Toyota Motor Corp. has announced a recall of eight models to fix a sticking pedal problem, which has affected hundreds of thousands of the company’s customers. Sridhar Seshadri (right), a professor in the McCombs School of Business‘ Department of Information, Risk and Operations Management, along with Ananth Iyer and Roy Vasher recently published, “Toyota’s Supply Chain Management: A Strategic Approach to Toyota’s Renowned System.”
Below, the authors discuss the troubles at Toyota.
Toyota, the most venerable manufacturing corporation in the world, appears to have stumbled. Is this a simple misstep or is this a systematic failure? It is clear that Toyota thinks the problem is serious, judging by its decision to halt production and issue recalls across the board of RAV4, Corolla, Matrix, Avalon, Camry, Highlander, Tundra and Sequoia. They also claim to have identified the cause of the problem. Public reports identify a supplier in Indiana of brake pedals as the source for the defective parts.
In our book on Toyota, we identified five principles that drive supply chain design at Toyota: the choice of volume, variety, variability, velocity and the use of learning, or V4L for short. In addition, we devote a chapter that outlines Toyota’s crisis management process.
One wonders which of the V4L factors that have changed recently — the sudden growth and swings in volume, rapid increase in variety offered beyond the vanilla Camry and Corolla, demand swings accompanied with significant pressures to stay profitable or the expansion of the workforce without a 100 percent adoption of the Toyota culture — have resulted in stress on the supply chain.
In the early 2000s Toyota launched a significant drive to cut costs. It reported that substantial savings accrued when it reduced the variety of components. With reduced variety, a defect in a single component affects many assemblies and products. Did Toyota cut costs too much, leaving its supply chain out of tune on the V4Ls? How much responsibility was vested in suppliers, and did they have the capabilities? Should Toyota have developed a second supplier for such a key high-volume part?