Explosion disrupts Toyota’s supply chain

Supply chain resilience – or lack of it – is back in the spotlight following an explosion at one of Toyota’s steel suppliers.

The explosion, which happened in early January, has consequently forced the Japanese auto manufacturer to announce the suspension of production at all its plants in Japan. This includes the manufacture of Lexus and Prius models. The suspension of production will occur on 8 February 2016 for six days, reducing sales of vehicles by an estimated 80,000, although additional working later in the year may mitigate some of the impact.

Toyota has a close relationship with the steel manufacturer affected, Aichi Steel, and the specialisation required to produce many of the components has meant that the number of suppliers it could turn to are limited.

Lean supply chains working with Just-in-Time delivery schedules have become ubiquitous in the past three decades. However when supply lines become disrupted either by issues in production or within transportation, production can quickly be affected as in the case of Toyota.

One solution is to build added redundancy into the supplier base, ensuring several suppliers are capable of producing the same component. In fact, although Toyota’s production break is less than ideal, it seems that things could have been a lot worse. Aichi’s factory closure is expected to last for at least two months, but through a combination of Aichi’s other facilities and the use of alternative suppliers, Toyota has managed to minimise its own downtime to just over a week. In fact it might be claimed by Toyota’s supply chain managers that they have managed the situation well.

This is not the first time that automotive manufactures have been exposed to events in their upstream supply chain. The floods in Thailand in 2011 and the Japanese tsunami – which affected many chemical and high tech suppliers – revealed the extent to which modern supply chains are at risk.

Of course, companies could keep higher levels of stock within the supply chain, although most are unwilling to invest in ‘unnecessary’ inventory holdings when it is impossible to know when a catastrophic supply chain event will occur.

Source: Transport Intelligence, 4th February 2016

Author: John Manners-Bell