Supply Strategy
Assembly Line
How Toyota kept making cars when the chips were down
But not all carmakers have suffered equally. While rival OEMs (or original equipment manufacturers, as automakers are known) stumbled, Toyota kept production largely on target until May. The company has said factory closures owing to chip shortages would cause a shortfall of 20,000 vehicles in Japan—less than 1% of Japanese production in fiscal 2021. Toyota’s North American production, meanwhile, hummed along at 90% of capacity for the year through June. That prolonged productivity propelled the company to a rare victory: In the second quarter, it was the No. 1 automaker by sales in North America, marking the first time since 1998 that GM hasn’t held the top spot.
Toyota’s handy navigation throughout the shortage is more than just good luck: It’s good management. Over the past decade, Toyota has overhauled the way it oversees its supply chain—implementing hard lessons it learned a decade ago after the Fukushima earthquake and tsunami devastated swaths of Japan’s industrial heartland. Those gradual reforms prepared the company to ride out the current chip crisis, executives say. And just as the success of Toyota’s “just in time” (JIT) manufacturing model led automakers the world over to imitate the company in the 1980s, the company’s new advances may spawn another wave of imitation.
Unlike many of its rivals, Toyota essentially stockpiles chips. That’s a deviation from JIT, which dictates that supplies reach the production line only when they are needed. (Stockpiles occupy valuable space on the factory floor, as well as on the company’s books.) In practice, Toyota’s suppliers do the actual stockpiling. Like all automakers, the company relies on a multitude of components that contain semiconductors, such as smart displays or audio systems. Toyota requires suppliers of those components to maintain up to a six months’ buffer supply of chips dedicated to Toyota orders—just in case.