Still impacted by the massive earthquake 6 months ago, Toyota has just announced that it is creating a robust supply chain that would recover within 2 weeks in the event of another disruption. Toyota and other Japanese automakers were forced to
The 1st is to further standardize parts across Japanese automakers, so they could share common components that could be made in several locations.
The 2nd step is to ask suppliers down the chain to hold enough inventory–perhaps a few months’ worth–for components that can’t be built in more than one location. This is to prevent a repeat of what happened with microchip supplier Renesas, which has yet to complete recovery.
The 3rd step is to make each manufacturing region (such as North America or Europe) independent in parts procurement so a disaster in Japan does not impact production overseas. This would also offset losses from the strong yen by lowering costs and creating a natural hedge. Last year, Toyota built 43% of its 7.6 million vehicles in Japan and exported more than half of them. Currently, the company provides engines and transmissions for cars built here and in Europe from Japan– at a cost that is high due to the strength of the yen. Toyota will also begin importing more components to cut cost of cars made in that country.
Discussion questions:
1. Is the plan overkill? If a part is made in a low-risk zone, does it need to be made in a half-dozen plants?
2. Do these initiatives apply beyond the auto industry?