Risk and reward: Toyota's close ties to home
22/04/2016 11:24
* Toyota says no plans to change Just in Time production
* Committed to strong production, supplier base in Japan
* Nissan has diversified supply chains to minimise
disruption
By Naomi Tajitsu
TOKYO, April 22 (Reuters) - Toyota Motor's 7203.T close
ties to its "keiretsu" - or family of affiliates and suppliers -
have helped it become the world's top automaker. But two major
production stoppages this year highlight the risks, too.
The car maker's reliance on Aisin Seiki Co 7259.T , an
affiliate, for door and engine parts forced Toyota to halt much
of its production at virtually all its plants in Japan this week
after an earthquake damaged Aisin plants in the south.
The stoppage follows another week-long production halt in
February after a fire at another affiliate, Aichi Steel 5482.T
urn:newsml:reuters.com:*:nL3N15G18J and could initially cost Toyota up to 90,000
vehicles and 30 billion yen ($275 million) in profit, by some
estimates.
Toyota says it will restart production at most of its
assembly plants in Japan next week.
Nonetheless, the two incidents at the two affiliates
illustrate the delicate balance for manufacturers like Toyota to
disaster-proof the supply chain - a crucial part of the 'Just in
Time' production system it pioneered over half a century ago to
improve efficiency and reduce wastage.
"Just in Time works when everything's running smoothly,"
said CLSA analyst Christopher Richter. "But if you balance the
cost (of holding more inventory) for however long you have
between these disruptive events, it would probably be worth
sticking with the system."
And that's what Toyota is doing.
"The Just in Time system is to ensure we receive supply as
we need and only in amounts required at the time. We have no
plans to change this policy," a company spokesman told Reuters.
"It takes time to procure the 30,000 parts we need to
produce each vehicle. Bringing all these parts together is a
massive process, so we're always looking to strengthen our
supply chain, but we're not considering changing the inventories
we hold (because of the recent earthquake)."
RIPPLE EFFECT
Toyota says it needs to produce at least 3 million vehicles
domestically each year to keep its plants, and those of its
suppliers, operating efficiently, while also making its product
development arm competitive.
"If this base were to crumble because we shifted too many
operations overseas, we would lose our domestic manufacturing
expertise," the Toyota spokesman said.
Toyota has, though, pushed some of its core suppliers to
find more customers so they don't over-rely on the 'keiretsu' at
times of disruption.
Around 62 percent of Aisin's sales now go to Toyota, down
from 68 percent before the devastating 2011 earthquake and
tsunami. Big, non-Toyota customers now include Volkswagen
VOWG_p.DE , Audi NSUG.DE , Peugeot PEUP.PA and Volvo.
But the sheer size of orders from Toyota - which gobbles up
90 percent of Aisin's Japan-made door check straps - means any
disruption at just one supplier can have a disproportionate
ripple-on effect across the automaker's production lines.
'MADE IN JAPAN'
Also, Toyota's 'Made-in-Japan' ethos carries risk when
disaster strikes. Investors will have noted that while Toyota
shut down in Japan because of quake damage to its supply chain,
rival automaker Nissan Motor 7201.T remained operational.
Nissan, and third-ranked Honda Motor 7267.T , make less
than a fifth of their vehicles in Japan, having shifted more
production overseas after 2011. Toyota produces 40 percent of
its global output at home.
But for Toyota, which with its group companies employs well
over 150,000 people in Japan, its status as the country's
flagship company also carries a high responsibility and can come
before maximising profits in the short term.
Nissan, and others, though, are changing tack to minimize
the disruption from a seismically active domestic production
base.
"We have implemented measures since 2011 so we are better
equipped to deal with natural disasters," said Masahide Amada,
Nissan's chief product specialist. "These include diversifying
production capabilities and supply chains."
Analysts said Nissan's plant in southern Japan avoided
serious impact from the recent earthquake because it sources
parts both in Japan and from South Korea and China.
"Nissan sources more parts from overseas than Toyota. This
gives it a longer supply chain to avoid possible disruptions,"
said Koichi Sugimoto, auto analyst at Mitsubishi UFJ Morgan
Stanley Securities.
Nissan declined to comment in detail on its supply chain.
($1 = 108.9000 yen)
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Japan quake http://tmsnrt.rs/1STtM1A
Auto plants in Kyushu http://tmsnrt.rs/1U861bc
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(Reporting by Naomi Tajitsu, with additional reporting by Maki
Shiraki and Ami Miyazaki in TOKYO and Hyunjoo Jin in SEOUL;
Editing by Ian Geoghegan)
((miyoung.kim@thomsonreuters.com; 65 6870 3026; Reuters
Messaging: miyoung.kim.thomsonreuters.com@reuters.net))
Keywords: JAPAN QUAKE/TOYOTA