Japanese Earthquake Impact and Lessons Learned from the 2011 Japanese Earthquake

On March 11, a Richter scale 9.0 earthquake devastated the chief island of Honshu Japan. The earthquake, tsunami and its consequences made devastating personal, social and economic harm. People worldwide were astonished by videos of blowing up nuclear power plant buildings, knocked down cities and personal stories of the disaster. The earthquake also seriously interrupted global manufacturing supply chains. In this paper, we shall expound, through modelling, comparison and analysis - issues that caused business interruptions, impacted businesses, operations management issues, and effectiveness of business decision-making relating to the 2011 Japanese Earthquake.

Earthquake Risk Modelling

To manage earthquake risk, it is essential to know the size of the risk and the amount by which the risk is reduced by taking some particular action or set of actions. We thus need to be able to quantify one or more of the nine socio-economic consequences of earthquakes. Earthquake risk is generally quantified by computer modelling, which takes account of the hazard and the quantity and nature of the people and/or property at risk. To fully account for the seismic hazard, not only the ground shaking has to be considered, but also associated earthquake-induced hazards which include the nine mainly geological consequences such as liquefaction and landslides, and earthquake-induced fires.

Earthquake risk modelling is carried out for a wide range of elements of the built environment, i.e.

. buildings; - contents of buildings;

. fixed and mobile plant and equipment;

. lifelines.

Such modelling may be carried out in its own right, and of course is also a necessary first step in modelling risk of death or injury to people. Another step in risk modelling and management is to identify all the contributing factors which could be improved in order to reduce risk, as discussed for the recent earthquake in Japan, in 2011.

Material Damage Costs

The most common type of earthquake risk modelling is the estimation of the direct financial cost due to material damage to a subset of the built environment. This is done (for widely disparate sets of property ranging from a single item or parcel of items such as the contents of a particular building to all, or selections of all, the property in a city, or for the total losses for a given earthquake. Damage costs directly due to ground shaking using empirical damage ratios. Consider the case of a large earthquake, occurring on a surface rupturing fault.

Business Interruption

By the term business, we here refer to any organization, such as, shops, factories, schools, clubs, hospitals, governmental bodies, etc. Business interruption is the name often given to the costs of loss of business arising from any cause, in our case from an earthquake. Business interruption is one of a list of nine socio-economic consequences of earthquakes and is one of the hardest to model. It is seen that there are three general areas which may cause business loss, i.e.

* upstream effects;

* direct material damage; and * downstream effects.

Figure. 1

Upstream effects are those to do with supplies of anything that a business uses or consumes, such as power, raw materials or components. Downstream effects comprise damage to dispatch routes or loss of a market, for example, a customer's business. The consequences of an earthquake can be both negative and/or positive for any given business. An example of related negative and positive effects comes from the 1987 Edgecumbe, New Zealand, earthquake, in which the public hospital in the largest affected town was put out of commission for some time (Fluchter, 2003). This caused a serious decrease in business to the local undertaker (who was not insured against such a loss), because fatally ill patients were being sent to hospitals elsewhere. This of course led to a corresponding increase in business for undertakers in other places. Business interruption can be caused by local or distant earthquakes, even those in other countries. The effects on businesses are clearly very variable and often unpredictable.

There are a range of very different possible outcomes which can be considered as those for either different businesses, or alternative negative and positive outcomes for the same business in different scenarios. Because of this inherent variability, estimation of effects of earthquakes on businesses is best studied by considering various likely scenarios, modelling a range of possible upstream and downstream effects to supplier and customer bases for each scenario. Such modelling involves estimating the length of time after the earthquake that each consequence lasts. An interesting example of such a study is that of modelling time delays caused by damage to the transportation system in the San Francisco areas in a magnitude 7.5 earthquake on the San Andreas fault (Milliken, 2011), using GIS-based methodology to tackle a complex problem.

Research company IHS iSuppli Market Intelligence has came out with a report...

Companies headquartered in Japan produced $63.3 billion in microchip returns in 2010, indicating 20.8% of the global marketplace.
Japan-based companies in 2010 reached No. 3 in semiconductor manufacturing between the world's main chip manufacturing regions.

DRAM manufacturing in Japan totals to 10% of the global supply of wafer production (Rowinski, 2011).

Reduction of Business Interruption

A range of measures for mitigating business interruption may be appropriate depending on the nature and location(s) of the business. These will depend upon cost-effectiveness, and include the following:

1 Create Low Damage Built Environment (e.g. use more structural walls in buildings; hold down key equipment/plant; create stable storage);

2 Prioritize: give greatest protection to key functions (critical residual operations);

3 Control earthquake-induced fire hazard;

4 Safe-shutdown systems for plant;

5 Develop Emergency and Recovery Plans (minimize cost and time of interruption to business);

6 Establish operational flexibility, duplication, spare capacity (e.g. On separate sites);

7 Establish alternative sources of supply;

8 Establish alternative sources of energy;

9 Establish early warning, early action plan;

10 Purchase Business Interruption insurance (e.g. consider insurance of profits as discussed by Milliken, (2011).

Companies have to identify risk issues in their supply chains and make the means to lock in alternate supply and rapidly reroute materials. Instantly after the Japanese earthquake struck, some companies shrewdly placed big orders with different suppliers, ensuring their supply base. When shortages happen, it will harm their competitors, not them (Sirkin, 2011). Some of the key questions that need to be answered in relation to the fitness of the business to respond to an earthquake disaster are:

In what ways will the disaster:

(a) damage the business?

(b) be a business opportunity? Is the risk of business interruption big enough to worry about?

Can you afford

(a) to do nothing?

(b) not to do something?

Is business interruption likely to be permanent for you (e.g. land permanently flooded by regional land downthrow)? In what respects is prior mitigation more important to you? For example, Fewer casualties, less trauma Less downtime Less unemployment Less National Impact. How much insurance (material damage and business interruption) is necessary and/or prudent business practice?

Planning for Earthquakes

Planning for earthquakes like the one the Japan, 2011, refers to a range of activities, which involve generally complex issues, particularly

Planning of land use.

Planning of disaster emergency response.

Table 1.

Planning of economic response.

Planning of social response.

Damage scenarios based on damage ratios; provide information on the potential outcomes of future earthquakes which is highly relevant to planning of land-use, and of economic and social response to earthquakes. Such damage maps highlight the existence and extent of high risk zones within existing urban areas, and the potential development of future black spots if extensive development is proposed in the vicinity of frequently rupturing major faults. As illustrated in Table 1, damage levels increase rapidly with intensity, so that development in regions which are certain to experience intensity MM9 or greater at 'unacceptable intervals' should be discouraged or at least carefully regulated.

Considering the case of Wellington, much of its urban area lies in a zone which is expected to experience intensity MM10 when the Wellington fault ruptures, i.e., at an average recurrence interval of about 600 years. Within the MM9 and MM10 zones, there are areas subject to a range of earthquake-induced hazards, which include microzoning for ground motion amplification, liquefaction, landslides, inundation and tsunami. In simplistic terms, if most of the development currently located within 10 km of the Wellington fault was relocated to a zone 10-20 km from the fault, then the damage and casualties in the scenario earthquake would be enormously reduced. For example, over 100 buildings are located astride the fault. Also, based on the study of casualties, they would reduced by 80-90% if such a relocation was made.

The risk associated with other possible major hazard sources in any given region would also have to be considered when making such risk mitigation decisions. In the case of Wellington, other major faults running nearly parallel to the Wellington fault also exist in the region. One of these lies about 4 km to the north-west of the Wellington fault and another lies about 18 km to the south-east over a mountain range. Both of these faults are less active…