Friday Rant: What’s With Bad Products? Toyota’s Recall and Beyond

And no, I'm not talking about Apple's wretched Maps application in iOS 6... but that is one good example of someone skimping on (skipping even) QA and going straight to release.

On a more serious note, bad products need to quickly be acknowledged – like the potentially deadly tainted steroid shots that have gone undetected in the pharmaceutical supply chain over the past three (3!) months. How could this go undetected for so long? Reference our write-ups on this here and here – with suggestions on how to reduce your chances of getting caught in a disaster like that, and be better prepared to respond effectively. Supply chain inertia is not working in your favor in this case.

Birds of a feather flock together – as the saying goes – and it must be a murder of crows in this case, since another product disaster hit the headlines last week as Toyota announced that almost seven and a half million cars are being recalled over faulty window switches. The recall includes these models:

  • 2007-2009 – RAV4, Tundra, Camry, Camry Hybrid
  • 2008-2009 – Scion xD, Scion xA, Sequoia
  • 2007-2008 – Yaris
  • 2008 – Highlander, Highlander Hybrid
  • 2009 – Matrix, Corolla

This is more serious than it sounds: the faulty switches can start fires and people have been injured, but thankfully there are no known deaths so far. For the time being, you might want to park your Toyota outside away from flammable materials. One third of these vehicles were sold in the US, the rest overseas.

Toyota doesn't take criticism well

"Japanese manufacturers rarely recall products without a fight. It is an image and pride issue, and it has been like this for decades," said Rebecca Lindland, an analyst with IHS Automotive. "They don't want to admit that they have a systemic defect in their cars because it hurts their reliability image." Source here.

According to the same article, Toyota had originally requested to handle the problem through a "special service campaign," an initiative that falls short of a recall. Under a service campaign, Toyota would still have replaced switches without charge but only when customers complained, said Brian Lyons, a spokesman for the automaker. Now, under the recall, Toyota has to inspect 7.5 million cars worldwide for damage to the switch as well as apply a special grease to prevent the switch from sticking and potentially causing a fire.

This is not the first time Toyota has engaged in foot dragging. They had to pay nearly $50 million in federal fines (record-setting level) only two years ago for failing to promptly inform regulators of defects in vehicles and for delaying recalls. One wonders if Toyota's obstreperous attitude in this case didn't play a role in the regulators' denial of the service campaign option and instead going straight for a recall?

In the '90s I worked for several years in Japan's automotive industry as the primary product liaison (for a European firm delivering final assembly tooling and fastening solutions) with Toyota worldwide, and it really bothers me to see their recalcitrant attitude toward these issues. While the assembly line workers diligently worked to put together the cars and engines in the best fashion, I also know how headstrong their production engineering staff were in not adopting any best practices that we suggested from other plants around the world. So I can see how this attitude could have lead them to where they are now.

That said, right now Toyota is probably looking at shelling out $100 per car, likely even more. Multiplied with 7.5 million vehicles it becomes a fairly staggering sum in the aggregate.

What to do?
Although possible, it seems rather unlikely that all 7.5 million switches are bad. And with better traceability it should be feasible to do a root cause analysis and trace this back to the supplier, design variations, PPAP and QA data, locations, equipment, perhaps even workers, that were involved. The cars already have their VIN, so all you need is to augment with a complex part level tracking solution. It's not dissimilar from what the pharma industry needs to do to improve their response effectiveness around product disasters. Granted, the automotive industry has far more parts to stay on top of, but there is already a fair amount of component level serialization (main body, transmission, engine, certain fascia panels, probably several electronic systems) – so perhaps the leap isn't that great. The component lots delivered under JIT (Just In Time) manufacturing systems are tightly controlled, so adding serialization of complex components at the Tier 1 level might not be such an added burden. At least not when compared to paying $750MM or more for a recall!

The civilian aerospace industry has long worked with strict component tracking requirements in order to not only track required service procedures, but also minimize the potential of faulty products from one batch getting into and polluting the entire figurative crop of apples.

I have reached out to several providers of solutions in this area for examples of pre- and post-calculations and results around the expenses involved and benefits reaped from implementing product/component serialization and traceability solutions – expect more stories on this topic.

Spend Matters readers with thoughts and insights into the practical aspects of implementing this level of operational change are highly encouraged to contact us and share their experiences.

In the meanwhile, should a product disaster hit your company, we suggest that the ostrich principle of denial is not productive. Toyota could probably have saved a good deal of money with a more humble attitude.

- Thomas Kase

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