Japan – The OM Blog by Heizer, Render, & Munson

OM in the News: The Quest for Rare Earths Leads to Japan

Rare earth mining can be a dirty and ecologically damaging business. Here, a rare-earth metals mine in China.

“Japan has discovered hundreds of years’ worth of rare-earth metal deposits in its waters,” writes The Wall Street Journal (April 12, 2018). Why is this important? It reflects Tokyo’s concern about China’s hegemony over minerals used in batteries, x-rays, TVs, cell phones, electric vehicles, and 100s of other electronic devices.

The deposits were found about 1,150 miles southeast of Tokyo. Extracting them will be costly, but resource-poor Japan is pushing ahead in hopes of getting more control over next-generation technologies and weapon systems. A 965-square-mile seabed contains more than 16 million tons of rare-earth oxides, estimated to hold 780 years’ worth of the global supply of yttrium, 620 years’ worth of europium, 420 years’ worth of terbium and 730 years’ worth of dysprosium.

The U.S. Department of Energy and the E.U. have issued warnings about shortages of rare earths as China’s own consumption of them increases. “This is a game changer for Japan,” said an industry expert. “The race to develop these resources is well under way.”

In 2010, China pushed rare-earth prices up as much as 10 times by cutting its export quota on 17 rare earth elements by 40% from the previous year. It said it wanted to clean up a polluting industry, but the move left Japan and other nations seeking more independence from prices dictated by its neighbor. It is important for countries’ supply chains to secure their own source of resources, given how China controls the prices.

Classroom discussion questions:
1. Why are rare earths important to OM?

2. Where else can supply chain managers turn to procure these critical minerals?

OM in the News: Japan’s Manufacturing Crisis

Hiroya Kawasaki, CEO of Kobe Steel, bowed as he left a news conference in Tokyo

Japan’s reputation for flawless manufacturing quality and efficiency transformed the country’s postwar economy, changed business practices world-wide and spawned a library’s worth of management manuals and business advice books. “Now, the model is cracking,” writes The Wall Street Journal (Feb. 5, 2018).

Kobe Steel, Mitsubishi Materials, and Subaru have all just admitted to manipulating quality inspections. Takata declared bankruptcy last year after supplying 50 million defective vehicle air bags in the U.S. Mitsubishi Motors has admitted covering up vehicle faults and falsifying fuel-economy data. Nissan says its Japanese factories let unqualified employees perform final quality inspections. Indeed, Japanese brands have been bested by U.S. car makers in the past 2 years.

The scandals call into question one of the world’s most influential theories of management and manufacturing. Japan’s model, celebrated in publications such as HBR, hinges largely on the concept of kaizen, or “continuous improvement.” Kaizen means eliminating unnecessary activity, reducing excess inventory and using teamwork to fix problems when they arise. It also places enormous responsibility on the line workers (called genba) at the factory-floor level to manage daily operations and generate innovation. The genba have traditionally been guaranteed jobs for life in return for dedication. But many Japanese companies can no longer afford the luxury of lifetime employment for factory craftsmen.

At Kobe Steel, quality-checking staffers became the first targets of layoffs because they didn’t appear as busy as production-line workers. Line workers were told to make quality checks themselves, and some checks were outsourced after the company suspended hiring. Workers involved in data falsification felt they had no choice because they needed to keep production moving.

(Japan, nonetheless, remains a manufacturing powerhouse, ranking 3rd in manufacturing output, behind China and the U.S. and just ahead of Germany).

Classroom discussion questions:

Explain the concept of kaizen.
Why is the Japanese system facing a crisis?

OM in the News: Japan’s Robot Revolution

A withering factory town in Japan is looking for revival through a dose of Prime Minister Abe’s “robot revolution.” Kadoma’s population has declined 13% as the nation ages, prompting mergers among schools and emergency services departments. Factories can’t find enough people to run assembly lines, further threatening an industrial base that includes titan Panasonic and smaller businesses like Izumo, a maker of industrial rubber.

OM in the News: Planning for Japan’s Next Earthquake–The Really Big One

A huge earthquake in the Japan’s industrial heartland — costing as much as 40% of GDP and disrupting supply chains at companies such as Toyota — is seen as inevitable, reports The Financial Times (May 19, 2016). Understanding the risk and reducing damage is critical (as we discuss in Supplement 11). The recent magnitude 7.3 earthquake in Kyushu, which killed 49 and destroyed thousands of homes, is a reminder that Japan remains exposed to frequent natural disasters. But a big earthquake directly below Tokyo, in the Nankai Trough, would be an economic shock of global significance. The government puts the odds of a magnitude 8.0-plus Tokyo earthquake at 50% in the next 20 years, 70% in the next 30 years and 90% in the next 50!

A Tokyo region earthquake could be more devastating than the one in 2011 at Tohoku, which left 18,800 dead, thousands homeless and crippled the Fukushima nuclear facility. The global impact of the Tohoku earthquake surprised many. Car plants as far afield as Louisiana and Ohio had to halt production for a lack of parts, from microcontrollers to paint.

Yet Tohoku is on the periphery. Tokyo is a manufacturing heartland, a link in some of the world’s most important supply chains. Fanuc, the world’s leading maker of industrial robots, is based in the region, as are 1/2 the world’s musical instruments (manufactured by Yamaha and Roland), and 1/3 of the world’s Nand Flash memory (by Toshiba), built into every smartphone. But even in this region, two supply chains stand out: it is home to Toyota (which makes 1.6 million vehicles a year there) and to most of Boeing’s Japanese suppliers (which make the 777 and 787 fuselages).

Japanese business learned a lot from the Tohoku disaster. Companies changed their supply chain systems to increase redundancy and have extensive continuity plans. However, even if Toyota’s own plants managed to restart quickly, they are only as resilient as their weakest subcontractors and the regional infrastructure of roadway, ports, and airports.

Classroom discussion questions:

What can firms like Boeing do to protect their fuselage supply chain?
What models in Supplement 11 can be used to deal with this problem?

OM in the News: Japanese Hotel Lets Robots do the Heavy Lifting

A receptionist robot, accompanied by two other robots, greets a hotel guest demonstrating how to check in the new hotel — A receptionist robot, accompanied by two other robots, greets a guest checking in at the new hotel

The English-speaking receptionist is a vicious-looking dinosaur, and the one speaking Japanese is a female humanoid, writes The Guardian (July 15, 2015). “If you want to check in, push one,” the dinosaur says. The visitor punches a button on the desk, and types in information on a touch panel screen. From the front desk to the porter that’s an automated trolley taking luggage up to the room, the Henn na Hotel in southwestern Japan, is manned almost totally by robots to save labor costs. The hotel uses facial recognition technology, instead of the standard electronic keys, to register the digital image of the guest’s face during check-in. The reason? Robots aren’t good at finding keys if people happen to lose them.

A giant robotic arm, usually seen in manufacturing, is encased in glass quarters in the corner of the lobby. It lifts one of the boxes stacked into the wall and puts it out through a space in the glass, where a guest can place an item in it to use as a locker. The arm will put the box back into the wall until the guest wants it again. The system is called “robot cloak room.” The concierge is a robot with voice recognition that prattles breakfast and event information.

Japan is a world leader in robotics technology, and the government is trumpeting robotics as a pillar of its growth strategy. Robots have long been used here in manufacturing. But interest is also high in exploring the potential of robots in human interaction, including helping care for the elderly. Robotics is also key in the decommissioning of the three reactors in Fukushima.

Classroom discussion questions:

1. What are the advantages and disadvantages of this robot-driven approach?

2. What can’t the robots do at the hotel?

OM in the News: They Call it “The Chasing-Out Room” in Japan

Unwanted employees are made to feel forgotten

Shusaku Tani is employed at the Sony electronics plant in Tagajo, Japan, reports The New York Times (Aug. 17, 2013) front page story, but he doesn’t really work. For more than 2 years, he has come to a small room, taken a seat and then passed the time reading. Sony consigned him to this room because it can’t get rid of him. His position at the Technology Center was eliminated, but Tani, 51, refused to take an early retirement offer in 2010 — his prerogative under Japanese labor law. So there he sits in what is called the “chasing-out room.” “I won’t leave. Companies aren’t supposed to act this way. It’s inhumane,” he states.

The standoff between Sony workers and management underscores an intensifying battle over hiring and firing practices in Japan, where lifetime employment has long been the norm and where large-scale layoffs remain a social taboo. Economists say bringing flexibility to the labor market in Japan would help struggling companies streamline bloated work forces to better compete in the global economy. Fewer restrictions on layoffs could make it easier for Sony to leave loss-ridden traditional businesses and concentrate resources on more innovative, promising ones.

Sony offered workers early retirement packages that are generous by US standards–severance payments equivalent to as much as 54 months of pay. But the real point of the rooms is to make employees feel so bored and shamed that they just quit. Labor practices in Japan contrast sharply with those in the US, where companies are quick to lay off workers when demand slows or a product becomes obsolete. It may be cruel to the worker, but it usually gives the overall economy agility.

Discussion questions:

1. Have the “chasing out rooms” been successful?

2. Why did Detroit automakers eliminate their version of the rooms (called “rubber rooms”)?

OM in the News: Japan’s Inability to Fire Workers

Th japan oecd e Wall Street Journal (May 11-12, 2013) provides an interesting insight into Japan’s weakening international competitiveness that will make for a good class discussion when you cover Chapter 2, “Operations Strategy in a Global Environment.” Japanese Prime Minister Shinzo Abe has quietly put aside plans to overhaul a rigid labor system that is blamed for many of the woes facing once-dominant Japanese corporations.

A government study estimated that businesses maintained 4.6 million jobs that were actually unnecessary. And with few mid-career job changes, there is little opportunity for entrepreneurship. Japan’s corporate start-up rate is the lowest among Organization for Economic Cooperation and Development (OECD) countries. “Japan should move toward a more flexible employment and wage system that is based more on ability rather than age to encourage productive workers to remain employed,” an OECD report states. “Labor mobility would help to foster start-ups,” says one Japanese professor. “New businesses won’t be created unless human resources are set free, but big corporations are trying to prevent their workers from being free.”

The workforce at Japan’s largest corporations is one of the most inflexible among developed nations, with a tradition of lifetime employment, a low participation rate among women and strict labor laws. These have combined to make it difficult for companies to shed excess workers, because of the legal issues it would raise and the cultural issues involved. As part of their role in society, corporations have been expected to help ensure full employment.

At least seven Japanese electronic manufacturers still produce flat-panel televisions, almost all at a loss. However, some industry executives have said privately that they don’t pull the plug on the unprofitable business because they would need to find other jobs within the company for those TV employees.

Discussion questions:

1. Compare US and Japanese labor laws.

2. What can Japan do to increase its manufacturing productivity?

OM in the News: Japan Ascends From Parts Supplier to Plane Maker

Japan’s golden era of aviation, with its feared Mitsubishi Zero fighter planes, ended in 1946 when American occupiers allowed that nation to manufacture only parts for American military jets. But this year, reports The New York Times (April 10, 2013), Mitsubishi plans the first flight of its Regional Jet, a sleek, 90-seat commercial plane that is Japan’s bid to break into the industry’s big leagues after almost 70 years. Mitsubishi’s comeback was abetted in large part by Boeing’s outsourcing more of its aircraft manufacture to overseas suppliers. As Boeing came to rely on foreign contractors, Japanese manufacturers moved in, designing and supplying some of the jet’s most vital sections.

Over a third of Boeing’s new 787 Dreamliner is supplied by Japanese manufacturers, including Mitsubishi, which makes the jet’s carbon-fiber composite main wings. Japanese suppliers have played an increasingly bigger role in building Boeing aircraft, supplying 15% of the older 767 jet and 21% of the 777. The Japanese government is one of the largest financial backers of these parts projects, handing out billions of yen (about $1.6 billion) in subsidies to help Japanese suppliers develop technology and win lucrative contracts from Boeing. These Boeing contracts have kept tens of thousands of Japanese workers busy for years, and still account for about 40% of jobs in the industry. And in a cozy quid pro quo, Japan’s biggest airlines have for years bought their planes almost exclusively from Boeing — an unusual practice among global carriers.

Mitsubishi has 165 firm orders for the $42 million jet, and it aims to secure as many as 5,000 orders over the next two decades — a goal some experts dismiss as unrealistic. It faces well-established rivals like Bombardier (Canada) and Embraer (Brazil), while the Russians and Chinese are also making jet inroads.

Discussion questions:

1. Did Boeing make a mistake in outsourcing so much of its planes to a future competitor?

2. Why did Boeing outsource over a third of the 787 to Japanese firms?

OM in the News: Japan’s Keiretsu Scandal

The Wall Street Journal (Feb. 16-17, 2013) provides an interesting analysis of problems with keiretsu networks, a topic we discuss in Chapter 11, Supply Chain Management. The Journal writes: “For decades, Japan’s auto industry keiretsu—networks of parts suppliers closely allied with companies including Toyota and Honda appeared as a black box to outsiders. But there was a lot going on behind the scenes and some of it wasn’t legal.” In fact, some areas of the Japanese auto-parts business were rife with bid rigging and collusion, and have produced multimillion-dollar fines and a dozen prison sentences. A U.S. official calls the probe the “largest price-fixing investigation ever.” Prosecutors claim the Japanese firms conspired to boost the costs of some of the best-selling vehicles on the road.

Japanese auto makers have long seen keiretsu as a way to ensure quality over the long term by building trusted relationships with suppliers. The brand-name companies often own significant stakes in keiretsu parts makers and enjoy the right of first refusal for newly developed technology. Typically, they work closely from the design stage onward, sharing proprietary technology.

Those relationships began to change more than a decade ago when France’s Renault took a controlling stake in struggling Nissan and sent a Brazilian executive known as “Le Cost Killer,” Carlos Ghosn, to run it. Nissan disbanded its keiretsu and shifted to open-source bidding among suppliers, many based outside Japan. There has been some quiet pushback from industry officials in Japan who assert that any collusion was more of a bid for survival than for outsize profits. “Different suppliers work hand-in-hand and divide up large lot orders in a way that assures a steady flow of parts,” says one Japanese auto exec. Adds Toyota’s VP, “We feel a duty to protect our keiretsu. We are trying to incorporate more outside suppliers, but won’t give up on our own way of doing business in Japan.”

Discussion questions:

1. Why do the Japanese believe in the use of keiretsu?

2. Is a keiretsu “collusion,” or “a bid for survival?”

OM in the News: Dreamliner Woes Test Boeing’s Corporate Ties in Japan

In the Global Company Profile that opens Chapter 2, we note the important and growing role Japan suppliers have played in Boeing’s 787. But the well-discussed woes of the Dreamliner (see The Wall Street Journal, Jan.29, 2013) are beginning to strain one of the aviation world’s coziest relationships: that between Boeing and its customers in Japan. All Nippon Airways, the first and largest operator of Boeing’s new 787, cancelled 459 flights through Jan. 31 after battery fires on two Dreamliners prompted regulators to ground the planes over two weeks ago. Rival Japan Airlines, which flies 7 Dreamliners and suffered a fire, has also been hit by the plane’s stoppage. “As an airline person, it’s exasperating to think that we’ve got 17 cutting-edge planes sitting here that can’t fly,” says ANA’s VP.

It’s not just the airlines that are affected. More than a third of each 787 is built by Japanese manufacturers before being sent to the U.S. for assembly. Roughly 43% of Japanese aerospace employment is linked to Boeing projects. In other markets, the Dreamliner’s delays and problems might prompt customer defections. But Japanese companies do so much business with Boeing that their fortunes are closely linked.

ANA and Japan Airlines flaunt their allegiance to Boeing. ANA, deeply involved in the design of the jet, boasts that its “passion persuaded Boeing” to use a durable Japan-made paint on the 787 and that the Dreamliner’s composition is “Japan 35%; Boeing 35%; Others 30%.” When the Dreamliner faced big delays between 2007 and 2010, Japanese aviation exports plummeted 25%.

The ties go back to U.S. support for Japanese reconstruction after World War II. In the 1970s and 1980s, Japanese airlines became big buyers of U.S. planes, partly to help offset a huge trade imbalance. “Ever since the war, Japan’s aviation industry has been basically America,” says one trade official.

Discussion questions:

1. Why did Boeing outsource such a large percent of its jets to Japanese suppliers?

2. Why have JAL and ANA remained loyal customers?

OM in the News: Japanese Manufacturing–Then and Now

When you are in the swamp and an alligator is nibbling on your leg, they say it’s hard to see the big picture. So today, despite the gnawing pain we feel from global competition, let us recall the world just 27 years ago, when Japan was the gator and US manufacturing was being threatened by the likes of Toyota, Mitsubishi, Sony and many others.

Here is a quote from an OM in Action box in the 2nd edition of our text 24 years ago, based on a 1985 speech by Konosuke Matsushita, CEO of Matsushita Electric Industrial Co., to a group of Western managers. “We are going to win and the industrial West is going to lose: there is nothing much you can do about it.”

Those were heady days in Japan, when its quality products and overpowering automation were driving its export-led growth. But The Wall Street Journal (Jan.24, 2012) reports that those days may be over, with a front page headline “End of Era for Japan’s Exports”. Japan just announced that it recorded its first trade deficit since 1980, a sign that one of the world’s greatest manufacturing machines may be running low on steam.

It is a combination of three factors. First, a decline in corporate competitiveness that has been bubbling under the surface for years as Japan transitions into a nation of pensioners. Second, the disastrous earthquake and tsunami last March destroyed factories, crippled supply chains, and idled many of the country’s nuclear reactors. (Before the Fukushima accident, nuclear provided 30% of Japan’s electricity. Now just 4 of the nation’s 54 reactors are in service). And third, despite weaknesses in Japan’s economy, the yen has remained a strong and safe haven for currency traders (meaning exports are very expensive and creating a need to move production offshore).

Discussion questions:

1. Is the era its leaders called the “Japanese miracle” over? Why?

2. What can the US do to protect its manufacturing power?

OM in the News: Honda Revs Up Plants in the US

When discussing global OM issues in Ch.2, the news that Honda is shifting a major chunk of its manufacturing to the US over the next 2 years is noteworthy. The Wall Street Journal (Dec. 21, 2011) reports that the 63-year-old company is accelerating its move away from Japan after two huge challenges: natural disasters and the yen’s gain of 40% to the dollar since 2007. (The yen was 78 to the dollar this week, compared to 120 a few years ago). Honda plans to grow to 2 million cars in N. America, up from 1.29 million last year. This is to be done by building a new factory in Celaya, Mexico and expanding all 7 existing US plants.

With the expansion, Honda will export 200,000 to 300,000 vehicles a year from N. America, a tenfold increase, while reducing exports from its Japanese plants by 50%. Because of the strong yen, “It is virtually impossible to make money on exporting vehicles from Japan in the short and medium term”, says the president of American Honda. For the US, the move means good news: thousands of new auto-related jobs and a boost for US suppliers that make components for Honda. The Greensburg, Indiana, plant alone will go from 100,000 to 200,000 Civics per year and add 1,000 jobs.

“It’s almost an economic necessity that they co-locate exports outside of Japan”, adds an industry consultant. “You can expect others to follow”. Today, 37% of Honda’s global production is in N. America: this will grow to 50% after expansion.

Toyota, likewise, has begun making its Corolla in Mississippi and is looking to expand its Baja, Mexico factory. Both firms saw earnings drop 50% this quarter.

Discussion questions:

1. Why are many foreign auto makers now expanding in the US?

2. What is the risk to Honda of transferring a large part of capacity offshore?

OM in the News: Japan Dispensable as a Supplier?

The article in today’s New York Times (May 30,2011) begins: “Maybe Japan is not as crucial to the global supply chain as those first few weeks after the earthquake made it seem”. As an example, the Times describes STMicroelectronics, the $10 billion European semiconductor giant, which after the initial shock of losing Japanese components, quickly lined up alternative suppliers outside of Japan. “It is going smoother than we had thought”, says the CEO. And it turns out this experience is widely shared. Beyond a very short list of components (like auto micro controllers), it turns out that Japan plays only a small role in the global supply chain.

There may be 2 reasons for the limited impact of the Japanese disaster. First, the resiliency of supply networks and quick action by companies helped. But a new report by SCM World finds that Japan, despite being the world’s 3rd largest economy (behind the US and China), is not the major source of manufactured parts for companies outside that country. China was the #1 source (37%), then the US (20%), then Germany (7%). Japan tied with Canada for 8th place.

“What’s remarkable is how relatively isolated Japan is”, says the report’s author. “It’s far less integrated into the world’s manufacturing supply chains than you would expect, given the size of Japan’s economy”. Japan’s manufacturing prowess and global competitiveness are focused in a few industries, like autos and consumer electronics.

Further, big Japanese firms have preferred to have essentially captive suppliers. These tight, cooperative bonds have meant shared experiences and constant communication. But they also meant that Japanese suppliers have been less likely to sell to foreign corporations.

Discussion questions:

1. Why did the earthquake have a limited effect on manufacturers outside Japan?

2. How will the close relationship among Japanese companies help the country recover more quickly?

OM in the News: How GM Survived the Japanese Supply Chain Break

Two months after Japan’s devastating earthquake, Japanese automakers in the US are still struggling with significant supply disruptions. Toyota, for example, which gets 15% of its parts needed for North American factories from Japan, is operating at only 30% of capacity.

G.M., which spends about 2% of its part’s budget in Japan, identified 118 products that created shortage problems at the start of the crisis. Yesterday’s New York Times (May 13, 2011) documents the dramatic story of how G.M. went through a “white knuckle time” when numerous plants came close to closing. The story ends with the company announcing it is winding down its disaster response operations–the crisis averted. But it did not appear to be anything short of a catastrophe in early March.

Four days after the earthquake, G.M. assembled 100’s of employees into a 24-hour-a-day team, in what it called “Project J”. The company idled 2 plants to conserve supplies and found as many alternative sources as possible . Coordinating efforts from 3 “crisis rooms” in Warren, Michigan, the Vice-Chairman realized that existing contingency plans prepared for “nothing on this kind of scale or scope”. Issues with 33 problematic parts did not even become known for 2 more weeks, when G.M. discovered disruptions from sub-suppliers it barely knew of.

One G.M. consultant added: “It’s not just the assembly plant that needs to run, it’s not just the direct supplier. I’ve got to understand every piece at a second tier, a third tier, and a fourth tier below that. We’ve never had to do that before”. With only sparse information available from many suppliers, G.M. sent over 40 employees to Japan to size up the situation–and to offer help getting vital plants reopened. The Japanese culture did not always welcome the offers from outsiders, but in the end, the company resolved all but 5 shortage problems.

Discussion questions:

1. Why is G.M. in much better shape with regard to parts than Toyota?

2. What major lesson did G.M. learn from the disaster?

OM in the News: The Japanese Nuclear Cleanup–A 20 Year Project?

When the senior Nuclear Regulatory Commission (NRC) engineer at Three Mile Island’s cleanup compares our 1979 explosion to the Japanese disaster, and says ours “was a walk in the park compared to what they have”, we know we are talking about a massive project. And the TMI cleanup took 14 years! “The cores are probably very similar, partially melted”‘ he adds, but in Japan 4 separate reactors are damaged, and fixing each one is complicated by the presence of its leaking neighbors.

Today’s New York Times (April 20,2011) describes the steps project managers must follow in the lengthy cleanup. But before they even begin, Tokyo Power has only 3 weeks to patch up smashed containment units before the rainy season starts and more contamination is washed into the environment. And the company has to watch that its small staff of skilled workers does not absorb too much radiation doing so.

Here are the 6 main steps that may take 20 years to complete:

1. Clean up the water in the basements of the buildings.

2. Install new pumps to recirculate the water in the reactors (to end radioactive releases).

3. Decontaminate the walls and floors.

4. Rebuild the containments for units 1,2, and 4, so workers can defuel the reactors. (That step took 5 years at TMI, where no buildings had to be rebuilt).

5. Remove the wrecked fuel in the core. This involves creating new remote-controlled tools to cut through the metal and get to the material below.

6. Reprocess the radiated debris (or bury it as we did in shielded casks in Idaho).

This massive task makes our project management examples in Ch. 3 (like rebuilding Iraq) look trivial. We can only hope they first read the article “What Great Projects Have in Common” in MIT Sloan Review that we reviewed last week.

Discussion questions:

1. Why is this project more complex than rebuilding New Orleans after Katrina?

2. How do the Japanese benefit from TMI?