Having been regaled endlessly about stories of the Toyota Way, I am sure that you too are familiar with the much-vaunted Japanese production practice of just-in-time (JIT) to keep inventories to a bare minimum. Well, it turns out that while this process is usually an economically efficient way of doing things, it may not be so during emergency situations such as that recently faced by Japan as quite a strong quake hit the country. It turns out that Toyota along with several other car manufacturers in Japan were left with little choice but to idle their plants as key supplies that were supposed to arrive JIT were not forthcoming. Riken, the maker of piston rings for a lot of Japanese automakers, was unable to deliver its wares to the carmakers, causing the latter to halt production. For want of a relatively minor part, the mighty Toyota was made to, er, just wait for the time being (JWTB). It's appears to be a case of "putting all your eggs in one basket"--limited supplier diversification. From the Wall Street Journal:For want of a piston ring costing $1.50, nearly 70% of Japan's auto production has been temporarily paralyzed this week.Luckily for the Japanese automakers mentioned, it seems the piston maker Riken is getting back up to speed with its production as of today according to Japan Today:Blame it on kanban, the just-in-time philosophy of keeping as little inventory on hand as possible. The strategy keeps inventory costs down and ensures quality. It generally works because Japan's auto makers have long prided themselves on the almost familial relationships they have with a handful of suppliers of custom parts that deliver several times a week or even daily.
The strategy also has a downside, as became evident after the 6.8-magnitude earthquake that hit central Japan on Monday damaged Riken Corp. Riken, which supplies all major Japanese car makers, makes the sought-after $1.50 piston ring but has been unable to make deliveries. And because piston rings and other key parts are made specifically for each car maker and little inventory is kept in hand, it is nearly impossible for auto makers to simply switch to another supplier at the last minute.
"It's very difficult [for Japanese auto makers] to hedge any risks," says Hirofumi Yokoi, a Tokyo-based manager at auto-industry consultancy CSM Worldwide. "Just-in-time manufacturing is the culprit in this case."
What's more, Riken, which has 1,500 employees and had revenue of $631.3 million in the year ended March 31, is one of the few suppliers focusing on such specialized parts as piston rings, which fit around the head of the piston to create a seal that traps combustion gases and minimizes oil burning. With market share of more than 50%, Riken has a reputation for quality and a close relationship with many car makers, making them all vulnerable to the earthquake-induced damage.
The Riken closure has forced Toyota Motor Corp., the nation's No. 1 car maker by sales, to cease production for at least a day and a half at all 12 of its domestic plants, causing a loss of output of at least 25,000 vehicles, about 60% of which are made for export. Honda Motor Co. said it would close a plant that produces the popular Civic and Fit models today, resulting in the loss of 2,000 vehicles. Nissan Motor Co. also will halt operations on several production lines at three of its plants today and will shut down all four of its plants tomorrow and Monday. Mitsubishi Motors Corp., Mazda Motor Corp., Suzuki Motors Corp. and Fuji Heavy Industries Ltd., which makes the Subaru brand of vehicles, also have stopped or slowed down production.
It's not clear what impact the disruption at Riken will have on U.S. production of Japanese cars. "We are investigating and communicating with our colleagues in Japan to see whether or not there will be an impact," says Victor Vanov, a spokesman for Toyota's U.S. manufacturing operations. Ed Miller, a spokesman for Honda's U.S. manufacturing operations, says Honda doesn't expect interruptions in production in the U.S.
The production delays in Japan may serve as a cautionary tale for the many manufacturers of all kinds around the world that are keeping smaller inventory and sourcing key parts from the same companies. But it isn't as if this were the first example of its kind here or elsewhere. In 1993, an explosion destroyed a Sumitomo Chemical Co. factory in southern Japan that made 65% of the world's supply of a chemical used to seal computer chips into plastic cases. The accident pushed prices for computer memory chips up 50%.
In 1999, a 7.6-magnitude earthquake in Taiwan severely damaged the island's chip makers, which supply chips to about 10% of the world's semiconductors. Personal-computer and semiconductor makers world-wide suffered from shortages and delivery delays during the busy Christmas season.
Nor is this the first time Toyota has been paralyzed by an unexpected disaster. A 1997 fire at a factory of Aisin Seiki Co., the main maker of the brake valves Toyota uses in most of its cars, forced the auto maker to shut down for five days, resulting in a production loss of about 70,000 vehicles.
Toyota admits that this type of unforeseen disaster is a big worry. "In the case of special parts [like piston rings], we don't have any backup," a company spokesman says...
Two of Riken's factories and nine affiliated facilities were affected by the quake. The company says it will resume production of piston rings on a limited basis on Monday, but it adds that it will be at least a week before operations return to normal.
Auto makers are helping out. Toyota has sent 300 engineers to help Riken recover. Mitsubishi, which suspended production for at least three days at three plants, has sent 40 engineers.
Riken had originally established all of its manufacturing facilities in one area of Japan to increase efficiency but says it has recently been trying to diversify production in other cities. "It turned out we couldn't do it in time," says company spokesman Akiyoshi Nemoto.
The good news: Analysts say the production shutdown will have a relatively small impact on annual earnings, as car makers can make up for the lost days during weekends and holidays.
Toyota Motor Corp. will partially resume domestic production Tuesday and Mazda Motor Corp. plans to do so Monday evening after major piston ring maker Riken Corp., badly hit by a major earthquake in Niigata Prefecture on July 16, restarted part of its operations, the two automakers said Monday.
Four other automakers have partially or fully resumed production after the suspension of operations at Riken's key plant in Kashiwazaki, which is estimated to have caused a record production loss of nearly 100,000 units by the nation's 12 automakers.
