The recent earthquake in north west Japan has sent reverberations through the supply chains of Japan’s leading car makers. And once again, questions are being asked about the risks involved in single sourcing and lean production systems.
For Toyota, the leading proponent of lean manufacturing techniques, production has been halted at all 12 of the company’s domestic plants and rivals, such as Honda and Mazda, have also been badly affected. The problem stems from the stoppage of production at Riken, a key supplier to the industry with over 50 per cent of the domestic market for engine piston rings and 70 per cent of the transmission seals market in Japan.
The dangers of running a low inventory supply chain have been clearly illustrated by this catastrophic event. But then need this have been such a problem if a diversified supplier base approach had been adopted? Reliance on a single source supplier with such market dominance seems ripe for disaster.
This might seem sensible… that is, until you look at the full picture.
The more sophisticated cars become, the more reliant OEMs are on forming closer relationships with suppliers in order to develop component parts. This close collaboration predisposes the OEM to strong links with single source suppliers, with all its inherent risks. But with risk comes reward in terms of speedier new product development and responsiveness.
Product complexity forces OEMs to make value judgements over their relationships with suppliers. With commodity items, a diversified supplier base approach would seem appropriate, but the more sophisticated the component the more necessary it becomes to forge closer collaboration.
Also, it may be that operating a supply chain on low inventory exposes production to dangers of disruption in supply when catastrophe strikes, but the efficiencies JIT systems bring in terms of freeing up resources for better use and increased flexibility with lower product obsolescence must surely, in the long term, offer greater gains than an occasional disruption to production.
There may be short-term pain, but the strategic logic of JIT and close collaboration with key suppliers still makes absolute sense.
