Sunday, July 18, 2010
Nissan: Dangers of a Lean Supply Chain?
Nissan has been forced to stop production at six manufacturing plants in Japan and the United States this week due to a supply chain disruption. This episode illustrates one of the downsides of some efforts to develop lean and efficient supply chains. As firms drive efficiency in their supply chains, they can make those systems much more tightly coupled (i.e. each element of the chain is much rigidly interconnected with the other elements). That tight coupling means that one small disruption can cause major negative consequences for the entire chain. That is precisely what happened to Nissan. A problem at a Hitachi unit that supplied engine parts has actually shut down a large amount of Nissan's production capacity, because Nissan did not have an alternative supplier for that component. That problem pertained to a scarcity of semiconductor chips needed for the manufacturing of the engine components at Hitachi. As other firms observe this incident, they must consider the trade-offs that they are making when trying to drive efficiencies in their supply chains. Are efforts to drive out costs in the short term potentially enhancing the risk of a major disruption at some point?