Japan small factories get creative to keep power on

OSAKA, Japan Mon Jun 4, 2012 1:56pm EDT

Factory workers polish dies at a factory in Osaka, western Japan, May 23, 2012. REUTERS/Yoko Kubota

Factory workers polish dies at a factory in Osaka, western Japan, May 23, 2012.

Credit: Reuters/Yoko Kubota

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OSAKA, Japan (Reuters) - In a darkened industrial hangar in eastern Osaka, Yoshihiro Yamanaka is tearing up the rule book that once made Japanese manufacturing the feared global standard of efficiency.

At Fuji Spring, a company with one factory, one product and 18 workers, Yamanaka has dimmed the lights, allowed inventories to pile up and - most strikingly - shut off an automated part of his assembly to do more jobs by hand.

The goal is to slash power consumption in the face of possible electric shortages, a new uncertainty that has pushed Japan's already embattled manufacturers closer to the brink.

But in rejecting Japan's accepted industrial wisdom, Yamanaka is also accepting the do-or-die risk that customers will pay more for his springs.

"Until recently, my priority had been to cut people and unnecessary steps as much as possible. Unless we did so, we could not win the pricing battle," Yamanaka, 59, said on a recent tour of his factory, which makes springs that go into console boxes in the Nissan Leaf electric car and Panasonic Corp's (6752.T) fuel cells assemblies.

"But we are no longer battling on price."

How small Osaka factories like Fuji Spring ride out the summer and its uncertainties is a window into the bigger question of whether resource-poor Japan will follow the United States in its drift away from manufacturing, a source of national anxiety and debate for three decades.

INDUSTRIAL FOOD CHAIN

Fuji Spring is one of some 43,560 manufacturers in Japan's second largest city. Most are at the bottom of an industrial food chain that winds its way to the likes of automakers Nissan Motor Co (7201.T) and Toyota Motor Co (7203.T) and electronics makers such as nearby Panasonic and Sharp Corp (6753.T).

On average, three Osaka manufacturing have closed shop every day since the peak year of 1983, hit by a shakeout caused by a strong yen, an ageing labor pool and brand-name customers moving out of Japan to chase lower costs and faster growth.

The latest blow comes from the uncertain outlook for power, with all 50 of Japan's operable nuclear reactors still offline after last year's accident at Fukushima. The problem is especially acute in Osaka because its utility Kansai Electric (9503.T) had relied on nuclear power for 40 percent of its electricity generation, the highest of any power company.

The government is pushing to restart two of Kansai Electric's nuclear reactors, a controversial step. But even if the reactors restart as expected, both will not be ready by early July, when the hot summer season begins.

In response, some Osaka manufacturers are considering starting shifts at odd hours such as 2 a.m. so they can shut down by the afternoon when power demand peaks. Others have invested in costly energy-saving technology. But some cannot afford such steps or distrust the power shortage forecasts and say they will opt to do nothing.

WHAT IF THE LIGHTS GO OUT?

What they all share is fear of a blackout.

"If electricity stops due to a power shortage, that would be fatal," said Chikashi Kawakatsu, 51, a specialist welder who fixes broken dies for Japanese automakers and other industries.

The share of manufacturing as a percent of Japan's overall output has fallen to about 20 percent from near 30 percent in 1975, government data show. By comparison, the U.S. equivalent figure was near 13 percent in 2008.

But Japan has traditionally relied on a trade surplus in manufactured goods to buy the energy and food it needs and to pile up savings that have allowed it to fund its huge government deficit, now twice the size of its $5 trillion economy.

The lack of any decisions on a long-term energy policy has darkened the outlook from the shopfloor. "It's another bad thing on top of all the other bad stuff," said Ryuzo Kanezaki, the 38-year-old president of Kyoei Die Casting, which makes parts used in car navigation systems and other products.

Osaka's surviving manufacturers, who make everything from toothbrushes to massive metal dies, are hanging on to a tradition of "monozukuri", a pride in making things many see as their last defense against a hollowing out.

HANGING ON

Kawakatsu, the welder, works on a dirt-floored shop that once employed 15. He is down to just one worker, himself. After nearly 30 years on the job, he has a method of fixing broken dies within one-hundredth of a millimeter, a precision he sees as protecting his remaining business.

The picture is similar at Fuji Spring, which sits upriver from Osaka Castle, famed as the site of a failed rearguard battle against forces from eastern Japan in the 17th century.

Production of all kinds of springs inside Japan has dropped by 40 percent since 1990. At the same time, the number of Japanese spring makers with factories in Thailand and China shot up five-fold from 1995 to 2008, according to the Japan Spring Manufacturers Association.

That trend rocked Fuji Spring, which was founded in 1953 by Yamanaka's father. The company saw its customers moving production offshore and demanding steep price cuts.

In response, Fuji pushed into product development to create springs that could not be easily knocked off by rivals.

After the Fukushima crisis, triggered by a massive earthquake and tsunami that hit northeastern Japan last March, Yamanaka also pushed the company to save power.

The firm cut electricity costs by around 300,000 yen ($3,850) in the 13 months to April and targets a 30-percent consumption cut this year. That has meant shutting down some automation. Workers now collect springs from coiling machines before running them through a heat-treating furnace in batches.

Fuji Spring has also piled up inventories to prepare for the summer months when the company plans to trim output to conserve energy. That is the opposite of the "just-in-time" production principle that made Japan's biggest and best-run factories the subject of study and admiration around the world in the 1980s.

The costs outweigh the power savings, but Yamanaka sees a long-term, if intangible benefit in the pride he believes it fosters in his workers.

"To survive is to be able to do something that others can't," said Fuji's senior manager Hiroshi Sugiura.

(Editing by Kevin Krolicki and Alex Richardson)

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