Toyota learned from prior disruptions
Expects to increase production while others have closed dozens of plants
The ongoing semiconductor shortage impacting auto production around the globe shows no signs of ending soon says one major automotive manufacturer. Yet one automaker, the one who pioneered just-in-time manufacturing in the auto industry, says that it expects to weather the chip storm just fine. So how is Toyota doing it?
Continental AG, a supplier of auto components including everything from tires to advanced driver assist electronics, said earlier this week that it expects the shortage of microchips caused by the COVID-19 pandemic and shifts in demand to continue for months. Company CEO Nikolai Setzer said (via Reuters) that he expected the pressure to ease over the second quarter, but would expect it to drag until the end of the year in some areas of the market.
Meanwhile, Reuters reports, a lesson hard-learned by Toyota exactly 10 years ago this week has put the Japanese automaker in an excellent position relative to competitors.
March 11 2011 marked the most severe nuclear accident since Chernobyl in 1986. A tsunami caused a disaster at the Fukushima plant and while the effects were massive, one of the companies affected was Toyota. The automaker saw massive disruptions and closures in ints plants and from its suppliers in the area, and, according to the report, it made a big change.
Toyota made just-in-time a success and then popularised it in the 1960s. Parts arriving at the last possible moment instead of loitering endlessly in warehouses reduced costs. But in certain disasters it could be devastating.
So the automaker, according to the report, came up with a business continuity plan that required suppliers to keep from two to six months of chips on hand (along with 500 other priority components), based on how long orders took to arrive. The deal means that there are chips in inventory, but it also requires suppliers, as sources at supplier Harman told Reuters, to prioritise Toyota when supply comes in.
Lean manufacturing, as JIT is known today, isn’t about having the bare minimum, it is also about finding the bottlenecks that could most negatively impact production and then working to solve them. As automakers become increasingly tech-heavy in their vehicles, the possibilities of disruptions increases.
As a result, while other automakers like GM have plants closed for months, Toyota has raised its production expectation for the year and raised its full-year earnings forecast by 54 percent.