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Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global SupplyChain Logistics

From SCDigest's On-Target e-Magazine

March 7 , 2012

 

Global Supply Chain News: Toyota Taking Massive Effort to Reduce Its Supply Chain Risk in Japan


Says it will Reduce Its Time to Recovery from Major Disruption from Six Months to Two Weeks; Exec Says Company's Grip on Its Supply Chain was "Illusion"

 

SCDigest Editorial Staff

 


After taking a huge supply chain hit from the March 2011 earthquake and tsunami in Japan that caused it to have to dramatically throttle back production to a level that cost the company its position as the world's top automaker in 2011, Toyota announced last week that it would soon release a plan that will dramatically lower its supply chain risk.

SCDigest Says:

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Sasaki said the suppliers that did not want to fully disclose their supply chains have made commitments to make changes that will ensure a production recovery within two weeks.

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The Japan disaster last year caused many of Toyota's part suppliers - often single sourced - to be unable to deliver products at expected volumes - if even at all - for many months. All told, Toyota says it took at least six months for its supply chain to fully recover from the earthquake damage.

Now, the company says that is close to the end of a massive effort that will lead to a dramatic reduction in its supply chain risk from future disasters, with the effort in large part focused on reducing its Time-to-Recovery from the six months experienced last year down to as little as just two weeks.

According to Reuters, Toyota executive vice president Shinichi Sasaki, who is in charge of purchasing at Toyota, told a small group of reporters last week that the company would "know by the end of March what contingency measures will be taken by all the supply sources and have those in place by around autumn."

Those plans come after a major project to full map its supply chain in terms of direct suppliers to Toyota and its suppliers' suppliers.

Sasaki said Toyota has now mapped the supply chain for about half of its 500-plus direct suppliers in Japan. The other half of its suppliers did not want to give Toyota full visibility to their own suppliers and locations for competitive reasons.

The effort this far has shown that there were about 1,500 sites producing components for Toyota. Of those, Sasaki estimated that about 300 were "at-risk" locations that were the sole source for almost 1,000 parts in total. Those "at risk" locations seem meant those in regions of Japan most susceptible to earthquakes and resulting damage, within the so-called "Ring of Fire" in the country.

Toyota said the plans in part would involve Toyota asking those suppliers to either spread production to multiple locations or hold extra inventory buffers. Sasaki said Toyota will also be looking at more dual sourcing of parts.

(Global Supply Chain Article Continued Below)


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In addition, Toyota will make efforts to consolidate similar parts across different models. By doing that, it will increase the volume of those parts to the point where a supplier may be able to justify building another facility in less dangerous areas. Toyota said it hopes to design common parts for about half of its 4,000-5,000 components within the next four years.

"Our plan is to manage risk while at the same time reducing costs," Sasaki said, according to Reuters.

Sasaki said the suppliers that did not want to fully disclose their supply chains have made commitments to make changes that will ensure a production recovery within two weeks.

Sasaki also said Toyota will be making similar efforts for its supply chains in the US and Europe.

In a telling comment, Sasaki said that Toyota, long admired for its supply chain prowess and Toyota Production System, discovered that "Our assumption that we had a total grip on our supply chain proved to be an illusion."

 

Nissan Taking Similar Steps

 

At about the same time, Toshiyuki Shiga, Chief Operating Officer at Toyota rival Nissan, said that his company is also asking its suppliers to take similar steps so Nissan can get production lines back online more quickly in the event of a disruption.

But Shiga noted even as that happens, there are other major problems for which answers have still to be figured out. For example, when a big earthquake cuts off roads and closes ports, how can relief supplies and equipment needed to restore production be sent to the plants that need them?

“We still have unfinished homework,” Shiga said.

Dr. David Simchi-Levi of MIT, a noted expert on supply chain risk management who has recently developed a new tool called the Risk Exposure Index™ to help quantify the potential loss to companies from these types of major supply chain disruptions, told SCDigest that "Toyota was the most affected Japanese automaker by the tsunami and earthquake, due to its large size and its high rate of Japanese production, including for export. Therefore, it it not surprising that the company has decided to review its supply chain and reduce its time to recovery from 6 months to 2 weeks to perform better when another calamity strikes."

Simchi-Lev added that he believes that Toyota "is also approaching single sourcing in the right way by helping its suppliers create additional plants through consolidation, reducing the complexity of its supply chain and increasing the number of common parts."

 

What's your reaction to Toyota's plan and effort here? Do more companies need to fully map their supply chain like this? Let us know your thoughts at the Feedback button below.


Recent Feedback

This is a classic Disaster Recovery effort. What does not wipe us out makes us stronger. Toyota long term may look back at the 3/11/11 tragedy as see it as a horrible but vital blessing. Simplify, eliminate redundancy, include suppliers who are able to expand capacity and create new jobs, and create a measuring system to keep the supply chain in balance and more risk proof than it is now!


Tom Jack
Owner & Recruiter
Baldwin Recruitng & Consulting
Mar, 10 2012

I think this is a good move to have multiple source. Some Multi National Companies (MNC's) have operations all over the world. Why do they want to keep single source? I don't understand. In multiple sourcing you don't have to keep all the eggs in one basket and at the same time the company have a better bargining power. Secondly, MNC's should group their R&D engineers together to produce common parts. Based on my understanding, different R&D engineers design different part to make it unique, and unfortunately it serves the same purpose. If companies design more common parts, costs can be reduced based on economies of scale.


Francis Seow
Vice President
Malaysian Institute of Purchasing
Mar, 13 2012

It's good idea for relocating the supply chain, but my guess is that this will reflect on the cost which could lead to increases in the final product cost. I believe that building new hubs in different areas across the world based on the volume and sales forecasts will minmize costs and keep the supply chain healthy.


walid
business development manager
DGL
Mar, 15 2012

There is a fine balance between Economy of Scale, Alternate Sourcing and Multiple production sites. For each organization the matrix would be different considering the technology, supplier base diversity and possibility of natural disasters. While we talk about alternate part suppliers at different locations, we have to establish different locations for same product production by MNC's. Whatever the decision for optimizing this supply chain, we have to consider cost of opportunity/loss. Beyond a doubt, part standardization is critical to acheive TTR targets.


Manoj Kumar
AGM Strategic Planning & Management
LG Electronics India
May, 02 2013
 
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