2. Diversification of Purchasing Risks

In terms of purchasing risk management, Nidec has learned an important lesson from the large-scale earthquake that happened in March 2011.

Nidec realized that its own recovery was not enough to enable manufacturing; the complete functional recovery of the supply chain (supply network of raw materials, components, etc.) of our customers was essential. Many companies in the afflicted area were forced to stop operations, and one of the reasons for this was the disruption of the supply chain.

A typical example is the automotive industry that is believed to require 30,000 components. Many automobile part suppliers were operating in north-eastern Japan, and the damage suffered by suppliers that produce electronic circuits, which require a particularly large number of components, was a serious blow to the automotive industry.

The HDD industry was also affected by the disaster in that the north-eastern area was one of its biggest parts supply bases. Various electronic circuits are used in HDDs, and without these circuits, HDDs cannot be produced. A leading HDD manufacturer was forced to reduce production when they could not procure the necessary number of electronic circuit components due to damage to the suppliers' plants.

Regarding the damaged suffered by Nidec Group, the Nidec Copal^*1 and Nidec Copal Electronics^*2 plants were devastated and, at the same time, the supply chain was also damaged. However, owing to the maximum recovery efforts made by local employees who came to work every day despite the damage to their homes, we were able to reorganize the production system at a faster rate. Since both plants do business with 50-60 suppliers for products, procurement personnel visited each supplier to confirm damage status, expected time of recovery, and location and volume of goods in stock.

Thanks to these efforts, we were able to restore production at an early stage, however, some customer companies were forced to halt their operations because they could not procure all the necessary parts from suppliers. We have learned from this experience how normal functioning of the entire supply chain is important to customer companies (Fig. 3).

To prepare for any contingency regarding the purchase of raw materials and components, Nidec Group has been generally employing Multiple Sourcing (purchasing from multiple suppliers).

When purchasing, Nidec takes into account the number of suppliers, purchasing ratio, and deconcentration of production regions by, for example, purchasing magnets used in HDD motors from three manufacturers in Japan and China, of which one company has its production base in Thailand.

When the flooding in Thailand started, it became difficult for Nidec to purchase from suppliers with production bases located in this country; however, decreases in magnet quality were reduced by increasing purchasing from suppliers producing in China. This was possible because of Multiple Sourcing.

However, Nidec learned a different lesson from the Great East Japan Earthquake. When investigating the number of suppliers, their production regions, production approach, purchasing ratio, etc. for each purchased component, Nidec realized that, for example, for a special rubber part there were several first-tier suppliers but only one second-tier supplier. The reason for this was the reorganization of the electronic component industry resulting in a consolidation of companies that supply the necessary components; nevertheless, it cannot be denied that this constitutes a cause for concern.

Due to such concerns, Nidec has reviewed its Business Contingency Plan (BCP), taking into account the risks connected with first-, second-, and even third-tier suppliers on the upstream side of Nidec Group.

Through diversification of suppliers, deconcentration of production locations, and allocation of purchasing ratios, Nidec is making sure that purchasing activities will continue even if something unforeseen happens not only with first- but also with second-tier suppliers.

Not to be dependent on a specific country/region or supplier for components and materials is one of the most important conditions for stable supply.

Currently, neodymium is used in magnets that are core components of HDD motors manufactured by Nidec Group companies, and magnets used in electric power steering motors contain neodymium and dysprosium. Both belong to rare minerals commonly called rare earth, mainly produced in China. It is correct to say that there are risks connected with price and availability of these materials.

To minimize these risks as far as possible, Nidec Group has from an early stage developed its original technology and obtained technology regarding the SR motor, which does not use rare earth at all, through Merger and Acquisition (M&A) activities. SR motors are superior over traditional motors in terms of energy efficiency, temperature characteristics, and cost performance, and are increasingly used in mid-size and large vehicles, such as buses and trucks, in the U.S. And in Japan, the SR motor is receiving attention as a motor for electrical and hybrid vehicles.

When going back to the supply chain to the raw materials located at its beginning, purchasing risks become varied, with a plethora of related countermeasures; however, Nidec Group will continue to work on the decentralization and diversification of purchasing risks based on our pledge of "fulfilling our supply responsibility under all circumstances."