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Streamlining Toyota’s Supply Chain
Learning from the past and identifying crucial components has enabled the automaker to remain nimble and productive in hard times
Leila Aridi Afas speaks of world affairs like she is talking about what is happening down the street. A glance at her family background soon reveals the reason why. While she was born in Maryland, her mom was born in Britain and grew up there during World War II. Her father was born in Lebanon. Her parents met in Washington, D.C., and raised a family in the area. Leila grew up hearing about the civil war in Lebanon and the goings-on in the U.K. and around the world from family living in Australia, Colombia, Liberia, South Africa and across Europe. Her husband was born and raised in Casablanca. Because Leila grew up with one eye on the world, navigating the global policy affairs of a multinational company like Toyota felt like a natural fit.
One might think that a love for cars is a prerequisite for Leila’s job, but she wasn’t a “car gal.” So when the position came up, she was interested in it but had to be honest with her interviewers. “Listen,” she told them, “I have no background in the auto industry. I know nothing about cars. And I am not a lobbyist.”
“You’re perfect,” they said. Turns out that Toyota was looking for an industry outsider with a global perspective who could look “beyond the headlights” to identify emerging issues that could impact the company. As Leila explained, “If the 21st century has taught us anything, it’s that opportunities and threats are not contained within borders. We need to look beyond them.”
Dealing With Crises
I asked Leila what a typical day looks like—or, since there is no typical day for many of us lately, “How about one day this past week?” I asked. First thing in the morning, she connected with her colleagues around the globe—Brussels, Bangkok, Tokyo—to discuss topics related to global trade compliance. Next, she moderated a think tank panel discussion, and then she met with her colleagues to discuss emerging geopolitical events that might affect some of their plants and supply chains around the world.
The Beijing Olympics was on their radar that day, but not for the reasons Toyota had hoped. Toyota is an Olympic sponsor, and corporate sponsors are under fire from many in Congress and around the world because they are seen as ignoring human rights abuses in China “in blind pursuit of profits,” to quote Senator Marco Rubio. But what most people don’t understand, Leila said, is that Toyota’s sponsorship supports the Team Toyota athletes. Unlike in other countries, U.S. athletes receive no direct government funding, so corporate sponsorships are critical. She also explained that it is the International Olympic Committee (IOC) that selects the host city. And Toyota’s IOC sponsorship, including that of Tokyo 2020, Beijing 2022 and even Paris 2024, was decided years ago, in 2015, “well before the numerous reports of prison labor camps and genocide in the Xinjiang Uyghur Autonomous Region,” she said. Listening to her, I could not help but think this is yet another large multinational company in a tight spot over a human rights issue in China—just what Ian Bremmer and the Eurasia Group warned us was coming as corporations risk losing the culture wars in new and unexpected ways.
Given that Toyota has operations in 28 markets and sells its products in more than 170 countries and territories, the team has experience with geopolitical disasters, both natural and manmade. The 2011 Tohoku earthquake and tsunami were massive, devastating human tragedies with a crushing impact on companies throughout Japan, including Toyota and its suppliers. One of Toyota’s main semiconductor suppliers was offline for many months, and the disruption had ripple effects on the carmaker globally. Its U.S. plants were forced to cut production by 75% as they waited for their Japanese suppliers to get back up and running. That was a big wake-up call, Leila said.
In 2016, a coup attempt in Turkey threatened to increase instability. For a moment the team was gearing up to protect its workers and families, not to mention their plant for the popular-in-Europe Toyota C-HR. Fortunately, the coup did not materialize. Crisis averted.
But for Toyota, or any company built on just-in-time manufacturing, navigating crises and disasters requires a big pivot. With just-in-time manufacturing (sometimes called lean manufacturing), items are created to meet demand, not created in surplus; there is no inventory. For any company that relies on this production process technique, the big question right now is how do you stay nimble and efficient to keep consumer prices competitive, yet still be able to deal with unforeseen events?
1,400 Critical Parts
As is often the case, the first step to solving any gigantic problem is to gather information. A team in the company worked around the clock to map out the entire supply chain—not just one supply chain for the company, but chains for nearly every single part it takes to make nearly every single one of their automobiles. The team identified about 1,400 critical parts (out of roughly 30,000 parts total) that had relatively long lead times. If any one of those 1,400 critical parts were not available, the entire production line could be forced to a halt.
“The team identified their suppliers, their suppliers’ suppliers, and their suppliers’ suppliers’ suppliers,” Leila explained. Over time, Toyota worked to increase inventory and manage lead times for these critical parts. Listening to her explain the database, you get the sense that if anyone so much as sneezes in a plant where one of those 1,400 critical parts is coming from, a red-alert button lights up. While that’s not literally the case, Leila described several ways in which Toyota worked to safeguard its supply of critical parts:
A team within the company worked to diversify its presence in multiple geographic regions while ensuring that it could procure the necessary parts to keep building vehicles if one particular region were unable to produce.
Toyota began standardizing parts across different vehicle models. Now, if one supplier shuts down for any reason, another plant is able to increase production of the standardized part to meet demand.
When standardization wasn’t an option—as is the case for the 1,400+ critical parts Leila’s team identified—Toyota increased inventory to maintain a supply in case of emergencies.
Leila identified several takeaways from Toyota’s experiences in dealing with supply chain problems. “In my view, the most important part is the trust and respect between Toyota and our suppliers, who are truly partners.” She also emphasized the importance of staying in close and constant communication with suppliers. Following the devastating 2011 earthquake and tsunami, Toyota created a new database called the RESCUE system, which suppliers update in real time and which Toyota tracks consistently. “It’s crucial that the information is always up to date,” Leila concludes. “You never know when a crisis will strike.” As part two of this series discusses, the current crisis of the global COVID-19 pandemic is forcing Toyota and many other companies to take these lessons to heart.