As a result of the massive disruption in supply chains caused by the March 11 earthquake and Tsunami in Japan, Toyota Motor Co., is taking steps to prevent a similar situation happening in the future.
Toyota and other Japanese automakers were forced to halt a large part of their production both in Japan and overseas when the worst natural disaster to hit the country in years cut off the Northeast region and with it a substantial supply of parts, from which it took months to recover.
Toyota Executive Vice President, Shinichi Sasaki, said in a recent interview that the company is in the process of creating a more robust supply chain, so that, should a similar natural disaster occur again, said chain would be able to recover in weeks, instead of months.
“We’re making checks now to see what needs to be done to enable a recovery within two weeks when the next (earthquake) hits,” he said. “We’re about 80 per cent done with those checks.”
Toyota’s strategy is to take a three-pronged approach to tackling supply chain risks.
Firstly, by standardizing parts among Japanese automakers so they can share common components that can be manufactured in several locations.
Secondly; asking suppliers further down the chain to stock up on several months worth of inventory, particularly for specialized parts that can only be manufactured in a single location; or taking anti-quake measures that would include developing technology that provides more options when it comes to sourcing parts and materials, such as substituting rare earths from China.
Thirdly, by making Toyota’s different ‘regions’ worldwide independent in purchasing, so that any future disasters in Japan wouldn’t generally affect the supply of components overseas.
According to Sasaki, these measures would also help offset loses caused by a strong Yen, that’s currently eating into Toyota’s profits which are heavily dependent on exports. By enacting the failsafe supply measures, Toyota believes they would ultimately offset losses by lowering costs and creating a natural hedge where costs and revenues are within a single currency, thereby reducing foreign exchange exposure within regions.
