The Drive to Survive: What One Auto Manufacturer Taught Us About Avoiding Supply Chain Catastrophe
At the start of a new decade, the dust is finally settling on one of the most challenging years any of us can remember. The country is reopening and demand is roaring back for the lifeblood of American manufacturing, the auto industry. However, just when things are starting to look bright, Murphy strikes.
A once in a century storm brings Texas to its knees – a deep freeze fuels lengthy power outages, extreme weather, and the halt of production at two Austin, Texas factories totaling about 28% of total production capacity of South Korea’s Samsung Electronics Co. Only a month later, fires break out at Tokyo-based Renesas Electronics Corporation, damaging the factory floor and halting production for up to 100 days. Meanwhile, thousands of miles away, extreme weather runs one of the world’s largest containerships aground in the Suez Canal.
Ever Given ship at Suez Canal
"Ever Given" cargo ship disrupting transportation in the Suez Canal (Creative Commons 2.0 License)
These events antagonized global anxiety regarding supply chain resilience and sent manufacturers, governments, and consumers into a frenzy. Inflation fears mounted across America, and rental car companies began to scurry to replenish their depleted inventory for the ongoing reopening of the country. As supply constraints grow across numerous industries, we sit on the edge of our seats as lead times for an assortment of microchips skyrocket from 4-8 weeks up to 14-52 weeks, further irritated by ongoing global technology competition and conflict.
Analysts estimate a $60 Billion impact on global auto sales in 2021, resulting in up to 3 million less vehicles slated to be produced. Ford’s popular F series plans for a nearly 110k unit reduction, Jeep Cherokees nearly 100k units and more than 80k Chevrolet Equinoxes. With the pain evident across the globe, we look around and assume we are all in this together…. Right?
“Since the strength of the chain is determined by the weakest link, then the first step to improve an organization must be to identify the weakest link.”
― Eliyahu M. Goldratt, The Goal: A Process of Ongoing Improvement
Sometimes we have to look at successes of the past in order to learn about how to move forward the future. In the 1970s, a Japanese engineer by the name of Taiichi Ohno at the Toyota Motor Corporation fathered the Toyota Production system, Lean manufacturing, and Just In Time (JIT) manufacturing. For the next 4 decades, Toyota showed the world how efficient supply chains and manufacturing facilities can reduce cost & inventories, improve quality, and provide an unimaginable amount of data to support continuous improvements. In 2011 these principles were put to the test when a 9.0 magnitude earthquake sent a 133ft tsunami wave to the shores of Japan causing the Fukushima nuclear disaster, significantly impacting Toyota’s production capacity and affecting supply chains around the world.
In the wake of natural disasters and the global financial crisis, Toyota took initiative to create a system that tracks thousands of key components – making a habit of regular communications with suppliers at all levels. The benefit of this diligence is unquestionably evident today – Toyota is currently the only major automaker that has indicated that their output would not be significantly impacted by the global chip shortage. Their attention to detail has not only enabled their stability, but they stand prepared with 4-6 months of inventory at the ready and have revised their full-year earnings forecast up by an astonishing 54%.
Be like Toyota: Avoid the temptation of an "all-in" strategy
Toyota exists as a lesson to companies around the world in diligence, focus, and consistency; notably, having a plan to stay afloat when unexpected disasters disrupt an entire industry. Unfortunately, this is not the most common mindset, as we have seen far too many “all-in” strategies without proper contingency planning that result in catastrophe for all facets of the supply chain. Luckily, companies around the globe are now learning the importance of long-term supply chain sustainability, and taking action to further minimize the negative impacts of these unpredictable events. At SCM Connections, we understand that every supply chain is different and faces its own unique set of trials and tribulations. Our commitment to clients is to stand by their side while not only helping them plan for their own worst-case scenario, but empowering them to continue charting their own destiny, no matter what conditions lay ahead.
