Supplier networks as a key to wartime production in Japan

Tetsuji Okazaki 13 November 2019

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This column is a lead commentary in the VoxEU Debate "The Economics of the Second World War: Eighty Years On"


Japan entered WWII on 8 December 1941 (Japan time), when its Navy and Army attacked Pearl Harbor and Kata Bharu in the Malay Peninsula, thus starting the Pacific War. By that time, Japan had already been at full-scale war with China for more than four years. The war with the Allied nations, including the US and the UK, forced Japan to further mobilize resources for the war. 

The Japanese government tried to cope with this challenge by strengthening economic controls and reorganizing the economic system. One of its top priorities was to increase the production of aircraft, which had been recognized as a critical weapon since the attack on Pearl Harbor and the naval battle off Malaya.

The task of increasing aircraft production was achieved fairly well. The Japanese aircraft industry, which operated at a very small scale before WWII, became a huge industry, employing 1.5 million workers by the end of the war. Monthly airframe production, which was 306 in January 1939, increased to 2,541 in May 1944 (Figure 1). Indeed, the Japanese war economy experienced an ‘armament miracle’ or a ‘production miracle’ during WWII, as did Germany and the US. 

Figure 1 Monthly airframe production

Note: The monthly production before 1940 was estimated by interpolation, assuming that average monthly production was achieved in July of each year.

With respect to the US, Rockoff (1998) stressed the contribution of multiple factors, including a return to work of the unemployed, an increase in average per-worker working hours, and a geographic shift of workers, to the increase of output, based on the macroeconomic data. 

With respect to Germany, Budrass et al. (2010) demonstrated that the increase in aircraft production could be attributed to two main factors, i.e. learning-by-doing and outsourcing, based on micro-data from the audit reports of major aircraft producers. 

I contributed to this strand of literature by analysing how the rapid increase in aircraft production was achieved in wartime Japan (Okazaki 2011). The focus is the role of the supplier network.

Outsourcing parts production in the wartime Japanese aircraft industry was noted in the final reports of the US Strategic Bombing Survey (USSBS), which were written just after the war. In my paper, I explored how the supplier network was expanded and how it worked for aircraft production, focusing on the Nagoya Aircraft Works of Mitsubishi Heavy Industries Co., one of the two largest aircraft producers in wartime Japan.

From just after the beginning of the Sino-Japanese War in July 1937, the military authorities requested Mitsubishi Heavy Industries to expand its aircraft production capacity, and the request size increased as the tide of the war began to flow against Japan. In response, Mitsubishi Heavy Industries rapidly expanded the capacity of the Nagoya Aircraft Works, with the support of the military authorities and the government. 

The Nagoya Aircraft Works was supplied engines from the Nagoya Engine Works inside Mitsubishi Heavy Industries, but it relied on many outside suppliers for other airframe parts. The USSBS reports indicate that Mitsubishi Heavy Industries contracted out 32% of its work on aircraft production to subcontractors. Nagoya Aircraft Works undertook to find and manage its subcontractors when the expansion of production capacity began. Before the Pacific War, the Nagoya Aircraft Works had already set up a branch office with staff stationed in Osaka and Tokyo to find subcontractors and then supervise their work.

Detailed documents on the suppliers and parts’ supply are available for No.5 Works of the Nagoya Aircraft Works, which produced airframes for the Army. Table 1 provides the number of suppliers for the No. 5 Works by parts category. Special parts include bearings, electrical parts, and springs, and the suppliers were mainly large firms. On the other hand, machinery parts—generally comprising miscellaneous items such as ‘small parts’, ‘large parts’, and ‘kinds of stopcocks’—were mostly supplied by small and medium-sized firms. As shown in Table 1, the number of suppliers increased sharply in 1939 and again from 1943–44. These changes in the number of suppliers are approximately associated with the orders and production of Army airframes.

Table 1 Increase of suppliers for No.5 Works of the Nagoya Aircraft Works

We can see how parts supply from outside suppliers to No.5 Works increased and how it contributed to airframe production. Figure 2 shows the supply of parts. While the supply of both special parts and machinery parts increased up until 1943, the supply of machinery parts grew faster. In addition, whereas the supply of special parts began to decline after April 1944, the supply of machinery parts continued to increase until September 1944. However, the supply of machinery parts declined very sharply in December 1944 and, consequently, the index of machinery parts’ supply fell relative to the supply of special parts.

Figure 2 Parts supply at the No.5 Works of the Nagoya Aircraft Works (1939.1=100)

Airframe production in No.5 Works is shown in Figure 3. After a decline at the end of 1940, because of a change in the major type of airframe manufactured, production increased sharply from 1941 to 1943, with further acceleration in late 1942 and late 1943. The document that the Nagoya Aircraft Works submitted to the USSBS just after the war stated that special parts’ supply was the most binding constraint on airframe production during the war. This implies that the increase in special parts’ supply indicated in Figure 2, enabled the rapid expansion of airframe production.

Figure 3 Airframe production and supply of inputs at No.5 Works of Nagoya Aircraft Works (1939.1=100)

I examine the binding constraint on airframe production at the No.5 Works of the Nagoya Aircraft Works and its change over time, estimating a production function that includes supplies of special parts and machinery parts as the explanatory variables. Splitting the whole period into two sub-periods, i.e. April 1939–May 1942 and June 1942–July 1945, shows that only the coefficients on special parts are significantly positive in the first sub-period, while only the coefficients on machinery parts are significantly positive in the second sub-period. 

I then break down the growth of airframe production based on the estimated coefficients (Panel A and B of Figure 4). The supply of special parts explains airframe production for most of the period, whereas in the final phase of the war, the sudden decline in the supply of machinery parts explains the decline of airframe production. The sharp decline in the machinery parts’ supply was caused by an earthquake and the strategic bombing in December 1944 that destroyed the supplier networks around Nagoya City.

Figure 4 Decomposition of airframe production

We can conclude that until the end of 1944, airframe production at the No.5 Works increased as the upper limit bounded by the supply of special parts rose, which is based on the condition that the other inputs, including machinery parts and labour, were abundant. But in the final phase of the war, the strategic bombing and the earthquake destroyed the supply networks for machinery parts around Nagoya City, which then led to the collapse of airframe production at the Nagoya Aircraft Works. 

Expansion of supplier networks enabled the Nagoya Aircraft Works to increase airframe production rapidly during WWII. However, it was a potential source of vulnerability at the same time, which became a reality in the final phase of the war.

References

Budrass, L, J Schrener and J Streb (2010), “Fixed price contracts, learning, and outsourcing: Explaining the continuous growth of output and labor productivity in the German aircraft industry during the Second World War”, The Economic History Review 63(1): 107–35.

Okazaki, T (2011), “The supplier network and aircraft production in wartime Japan”, The Economic History Review 64(3): 973–94.

Rockoff, H. (1998), “The US: From ploughshares to swords”, in M. Harrison (ed.), The Economics of World War II: Six Great Powers in International Comparison, Cambridge: Cambridge University Press.

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Topics:  Economic history Industrial organisation

Tags:  WWII, Japan, US, Germany, supply chains, wartime manufacturing, wartime resources, supply chain networks

Professor at the Graduate School of Economics, University of Tokyo and Faculty Fellow, RIETI

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