risk-reduction tactics. How could the company mitigate exposure to supply chain disruptions caused by natural disasters? For example, consider the 2011 earthquake and tsunami that devastated parts of Japan.

Explanation / Answer

The steps used to Develop a forecasting system are :-

. Sharing information – Nissan brought all of their global regions into the response process. Management recognized that the non-Japanese operations would want information, but the effort to provide it would be a distraction to those on the ground handling the crisis. They also recognized information might be used selfishly by dependent facilities optimizing against its own needs. To address these two concerns, each region was asked to send two staff members to Japan to gather their own information and to help solve problems holistically. Instead of becoming a drain on the local response effort, the other regions and plants contributed to solutions. In addition, the regions had complete visibility into what was happening in Japan and could help the organization improve the response. 2. Allocating supply – Given the capacity constraints in the weeks and months after the disaster, and the dependencies that existed across the Nissan operational network, allocation of component parts was critical. The sales, marketing, and the regional supply chain management functions were brought together to identify how to globally allocate supplies to focus on highest margin goods. For example the supply of integrated Global Positioning System (GPS) units was constrained by the disaster. Nissan identified which car models required integrated GPS to meet customer demands, and allocated resources accordingly. Low-end models did not receive the allocation of available GPS since they did not have commensurately high margins, and customers were willing to purchase those models without an integrated GPS. This process was completed within two weeks of the earthquake and continually updated as the supply situation became clearer. 3. Managing production – Nissan slowed their production lines in a targeted way. Management closely considered in-stock and in-transit inventory within their network and slowed production upstream and downstream of anticipated bottlenecks. For example, the company was able to ramp down production, and thereby decrease costly overtime, for operations that were expected to be bottlenecked. Management also pulled vacation time into April and May in order to free up capacity later in the summer when upstream bottlenecks were projected to have cleared.

The company used the time bought by having in-transit inventory to identify and implement supply alternatives. For example, the lead-time for ocean transport from Japan to the west coast of the United States was 15 days, plus five days to move material to plants in Tennessee and Mississippi. This meant that management had as many as 20 days to identify how to access alternative supplies of critical components. They were also able to secure air freight out of Japan so they could get critical parts out of the country faster and mitigate the reduction of in-transit stocks.

Empowering action – Nissan emphasized rapid and flexible action. Management was empowered to make decisions in the field without lengthy analysis from a central authority. To speed critical decision-making process on recovery-related issues, the company modified its delegation of authority rules for a limited period. The decisions were iterated upon as new information surfaced so that the company could course correct, if necessary. As Nissan’s Chief Operating Officer Toshiyuki Shiga explained, The disaster response simulations we have carried out regularly served us particularly well. By envisioning a full range of potential situations arising from a major disaster and preparing for them, we successfully enabled ourselves to take prompt actions when the time came. At a time of disaster, it is essential to make speedy decisions while grasping the latest situation, including details on employees’ safety and damage caused, and to take appropriate actions based on this. We launched the Global Disaster Control Headquarters just 15 minutes after the earthquake occurred. The team immediately gathered and assessed damage while overseeing restoration efforts at various facilities.

Risk mitigation strategy used was in January 2012, Nissan announced that it would increase the localized production of its cars in the Americas from approximately 70% to 90% by 2015.28 The company also set aggressive targets to reduce its reliance on Japanese-made components in its foreign factories. For instance, the company was hoping to reduce the number of components brought in to North America from Japan by 50% by the end of fiscal 2013.29 The company, according to Peter, was also making a concerted effort to better understand critical dependencies that exist within its supply chain beyond the first tier of suppliers

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