OM in the News: Earthquakes in Japan Expose Supply Chain Fraility
“The vulnerabilities of the tight production supply chains at Japanese companies including Toyota, are back in the spotlight after earthquakes in Japan forced several to curtail output this week”, writes The Wall Street Journal (April 19, 2016). Toyota’s decision to shut 26 car assembly lines this week nationwide due to production halts by a supplier shows how the auto maker’s lean manufacturing system, often viewed as a model of efficiency, can be impacted by disasters. The latest shutdowns drew parallels to the aftermath of Japan’s 2011 earthquake and tsunami.
This is the second time in 3 months that Toyota has had to stop production in its Japanese plants after supplier troubles. The earthquake-affected supplier, Aisin Seiki, made door and engine components, and Toyota has yet to decide when it would resume operations. In February, Toyota lost production of 80,000-90,000 vehicles over a week-long halt after an explosion at a steel supplier. That shutdown weighed on Japan’s industrial output, which fell 6.2% that month.
Shutdowns occur largely because of Toyota’s JIT inventory system, a philosophy at the core of its efficient production method. By keeping as little inventory on site as possible, storage costs can be cut and component quality can be consistent. Toyota plants hold several hours worth of inventory for many parts, relying on a steady feed from suppliers. If suppliers suffer a disaster, Toyota can quickly run out of components.
After 2011, Toyota ensured that multiple suppliers are manufacturing each component. To assess risks, it built a database on suppliers, including on companies down the supplier chain. It also pushed suppliers to diversify production, and compiled scenarios on how parts production could be shifted to different locations in case of emergency.
Classroom discussion questions:
- What are the advantages and disadvantages of Toyota’s JIT system?
- Do U.S. firms face the same challenges? How?