Toyota: Rebuilding and Fortifying a Global Supply Chain (Part 3)

Click here for Part 1 and Part 2 of this series.

Toyota was certainly the poster child for lackluster supply risk planning coming out of this year's earthquake and tsunami disaster. In the first two posts in this series, we shared how Toyota was embarking on new supply chain risk management strategies designed to mitigate the impact of more routine -- or similar Black Swan -- supply risk events in the future. Yet is Toyota going far enough in its supply risk planning efforts? We don't think so -- and we also think that their approach reflects the views of a still insular (albeit huge) Japanese corporation, which happens to do business on a global stage rather than that of a true multinational that first considers its customers and global suppliers ahead of domestic relationships.

Yet what should have Toyota strategically announced in its post-earthquake supply risk mitigation plan? Here are five steps we would have recommended for consideration:

  1. Building a supply risk mission control center with a "central nervous" system built on a supplier management system (technology) with the ability to monitor a variety of real-time risk factors on multi-tier levels. SAP Supplier InfoNet (SIN) provides a useful archetype of the type of system Toyota should consider.
  2. Encouraging domestic partners not just to make investments in holding inventory, but having them build offshore operations to provide redundancy and also better compete in local emerging markets. If Japanese suppliers are the "most efficient" as Toyota claims, then no-doubt they can effectively compete in local markets with new facilities in China, Korea, etc.
  3. Constantly optimizing the 60/20/20 or 80/10/10 split of business model and adding in a geographic component rather than staying reliant on long-term partners without "shaking the relationship boat" more often. It seems, talking to industry insiders, that even though Toyota can lay claim to initially developing a supplier partnering procurement model -- albeit one with teeth -- that Honda is the Japanese OEM that has picked up the leadership torch in the past decade in the best means of constructively managing suppliers for cost, competitiveness, risk and innovation all at the same time.
  4. Using the earthquake as an excuse to become a truly global company rather than what has continued to be a group-think Japanese conglomerate with overseas subsidiaries and operations. The disaster could, in fact, have been an opportunity to do so from a supply base globalization perspective while also saving face with management, shareholders, employees, etc. In comparison, we are aware of one large company in the industrial company that used the disaster as a means to justify shifting spend (from its Japanese suppliers) to a non-Japanese partner post-disaster on a permanent basis -- and it also "saved face" in the process by asking and caring about the local supplier's employees, families, etc.
  5. Examining the financial supply chain from a risk perspective. Toyota appears to have done little to examine options around financial supply chain risk management including new insurance offerings that allow companies to shift risk to others that are willing to become a counterparty to specific named supplier, supply and facilities in new types of insurance contracts.

What do you think? Could Toyota have done more? Drop a line or post a comment. I'm curious to get the viewpoint of others.

Jason Busch

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