![]() “They didn’t know the sub-supplier’s name, they didn’t know their telephone number, they certainly didn’t know their address,” says Jeffrey Liker, author of The Toyota Way, a definitive treatise on Toyota’s production system. SURVIVING THE AFTERMATH COMPONENTS PRODUCTION HOW TOThe company readied engineers to help repair suppliers’ damaged plants, but Toyota managers quickly realized they didn’t even know how to find all their contractors and subcontractors. ![]() In the aftermath, Toyota struggled as individual parts manufacturers dropped offline. The company learned the value of forging stronger relations with lower-tier suppliers after the Fukushima tsunami struck in 2011. “If a chip shortage lasts more than three months, it’s not really a chip shortage,” Le says. But the current shortages show why such Type A approaches are invaluable-especially given that for most chipmakers, the auto industry isn’t the highest-priority client. Toyota requires suppliers of those components to maintain up to a six months’ buffer supply of chips dedicated to Toyota orders-just in case.Īccording to Tu Le, founder and CEO of auto industry consultancy Sino Auto Insights, most automakers don’t engage in Toyota’s level of micromanagement. Like all automakers, the company relies on a multitude of components that contain semiconductors, such as smart displays or audio systems. (Stockpiles occupy valuable space on the factory floor, as well as on the company’s books.) In practice, Toyota’s suppliers do the actual stockpiling. That’s a deviation from JIT, which dictates that supplies reach the production line only when they are needed. Unlike many of its rivals, Toyota essentially stockpiles chips. And just as the success of Toyota’s “just in time” (JIT) manufacturing model led automakers the world over to imitate the company in the 1980s, the company’s new advances may spawn another wave of imitation. Those gradual reforms prepared the company to ride out the current chip crisis, executives say. Over the past decade, Toyota has overhauled the way it oversees its supply chain-implementing hard lessons it learned a decade ago after the Fukushima earthquake and tsunami devastated swaths of Japan’s industrial heartland. Toyota’s handy navigation throughout the shortage is more than just good luck: It’s good management. “Now other OEMs are trying to learn from what Toyota has done.” “Other automakers are looking to Toyota and seeing that obviously something has made them less vulnerable,” says Michael Weber, a partner at consultancy Bain & Co. With the global semiconductor shortage now expected by some to stretch into 2022 or beyond, competitors are taking notice. ![]() That prolonged productivity propelled the company to a rare victory: In the second quarter, it was the No. 1 automaker by sales in North America, marking the first time since 1998 that GM hasn’t held the top spot. Toyota’s North American production, meanwhile, hummed along at 90% of capacity for the year through June. The company has said factory closures owing to chip shortages would cause a shortfall of 20,000 vehicles in Japan-less than 1% of Japanese production in fiscal 2021. ![]() While rival OEMs (or original equipment manufacturers, as automakers are known) stumbled, Toyota kept production largely on target until May. But not all carmakers have suffered equally. All told, consultancy AlixPartners says the chip shortage will cost automakers globally about 4% of total sales this year-some $110 billion in forgone revenue. Thousands of workers were idled or furloughed, while would-be car buyers suddenly faced weeks-long waiting lists. Volkswagen, Daimler, BMW, and Renault each slashed their manufacturing totals. Since then, they have halted assembly lines where they have failed to secure chipsets to power their cars’ onboard computers GM cut production by 278,000 units through May, and Ford had to reduce global production 50% in the second quarter. ![]() As early as January, Ford and General Motors warned of shortages. Aftershocks rippled through assembly lines and car lots worldwide. ![]()
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