Rethinking a Business Continuity Plan (BCP): What · PDF fileRethinking a Business Continuity Plan ... stating a 99-percent probability of an offshore earthquake ... Renesas Electronics

Rethinking a Business Continuity Plan (BCP): What Should Companies

Learn from the Great East JapanEarthquake?

— Visualizing disaster risks to reflect in risk dispersion strategies —

No. 173 May 1, 2012

Kazuchika ASANO

Copyright 2012 by Nomura Research Institute, Ltd. 1

NRI Papers No. 173May 1, 2012

Rethinking a Business Continuity Plan (BCP): What Should Companies

Learn from the Great East Japan Earthquake?

— Visualizing disaster risks to reflect in risk dispersion strategies —

Kazuchika ASANO

The Great East Japan Earthquake was the first ever instance of a highly networked modern

society being struck by a major disaster, with the scale and extent of the damage being far

greater than what would be expected. Its effects extended to areas that were not even directly

struck by the earthquake.

However, there were many situations where measures taken based on lessons learned from pre-

vious earthquakes were effective in mitigating the effects of this disaster, which remind us that it is

very important for us to have an attitude of “learning from disasters.”

While the Great East Japan Earthquake was of a scale that occurs only once in every 1,000

years, the government has stated that there is an 87 percent probability of an earthquake striking

the Tokai region within the next 30 years. In the past, massive multi-segment sequential earth-

quakes simultaneously striking the Tokai, Tonankai and Nankai regions had occurred every 100 to

150 years, indicating that there is a high probability of major sequential earthquakes occurring in

the near future.

Any such sequential earthquakes would seriously affect Japan’s pivotal areas supporting produc-

tion activities. If the corridor connecting the eastern and western regions of the country were to be

crippled, there is a good chance that the effects could far outstrip those of the Great East Japan

Earthquake.

If these expected earthquakes strike, the disruption of the supply chain and basic infrastructure

will present the risk of halting business operations over a wide area even if a company’s own facil-

ities are not directly hit.

To reduce such risks, it is necessary to define the regional blocks necessary to ensure business

continuity by visualizing the risks involved and look into the way in which facility sites in Japan

are rearranged and functions are shared among these blocks, including those in other countries.

I Facts Highlighted by the Great East Japan Earthquake

II Impact of Expected Major Multi-segment Sequential Earthquakes

III Promoting the Relocation of Facilities by Visualizing Risks

IV Future Efforts Required of Enterprises


I Facts Highlighted by the Great East Japan Earthquake

1 The Great East Japan Earthquake wasnot “unexpected”

The Great East Japan Earthquake, which occurred onMarch 11, 2011, was the most powerful earthquake tohave ever been recorded in Japan, with a magnitude of9.0. Given its wide-ranging effects such as widespreadaffected areas, enormous damage from the ensuingtsunami and the shortfall in electrical power caused bythe accident at Tokyo Electric Power Company’sFukushima Daiichi Nuclear Power Station, the term“unexpected” has often been used.

However, the reality was that both the Headquarters forEarthquake Research Promotion (under the jurisdictionof the Ministry of Education, Culture, Sports, Scienceand Technology) and the Central Disaster ManagementCouncil (under the jurisdiction of the Cabinet Office) hadpointed out the possibility of a massive subduction zone

earthquake and subsequent tsunami off the Tohoku coast-line (Figure 1). For example, prior to the occurrence ofthe Great East Japan Earthquake, the Headquarters forEarthquake Research Promotion had published a forecaststating a 99-percent probability of an offshore earthquakein Miyagi Prefecture within the next 30 years. Further-more, within the Central Disaster Management Council,the Committee for Technical Investigation on Counter-measures for the Trench-type Earthquakes in the Vicinityof the Japan and Chishima Trenches had conducted sim-ulations of earthquake/tsunami scenarios assuming multi-ple seismic sources in the waters that were identical tothose of the source region of the Great East Japan Earth-quake. However, in view of the fact that there is norecord of any great multi-segment sequential earthquakessimilar to that which occurred this time along the Tohokucoastline over the last 1,000 years, the above-mentionedgovernment agencies had not included the area in theirstudies.

Earthquakes are natural phenomena that have occurredrepeatedly throughout our planet’s 4.6-billion year his-tory. However, only a tiny portion of this history has beenrecorded. As such, it must have been realized that thereare possibilities for the occurrences of earthquakes that

NRI Papers No. 173 May 1, 2012

Rethinking a Business Continuity Plan (BCP): What Should Companies Learn from the Great East Japan Earthquake?

Notes: M = magnitude, Mt = tsunami magnitude (magnitude is calculated based on the height of tsunami).Source: Compiled based on “National Seismic Hazard Maps for Japan (2008)” published by the Headquarters for Earthquake Research Promotion and materials published by the Committee for Technical Investigation on Countermeasures for the Subduction Zone Earthquakes in the Vicinity of the Japan and Chishima Trenches, the Central Disaster Management Council.

Figure 1. Probability of earthquake occurrence predicted by the Headquarters for Earthquake Research Promotion and source regions assumed by the Central Disaster Management Council

Probability of earthquake occurrence predicted by the Headquarters for Earthquake Research Promotion (probability within next 30 years)

Source regions assumed by the Central Disaster Management Council

Earthquake off Nemuro and off Kushiro

Earthquake off Tokachi and off Kushiro

Earthquake off the north coast of Sanriku

Earthquake off the Pacific coast of Tohoku

Hakone Trough

Earthquake off Etrofu Island

Earthquake off Shikotan Island

Earthquake recurrence interval of 500 years

Chishima Trench

Japan Trench

1896 Meiji Sanriku Earthquake

Earthquake off Miyagi Prefecture (land side/trench side)

Off the coast of Nemuro: On the order of M 7.9 with a probability of about 40%If earthquake off the coast of Tokachi occurs simultaneously: On the order of M 8.3

Off the coast of Tokachi: On the order of M 8.1 with a probability of about 0.1 – 1%If earthquake off the coast of Nemuro occurs simultaneously: On the order of M 8.3

Earthquake off Miyagi Prefecture: On the order of M 7.5 with a probability of about 99%If earthquake occurs simultaneously in the waters at the trench side off the south coast of Sanriku: Around M 8.3

Off the north coast of Sanriku: On the order of M 8.0 with a probability of about 0.1 – 1%; M 7.1 – 7.6 with a probability of about 90%

Off the coast of Fukushima Prefecture: Around M 7.4 with a probability of about 7% or less

The source region ranges from off the coast of Sanriku to the trench side off the coast of BosoTsunami earthquake: Around Mt 8.2 with a probability of about 20% (about 6% in the specified sea area)Normal fault type: Around M 8.2 with a probability of about 4 – 7% (1 – 2% in the specified sea area)


might inflict damage that exceeds the assumptions madeby experts and government officials.

“‘Unexpected’ has no place in a business strategy.”Corporate executives need to recheck the facts revealedby the March 11 earthquake, heighten their awareness toprepare for the expected future large earthquakes andincrease their efforts to reduce any related risks.

2 Vulnerability of the networked society isrevealed

Even since the beginning of the 20th century, Japan hasexperienced many subduction zone earthquakes on theorder of magnitude 8, not the least of which is the GreatKanto Earthquake of 1923. However, the subductionzone earthquakes that damaged wide areas mostlyoccurred during the first half of the century. In the sec-ond half of the century, near-field earthquakes thatcaused severe damage only to areas around the sourceregions were prevalent, as typified by the Great Hanshin-Awaji Earthquake of 1995 (Figure 2).

The Great East Japan Earthquake was Japan’s firstwide-area major disaster after the country went throughits period of post-war high economic growth. This mas-sive earthquake hit northeast Japan at a time when Japa-nese society has been equipped with moderninfrastructure including highly networked transportation,information and communications systems, and supplychain management has gained momentum in pursuit ofincreasing the efficiency of industrial and economicactivities.

For this reason, large corporations that had beendeveloping their supply chains on a nationwide scalehave come to realize the magnitude of the spillover

effect that any disaster would have on a highly net-worked society. The disaster has taught a new lesson thatcould never be learned from previous major earthquakes.

In particular, the disaster revealed that the Tohokuregion has become an important base as part of a vastsupply chain because many suppliers of parts and com-ponents are located in this region and that any interrup-tion of their supplies could have an influence all over theworld. It was also revealed that the structure of the sup-ply chain was not a “mountain type” in which suppliersare located evenly throughout the country. Rather, thesupply chain consisted of many “barrels” where suppli-ers of important parts and components are concentratedin specific locations. One typical example is the case ofRenesas Electronics Corporation, which is a manufac-turer of automotive semiconductors including microcon-trollers. Because of damage inflicted on the company’sfactories as well as on parts suppliers that are clusteredin the Tohoku region, car production in Japan andaround the world came to a standstill (Figures 3 and 4).

Particularly hard hit by the effects of the post-disasterproduction stoppage were those companies characterizedby the following four elements, typical examples ofwhich include the automotive and transportationmachinery industries.

(1) There are no alternative production facilities(2) Inventories are reduced to a bare minimum

through “just in time” supply systems(3) The supply chain hierarchy is deep and complex,

with second- and even third-tier subcontractors(4) There is a high degree of dependence on suppliers

producing special parts and having special tech-nologies



60

55

50

45

40

35

30

25

20

15

10

5

044 46 48 60 70 78 80 90 93 95 07 082004 20111923

Source: Compiled based on Usami, T., “Saishinban Nihon Higai Jishin Soran 416 – 2001 (Comprehensive List of Destructive Earthquakes in Japan 416 – 2001),” University of Tokyo Press, 2003.

Figure 2. Major destructive earthquakes in Japan during and after the 20th Century

Real information and

communication stock amount (trillion yen)

Highly networked infrastructure and lifeline (expressways, Shinkansen lines)

Enhanced supply chain management

Period of high economic growth

Advanced information and communication technology (ICT) (Internet, data communications)

M 7.9Great Kanto Earthquake

M 8.0Showa Nankai

Earthquake

M 7.1Fukui

Earthquake

Earthquake off the southwest coast of Hokkaido

M 7.4Earthquake off

Miyagi Prefecture

M 7.9Showa

Tonankai Earthquake

M 7.3M 7.2

M 6.8M 6.8

Real information and communication stock amount

M 9.0Great East Japan

Earthquake

Niigata Chuetsu Earthquake

Iwate-Miyagi Inland Earthquake

Great Hanshin-Awaji Earthquake

Niigata Chuetsu Offshore Earthquake

M 7.8


Furthermore, it took a full two weeks to simply attemptto understand the structure of the supply chain after thedisaster, which further delayed recovery efforts. Becauseof this, the corporate executives of large companies have

become deeply aware of the importance of fully anddeeply understanding the structures of their supplychains. In order to prepare for major sequential earth-quakes that are expected to occur, they are making



Japan

North AmericaEurope

India

China

Oceania

Latin America

• Toyota Motor Corporation: Cut production output by 260,000 cars (by April 8, 2011)

• Nissan Motor Co., Ltd.: Cut production output by 105,000 cars (estimated loss in April and May)

• Honda Motor Co., Ltd.: Cut production output by 43,000 cars (by April 3)

• Mazda Motor Corporation: Cut production output by 31,000 cars (by March 25)

• Suzuki Motor Corporation: Cut production output by 32,000 cars (by March 25)

• Daihatsu Motor Co., Ltd.: Cut production output by 27,000 cars (by March 29)

• Fuji Heavy Industries Ltd.: Cut production output by 23,000 cars (by March 28)

• Mitsubishi Motors Corporation: Cut production output by 15,000 cars (by March 26)

• Toyota: Planned production stoppage at five plants in Europe from April to May

• Nissan: Suspended production at its plant in the UK for a few days

• Honda: Slashed output by 50% for seven weeks

• Toyota: Cut production output by 70%

• Honda: Cut production output by 50%

• Toyota: Impact extended to its Australian plants

• Toyota: Cut production output by 50%

• Toyota: Cut production output by about 150,000 cars at 14 plants in the U.S.

• Nissan: Suspended production at its plants in the U.S. for a few days

• Honda: Reduced production levels to 50% at its six U.S. and Canadian plants

• Fuji Heavy Industries: Temporarily suspended its North American production

• Nissan: Suspended production at its Mexican plants for a few days

• Toyota: Impact extended to its South American plants

Source: Compiled based on various news articles and the website of each company.

Figure 3. Major impact of supply chain disruptions on the automotive industry

Stoppage of parts supply

Impact spreading nationwide

Impact spreading worldwide

Damage simultaneously inflicted on extremely broad areas

Tight supply-demand balance of electricity

Note: Monthly output was calculated by regarding the base year (2005) average as 100.Source: “Current Survey of Production” published by the Ministry of Economy, Trade and Industry.

Figure 4. Change in output of the transport machinery industry

100.0

71.4

52.3 53.3

85.3

90.096.1

90.4

SeptemberOctober

NovemberDecember

JanuaryFebruary

March April May June July August September

2010 2011

120.0

110.0

100.0

90.0

80.0

70.0

60.0

50.0

40.0


efforts to understand the structures of their supply chainsand are strengthening their database management duringnormal times before any disaster occurs.

3 Importance of learning from pastdisasters is re-recognized

The Great East Japan Earthquake also revealed cases inwhich damage was minimized thanks to the improvedseismic resistance of buildings and facilities as well assteady progress in hardware technologies that had comeabout based on the experience gained from the GreatHanshin-Awaji Earthquake and the 2004 NiigataChuetsu Earthquake. At the same time, there were alsomany cases where the improved genba-ryoku (thestrengths of field sites) was effective in reducing dam-age.

For example, a look at transportation infrastructureand facilities shows that the Tohoku Expressway suf-

fered no major damage such as collapsing bridges, andwas reopened to the public 13 days after the earthquake(Figure 5). All trains running on the Tohoku Shinkansenlines were safely brought to a stop, without a single trainderailment.

Kurihara Central Hospital is located in Kurihara City,Miyagi Prefecture, where a seismic intensity of 7 wasobserved. However, thanks to the building’s seismicallyisolated structure, the hospital suffered no damage andwas able to continue operation in the same way as it didwhen it survived the 2008 Iwate-Miyagi Inland Earth-quake.

Company A, which is a manufacturer that has its finalassembly plant in Iwate Prefecture, had taken its pastexperience with earthquakes to devise various ideas andstrengthen its employee training so as to hasten its recov-ery. Because of this preparedness, the company was ableto restore its production environment on March 15, amere four days after the earthquake struck (Figure 6).



Source: Compiled based on materials published by the Road Bureau of the Ministry of Land, Infrastructure, Transport and Tourism and various sources of information such as Nikkei newspapers.

Figure 5. Comparison of speed at which expressways were restored

Great Hanshin-Awaji Earthquake

Time taken to reopen Hanshin Expressway

Aseismic reinforcement measures One year and

eight monthsGreat East Japan Earthquake

Temporary restoration One day

Emergency restoration 11 days

Time taken to reopen Tohoku Expressway 13 days

Time taken to reopen Joban Expressway 21 days

20 40 60 800 days

Note: BCP = business continuity plan.

Figure 6. Manufacturer A’s efforts to reduce damage and recovery results

• Each individual employee fully understands what to do

2003 2008 2011

Damage reduction

Genba-ryoku (strengths of field sites)

Earthquake off Sanriku Iwate-Miyagi Inland Earthquake Great East Japan Earthquake

• Well-prepared BCP based on lessons learned from inflicted damage

• Restored normal operation two days later

• Restored normal operation four days later

• Making facilities earthquake resistant• Anchoring equipment• Taking measures to prevent equipment from falling• Using a video conferencing system between the head office (Shizuoka)

and the disaster site


However, because the supply of parts had dried up, it wasnot actually able to restart production until April 18.

As well as the safety, disaster preparedness andresilience of Japan’s social infrastructure and facilitiesonce again being internationally recognized, the impor-tance of learning from past earthquakes has been recon-firmed.

On the other hand, the wide-ranging impact of infra-structure failures, as typified by supply chain disruptionsand a shortfall in electrical power, points to the inade-quacy of conventional business continuity plans (BCP)that have aimed at making a company’s important man-agement resources earthquake resistant and at enhancinggenba-ryoku (the strengths of field sites).

II Impact of Expected Major Multi-segment Sequential Earthquakes

1 Major sequential earthquakes are sure tooccur in the near future

The Great East Japan Earthquake is said to be anunprecedented event that happens only once every 1,000years. On the Pacific side of western Japan, however,series of sequential earthquakes similar to this massiveearthquake have occurred every 100 to 150 years (Figure7).

There have been no major sequential earthquakes inthis region since the Showa Tonankai Earthquake of1944 and the Showa Nankai Earthquake of 1946, almost70 years ago. Given that there has been no major sub-duction zone earthquake in Suruga Bay in 157 years (asof 2011), since the Ansei Tokai Earthquake of 1854, it issaid that major sequential earthquakes can happen at anytime in the near future. According to the Headquartersfor Earthquake Research Promotion, the probability of amajor earthquake occurring during the next 30 years is87 percent for the Tokai region, 60 – 70 percent for theTonankai region and 60 percent for the Nankai region.

Against this background, in 2001, the Central DisasterManagement Council established the Committee forTechnical Investigation on Countermeasures for theTokai Earthquake and the Committee for TechnicalInvestigation on Countermeasures for the Tonankai andNankai Earthquakes to strengthen measures to be takenin preparation for major sequential earthquakes by esti-mating the damage likely to be caused. Based on thelessons learned from the Great East Japan Earthquake,studies have also been started that extend the range ofthe potential source of any such earthquake in the direc-tion of Hyuganada off the coast of Miyazaki Prefecture.By around the spring of 2012, the distribution of seismicintensities and tsunami height data are scheduled forreview.

2 Damage will affect extremely broadareas and sever Japan’s main corridor

(1) Broad areas will be simultaneously affected byshaking, liquefaction and tsunami

A characteristic of major sequential earthquakes such asa Tokai earthquake is that they inflict massive damageover very wide areas.

The size of the affected areas would be so large as toinclude the Chubu region, which is Japan’s largest pro-duction center, as well as the entire Pacific Ocean beltzone (Figure 8).

Relative to the Great East Japan Earthquake, seismicsources would be very close to land areas and cata-strophic damage would be caused by shaking, liquefac-tion and tsunami occurring simultaneously over broadareas primarily in the Pacific coastal regions.

In addition, tsunami could reach land very quickly.Based on a simulation by the Central Disaster Manage-ment Council, in some areas, the first tsunami waveswould make landfall only a few minutes after an earth-quake occurred.

(2) Production facilities would be severely damagedThe Chubu region, which is Japan’s largest productioncenter, is expected to be seriously affected.

The four fields of the manufacturing industry in theChubu region, which are transport equipment, iron andsteel products, precision machinery and petroleum andcoal products, together generate about 26 trillion yenannually (about 26 percent of the nationwide total), orabout ten times that of the Tohoku region (about 2.6 tril-lion yen) (Figure 9).

In particular, in the case of the automotive industry(which falls in the field of transport equipment), a largecompany’s head office, its production facilities anddiverse suppliers that support its production are clusteredin this region. The Great East Japan Earthquake wascharacterized by the knock-on effects of supply chaindisruptions. However, major sequential earthquakes suchas a Tokai earthquake could well cripple a head office,production facilities and the supply chain simultane-ously, with an impact that would far outweigh that of theGreat East Japan Earthquake.

(3) Disruption of the core functions of Tokyo, Osakaand Nagoya

It has also been predicted that long-period groundmotions more than twice those observed in the GreatEast Japan Earthquake would likely occur.

Long-period ground motions are slow shakings witha period of 2 to 20 seconds and are characterized bylarge amplitudes and long durations. This kind of shak-ing travels much further than usual primary waves (Pwaves) and secondary waves (S waves) that have aneffect on ordinary low-rise buildings such as houses,penetrating into the thick sedimentary layers, where it






Source: Compiled based on Usami, T., “Saishinban Nihon Higai Jishin Soran 416 – 2001 (Comprehensive List of Destructive Earthquakes in Japan 416 – 2001),” University of Tokyo Press, 2003.

Figure 7. History of earthquakes in the Tokai, Tonankai and Nankai regions

Keicho Earthquake (M 7.9); the number of fatalities is unknown

Hamamatsu

Shizuoka

Kochi

Nankai

KobeOsaka

Wakayama

Nagoya

Tonankai

Tokai

1605

1707

1854

1946

2011

1944

Date unknown

102 years

Hoei Earthquake (M 8.6); 5,083 fatalities

Ansei Nankai Earthquake, Ansei Tokai Earthquake (M 8.4); 2,658 fatalities

147 years

90 years

TonankaiEarthquake

(M 7.9)1,251 fatalities

Nankai Earthquake

(M 8.0) 1,330 fatalities

Seismic quiet period157 years

Probable Tokai

earthquakeProbable multi-segment sequential earthquakes

Figure 8. Source regions of and areas to be affected by Tokai, Tonankai and Nankai earthquakes—damage to besimultaneously inflicted on broad areas by shaking, liquefaction and tsunami

Source region of Nankai earthquake (probability of 60%)

Source region of Tonankai earthquake (probability of 60 – 70%)

Seismic intensity: 7

Seismic intensity: strong 6

Seismic intensity: weak 6




Seismic intensity: 3 or weaker

Source region of Tokai earthquake (probability of 87%)

Possibility of extension of source region

Damage simultaneously inflicted on broad areas by shaking and tsunami

Source: Seismic intensities are based on material published by the Central Disaster Management Council and probabilities are based on material published by the Headquarters for Earthquake Research Promotion.


causes large back and forth motions that continue for along time.

The three major cities of Tokyo, Osaka and Nagoyaare all located on top of these sedimentary layers, andfeature dense concentrations of skyscrapers and condo-miniums, with large-scale petrochemical complexesbuilt along the coastline.

Because the natural period of these large-scale struc-tures is relatively long compared to that of ordinarybuildings, the structures are very susceptible to resonat-ing with long-period ground motions. The motions thatoccurred during the Great East Japan Earthquake bentthe uppermost part of Tokyo Tower, while fires brokeout in oil tanks. Furthermore, Kogakuin University inShinjuku, Tokyo and the Sakishima Building of theOsaka Prefectural Government suffered damage such ascracks in their walls and stalled elevators.

The Great East Japan Earthquake, the seismic sourceof which was several hundred kilometers from Tokyoand Osaka, did not cause any serious long-period groundmotions. Nevertheless, Tokyo’s transportation infrastruc-ture came to a standstill on the day of the earthquake,leading to major confusion on the roads and massivetraffic jams (Figure 10).

Because the source regions of major sequential earth-quakes such as a Tokai earthquake are no more than 100km from Tokyo, Nagoya and Osaka, any serious, long-period ground motions will not only affect high-risebuildings in these large cities, but could also damage

other large-scale structures such as the petrochemicalcomplexes scattered along the coast and the thermalpower plants that are concentrated in the coastal areas ofIse Bay.

(4) Severing of the country’s main corridorThe coastal areas of Shizuoka Prefecture are locateddirectly above the source region of a Tokai earthquake.Therefore, in all these areas, the strength of the earth-quake is likely to reach an intensity of strong 6 or 7while the ensuing tsunami would probably be at least 10m high. The Tomei Expressway and the TokaidoShinkansen line, which together constitute the main arte-rial corridor of the country, run through these areas thatwould be severely affected by an earthquake and acrossmajor rivers such as the Tenryu River, Oi River and FujiRiver (Figure 11).

Since the Great Hanshin-Awaji Earthquake, bridgeshave been seismically retrofitted and have not sufferedany major damage by subsequent earthquakes.However, if there were large-scale movement of theground in and around the estuary zones, bridges couldbe displaced or even collapse, leading to the possibilityof long-term closures. In addition, because both theroad and rail lines are no more than 20 km from theHamaoka nuclear power plant of Chubu Electric PowerCo., Inc. in Omaezaki, an accident similar to that at theFukushima Dai-Ichi and Dai-Ni nuclear plants couldlead to long-term closures of these transport links.



Figure 9. Production facilities clustered in the Pacific Ocean belt zone would be simultaneously affected







Seismic intensity: 3 or weaker

Thermal power plant

Transport equipment

9%

14%

76%

1%

45%

15% 19%

21%

Damage would be inflicted on the Setouchi industrial region (liquefaction, tsunami, long-period ground motions)

Damage would be inflicted on high-rise buildings in Tokyo, Osaka and Nagoya as well as on the petrochemical complex (long-period ground motions, tsunami)

Disruption of power supply networks (liquefaction, tsunami)

Damage would be inflicted on the production facilities of the Chubu region (shaking, liquefaction, tsunami)

Four fields of the manufacturing industry in the Tohoku region: Annual production amount of

about 2.6 trillion yen (about 3% of the nationwide total)

Precision machinery

Petroleum and coal products

Iron and steel products

Four fields of the manufacturing industry in the Chubu region: Annual

production amount of about 25.6 trillion yen

(about 26% of the nationwide total)

Petroleum and coal products

Iron and steel products

Transport equipment

Precision machinery

Source: Material published on the website of the Federation of Electric Power Companies of Japan (FEPC) was used to indicate the locations of thermal power plants and “2005 Inter-Regional Input-Output Table” published by the Ministry of Economy, Trade and Industry was used for annual production amounts.


Furthermore, if aftershocks were to continue for manyweeks as they did after the Great East Japan Earth-quake, presenting the risk of tsunami, there is thedanger that the ports of Nagoya and Osaka could sufferlong-term closures.

As such, if this land and sea transport corridor were tobe severed for a long time, the country would essentiallybe separated into several broad blocks and these blockswould be isolated from each other.

III Promoting the Relocation ofFacilities by Visualizing Risks

1 Awareness of risks changesmanagement’s crisis responsiveness

According to the Nihon Keizai Shimbun (Nikkei) news-paper of July 11, 2011, Suzuki Motor Corporation is



Source: Compiled based on probe traffic information gathered by NRI’s Ubiqlink Department.

Figure 10. Traffic congestion in central Tokyo on the day of the Great East Japan Earthquake

22:00 Legend

Smooth traffic

Traffic jams

Above 40 km per hour

30 km – 40 km per hour



Less than 10 km per hour

Figure 11. Severing of the country’s main corridor

Tokai Hokuriku Expressway

Okaya Junction

Tomei Expressway

Tokaido Shinkansen Line

Chuo Expressway

Ichinomiya Junction Komaki Junction

Oi River

Fear of bridge collapse due tolarge-scale ground movement

(Period required to reopen expressways)Optimistic case: 10 – 20 daysPessimistic case: Several months to several years

Port of NagoyaContainer cargo volume

165.10 million tons per year

Hamaoka Nuclear Power Plant, Chubu Electric Power Co., Inc.

Trips between Chubu and Kanto Travelers: 898,438 trips per day Cargo: 747,273 tons per day

About three times thosebetween Kanto and Tohoku

Source: Compiled based on “2005 Inter-regional Travel Survey,” “2005 Survey on the National Net Cargo Flow” and “Annual Report on Port Statistics 2009” published by the Ministry of Land, Infrastructure, Transport and Tourism.


planning to move its Motorcycle Technical Center,which is engaged in the development and design ofmotorcycles and is currently located in Iwata City,Shizuoka, as well as its head-office departments relatedto electric car development and motorcycle engine pro-duction, which are currently located in the lowlands ofHamamatsu, to a high elevation north of Hamamatsu.Given that the current facilities are located on the Pacificcoast, Suzuki has long worried about the possibility ofdamage that would be caused by tsunami triggered by aTokai earthquake.

Since the occurrence of the Great East Japan Earth-quake, company stakeholders including customers andshareholders have become much more concerned with acompany’s BCP. Because of such increased interest, onoccasions such as at annual shareholders meetings, cor-porate executives are required to give clear explanationsof their plans for dealing with major disasters. It is verylikely that those suppliers that make up the supply chainwill also be required by a customer company tostrengthen their risk mitigation measures as a prerequi-site for continuing business transactions with the cus-tomer company. Actually, some companies have alreadybegun to evaluate the risks associated with supplier facil-ities. As a result of this risk assessment, they are creatingguidelines on disaster preparedness measures that arefound to be necessary for each supplier facility.

As such, the author believes that corporate executiveshave come to a point where they cannot avoid makingdecisions for investing in disaster preparedness measuresin order to ensure business continuity.

2 Expected major multi-segmentsequential earthquakes will bring about aparadigm shift

Expected major multi-segment sequential earthquakessuch as a Tokai earthquake will bring about a paradigmshift in a company’s conventional thinking related to riskmitigation measures (Table 1).

(1) Strengthening virtual functions that do not relyon a prerequisite of assembling personnel

In the case of earthquakes that occurred in the past,head-office functions in Tokyo, Osaka and Nagoyaremained unaffected. Therefore, it was possible toassemble personnel in the head office, where recoverymeasures were taken for local disaster-hit companiesunder the supervision of the headquarters for disasterresponse. However, major sequential earthquakes willpresent the first ever instance of a head office beingstruck by an earthquake. Stalled transportation will meanthat it is difficult for personnel to reach their offices.Even in such a situation, recovery measures must betaken for disaster-stricken production facilities and busi-ness continuity must be ensured. In such a case, virtualresponse strategies that make effective use of informa-tion and communications infrastructure will becomemore important, which do not necessarily require per-sonnel to physically reach the head office.

(2) Ultra-wide area dispersionThe steel, machinery and petrochemical industries thathave supported Japan’s high economic growth are allcharacterized by large-scale production facilities clus-tered along the Pacific Ocean belt zone. However,expected major sequential earthquakes including a Tokaiearthquake could easily strike the Chubu, Kinki andSetuchi regions simultaneously.

Major financial institutions often have their headoffices and data centers in Tokyo, with backup facilitiesin Osaka. With the occurrence of any long-periodground motions or liquefaction, however, it can beassumed that Tokyo and Osaka would be affected simul-taneously.

Considering the possibility of a disaster striking suchvery broad areas on the Pacific Ocean side, causingmajor damage to both Tokyo and Osaka, there is a needto consider the Japan Sea side of the country and evenoverseas as possible sites for ultra-wide area disper-sion.



Table 1. A paradigm shift to be brought about by expected major sequential earthquakes such as a Tokai earthquake

Head office

Space

Network

Head office (in Tokyo) where personnel are assembled provides supervision for recovery activities (in Tohoku)

Production facilities are dispersed along the Pacific Ocean belt zone

A data center and a backup data center are located at two different sites (Tokyo and Osaka)

A supply chain stretches out along the length of the country

An earthquake strikes the head office and it is difficult to assemble personnel there; the head office will no longer be able to function as planned

Damage would be inflicted on ultra-wide areas

Both Tokyo and Osaka would be affected simultaneously; network disruption

The country’s main corridor would be severed

Strengthening virtual functions that do not rely on assembling personnel

Ultra-wide area dispersion (including overseas sites)

Functional integration to achieve self-reliance and independence in each regional block

Conventional paradigm Paradigm assuming major sequential earthquakes


(3) Functional integration to achieve self-relianceand independence in each regional block

Japan’s production functions were developed in regionswhere there was vast and inexpensive land and where aworkforce was available. As a result, Japan created amassive supply chain that stretched out along the lengthof the country. However, this configuration would beeasily disrupted by any partitioning of the country. Tominimize the impact if the country were to be parti-tioned, individual regional blocks might have to be self-reliant in the future.

In fact, in light of Tokyo’s transportation infrastruc-ture being crippled in the wake of the Great East JapanEarthquake, Company B, a manufacturer with its headoffice in Tokyo and production facilities locatedthroughout the country, has started to look into the fol-lowing measures in order to steer away from assem-bling personnel in its Tokyo head office for thesupervision of recovery activities and to ensure businesscontinuity.

(1) Maintaining secondary and tertiary head-officefunctions and facilities

(2) Establishing a virtual disaster response headquar-ters by making greater use of video conferencingsystems

(3) Installing radio equipment and satellite mobilephones in the homes of key personnel

(4) Delegating considerable authority to each of theproduction sites

Similarly, in preparation for a major earthquake in theTokai region, Company C, a financial institution with itshead office in the Chubu region, has set up separate datacenters in the Chubu and Kanto regions. However,because large-scale liquefaction occurred in Urayasu,Chiba Prefecture, about 400 km away from the sourcearea of the Great East Japan Earthquake, the companyhas started to look into the possibility of moving the datacenter located in Kanto to another region.

3 Defining blocks to ensure businesscontinuity

(1) Limitations of conventional BCPs in which acompany’s own offices are positioned as mainlocations for recovery activities

q Strengthening earthquake resistance andenhancing genba-ryoku (the strengths of fieldproduction sites)

In the case of a near-field earthquake with a focusdirectly under a populated area (as happened in thecase of the Hanshin-Awaji Earthquake), as symbolizedby the term “zone of seismic intensity 7,” extremelysevere damage is inflicted on a relatively small area.For example, Kobe Steel, Ltd. completely lost its headoffice in Kobe and suffered major damage to its blast

furnaces, leading to major losses for the company. Themost valuable lesson learned from the Hanshin-AwajiEarthquake was the importance of clearly identifying acompany’s most important resources such as its headoffice and core factories and making such facilitiesearthquake resistant. Based on the experience gainedfrom this earthquake, the Japanese governmentreviewed the seismic design criteria for importantstructures. At the same time, progress has been made inearthquake resistance, seismic isolation and dampingtechnologies.

The Niigata Chuetsu Earthquake of 2004 and theNiigata Chuetsu Offshore Earthquake of 2007 have pro-vided manufacturing industries with the opportunity tointroduce a BCP. The Niigata Chuetsu Earthquakecaused damage exceeding 50 billion yen to the semicon-ductor factory of a subsidiary of Sanyo Electric Co., Ltd,Niigata Sanyo Electric Co., Ltd. (now Sanyo Semicon-ductor Manufacturing Co., Ltd.). The Niigata ChuetsuOffshore Earthquake that struck three years later fea-tured extremely severe tremors in Kashiwazaki, whereRiken Corporation had two factories, both of whichwere affected by the earthquake, leading to the halting ofthe manufacture of piston rings that are indispensable inthe production of automobiles. This time, however,immediately after the earthquake, the automotive indus-try collectively rallied to make an all-out effort to pro-vide support for restoring the facilities so that productionwas only stopped for four days. This event again causedcompanies to realize the importance of genba-ryoku (thestrengths of field production sites) to the early recoveryfrom a disaster.

w Factories of secondary suppliers were in ablind spot

The effects of the Great East Japan Earthquake fareclipsed the damage done by the two above-mentionedearthquakes, with many of the factories that producedparts and components for the manufacturing industrybeing simultaneously affected. Given that a car is anassembly of about 30,000 parts and components, it iseasy to understand that the automotive industry featureshuge, complex and multi-layered supply chains. TheGreat East Japan Earthquake affected somewherebetween several hundred to more than a thousand com-ponent factories. In particular, the factories producingmicrocomputers, rubber for brakes, paint pigments andchemical materials used for secondary materials (con-sumables used in the manufacturing process such aslubricating oil) often constitute a single source with noalternative factories available. The lack of alternativefactories became a bottleneck and prevented the resump-tion of car production for about one month, with fullrecovery taking about two more months. This situationclearly exposed the limitations of a conventional BCPthat considers a company’s own offices as principal loca-tions for recovery activities.




(2) Visualizing risks in the supply chain in definingblocks to ensure business continuity

To prepare for future disasters that are expected to havewide-ranging effects, it is not sufficient merely to under-stand the makeup of the supply chain. Rather, the diverseimpacts that an earthquake would have on the produc-tion facility sites of suppliers must be analyzed and eval-uated. These impacts include the shaking, liquefactionand tsunami that accompany an earthquake, the severingof social infrastructure such as utility supplies (electric-ity, gas and water) and the transportation network, andany accidents involving nuclear power plants and otherfacilities where toxic gas and hazardous materials arestored and handled. Through such assessment, it isimportant to estimate the risks of fragmenting the entiresupply chain and visualize where bottlenecks are likelyto occur before creating any plan or strategy (Table 2).For risk visualization, the use of the Geographic Infor-mation System (GIS) is effective (Figure 12).

In creating a multi-layer database containing a widerange of information, such information is overlaid toassess the risks facing each supplier production site.

Such a database makes it possible to visualize risks, dis-tinguish between those areas that will be affected by adisaster and those which will escape, and define blocksthat are appropriate to ensure business continuity (Figure13).

In the past, it had been assumed that it was impossibleto fully understand the structure of the supply chain,given that it has so many layers. In the wake of the GreatEast Japan Earthquake, however, many automobile andprecision machinery manufacturers have started theirefforts to identify the structure of the supply chain andvisualize the risks involved. Their efforts are consideredto be prompted by recognition of the fact that after theGreat East Japan Earthquake, it took about two weeks toidentify the bottlenecks in the supply chain, whichexpanded the range of affected business activities. Inaddition, because major sequential earthquakes such as aTokai earthquake are expected to strike a company’shead office and factories, response measures that rely ongenba-ryoku (the strengths of field production sites),which were effective for recovery from the Great EastJapan Earthquake, will likely no longer be effective.



Table 2. Viewpoints involved in visualizing risks facing the supply chain

Identifying SCM (supply chain management) resources

Damage inflicted on SCM resources

Social infrastructure

Location environment

Identifying the resources involved in the entire supply chain, ranging from the procurement of materials and parts to manufacture, logistics and sales

Selecting a seismic hazard scenario and determining the range of resources that would be affected by shaking and tsunami

Analyzing and assessing the range of social infrastructure (electricity, water and sewage, roads, ports, airports, etc.) that would be affected and the time required for restoration

Evaluating the location environment to see if there are facilities where hazardous materials are handled or stored, such as a nuclear power plant, that might influence business activities, and determining the range of influence

Viewpoints that have not yet been fully examined

Figure 12. Using the geographic information system (GIS) to overlay information on risks facing the supply chain

Taking an in-depth view of the supply chain

Taking a comprehensive view of the supply chain

No damage

Early recovery

Long-term outage

Facilities handling or storing hazardous materials such as a nuclear power plant

Infrastructure disruption

Shaking, liquefaction and tsunami

Plants for final assembly

Tier-1 supplier factories (primary suppliers)

Social hazard factors

Electricity, water, transportation and communication service interruption assessment map

Tsunami inundation assessment map

Seismic intensity distribution assessment map

Tier-2 and lower supplier factories (secondary and lower suppliers)


(3) Making use of visualized risks in establishing alocation strategy

If it is possible to identify the areas that would not beaffected by a disaster through the visualization of risksinvolved in the supply chain, a company would be ableto devise a specific location strategy that would allowthe company to continue its operation even if the countrywere to be split into separate blocks as a result of majorsequential earthquakes.

Although the direction of any location strategydepends on the characteristics of each industry and eachcompany, there are basically two approaches, as follows.

(1) Promoting functional integration to achieve com-plete self-reliance and independence in eachblock

(2) Spreading redundant functions among blocks andimproving cooperation among them

q Promoting functional integration to achievecomplete self-reliance and independence ineach block

This approach aims to promote functional integration toachieve complete self-reliance and independence in each

regional block so that business continuity can be ensuredeven if the country were to be essentially split into sepa-rate blocks by a major disaster (Figure 14).

Manufacturer D, in order to have its third domesticproduction site in Tohoku in addition to its productionfacilities in Chubu and Kyushu, has started talks with itstwo affiliates that have production facilities in Tohoku tomake them the company’s wholly owned subsidiaries.The company made this decision based on its belief thatfurther strengthening a trilateral domestic productionsystem and increasing the degree of self-reliance withineach regional block would eventually further improveJapan’s manufacturing competitiveness. At the sametime, in light of the experience gained from the GreatEast Japan Earthquake, the company’s decision isassumed to reflect its intention to prepare for expectedmassive sequential earthquakes.

Since before the Great East Japan Earthquake, Com-pany E, a major beverage manufacturer, has adopted abusiness strategy that stresses the freshness of its prod-ucts by locating production factories very close to themarkets where they are consumed. Based on this strat-egy, production facilities have been dispersed throughoutthe country, such that the recent earthquake had very



Figure 13. Concept of the definition of blocks to ensure business continuity based on visualized supply chain risks

Sales offices

Production facilities

Electricity supply area

OverseasBlock BBlock A

Infrastructure

Tier 2 and lower

Tier 1

Suppliers

Unable to function due to infrastructure disruption

Unable to function due to damaged facilities

Transportation and logistics network

Figure 14. Supply chain risk mitigation pattern through functional integration to achieve complete self-reliance

Sales offices


Infrastructure

Tier 2 and lower

Tier 1

Suppliers

Block C (including overseas sites)Block BBlock A


limited effect on the company’s business operations. Asimilar trend can be seen in the entire grocery industry.Statistical data clearly show that the effect of the earth-quake on this industry was relatively minor (Figure 15).

w Spreading redundant functions among blocks andimproving cooperation among them

While an approach of promoting functional integrationto achieve complete self-reliance in each block is seen asan ideal way of dispersing the risks associated withearthquakes, this approach requires a certain degree ofdemand in order to justify production levels. Similarly,to establish local production facilities in the same way asBeverage Manufacturer E, there must be sufficientdemand from the local market. Therefore, many compa-nies are seeking to diversify their risks by promoting thesharing of redundant functions and cooperation amongblocks including overseas sites (Figure 16).

Having learned from the Great East Japan Earthquake,Manufacturer F has been acting to establish a comple-mentary relationship for production with an overseascompany so that Manufacturer F can continue produc-

tion even if its production facilities are affected. Further-more, in addition to its component factory located in theKanto region, the company has a plan to open a factoryin the Kinki region to supply the same parts.

Since the occurrence of the Hanshin-Awaji Earth-quake, Manufacturer G has been promoting domesticand overseas dispersion of its production facilities. Atthe same time, the company has been reviewing partsinventories, increasing its stocks of general-purposeparts and standardizing special-order parts from thedesign stage to the maximum extent possible in order toenable switching production to a domestic factory inanother block or to an overseas factory.

Manufacturer H has a string of large-scale productionfactories along the Pacific Ocean belt zone. Because thenecessary investment associated with relocating its facil-ities or establishing new sites is huge and this solution isimpracticable, the company has been improving theearthquake-and flood-resistance of its factory buildingsand production equipment. The company has alsostarted to look into the possibility of sharing functionsbetween its existing sites.



Note: Monthly production output is calculated by regarding the output in the base year (2005) as 100.Source: “Current Survey of Production” published by the Ministry of Economy, Trade and Industry.

Figure 15. Change in production output in the grocery industry

120.0

110.0

100.0

90.0

80.0

70.0

60.0

50.0

40.0September

OctoberNovember

DecemberJanuary

FebruaryMarch April May June July August September

2010 2011

100.0

91.3 97.3 98.7 95.7 97.7

94.4 95.3

Sales offices


Infrastructure

Tier 2 and lower

Tier 1

Suppliers

Figure 16. Risk mitigation pattern through the sharing of redundant functions among blocks and cooperation among them

Block C (including overseas sites)Block BBlock A

Site dispersion Standardization, moving functions

Redundancy Redundancy


A director who is responsible for procurement atManufacturer I, whose production volume is not solarge, considers that rather than pursuing wide-area sitedispersion within Japan or contracting with multiplesuppliers for the same parts, there will be an increasingtrend to seek out suppliers that can supply parts andcomponents to both domestic and overseas sites includ-ing those in other Asian countries and to train these sup-pliers to meet a company’s requirements. He has pointedout that doing so, however, requires the implementationof measures that go back as far as the stages of develop-ment and design such as the standardization of parts andcomponents.

IV Future Efforts Required of Enterprises

Since the occurrence of the Great East Japan Earth-quake, social awareness of the need to prepare formajor earthquakes has been increasing. The govern-ment has warned that there is a major risk of giantmulti-segment sequential earthquakes occurring in thenear future, one of which is forecast for the Tokai seg-ment. Companies that have a high level of risk aware-ness have been embarking on efforts to reduce the risksthey face such as improving earthquake resistance and

rearranging site locations by relocating and dispersingtheir facilities.

Of course, the implementation of measures to mitigatethe risks associated with massive sequential earthquakeswill incur enormous cost. A company must continue toremain successful in a globally competitive society.However, it will not be easy to relocate production facili-ties or provide redundant functions. For this reason, acompany must choose the most appropriate decisionfrom the perspective of business management by accu-rately identifying the balance between the loss thatwould be incurred if business were to be halted by anearthquake and the cost for risk mitigation measures,which constitute trade-off relationships.

For business owners, the most important tasks theycurrently face are defining blocks that will ensure busi-ness continuity by visualizing the risks involved andplanning a strategy that indicates what amounts ofresources can be put into what activities so as to ensure acompany’s survival.

Kazuchika ASANO is a senior consultant at NRI’s SocialSystems Consulting Department. His specialties include dis-aster risk simulations, government and enterprise disasterpreparedness and risk management policies and the formula-tion of business continuity plans (BCP).



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