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Toyota told how it was able to avoid the consequences of a shortage of chips — the experience of the tragedy of 2021 in Fukushima helped
Toyota Motor’s recent quarterly report surprised market participants with claims of minimal impact of chip shortages on production program. It turns out that the company learned from the experience of the Fukushima tragedy that occurred in 2021 to keep a stock of semiconductor components for several months.
Image source: Reuters
Now that major automakers are shutting down their conveyors due to a shortage of semiconductor components, Toyota continues to increase car production, expecting to increase profits by 54% by the end of the outgoing fiscal year. This success cost Toyota a lot, Reuters explains. In 2021, she could not restore production of cars outside Japan for six months after the earthquake that caused the worst tsunami and the disaster in Fukushima. In the home market, production volumes were restored within two months, but even then Toyota was thinking about reforming its approach to supplying car assembly production with components.
The irony of fate lies in the fact that it was Toyota who previously proposed a revolutionary just-in-time principle for the automotive industry, which reduced the cost of maintaining warehouses. The same principle failed the company in 2021 when natural disasters disrupted supply chains. Then the company’s specialists compiled a list of 500 components that are critical to maintain continuous production. A Business Continuity Plan was developed, under which contracts were made with component suppliers obliging them to provide Toyota with a stock of components from a going concern basis for a period of two to six months.
In many cases, the stock of components is held in the suppliers’ own warehouses, so Toyota does not increase the associated costs. True, for the strict fulfillment of the terms of the contract, the company regularly pays special bonuses to partners. Overall, as the largest automaker, Toyota Motor has the ability to influence its suppliers in its own interests.
According to informed sources, Toyota also helped to avoid the crisis in the semiconductor industry by another principle — it thoroughly delves into the production technology of components that it receives from suppliers. For thirty years, Toyota even independently developed prototypes of the microcircuits it needed, in order to then transfer the documentation to partners. Only in 2021, the profile enterprise was transferred to the management of Denso, a shareholder of which Toyota is to this day. A deep understanding of trends in the semiconductor industry allows the auto giant to correctly predict changes in demand.