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Toyota Recall: Beyond the Customer PDF Print E-mail
Written by Joel Sutherland   
Apr 12, 2010 at 01:20 AM

Former Desno COO


Earlier in my career I spent eleven years working for Toyota's largest global supplier, Denso, a $32 billion auto parts manufacturer and historic member of the Toyota family. Rising to the position of Vice President Operations in the late 1980's I was at that time the highest ranking non-Japanese in North America.

The experience I gained over this time provided me with valuable insights into Toyota's culture and management philosophy.


As a result of Toyota's recent problems the press was hungry for insights into Toyota's supplier relationships and related processes for quality control. I was contacted by a number of well known newspapers and magazines, including the Wall Street Journal, USA Today, and the Christian Science Monitor. I'd like to share a few of my observations with you in this brief article.

The "70 Percent Rule"

At Denso, we were under intense pressure to increase domestic (U.S.) content in our products soon after Toyota first started operating in the United States. While we focused on qualifying suppliers that could meet Denso's (and Toyota's) demanding quality standards, we often applied a rule of thumb to speed the process along. It was not uncommon to apply what the Japanese referred to as "the 70% rule" when developing new processes or when qualifying new suppliers. For example, when qualifying a new supplier, we would work closely with them until critical details such as product design and quality were satisfactorily worked out. We would then approve them as a supplier with the understanding that we would continue to work closely with them over time on the remaining but less critical details, such as packaging and distribution processes. It was understood that to reach 100%, or achieve a level of perfection, before moving forward could create costly delays. Instead, we would often get "close enough" (70%) and then make adjustments as needed after a decision was made. This was not necessarily a bad thing if close attention was paid to all the details. In the case of Toyota's recent problems it is not unlikely that someone took their eyes off this very important ball.

The Toyota Way - a Thorough Approach

Denso's headquarters was just down the road from Toyota's headquarters in Torrance, California, so any time there was a design issue, or any type of quality problem, we were able to meet at a moment's notice. In Toyota's typical way (The Toyota Way), we looked at every possible affect a change in the manufacturing or assembly process could have. This went beyond improving quality. We would consider everything from change-over times to the effect it would have on people. We went beyond solving the problem; we wanted to make certain the system was better so it wouldn't happen again. Could a decision to focus on a total system solution have slowed down Toyota's reaction time? It's a possibility.

Grow Carefully and Don't Blink

Toyota has been selling cars in the U.S. for over 50 years and producing cars here for over 25 years. Initially Toyota's growth was carefully planned and their focus on producing quality cars renowned. But the challenges of improving their global market share may have proven to be a distraction from their core competencies. In other words, this focus on growing global market share may have caused Toyota to blink and lose their quality focus. In my experience, Toyota was not so concerned with rapid expansion as much as steady incremental growth. They had a goal in place when I was there that defined how much global market share they wanted over a specific time frame. I was amazed at the amount of strategic thinking that went into this. So they were not reckless in their growth - at least not back then. But comments made to the U.S. Congress by Akio Toyoda, President of Toyota Motor Corporation, indicate a recent change in that business philosophy.  In a prepared statement Mr. Toyota said, "I fear the pace at which we have grown may have been too quick." It is clear that someone blinked here. It could have been in the American management, it could have been in Japan, More likely, it was a total system failure. Hopefully, through careful analysis, the root cause or causes will be found, the problems solved, and Toyota will refocus on quality.

Supply Chain Lessons Learned

From a big picture perspective, I would say one of the big lessons learned is the impact that something like this has on the global supply chain. There are suppliers around the world suffering because of the situation at Toyota.

Inventory is building up, employees are not working, companies are experiencing increased costs, and economies around the globe are being impacted. This impact will be measured in the billions of dollars. Warehousing and transportation service providers are also suffering. They have facilities and assets that are underutilized as long as Toyota's assembly operations are shut down. This is a complete supply chain problem, involving everyone right back to the raw material suppliers. Failures such as this take on a new dimension when you consider the implications on other businesses and industries.

The Bottom Line

Despite Toyota's rich resources and traditional prowess for planning, inventories will pile up throughout the supply chain, significant costs will be incurred and its long-standing reputation for quality will be tarnished. It may take years, or even decades, to fully recover.

From Lehigh University's Center for Value Chain Research

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