How One Covid Case broke Toyota’s Just-in-Time Supply Chain

Earlier last month, a worker tested positive for Covid-19 at a vast factory on the highway connecting Hanoi and the port city of Haiphong. At that time, Delta variants spread rapidly to Southeast Asian countries, and on August 4, state officials suspended work at auto parts manufacturers.

The distant sea, Toyota Motor.. Mr. Kazunari Kumakura, General Manager of Purchasing Department, was enthusiastically watching.The plant is operated by keys Toyota It is a supplier and one of the largest wire harness assemblers in Vietnam. This is a basic but indispensable yoke for cables that hold the internal structure of an automobile together. Toyota’s inventory declined as operations were disrupted due to an infection at the facility. Since July, Japanese automakers have been conducting daily surveys of suppliers in the region, which has become Covid’s hotspot, to assess how the dire situation is progressing.

In the end, Toyota succumbed because it couldn’t secure many parts such as Vietnamese wire harnesses and Malaysian chips. World No. 1 Automakers shocked the market by announcing a 40% reduction in car production in September compared to previous production plans.

“It was important to be able to continue our business in Southeast Asia,” Kumakura told reporters late in the afternoon. However, he said, lockdowns, expansion of Covid clusters, and government production restrictions would prevent Malaysia and Vietnam in particular from continuing their operations. It “entangled our parts” and “has happened rapidly”.

Toyota is currently facing the challenge of securing replacement parts and recovering lost production in time to meet global demand for vehicles that are depleted of inventories. But more broadly, the roar that eventually defeated one of the world’s best-maintained supply chains is after the pandemic of the automotive industry’s strategy of prioritizing efficiency and maintaining minimal inventories. Raised a deeper question as to whether it could be tolerated in the world of.

Automakers are losing profits globally as shortages blame production.India’s largest car maker, Marti Suzuki According to India Ltd., this month’s trading volume could drop to about 40% of normal, Tata Motors Ltd. accused “the recent blockade of East Asia” on Wednesday for worsening supply conditions. ChinaNio Inc. Has been wrestling with Malaysian partners.See you again Japan, Suzuki Motor Corporation will reduce vehicle production by 20% in September while in Europe. Renault SA plans to shut down its Spanish assembly plant for 61 days by the end of the year.

External shock

Howard Yu, a professor of business at the Swiss-based Institute for Business Development, said the automotive sector is more than the rate of return enjoyed by major technology companies, even after decades of trying to cut costs. He said he was accustomed to a much thinner rate of return. Automakers strive to reduce waste, reduce redundancy, and work at regional hubs to be more efficient. “But it takes a bit of redundancy to be resilient. The occurrence of deltas reveals that this system is really vulnerable to external shocks.”

Over the last decade, Japanese automakers have invested heavily in Southeast Asia. Thailand is Toyota’s main production hub to see the region as a source of cheap labor and to complement China’s business in trade conflicts with the United States. Mitsubishi Motors Co., Ltd., Honda With Motor Co., Ltd. Nissan Motor.. These automakers account for about half of Thailand’s auto production capacity and source many parts from neighboring countries. According to data compiled by Bloomberg, Toyota alone is working with suppliers with more than 400 factories in Malaysia and Vietnam.

That focused approach worked until it stopped working. Mid-year, Southeast Asia began working on one of the world’s deadliest Covid-19 revival. The government declared blockages and restrictions on business activities, and sometimes shut down the entire plant when only a handful of confirmed cases were found.

Vietnam is Japan’s largest source of wire harnesses. Several Japanese parts manufacturers operate factories in Japan. The Hyz-on factory, which was closed in early August, belongs to Sumitomo Electric Industries, Ltd., and declined to comment on the operation of individual sites. Furukawa Electric, another major wire harness maker and Toyota supplier in the region, has been forced to limit operations due to Covid’s restrictions, a spokeswoman for the company said.

Similarly, Malaysia has emerged in recent years as a major center for final-stage chip packaging, the smallest and least profitable component of semiconductor manufacturing processes. The rise in Covid cases has forced major auto suppliers ST Microelectronics NV and Infineon Technologies AG to close their facilities, exacerbating the chip shortage that has hit automakers for months. Bloomberg supply chain analysis data provide Toyota sources from both of these companies.

to keep balance

So far, car suppliers in each country are showing signs of recovery. Most of the staff at Sumitomo Electric’s Hy’s on Wire Harness Factory had returned to work by the second week of August, according to the state’s official television station. As of last week, Malaysian chipmakers have basically returned to normal operating levels, and Toyota expects to begin recovering lost production in October, he said.

The remaining question is whether this supply chain disruption will cause long-term changes in the businesses of Toyota and other manufacturers.

Bloomberg Intelligence analyst Tatsuo Yoshida said eradicating the supply chain may not make much sense if the outbreak of Delta in Southeast Asia turns out to be relatively short-lived. A single sourcing and diversifying supply chain enables economies of scale and requires a great deal of time and money. In Southeast Asia, he said, hubs were formed because labor-intensive processes could be carried out cheaply.

At the same time, what is Toyota’s relatively strong performance in the past pandemics and supply chain turmoil is that automakers are willing to take action after a breakdown. The company’s method of maintaining high visibility in the supply chain and its strategy of maintaining inventories of high-risk parts such as semiconductors caused Toyota’s business to be suspended for half a year due to the earthquake and tsunami taking the supplier’s factory offline. It is a legacy of the year.

Last month, Kumakura acknowledged that the turmoil in this region could spread to a much wider area, as the production of certain widely used parts is concentrated in Southeast Asia. In the future, Toyota said, “We will consider ways to allocate production and diversify risks so that we do not focus on specific areas.” “We reflect and use this knowledge to further strengthen ourselves.”

The end result is a balance between efficiency and resilience, said Yu, a professor of business. Due to the limited number of suppliers concentrated in a particular region, certain parts may not be important until they “blow up the production system”. In the good quarter, immersing himself in profits to invest in the resilience of rainy days is “what is the long-term outlook,” he said. “And this isn’t just about Toyota.”

How One Covid Case broke Toyota’s Just-in-Time Supply Chain

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