The Infosys global supply chain management blog enables leaner supply chains through process and IT related interventions. Discuss the latest trends and solutions across the supply chain management landscape.

« My sale wants to grow up and become an order | Main | Y2010 & Ahead – value chain trends in emerging economy – Part 1 »

Et Tu Toyota …

Reading about the Toyota Accelerator Pedal recall (around 2.3 million vehicles to quote a figure), one can’t help but wonder how a company with its squeaky clean quality and safety reputation, a temple of learning for supplier collaboration processes, could falter on such a grand scale.

The accelerator pedal in question is sourced by Toyota from two suppliers, Denso in Japan and CTS in Indiana US, with the recalled parts coming from CTS only. Now CTS is not an exclusive Toyota supplier, it also supplies similar parts to other automakers as well. But the only ones that face issues are the Toyota pedals.

Till the late 1990s, Toyota used to practice a risky strategy of having just one supplier for a part, leaving it vulnerable to production disruption. After a fire in one of the critical supplier plants shut down production for 5 days, Toyota started having multiple suppliers for same parts. Toyota as a company is considered a benchmark in the supply chain world when it comes to supplier collaboration and parts standardization, but somewhere in pursuit of risk mitigation and cost reduction in recessionary times, it did not standardize the designs for accelerator pedals across its suppliers. It seems that designs for the pedals manufactured by Denso and CTS are different. 

Which begs the question:  Is Toyota wrong to have two different suppliers and two different designs? Well, there is nothing wrong in having two suppliers, but for an automobile company that consciously tries to carry minimal inventory, having varying designs across suppliers is inherently dangerous. It kind of defeats the purpose of having multiple suppliers to mitigate supply risk. If one supplier goes down, the other may not be able to ramp up production with an exact substitute. Not having standardization also increases the complexity and oversight required for quality control, which may have also led to the current situation.

It will take Toyota some time to come out of the situation that it finds itself in (sales are down 16% in January 2010 and the recalls will cost almost $2 billion) but hopefully it will get back to its “Toyota Way(s)” pretty soon.

Comments

I feel its strange for a company like Toyota. The first cases of this problem had started coming up in around the year 2007 (http://www.thetruthaboutcars.com/why-toyota-must-replace-flawed-cts-gas-pedal-with-superior-denso-pedal/) and it took the company so long to acknowledge the fact considering that it has a huge reputation of quality it wants to live upto. Even with the model Prius the problem has been acknowledged only now and not before along with the other models.

Though fundamentally the CTS and DENSO designs are different and that hence the recall by Toyota to repair the fault, but I think the problem is deeper than that. Even now the comapny is planning to only do repairs and not replacements. Its about the business not ready to take a firm stance, acknowledge and correct the mistake at the onset. Probably recession had huge impacts even on a company like Toyota that let to quality and customer satisfaction being put on the back burner.

Country specific design localization is something that had been prevalent in automotive industry for long and it is going to stay. A classic example of forcing global standardization of design is the initial American cars introduced in India which failed miserably compared to a single Toyota Qualis model whose design was localized for Indian conditions. Coming to your question of multiple suppliers and multiple design, my point of view is that there is nothing wrong in having two designs or more as long as the designs are flawless which is again a desireable situation. If CTS and Denso were located in the same location i.e. say in North America, your question makes sense but here are talking about thousands of miles away in two different continents. Obviously, Toyota would have choosen these locations to cater to the local requirements.Oversight for quality required being more again is an wrong assumption, it is the inherent design that matters. What I am wondering is that when Toyota can come up these design flaws, one can only imagine about the other car makers. I appreciate Toyota's reluctance to recall vehicles since they simply could not find a robust fix and once they found a fix, they called back the vehicles and promptly took a hitting on market value which is again a temporary phenomenon. Toyota has actually increased its sales forecast for the full year. On using the standardized parts across all models to reduce inventory etc. we are already seeing the impact on their 8 models and Prius and other Lexus models getting impacted. In the long run, customers are going to appreciate Toyota's this move to recall their vehicles and in couple of years all this doubt will replaced with renewed confidence.

I am wondering on Sathya's comment "appreciate Toyota's reluctance to recall vehicles " and thinking:

Is it ethical on a company's part to continue production of a faulty vehicle, especially when it is causing fatal accidents.

@Saurabh: It may take some time to find out exactly if and why Toyota deliberately ignored faulty parts.
Toyota may actually be able to leverage the recall issue to its advantage by showing quick response, but a deliberate effort to hide the problem will definitely lower its standing in the eyes of the consumer.
@Sathya: I agree with you that country specific design localization could be key for the success of a product. I am not an expert in automobile matters so I am not sure how much the design of something like an accelerator pedal will be influenced by geography. I agree with you even more that it is okay to have different designs if they are flawless. But that does not seem true in this case for Toyota.
I was just wondering if a company that swears by lean manufacturing and minimal inventory is exposing itself to a higher risk by not standardizing designs.

//Is it ethical on a company's part to continue production of a faulty vehicle, especially when it is causing fatal accidents.//

Something really to think about.Do they really know that there is a fault by 2007? If so, it took them three years to find a fix?

@Senthil : Having been associated with automobile industry for the last few years, I know for sure that Toyota always had a special status in our minds. So reading these reports definitely sounds strange. In fact I was reading another news item on cbcnews on the recalls and it is restating the same things(http://www.cbc.ca/world/story/2010/02/09/prius-recall-toyota.html) . Though I am not sure under what circumstances the action was delayed or who is at fault, still need to wait some time for the investigations to complete.

Toyota is known for Quality and the way it manages its suppliers. Though i am not an expert in Automobiles i feel this moment will pass by. On the long run again it will known for his Quality.
Only question i have is what took so long? Did they overlook at the complains by Customers? If this is the case then they are in serious trouble. Since they believe and grown with TQM processes.

@Senthil, Saurabh and Hari: Thank you all for your comments!!!
I am equally incredulous at the reports that Toyota turned a blind eye to the consumer complaints in pursuit of growth. How that plays out, we will have to wait for the investigations that are currently ongoing.
But what we know is that due to the pace of growth Toyota’s priorities between Safety, Quality and Volume growth became confused. The heightened focus on sales came at the cost of the manufacturing/supply chain/quality ideals that contributed a lot to what Toyota is (or was) known for.
If interested you can also go through the statement Akio Toyoda, President Toyota Motor Corporation made to the US Congress: http://pressroom.toyota.com/pr/tms/document/A._Toyoda_Testimony_to_House_Committee_on_Oversight_and_Government_Reform_2-24-10.pdf
For Toyota’s sake I hope that they really do a thorough introspection into what went wrong. The Ford Pinto legacy of the 1970s left a dent in Ford’s quality/safety credentials for a long time. It still comes up once in a while, even after 3 decades. Hopefully it will not be the same for Toyota.

It’s a conscious decision from the TOYOTA to include the Local suppliers and upgrade them to the TOYOTA quality, not only does this help the local companies to produce for Toyota and be partner in wealth creation, it also dispels any negative political limelight and law suits from competition watch dogs.
Two suppliers also create a healthy competition and act as a insurance in case one supplier acts unethically like asking for undue price rise etc.
The root cause of the problem is not having two suppliers but something else which Toyota is trying to find out. The testimony of TOYODA SAN in front of the US congress show the Toyota thinking, whereby instead of coming with 100’s of reasons for this fault he smiley said “We don’t know “, it would have been a lot easier for him to pass the blame to CTS which he didn’t do, that’s the Toyota legacy of honoring the partners , which sadly is not part of other OEM’s

Post a comment

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)

Please key in the two words you see in the box to validate your identity as an authentic user and reduce spam.

Subscribe to this blog's feed

Follow us on

Blogger Profiles

Infosys on Twitter