Toyota Motor Corp <7203.T> will have in place by autumn a more resilient supply chain that would recover within two weeks of another massive earthquake hitting Japan, a top executive said on Friday.
Japanese automakers have been working to disaster-proof their sprawling supply chains ever since last year's March 11 earthquake and tsunami devastated the country's northeastern coast, forcing many to halt or reduce car production for more than six months.
We'll know by the end of March what contingency measures will be taken by all the supply sources and have those in place by around autumn, executive vice president Shinichi Sasaki, who oversees purchasing at Toyota, told a small group of reporters.
Sasaki said Toyota has now mapped the supply-chain make-up of about half of its 500-plus direct suppliers in Japan, allowing it to identify 1,500 sites responsible for Toyota's components. Of those, he estimated about 300 were at-risk locations that were single sources for almost 1,000 parts.
To safeguard against a disruptive earthquake, Toyota is asking those suppliers to either spread production to multiple locations or hold extra stock. Another option is to buy the part from another supplier, Sasaki said.
Those steps will be taken in tandem with efforts by Toyota to consolidate similar parts, providing suppliers with the economies of scale to set up a second facility, for instance, he said.
Our plan is to manage risk while at the same time reducing costs, he said.
As part of broader efforts to lower costs, Toyota aims to develop common parts for about half of its 4,000-5,000 components within four years or so, Sasaki said.
The other half of Toyota's tier-one parts makers declined to disclose their suppliers, citing competitive reasons, but have promised their own contingency plans to ensure a production recovery within two weeks, Sasaki said.
RING OF FIRE
Japan is situated on the Ring of Fire arc of volcanoes and oceanic trenches that partly encircles the Pacific Basin and which accounts for about 20 percent of the world's earthquakes of magnitude 6 or greater.
Seismologists have long warned of huge tremors hitting the central Tokai region -- home to most of Toyota's domestic factories -- as well as the Tokyo area.
The magnitude 9.0 quake last year damaged factories of hundreds of autoparts makers, particularly those of electronics components concentrated in Japan's northeast. The sensitivity of precision-equipment makers to earthquakes forced a supply bottleneck at Renesas Electronics Corp <6723.T>, which was making microchip controllers at just one factory north of Tokyo.
The extent of the ripple effect surprised the industry, which discovered the supply chain was not shaped like a pyramid, with automakers at the top, but more like a barrel, with a single obscure source at the bottom supplying several makers up the food chain.
Toyota, known for its expertise in supply-chain management, which is part of the lean production system it pioneered, was no exception.
Our assumption that we had a total grip on our supply chain proved to be an illusion, Sasaki said.
(Editing by Matt Driskill)