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'Toyota was ... the only automaker properly equipped to deal with chip shortages'
Toyota may have pioneered the just-in-time manufacturing strategy, but when it comes to chips, its decision to stockpile what have become key components in cars goes back a decade to the Fukushima disaster. After the catastrophe severed Toyota's supply chains on March 11, 2011, the world's biggest automaker realized the lead time for semiconductors was way too long to cope with devastating shocks such as natural disasters.
That's why Toyota came up with a business continuity plan (BCP) that required suppliers to stockpile anywhere from two to six months' worth of chips for the Japanese carmaker, depending on the time it takes from order to delivery, four sources said. And that's why Toyota has so far been largely unscathed by a global shortage of semiconductors following a surge in demand for electrical goods under coronavirus lockdowns that has forced many rival automakers to suspend production, the sources said.
Toyota has raised its vehicle output for the fiscal year ending this month and jacked up its full-year earnings forecast by 54%.
"Toyota was, as far as we can tell, the only automaker properly equipped to deal with chip shortages," said a person familiar with Harman International, which specializes in car audio systems, displays and driver assistance technology.
I have so many questions after reading this. Fascinating. While non-Toyota auto makers imitate Toyota with JIT, Toyota "lean inventories strategy was to become sensitive to inefficiencies and risks in supply chains, identify the most potentially damaging bottlenecks and figure out how to avoid them."
This is the key. JIT is frequently a cost-down, set and forget thing, at Toyota it's part of a learning process, that may result in aggressive countermeasures that do the opposite.
The other fascinating thing is Toyota had an advanced fab in-house for 3 decades to make microcontrollers for the Prius. This was another part of their learning process. Currently they're at 28-40nm, and it's part of the umbrella, at Denso.
So Tesla's efforts to learn semiconductors by owning a fab make more sense in this context.
To put it bluntly: Safety stock level at some companies is managed by accountants - who don't look much further than their nose is long. SAP; I heard it means "System Against People". Well, sometimes this is suiting.
Accountants take into consideration the cost of the stock items, the lot (order) sizes, the amount used in a year, depreciation and amount of storage room required. Typically, 10% of the value of the stock is equal to the costs charged each year. Then, the accountants have some formula telling them they need 338 items in stock, or so; to be optimal from an accountant point of view.
Say you're an engineer and want to have some part in stock but accounting says no, you have to jump to 13 burning hoops and write an explanation letter; have it signed in fourtude by several managers, wait for 3 months and then maybe it will be in stock.
Now, the "less advanced" companies, don't even evaluate the risk of some part _not_ being in stock; they just use the accounting formula above and if 338 is the result, then 338 go into stock. No questions asked!
And if the accounting formula says "Don't put it in stock", well, it will not be in stock.
And if the whole line halted because it turned out that part which accounting said doesn't have to be in stock, was actually a critical part (say Siemens S5 PLC or so) running the whole line, well, then management will happily blame the engineer for not putting it in stock; and ask him to office to explain the problems. This stuff happens!
Preach! System Against People has a certain science built in, called MRP, which is a best known method for inventory. Small order sizes being one key part. The trouble is, everyone games it and pushes it around, and like all algorithms its garbage in, garbage out.
There is a real science to JIT also. JIT is misunderstood. JIT has "seven zeros": Zero defects, Zero lot size, zero setups, zero breakdowns, zero handling, zero lead time, and zero surging. Note that "zero inventory" is a result of these prerequisites and any one non-zero input results in non-zero inventory. Inventory is the output, yet it is often treated like an input.
The most angering thing to me is the stupid, casual way outputs are treated as inputs in society today, and inventory management is a good illustration for more general trends. Someone says "Reduce this output but keep all the inputs the same". Logically equivalent to "eat the same calories but lose weight".
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