Toyota's supply chain woes hold a lesson for all manufacturers

The recent earthquakes in Japan expose weaknesses of lean supply chains.
Written by Chris Kanaracus, Contributor

Earthquakes that have wracked southern Japan in recent days have had a major impact on companies such as automaker Toyota, which is renowned worldwide for its lean manufacturing processes. Toyota is experiencing the painful flip side of running so lean, having been forced to shut down 26 assembly lines after a key supplier was forced by the quakes to stop production, as the Wall Street Journal reports:

In addition to Toyota, Honda Motor Co. said it would keep its motorbike plant in Kumamoto shut through Friday. But in contrast to Toyota, which is shutting down production nationwide, Honda's plants outside of southern Japan are running, while Nissan Motor Co. resumed operations at its plant in Kyushu on Monday after a temporary shutdown.

This is the second time in three months that Toyota has had to stop production in its plants throughout Japan after supplier troubles. The earthquake-affected supplier, Aisin Seiki Co., made door and engine components at the plants in Kumamoto and Toyota has yet to decide when it would resume operations, a Toyota spokesman said.

In February, Toyota lost production of between 80,000 and 90,000 vehicles, analysts say, over a week-long halt after an explosion at a steel supplier.

Toyota has had to shut down production on the lines due to its "just-in-time" method of inventory, wherein plants may hold only several hours worth of parts at a time, as the Journal reports. This reduces storage costs, among other benefits, but if a natural disaster or other mishap befalls suppliers, the system becomes more of a liability than an asset.

In recent years, Toyota has sought to mitigate this risk by having a number of suppliers making each component, and asking suppliers to diversify their production methods as a hedge against emergencies, the Journal notes. Both measures should mean a faster recovery from the recent quakes than with other shutdowns.

The situation in Japan is somewhat of an anomaly, given the simple fact that the plants and suppliers involved are near or in an active quake zone, something that isn't true about most of Toyota's supply chain infrastructure.

Still, closing 26 production lines is no small matter for Toyota, says Constellation Research VP and principal analyst Guy-Frederic Courtin. "It's a reminder that our supply chains are still at the peril of Mother Nature," he says. "This example shows that even a finely tuned supply chain like Toyota's can be impacted. Imagine if your supply chain is even a fraction as effective?"

The prescriptive lesson for chief supply chain officers is clear, Courtin says. "You've got to conduct a constant mental exercise involving what-if analyses and putting together risk-analysis plans," he says. "You can never do too much of it, but you can do too little of it."


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