When Toyota told the world that it didn’t want to see any of its American competitors go bankrupt, they meant it. And not purely out of fear of an anti-import backlash either. Toyota’s North American operations rely on many of the same suppliers as Detroit, and if GM were to go bankrupt, many of those suppliers could go under. This is especially dangerous for Toyota with its “just-in-time” production techniques, which is why contingency planning is underway at Toyota City to keep ToMoCo’s supply chain independently solvent. But as Bloomberg reports, that very contingency planning could eliminate the efficiency gains of the Toyota system, once dubbed “The Machine That Changed The World.” The lean, “just-in-time” system was developed on the model of American supermarkets, with components arriving as they are needed for the production process, rather than being mass-produced and stored until needed. Emergency planning includes possibly building up component inventories, which strikes at the heart of the “just-in-time” system’s competitive advantage. Still, a supplier bankruptcy would wreak even more havoc, holding up production lines until more parts arrive. The Japanese automakers have recently learned firsthand of the cost of supply disruption, especially among specialized (tier two and three) component makers. Last July, piston-ring maker Riken’s shut-down due to earthquake damaged forced eight of Japan’s 12 carmakers to temporarily suspend or cut manufacturing, leading to a total output reduction of at least 120,000 vehicles.
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I’ve followed just-in-time ever since it was introduced at VW by Lopez. The biggest beneficiary of it was Wolfsburg real estate: Suppliers bought land in Wolfsburg and built warehouses on it where they stored their parts. Instead of in VW warehouses, the parts were stored in supplier’s warehouses outside the factory. Also, manufacturers are more and more dependent on single component suppliers . and if one of those has a problem, then things get veeery interesting.
I don’t think they’ll run out of bland anytime soon.
I have been a Supply Chain manager for 15 years for Global manufacturers. The situation that Toyota is eluding to is occurring with other manufacturers as well. They will need to stem the bleeding with these shared suppliers right now: moving payment terms to Net 10 to keep cash flow up at suppliers, suspend cost savings contracts, order larger lot sizes of parts and store them, etc. All of these actions will increase overall cost of the vehicles for Toyota, but in the long run it is better to sell cars than not to sell cars.
But interestingly, they are CONTINGENCY PLANNING. Yet another thing that our “domestics” don’t seem to grasp. Reacting to current crises is not planning.
Just in time is just one more of those crazy MBA plans that they all like to pretend is a free lunch. Time for ye olde pendulum to swing the other way.
Jee Whiz..
The MIGHTY CANT DO ANYTHING WRONG TOYOTA stoops to using the same parts suppliers as the BIG 2.8?
Im sure many of the latte sipping readers have just spilled a little bit!
Hey,you want to be NUMBER ONE in the world, create your OWN parts suppliers!
Dont be a leech and claim to be the ‘big dog’ at the same time.
I can’t see why you can’t be Just-In-Time-Plus-10-Days. That is, keep a stock of parts on hand, but keep the amount stable; say, 10 days worth (or three weeks, or two months-however long you think a likely supply problem would last). It’s better than the previous practice, which was Order-Random-Amounts-Of-Stuff-And-Sometimes-Run-Out-Of-One-Thing-And-Have-Too-Much-Of-Another.
Toyota will be working the problem in all directions. I have no doubt they already have a single supplier risk plan that was being enacted some 12 months ago (or longer). Where can they get temporary relief supplies? What intervention can be made with local suppliers?
The structure of the supply chain is also geared at the wrong size, even with previous intervention from them. What surprises me is that this must absolutely confirm that Toyota now expect an even worse 2009. Are they thinking 9m for 2009?
The previously presented Dec 2nd GM/Chrysler worst case insolvent “turn-arounds” are already dead in the water, so the March 31st versions will have to be works of art.
My experience with the JIT practices of the major imports is that they rarely have a single source supplier for any critical component.
I know that Honda was awarding suppliers in Alabama in a system that prevented common suppliers from even being in the geographic area.
They mentioned that it would prevent a single event from preventing deliveries on critical parts. The second benefit to the “supplier ring” was that is helped prevent the workforce in any given area from being over-subscribed. (In other words, it kept labor costs for supplier labor in check.)
Change the name “Toyota” to “GM” in the above article, and you have the pretty much the same story, provided GM has the cash.
They’ve done so in the past, and will do so again in the future.
Come on, Bertel: Don’t forget that Ignaki did millions, if not billions, of dollars of damage to GM by absconding to VW with, (literally!) an entire apartment’s full of information.
Bertel Schmitt :
December 30th, 2008 at 12:05 pm
I’ve followed just-in-time ever since it was introduced at VW by Lopez.
I’m confused,if car sales are at say 10 million next year the suppliers will supply enough parts for 10 million cars, what does it matter if they supply to gm ford honda toyota nissan or anyone else,parts for 10 million cars are parts for 10 million cars.maybe it’s a stupid question i’m far from an expert.I think americans are still going to buy 10 million cars if these companies go out of business or not,just curious
@ fred54
It’s not a stupid question. The parts suppliers like the auto manufacturers are likely geared for higher demand too, and are discovering a sub-13m unit year is in loss making territory for many of them.
The suppliers that send parts in multiple directions of exact same specification will probably suffer less should any of their customers disappear, assuming the slack is taken up by their other customers.
The highly specialized parts suppliers would be in a whole world of different trouble however. It’s unlikely Honda need a tail-light or drive shaft components that Chrysler use (for example). That part line would have no work, have to be written down, and while requests for parts from Honda might increase, the supplier mightn’t be able to switch to making more of the needed parts easily.