Toyota Rethinking Supply Chain for a Post Pandemic World
Like most large-scale automotive companies, Toyota has had to reassess some aspects of its approach to inventory management after the pandemic exposed the challenges of operating a just-in-time supply chain.
The automaker’s lean production model has been hailed as the gold standard in the industry, and the company had taken major strides in the past decade to protect its supply chain against shocks similar to the deadly 2011 tsunami in Japan. Although its contingency plans — which included a revamp of its procurement system to shift to alternate products when needed — were not enough to shield it from the effects of the pandemic.
Kevin Austin, group vice president of demand and supply management at Toyota Motor North America, said dealer inventories plummeted to zero “almost overnight.”
“We always thought we were one of the best in the industry of managing stock with a level of discipline,"
“While we thought we were being customer minded, it wasn’t good enough,” - Kevin Austin
Toyota usually keeps around 45 days of stock on hand to sustain inventory levels even during a crisis, Austin said. Although the company successfully navigated semiconductor shortages at first, it eventually had to slash production beginning in late 2021 due to supply chain challenges.
The problem was that the auto giant’s operating model was only meant to handle one or two major disturbances at a time, not the dozens of supplier disruptions Toyota encountered during the pandemic, according to Austin. The company is now contemplating ways to evolve its inventory strategy in a way that makes supply chain resilience a priority across all aspects of the business, especially as it ramps up the production of battery electric vehicles.
Toyota CEO Koji Sato, who took the reins in April, is already looking to make big changes within its production model of EVs. In addition to restructuring its EV leadership, the automaker plans to simplify production by rolling out a new manufacturing platform designed specifically for electric vehicles.
As a note, of interest, we have previously written about one of the latest trends in inventory here, the customer channel.
That said, Toyota is always looking for ways to improve production in accordance with the Japanese principle kaizen, or continuous improvement, Austin said. Literally “good change,” the word refers to a company philosophy of continuously improving processes for productivity, quality and efficiency.
“These experiences [during the pandemic] created a little bit of pain. But the pain plus reflection is a sign of progress.” - Kevin Austin
It's hard to argue with that. At Nucleus, we are also all about continuous improvement. Which in its essence is what optimization is. We optimize our client's supply chains which means to continuously improve them over time.