Supply Chain – Toyota’s quarterly profit slides on earthquake disruption

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Supply Chain

HEADLINE: Toyota’s quarterly profit slides on earthquake disruption

SUMMARY: Toyota’s quarterly profit fell more than 75 percent after the March earthquake and tsunami wiped out parts suppliers in northeastern Japan, severely disrupting car production. The auto maker gave no forecast for the current fiscal year through March 2012, citing an uncertain outlook because production continues to be hampered by shortages of parts. Toyota is expected to lose its spot as the world’s top-selling automaker to General Motors Co. this year because of the disasters.

ANALYSIS: —Wally Buran, Firestorm EVP for Supply Chain

Toyota’s announcement that profits fell more than 75 percent due primarily to the Japan Earthquake and resulting ripple effects across its internal supply chain and its suppliers’ supply chains around the world should be no surprise. In the U.S., Toyota production is at less than 50 percent of capacity and the company had to idle all its North America plants for more than two weeks. Production is projected to increase over the next few months, but not to reach full capacity until November or December.

This is likely to drop Toyota from first to third in global market share and threatens the company’s recovery from quality problems last year. Worse, Toyota dealers face massive loss of sales and financial crisis during the traditional peak selling season. Some will likely fail. Toyota will not likely fail, but at what cost and when can it recover its market position is uncertain.

At a supply chain conference last month, a leading Lean Manufacturing expert stated,

“…the production problems of Toyota are a great testimonial to the success of lean manufacturing and Toyota’s commitment to it.”

If that is success, please protect us all from it! In fact, Toyota’s supply chain illustrates the “dark side of lean.” While few dispute the value and success of lean, 6-sigma, and strategic sourcing for tactically improving supply chains, real success is designing the total supply chain to deliver the products customer want, when and where they want them, regardless of the challenges and issues the company faces. And other supply chain issues are often much more important than lean:  risk, complexity, variability and supply base structure. And all must be integrated and balanced to deliver real and sustained performance. From this perspective, Toyota represents a major supply chain failure despite the “success” of lean.

The lessons from Toyota for all supply chain executives are the need to design and develop resilient supply chains leveraging lean and a broad range of other tools and concepts. From our experience, supply chains can be designed and operated to create resiliency, and generally at much lower cost. It requires a different process and different thinking, but delivers very different and powerful results. Leaders in this area view their supply chain as including its key suppliers, distributors and value added partners (the source of over 70 percent of all risks). They then explicitly identify risks and risk classes both internally and across the supply base. It also requires considering market segments and drivers, product and service complexity, cycle time variability, asset productivity and other design tradeoffs. In short, “next generation” supply chains offer companies the ability to perform better, at lower cost and with much lower risk.

Today’s urgency and visibility of supply chain threats and their impact will naturally fade, but the risks and threats will not. They must be designed and managed cost effectively to fade.

Companion Webinar:
Critical Decision Support: Why Test Plans?

Wednesday 25-May-11 2:00 PM to 3:00 PM EDT
Speaker Jim Satterfield
Position: President/COO
Company: Firestorm Solutions, LLC

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