John Paul MacDuffie, Management, The Wharton School; Takahiro Fujimoto, University of Tokyo; and Daniel Arturo Heller, Chuo University
Abstract: We frame the supply chain disruptions caused by disasters as a tradeoff between continuity and competitiveness and adopt a capability-based approach to managing this tradeoff. We argue that firms should work to develop protective, recovery, and substitutive capabilities to change flexibly and quickly between a competitiveness-first focus in “normal” times to a continuity-first focus amid a disaster. We model shifts in performance frontiers made possible by investing in these capabilities and show how firms can move to superior performance vis-à-vis both supply chain continuity and competitiveness. A Disaster Capability Map with examples of all three capabilities is substantiated by a detailed case study of Toyota’s overall approach to disaster management and by mini-cases of other Japanese companies adapting to COVID. In conclusion, we challenge three ideas receiving heightened attention in the midst of the pandemic: 1) Just-in-case buffers and dual sourcing; 2) Unilateral localization; and 3) Increased business continuity planning (BCP).