News focus: Is there a road to recovery?

18 May 2010

4 March 2010 | Gareth Mytton

Toyota's quality processes failed to prevent its high-profile production calamity. Gareth Mytton examines the role of procurement and supplier relations

The famous advertising slogan, “The car in front is a Toyota”, has come back to haunt the firm in recent weeks.

The Japanese carmaker was well known for its Toyota Production System, which imposed strict quality standards on its vehicles. But the global recall of more than 8.5 million vehicles with sticking accelerator pedals, accelerator pedals getting stuck in floor mats, and braking system problems has put the company under enormous pressure.

Estimates of how much the recall will damage Toyota in terms of cost and reputation vary, but fi gures run into billions of pounds. So what went wrong?

Before his appearance in US Congress last week, the carmaker’s president Akio Toyoda blamed its problems on fast expansion. “We pursued growth over the speed at which we were able to develop our people and our organisation,” he said.

John Campi, procurement consultant and former CPO of Chrysler, is an admirer of Toyota’s processes but is scathing of the official explanation. “Candidly, I don’t think they’ll fix the problem if they think it’s down to growing too fast.”

As reports on the problems surfaced, Toyota announced that it was working to produce redesigned parts with vendor CTS Corporation, which supplied the original sticking accelerator pedals.

But experts suggest the company’s procurement strategy is not to blame for the recalls, although purchasing does have a role to play in preventing risk.

Toyota, which has about 800 suppliers worldwide, has a reputation for constructive relations, says Chris Hibbs, UK automotive leader at consultancy PricewaterhouseCoopers. “Suppliers like to work with Toyota. It tends to involve them early in creation of parts,” he says.

Although the scale of this recall is striking, they are common in the automotive sector, Hibbs says. “Typically what happens is if there is an issue with a component, it just gets fixed free of charge by the dealer. Manufacturers work with safety authorities and identify the issue.”

Intensified competition in recent years has led automotive companies, including Toyota, to seek savings purchasing common components and systems, Hibbs explains. This means an issue is more likely to affect a range of vehicles rather than a single make. John Henke, president of consultancy Planning Perspectives, writes in the spring issue of SM’s sister magazine CPO Agenda that the lower costs of standardisation are “offset by the risk of huge expenses” if large numbers are found to be deficient. Procurement must be cautious when sourcing, he says.

Nicolas Reinecke, expert principal at McKinsey & Company, is adamant this “one-part strategy” isn’t flawed. “The risk involved is the effect of an error is larger, not the probability of it happening.”

As to where problems might lie, experts suggest a number of potential culprits. Toyota decisions are likely to be based on a wide consensus, Campi says, making them difficult to reverse. Meanwhile, Reinecke believes the company’s hierarchical structure makes it hard to get messages of problems up the line.

Indeed, Jim Lentz, president of Toyota’s US operations, told Congress last week: “We did not do a very good job of sharing information around the globe.”

Looking forward, experts say Toyota must work closely with vendors to overcome the problems. Campi says they should engage the suppliers’ best thinkers to find the root cause.

Kimball Bullington, associate professor of Middle Tennessee State University, says: “Sporadic problems in high volume manufacturing are always diffi cult to detect. I believe sharing data with suppliers and data mining and analysis software is necessary.”

Although buyers can play a role in rebuilding faith in Toyota, for a company whose reliability is at the core of its reputation, the road to recovery is likely to be a long one.

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