Case | HBS Case Collection | April 2012

Renesas Electronics and the Automotive Microcontroller Supply Chain (A)

by Willy Shih and Margaret Pierson

Abstract

The magnitude 9.0 earthquake that struck Japan in March 2011 caused extensive damage to Renesas Electronics wafer fabrication facility, a critical link in the global automotive supply chain. Many OEMs sole-sourced customized microprocessors from the fab, so its shutdown forced the "Big Three" of Detroit and Japan to shut down production as well. Data from two automotive customers in particular, allowing the instructor to look at issues of delayed differentiation, sole-sourcing decisions, and/or Renesas' market position as a producer of low-volume customized components, in the context of supply chain disaster recovery. The two OEM's had different strategies with respect to cross-utilization of components between product lines. Therefore, a simple numerical assignment will show students the power of delayed differentiation in components. The OEM with higher cross-utilization (lower customization of components between product lines) had more flexibility in which vehicles they stopped producing during the shortage. Similarly, students can look at the impact of delayed differentiation at the product level by looking at the production process within the fab itself. Here Renesas's customization causes early differentiation. Again numbers are provided to work examples. Finally, broader questions around the viability of Renesas's market position can be discussed. How should they respond to the disaster in the short-term? How can they assure customers they can handle future disruptions differently? And from the OEMs' perspective, do they need to change their product design to allow for the incorporation of alternative parts? Such parts have downsides of their own. The findings in the two numerical examples can be used to drive this discussion, or a general strategy framework may be applied.

Keywords: Natural Disasters; Crisis Management; Supply Chain Management; Production; Strategy; Semiconductor Industry; Auto Industry; Japan;

Citation:

Shih, Willy, and Margaret Pierson. "Renesas Electronics and the Automotive Microcontroller Supply Chain (A)." Harvard Business School Case 612-071, April 2012.