OM in the News: Honda’s Rigid Parts Sourcing Leads to Massive Recalls
Honda is re-evaluating its relationship with Japanese air-bag maker Takata, which is behind Honda’s biggest series of safety recalls, reports The Wall Street Journal (Oct.2, 2014). The moves follow the discovery that defective air bags from Takata—some dating to the early 2000s—could send metal pieces into a car’s cabin, injuring drivers and passengers. Car makers are only now considering a change in how and where they buy their air bags, highlighting how entrenched and inflexible some automotive supply chains are, with a few companies supplying large swaths of the industry. Honda declined to disclose specific information about any of its supplier relationships, saying that such information is proprietary.
At issue is the inflater component. Takata’s inflater uses a different propellant than most of its rivals, which is cheaper but can be particularly volatile. Takata said it makes the safest and most environmentally friendly products available. Honda is now ordering some of its inflaters from Daicel Corp. instead of Takata. But switching parts suppliers in the middle of an automotive production run is difficult and costly.
Honda also holds a 1.2% stake in Takata, which now has about 36,000 employees and 46 factories in 17 countries. To serve its far-flung customers, many of whom had shifted to JIT parts delivery to limit inventories, Takata kept plants in locations ranging from Malaysia to Morocco to Uruguay. It struggled to integrate those far-flung operations, and communication between the Japanese, European and North American divisions was poor.
Classroom discussion questions:
1. Why is it hard to switch airbag (or other auto parts) suppliers?
2. What tier suppliers are the inflater manufacturers?