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Toyota to Increase Supply Chain Resiliency by Autumn

by APICS Staff | N/A 2012 | 12 | 5

Leaders at Toyota say they will have established a resilient supply chain by autumn, one that could recover from a massive earthquake within two weeks, Reuters reports. Toyota has mapped sites of about half of its more than 500 direct suppliers in Japan. Shinichi Sasaki, executive vice president at Toyota, says that about 300 of those sites are at risk because they are the single sources for about 1,000 parts. Toyota is asking those suppliers to spread to multiple locations or carry extra stock, or Toyota may need to purchase from other suppliers, Sasaki says.

In addition, Toyota aims to consolidate similar parts, which will give certain suppliers economies of scale, enabling them to set up additional facilities. “Our plan is to manage risk while at the same time reducing costs,” Sasaki says. The company also seeks to create common parts for about half of all its components within about four years.

About half of Toyota’s tier-one parts manufacturers refuse to disclose their suppliers, but they pledge to create contingency plans that will ensure recovery within two weeks.

The large earthquake last year damaged hundreds of auto and electronics factories in Japan’s northeast. This created supply bottlenecks and a ripple effect that affected much of Japanese production, including Toyota’s. “Our assumption that we had a total grip on our supply chain proved to be an illusion,” Sasaki says. 

Many Tech Firms Not Conducting Independent Supplier Audits

Recently, the Fair Labor Association (FLA) began independent audits of Apple suppliers in China, in response to allegations that Apple had violated workers’ rights in many of its factories. But Bloomberg News reports that many of the iPhone maker’s rivals are not following its lead and are instead relying on their own evaluations.

Representatives from technology giants such as Microsoft, Dell, Hewlett-Packard, and Samsung say their evaluations are sufficient to prevent abuses. They are based in part on guidelines from the Electronic Industry Citizenship Coalition (EICC), a group of electronics companies with the goal of improving “efficiency and social, ethical, and environmental responsibility in the global supply chain.” While the EICC creates standards, it lacks the ability to enforce them and it does not require its members to disclose their findings. This may mean companies will not be held accountable when labor abuses arise.

The EICC was created by a number of US technology companies looking to create an industry code of conduct. They wanted to avoid the past mistakes of some apparel makers who were criticized for child labor and other ethical violations. But many believe that the EICC does nothing meaningful for the industry.

Meanwhile, both the EICC and the FLA have weaknesses in that they neglect suppliers further down the supply chain, says Mike Fawkes, former supply chain executive at Hewlett Packard. And even the FLA requires that companies audit only about 5 percent of suppliers, down from 30 when the organization was created, says Heather White, a fellow at Harvard’s Edmond J. Safra Center for Ethics.

US Auto Industry May Struggle to Meet Increasing Demand

Three years after the US auto industry was on the verge of collapse, automakers now can barely keep up with the growth in new orders, the Associated Press reports. Total sales are expected to exceed 14 million this year, well above 12.8 million from 2011. This means manufacturers are hiring workers around the country and adding shifts. The industry picked up 38,000 jobs last year, and current plans are to add an additional 13,000 in 2012.

However, the downside of this growth is the strain on auto factories, as well as on the companies in the extended auto supply chain, which could create shortages and increase prices. And executives fear adding too many workers, as it may result in a repeat of the industry’s earlier troubles, which occurred largely because companies carried high costs. “A lot of things are going to start breaking loose all at once,” says Laurie Schmald Moncrieff, president of a small-parts manufacturer in Michigan, who has seen far greater demand from the auto industry than previous years.

If auto sales do reach 14 million, North American factories will be at 90 percent of capacity, says Michael Robinet, managing director of IHS Automotive Consulting, an auto forecasting firm. This could lead to shortages in some types of autos, such as pickup trucks, as many truck plants have closed since 2005. These factors add up to what may be a challenging but profitable year for the industry, Moncrieff says. 

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