QSO 300 Final Project: Nissan
Southern New Hampshire University
Nissan Motor Company Ltd.: Building Operational Resiliency
“On March 11, 2001 a 9.0 magnitude earthquake stuck off the coast of Japan. The combined total of confirmed deaths and missing is more than 22,000, (nearly 20,000 deaths and 2,500 missing)”. “Besides the humanitarian crisis, there was also a heavy blow to the Japanese economy with approximately 80% of Japanese automotive plants suspending production with an estimate that other plans were below 10% utilization” . Nissan was one of the companies that were affected. The following paper will focus on the Nissan, their response to the disaster, and the subsequent changes Nissan made to their operations and supply chain management.
Using the Nissan case study as an example, I will evaluate the influence of operations functions on generating value for Nissan and its customers. I will explain theories and techniques used by operations managers for informing production processes. I will apply problem-solving and decision-making skills to Nissan’s real-world problems using quantitative and qualitative methodologies. Lastly, I will integrate the emerging principles into operations management functions by addressing Nissan’s corporate responsibility and environmental sustainability.
Operations Management Functions
Nissan uses the functions of operations management in order to generate value and provide quality products for its customers. They did this by developing internal research which focused on process improvement. They also continuously sought to improve technology as well as embracing the values of just-in-time (JIT) manufacturing. To coordinate their response to the earthquake in Japan, Nissan’s Recovery Committee sought to share information, allocate supply, manage production, and empower action .
Nissan focuses on flexibility. Whenever a crises which affected global operations occurred, Nissan has kept strong central control but they have also used a regional, decentralized supply chain structure. Nissan has corporate officers with extensive experience in overseas operations and who have a wide range of nationalities. Other Japanese OEM’s did not share these features. This reflected the importance Nissan placed on cultural attributes. When it comes to managing a large global operation, Nissan considers diversity to be a source of strength. They recognized the value to be had with an executive team that could speak first-hand to each market’s unique opportunities and constraints.
When compared to its competitors, Nissan’s product line was simple, with “a build-to-stock strategy for just a few SKUs in each model, and a build-to-order strategy for the rest. Management believed that this strategy had not only helped it to simplify its operations and product offerings, but it actually contributed to a significant increase in sales” .
Nissan’s competitive edge was created by their emergency response team. Nissan prioritized human life, prevention of subsequent disasters, business continuity, and rapid disaster recovery. Another priority was also providing support for the neighboring community, companies, and government. Nissan’s Global Disaster Headquarters gathered and distributed employee safety information after the disaster, as well as for facility damage, and provided business continuity planning for their operations and suppliers. In order to test the effectiveness of the organization’s contingency plan, and improve upon it, Nissan conducted earthquake simulation training. Their actions after the disaster followed the principles specified in their emergency-response plan. Directly after the earthquake and tsunami occurred, Nissan’s Global Disaster Control Headquarters got together to appraise the effect on operations and to manage the restoration of activities. “A Recovery Committee was established to coordinate the global recovery actions, in particular the work of optimizing the entire supply chain”.
Compare and Contrast – Service and Manufacturing Operations
There are both differences and similarities in service and manufacturing operations. Both operations create a mission statement and a vision statement which reflects how the organization will be run and also viewed by customers. From a manufacturing operations standpoint, manufacturers generally have a consistent way to producing goods with little variation. In a service operation, there are more opportunities to customize the services that are provided simply because each phone call or service request can come with its own unique set of problems and solutions.
There are many similar concerns that influence the end result of both service and manufacturing operations. There are issues of cost control for both although the type of costs may vary. Manufacturing operations might look for suppliers that can provide materials at the highest quality and the lowest cost. Service operations have indirect costs, such as administrative salaries and office expenses, for example. In order to provide competitive prices to customers and still be profitable, these type of costs must be kept low. Both manufacturing and service operations also face forecasting demand and competitiveness in the marketplace . Nissan’s service and manufacturing practices are tied together with skilled employees who are dedicated to customer satisfaction. Nissan produces a quality product that the buyer can trust by delivering on their promises. Their products are backed up by knowledgeable service professionals.
Theories and Techniques
Material requirements planning (MRP) is “a dependent demand technique that uses a bill-of-material, inventory, expected receipts, and a master production schedule to determine material requirements” . Where managers used to have to manually calculate materials needed, they can now use an MRP system which can calculate gross-to-net by adding the inventory on hand plus the orders for a given time period and subtracting that total from the material requirements, resulting in net. MRP works backwards from the finished goods to the raw materials. Nissan would need to know all of the raw materials, components, subassemblies, etc. that go into making each vehicle as well as if there are any dependencies such as whether one part needs to be made prior to another one being made A manager for Nissan would need to be familiar with this types of detail. Planning inputs would include a master production schedule, a bill of materials, a production cycle and supplier lead times. MRP inventory management systems can be programmed to calculated gross-to-net and red flag any short comings or inventory bottlenecks that management needs to address.
Compare and Contrast – CPM and PERT
Program (Project) Management and Review Technique (PERT) and the Critical Path Method (CRM) are two project management techniques. They are network-based methods that exhibit the flow and sequence of activities and events. PERT is good to use when it is unknown how much time will be needed to complete different activities. CPM is good for recurring projects. Each method uses a common approach for design and ascertaining a network’s critical path. PERT and CPM can be used in combination and are both to successfully complete a project. CPM is different from PERT because PERT focuses on time while CRM lays emphasis on the time-cost trade-off. CPM involves the jobs that are repetitive, with known activities whereas PERT’s jobs are non-repetitive, with activities that are uncertain . PERT is better for projects in research and development. CPM is better for projects that do not involve research. For example, Nissan should use PERT to create a hybrid version of a vehicle and CPM to actually manufacturing the vehicle.
Four Primary Priority Rules
There are four priority rules when it comes to job sequencing which can be especially popular in manufacturing facilities. In Nissan’s case, they are especially applicable because they can help Nissan determine the sequence of jobs. Each of these four rules determines which jobs are assigned first. Which job is used helps maximize flow time, or how long each job sits waiting to be processed. Management needs to determine whether to process the jobs with the longest processing time (LPT), shortest processing time (SPT), jobs that have the earliest due date (EDD), or jobs that are first come, first served, or FCFS. Whether or not Nissan should use a particular rule would depend on the profit. If jobs that have longest processing times are the most profitable, they should take precedence over those that have shorter processing times. However, management will also want to be cognizant of due dates because they will not want to gain a reputation of late delivery. Management will also want to make sure that there are not any machines that are being underutilized. If Nissan can send an LPT job to a facility that is sitting idle and therefore process 10 SPTs or EDDs by doing so, then they will want to have that traffic control.
Theory of Constraints (TOC)
The theory of constraints (TOC) has five steps. First, the constraint needs to be identified. Once identified, a plan should be developed to overcome any constraints that were identified. Resources should be focused in order to accomplish the plan. The effects of the constraints should be reduced by either unloading work or increasing capability. When the constraint is neutralized, then identify other possible constraints .
Each of Nissan’s markets could have their own unique constraints. In the case of the disaster in Japan, Nissan first had to identify what the constraints were immediately following the disaster. They needed to make adjustments. Nissan focused on the constraints they identified, and developed a plan with the resources at hand in order to achieve the plan. They accomplished this by sharing information, allocating supply, managing production, and empowering action. By doing this they ensured that everyone who was impacted by the constraints was aware of them.
Applying TOC to these processes is valuable to Nissan’s manufacturing, service, and supply chain. By doing so, each process would be in a state of constant check and adjust to allow for endless improvement. TOC helped Nissan remain focused on the immediate problem. It also helped them develop and implement a solution to that problem.
Forecasting is the art and science of predicting future events. This may involve using a mathematical model to predict historical data. Forecasting may be either a subjective or an intuitive prediction. The forecaster may take demand-driven data, such as whether a customer plans to buy a vehicle, and project that data into the future. The forecaster may use a combination of methods, such as using a mathematical model but also a manager’s wisdom . There are seven basic steps to take a forecasting system from design to implementation. These steps are as follows: “determine the use of the forecast, select the items to be forecasted, determine the time horizon of the forecast (short, medium, or long term), select the forecasting model(s), gather the data needed to make the forecast, make the forecast, and validate and implement the results” .
Using vehicle sales, Nissan should first figure out what parts are needed as well as the labor that will be required. Nissan should then forecast, or determine, how many of each model they will need to produce based on past sales. They will need to resolve the forecast’s time horizon. They could do a short-range forecast, such as for one year, or a few years, and then they could also do a longer-range forecast which would help with research and development and planning for expansion. A quantitative forecasting approach would be used by Nissan to employ mathematical modeling to forecast demand. They would use a time-series model in order to see what has occurred over a set period of time and then they can use a past data in order to make a forecast. Nissan can look at what pre-orders have been received, and gather data from past sales in order to create a forecast for the chosen time horizon. Then Nissan would execute the plan. Periodically, Nissan should review the data to ensure that they are at least meeting their expectations and adjust them, if needed. If Nissan implemented a forecasting system their product lines, they could better anticipate what inventory might be needed for certain time periods and be better able to plan for staffing and production costs.
Supply Chain Risk
Risk is one thing that cannot be outsourced. Supply chain risks arise in many ways. There are ten major categories of risks as well as tactics to help manage these risks. One risk is when a supplier fails to deliver. If multiple suppliers are used, the risk can be reduced. Nissan can also use effective contracts with penalties, keep subcontractors on retainer and preplan. That way if something happens to the main supplier, there is a backup plan. Suppliers can also have quality failures. Suppliers should be carefully selected, trained, certified, and monitored. This is especially important to revisit if anything changes that might require retraining. Outsourcing should be limited. Nissan should either bring production in house or perform the service themselves. If there is logistics damage or delays, they should seek to have a variety of modes of transportation modes and warehouses with secure packaging. Distribution can be a risk that can be lessened with careful selection, monitoring, and contracts which have penalties and are effective. Nissan should use multiple suppliers as well as have subcontractors in the event that the main contractor cannot deliver. The suppliers should utilize multiple modes of transportation as well as multiple warehouses. They should have contracts with their supplies that incorporate penalties if the supplier fails to deliver as promised.
Information can be lost or distorted. To avoid this, there should be databases that are redundant, IT systems that are secure, and supply chain partners that are trained on the proper use of information. Nissan’s IT systems should be secure and up to date. Their staff should be trained in how to keep data safe. They should have cross-country diversification, franchising, licensing, and political risk insurance. There are economic risks where Nissan might hedge to fight exchange rate risk, obtaining contracts that address price fluctuations. Improved communications should reduce manufacturing time and help move projects along more quickly. The company should have officers and staff that represent the company in all insurance matters. Contracts should be variable depending on material and labor rates.
Natural catastrophes might occur, such as the earthquake in Japan. These are really non-avoidable, however, Nissan can purchase insurance, find alternate sourcing, and seek cross-country diversification. Since natural catastrophes cannot be prevented, Nissan should keep their insurance plan current and have alternative sites to store materials. Lastly, theft, vandalism, and terrorism can be protected against with insurance, patent protection, security measures including RFID and GPS and diversification. Nissan has a plan in place for this. .
Summary of Theories: Lean, JIT, and TPS
Lean production is an organized method of reducing waste while maintaining productivity. There are several related concepts to lean production such as minimizing waste, Kaizen, Just-in-time (JIT) production, and cell production. Profits can be improved by minimizing waste. Waste can be found in transportation, inventory, motion, waiting, over-processing, overproduction, and defects. Companies should study each area in order to identify if there is any waste, not only of materials but also of time. Once identified, they can make adjustments to processes and procedures to tighten up timeframes or eliminate unnecessary steps. Periodic reviews of each area should be conducted to determine if adjustments should be made.
In the case of Nissan, transportation could cause greater risk that there will be damage, loss or delay the more Nissan moves a product. If they can eliminate transporting materials from one plant to another by relocating processes this could lower potential loss and also save money on transportation costs. Finding the right balance of inventory can be tricky and orders should be studied. Storing an excess of inventory could be wasteful; not having enough inventory could cause delays. Nissan will want to make sure that they are not making more inventory than is needed to fill existing orders. The time between stages should be studied as well as whether or not there might be better ways to make parts. Idle workers using the wrong tools, or expensive tools that are unnecessary, can cause delays which could result in increased wait times and over-processing. The goal should be to strive for excellent quality with minimum defects in order to avoid having to remake products. If Nissan has a part that is failing quality review, then the processes and procedures involved in manufacturing that part should be reviewed.
A lean production checklist could be implemented by Nissan which should include the 5S processes of Kaizan: sort, simplify, shine, standardize, and sustain. Work areas should be cleaned up, getting rid of anything that is unnecessary. Workflows should be improved and processes standardized. This checklist can help keep everything neat, clean, and efficient. There should be no variability from the current process unless it is during a Kaizan period where Nissan can check and implement any process changes that have been discovered. For instance, if Nissan has a process in place to make blue parts, the process is documented and implemented. If someone suddenly needs red parts, the process should not be changed. The request for red parts should be vetted and if found to be desirable, should be added to a backlog grooming for future process enhancements.
Lastly, Nissan should analyze their throughput in order to see the rate at which units move through each process. For instance, Nissan can look at how long it takes for a Maxima to be built from start to finish and try to identify if there areas where the process could be improved upon, thus trimming down the manufacturing cycle timeframe. The longer Nissan takes to build the Maxima, the more it will cost for payroll and warehouse space. Nissan could also lose sales due to long delivery times.
Just in Time (JIT)
Just-in-time (JIT) is an element of Lean production. JIT is “an approach of continuous and forced problem solving via a focus on throughput and reduced inventory” . A successful JIT program will include select supportive supplier partnerships who provide on time deliveries, exactly where they are needed. Work cells should be in organized workspaces with group technology, reduced space for inventory and flexible machinery. Lot sizes should be kept small with low set up times and specialized parts bins. Schedules should not have any variation. Kanban techniques should be utilized. Preventative maintenance should be done on a schedule and there should be statistical quality process control within the firm. Employees should be empowered and cross-trained to ensure flexibility, with few job classifications and training support, and there needs to be support and commitment by management, employees, and suppliers.
Suppliers should be located in close proximity to the buyer as much as possible. Packages should be marked with detailed routing labels so that they are easily identifiable. Joint scheduling and shipping efficiencies should be sought by both the buyer and supplier, using third party logistics and shipping in small frequent orders. Long-term relationships are desirable between a supplier and buyer in order to build and maintain mutual understanding and trust .
Nissan product line is simplified with strategies of build-to stock strategy for just a few SKUs and build-to-order for the remainder. After the disaster in 2011, Nissan sought to identify supply alternatives since it took as up to 20 days to get materials to plants in Tennessee and Mississippi from Japan. They sought and found alternative sources for critical components (Schmidt, 2019).
Toyota Production System (TPS)
The Toyota Production System (TPS) was the major precursor to Lean production. Three components of TPS are constant improvement, or kaizen, respect for people, and standardized work practices, which are now considered an essential part of Lean . Prior to WWII, American companies dominated the automobile industry in Japan. After WWII, Japanese companies relied heavily on transfer of technology, loans from the government, and special orders from the US. Toyota was an early innovator in internal research and development capabilities and adopted the principles of JIT. Instead of pushing raw materials and works-in-process from start to finish, Toyota pulled them forward when needed. They received and produced components in lots as small as they could, kept inventory low, and modified their equipment so it could be quickly transitioned from job to job. “This eventually became known as the Toyota Production System (TPS) and was adopted by other manufacturers globally” (Schmidt, 2019).
Nissan focused on flexibility. Their supply chain structure is regional and decentralized, helping to balance manufacturing and sourcing to sales. Nissan also uses JIT. Having a limited amount of vehicles, parts that were interchangeable, and low waste allowed for flexibility. A disadvantage to using JIT is that there is little room for error when coordinating between suppliers and manufacturing. TPS could be valuable for Nissan because it would empower workers to eliminate waste and improve processes. The downside is that it could prove costly to overhaul an entire organization and prove disruptive to their supply chain.
Total Quality Management (TQM)
Total quality management (TQM) refers to an emphasis on quality that incorporates the whole organization, from the supplier to all the way to the customer. There is a commitment by management to have a continual drive towards excellence across the entire company in all areas . Nissan took many steps after the disaster in Japan that included an extension of existing strategies, priorities, and plans. They also empowered employees, used benchmarking tools, and sought continuous improvement. Nissan’s CFO, Joseph Peter, stated that after the earthquake, Nissan was making “evolutionary kaizen changes…as opposed to fundamental shifts to our sourcing strategy.” . Nissan uses the process of Plan, Do, Check, Act (PDCA). PDCA is a form of continuous improvement. Nissan could also benefit from other concepts of TQM such as just-in-time (JIT), Six Sigma, and Taguchi concepts. In order to implement TQM as a continuing effort and better empower employees, Nissan’s employees should all be trained in the tools and techniques of TQM so that it becomes second nature.
Hypothetical Process (Time-Function) Map
The time-function map above shows a hypothetical process for Nissan to produce a new product. As Nissan’s operations manager, I would expand on the map below to see if we could shave time off of the process without losing any quality. For instance, I would want to know why it takes 4 days to ship from assembly to the warehouse each time the product moves from one warehouse to another. OM tools such as this can give the operations manager valuable insight into the flow of materials and labor and can help eliminate unnecessary functions or eliminate waste.
Nissan suffered damage to six production facilities when the Tsunami hit Japan in 2011 and about 50 of its critical suppliers were impaired . Due to the global nature of Nissan’s manufacturing operations and supply chain, impact to their business was felt worldwide. To compensate for this disruption and in anticipation of bottlenecks, Nissan strategically slowed production lines. To free up capacity later on in the summer, Nissan pulled back vacation time in April and May. They had to identify alternative supplies of critical components, access them, and they had to secure air freight in order to get critical parts out of Japan. Implementing newly developed materials would have been a struggle with all of the focus being on disaster recovery, however a cause-and-effect diagram would provide Nissan with a good checklist for initial analysis to help identify problems in their supply chain and encourage partners to comply with any new requirements.
Location of New Manufacturing Plant
In order to help Nissan choose a location for their new plant, we can utilize a factor-rating method where we calculate the weighted score for each possible location. As illustrated below, we determine that Mexico City is the more favorable location with a weighted score of 73 as compared to Columbia, SC’s weighted score of 71.25. If we wanted to analyze the sensitivity of the decision, we could manipulate some of the values or weights for any factors where there may be doubt to see if this resulted in a shift in favorability. For instance, if Columbia’s labor costs and taxes were increased by just 10 points each, this would cause Columbia to have a higher weighted score than Mexico City, but only by a slight margin.
Based on the data below, I would recommend that Nissan’s management track items with an A classification as a priority, followed by B’s for the next level of priority, and C’s with the lowest priority. Keeping close tabs on all inventory, but especially on inventory with higher priorities can help reduce wastefulness from overstocking inventory. They should also use this calculation to periodically check that the assumptions are still valid.
Triple Bottom Line (TBL)
The concept of the triple bottom line is when a company places importance on people, the planet, and profit. More and more consumers want to do business with, or work for, employers who not only care about people but also about the planet we live on. Nissan is of course focused on profit. Nissan delivers innovative automotive products and services and offers superior value. However, companies who want to succeed long-term must think beyond the bottom line. Nissan has a good record with the triple bottom line.
They are focused on people by being committed to their stakeholders, whether it is their shareholders, employees, customers, or the communities where it does business. They have been posting sustainability reports on their website since 2005 with information not only on their environmental policies, but also their employee’s health and safety, social philosophies and policies, diversity and inclusion policies, community engagement, and more. According to their website, “Nissan’s sustainability strategy is guided by the corporate vision of “Enriching People’s Lives”” (Nissan, 2019).
Nissan aims to create economic value as a leading global automaker as well as contributing solutions to society. According to Nissan’s website, “they pursue the realization of a zero-emission, zero-fatality society by actively contributing to the sustainable development of society” (Nissan, 2019).
The International Organization for Standardization (ISO) founded the ISO 14000, which is a series of environmental management standards. They contain five main components which are environmental management, auditing, performance evaluation, labeling, and life cycle assessment. A company may apply for certification if it exhibits these elements. A company can go one step further and apply to be a registered organization, earning an ISO 14001 standard. Nissan has acquired this standard. Nissan has appointed an environmental management officer and they steadily apply the PDCA (plan, do, check, and act) cycle. “The coordinated goals set by the environmental management officer for the entire company are cascaded down to the employees working in all facilities through local offices” (Nissan, 2019).
Managerial decision making that takes into account financial, societal, and environmental impacts is known as Corporate Social Responsibility (CSR) . Nissan is a responsible corporate citizen because they constantly strive to make the world a better place. Nissan aims to build trust with their stakeholders, promote safety, and attract a diverse workforce. Nissan is philanthropic. They support for environmental issues, the arts, education, and humanitarian aid. They invest in technologies in order to produce cars which are more environmentally friendly, with zero emissions being the goal.
All of Nissan’s charitable work is important, but I believe that the work they are doing to move to zero-emissions, investing in green technologies, from design, to manufacturing, to sales, and recycling, is the most important of all CSR because if we do not take care of our planet, then car sales won’t matter.
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