6 RMS (Carlos Cabrera)

Industrial Facilities and Business Interruption Carlos Cabrera Lead Catastrophe Risk Modeler Risk Management Solutions, Inc. Preliminary Briefing on Japan’s Tohoku Earthquake April 28, 2011 Outline Direct vs. Contingent Business Interruption Mitigation: Business Continuity Plan (BCP) Field Reconnaissance Process Field Observations: Light and Heavy Industrial Facilities Large Commercial Facilities Key Drivers of Business Interruption Types of Business Interruption Direct BI: A property sustains damage that interrupts its ability to conduct business Tohoku Semiconductor Sendai-Miyagi Manufacturing Plant; north side of Sendai City; (38.355, 140.855) Produced microcontrollers, analog integrated circuits and sensors products; 600 employees Sustained extensive equipment and infrastructure damage on March 11 and in the April 7 aftershock Hazardous chemical spills made repairs especially difficult Its parent company, Freescale Semiconductor, announced on April 5th that it would permanently close the facility Production is being transferred to other Freescale facilities in Texas and Arizona $90 Million USD is the total loss as of April 20th; $49M non-cash asset impairment, $15M non-cash damaged inventory, $26M cash employee and contract termination Types of Business Interruption Direct BI: A property sustains damage that interrupts its ability to conduct business Source: www.nytimes.com Image: Clean room in the Renesas Electronics Microcontroller Manufacturing Facility; Naka factory, Hitachinaka, Ibaraki Prefecture Two weeks to complete initial damage assessments and begin repairs; partial operation targeted for June 2011 More than 2,000 external contractors have been hired to assist with repair work (Source: http://am.renesas.com) Some of this facility’s production has been shifted to other Renesas facilities in Japan Car manufacturers depend on Renesas for customized controllers; Renesas is the result of a merger between Hitachi, Mitsubishi Electric, and NEC Electronics that supplies approximately 40% of the world’s automobile controllers (Source: www.nytimes.com) Site visits to facilities with clean rooms suggest that facilities that have been augmented over time (as opposed to those that were designed and constructed from the beginning) were especially vulnerable Types of Business Interruption Contingent BI: A business cannot operate because of damage somewhere else. Source: http://autoinformed.com Source: www.shreveporttimes.com Image (Left): Toyota Tundra manufacturing plant in Texas; Toyota suspended operations in its North America production facilities due to parts supply shortages Image (Right): General Motors automobile assembly facility in Shreveport, Louisiana, which shut down for a week in March due to parts shortages associated with the March 11 earthquake in Japan On April 22nd, Toyota announced that its manufacturing plants were operating at 50% capacity due to parts availability while those in North America were operating at 30% of capacity because of the parts supply situation. Business Continuity Plan A Business Continuity Plan (BCP) mitigates a company’s risk of business interruption Nattoo (Fermented Soybean) Key Supply: Packaging Source: www.mahjoob.com (Littlewing) Source: http://10204775.at.webry.info Key components of a business continuity plan: Analyze the supply chain and identify key supplies Identify alternative suppliers and stockpile emergency supply inventory Stockpile finished products Identify alternative lifelines (transportation, water, gas, electricity, waste treatment and disposal, etc.) Much of Japan’s production is unique to each company and industry, which increases the risk of business interruption Field Reconnaissance Process Plan ahead Ask lots of questions Source: OYO RMS Light Industrial Facilities In tsunami areas, light industrial facilities sustained heavy physical damage and BI Ishinomaki Ofunato Rikuzentakata Heavy Industrial Facilities In tsunami areas, heavy industrial facilities sustained light physical damage and heavy business interruption Ishinomaki – Pulp and Paper Ofunato– Cement Nippon Paper – Ishinomaki Pulp and Paper Mill Taiheiyo Cement Corporation - Ofunato City Total annual production of all pulp/paper facilities that were 156 employees shut down is 2.8M tons of printing and writing paper, 552k One of its two kilns sustained damage, raw materials and tons of newsprint, 400k tons of linerboard, 390k tons of fuel-feeding equipment were damaged, rubble and carton board, 94k tons of packaging, and 59k tons of SBS debris impair its operations, and the plant had no board (Source: www.glgroup.com); roughly 12,000 tons/ electricity as of April 18 day First cement carrier arrived over five weeks after the main earthquake Source: www.taiheiyo-cement.com.jp Commercial Properties Non-structural damage contributed to high BI Aeon shopping mall and neighboring Morisekinoshita train station in Natori, just south of Sendai Escalators, vending machines, ceiling tiles, infill walls, and contents all sustained damage in the mall (3rd floor and parking structure are not useable after 4 weeks) Escalators and light fixtures sustained damage in the train station (closed for at least 4 weeks) Key Drivers of BI Direct damage from the tsunami at coastal industrial facilities Direct damage from the earthquake at sensitive fabrication facilities Lifeline Damage: Electricity, Fuel, Water, Road and Rail Transportation, Ports and Overseas Shipping, Waste Disposal Supply Chain Vulnerability: Highly- Customized Production, Lack of Redundancy Evacuations Acknowledgments Kajima Corporation OYO-RMS Corporation Colleagues at RMS, including RMS-Japan PEER and EERI THANK YOU .

Load more