Lessons From Past Disruptions-

Oil Embargo

The first step in Problem Solving, when there is a disruption in the economic / social / political environment, is to question every assumption we have been working with.

The classic case I can recall is when, in 1973, 12 countries that made up OPEC stopped selling to the United States. This embargo sent oil prices through the roof. Prices more than quadrupled. The embargo contributed to stagflation.

As a cascading effect, all countries were impacted with a massive cost push in operations, purchasing, and marketing.

The country most impacted was Japan.

Japanese Recipe

Japan lacked natural resources, so needed to import almost 80% of input requirements. Cost push.

Japanese citizens did not have buying power. Japan depended on 80% of produce being exported to the United States. Again, a cost push.

This created an emergency. So the Emperor of Japan invited industry leaders to assess the crisis and to find a way out of the crisis. The three points on his agenda were:

1 – What are the assumptions we work with?

  • Stable oil price
  • Customers purchasing economic lot size quantities.

2 – What has changed?

  • The price of oil has quadrupled
  • Customer behaviour has changed: They order one of a kind.

3 – What stands between us and the goal of one of a kind?

  • Set-up times of machines have a modal value of 10 hours

The Emperor set a national goal: Reduce the modal set-up time for machines from 10 hours to 20 minutes, in 3 years.

Japan overachieved. It achieved a modal value of 18 minutes in 2 years. How? Top-down leaders to workers spoke the same language: Quality Improvement.

With that was born the Toyota Manufacturing System, christened Just-In-Time in the west. The Quality Revolution was put on steroids.

Soon thereafter, inventories almost vanished, thereby reducing the Cost Of Poor Quality (COPQ) at plants. Margins grew healthy.

Competing in the US

In parallel, the demand for fuel efficient cars was born in the United States. The American fuel guzzling cars were uneconomical for individuals and families.

Japan seized the opportunity. Datsun 510 and Toyota Corolla rolled into the United States. At that time these Japanese cars were in a sub-compact edition, namely, 4 cylinders and 2 doors. They grabbed a significant market share

Also, Japanese manufacturers of entertainment electronics could sell their products in the United States, at a price lower than the cost to produce the same locally, in spite of higher logistics costs!

Almost immediately, unknown brand names such as Sony and Panasonic took on the world heavy-weights – RCA, Zenith, Grundig, Bush, Philips. And they were victorious.

Coronavirus Threat

We now have a pandemic. Coronavirus. It is disrupting the way of life, globally.

Should we not question every assumption we have been working with?

I wish to invite you to add to the assumptions we have been working with.

Let me start with:

  • Mother Earth is benevolent and forgiving
  • ????

Random Thoughts

  • To be effective, one has to be proactive
  • Survival is not compulsory
  • 1% of the population has 95% of the wealth
  • We are an interdependent world
  • Think local for daily needs
  • Are we human beings in search of a spiritual experience?
  • Are we spiritual beings having a human experience?
  • Author :

    Suresh Lulla

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