OMG…IT’S DEVASTATING…the stock market? NO, well…yes, but I’m talking about the Supply Chain

It is definitely a unique time that we are in, even more unique than the “norm”. As I work from home and have more time to put my thoughts down, my thoughts invariably drift to the supply chain. Ahhh, the supply chain, man, it has to be a real mess right now. Definitely got sucked dry, as many businesses went into shut down including the OEMs.

While at Toyota, the supply chain was definitely well refined. It didn’t always go as planned but it did the large majority of the time. A quick story to give you the depth of the Toyota Production System. They talk about the Keiretsu, a set of companies with interlocking business relationships and shareholdings (thank you www.Wikipedia.com), and this is a story about that.

The Supply Chain

The supply chain is a very important aspect within the Toyota Production System and books are written off of it. You can take writing about the supply chain in many directions, but I don’t want to write a book, just a few paragraphs, so I am going to focus on the relationship aspect. Thus, the Keiretsu.

Disruptions

There was a time, when I was at Toyota, that we went to war in Iraq, many will remember it as Desert Storm. During this time, now don’t chastise me for my numbers, because it was a long time ago, we were producing about 70 vehicles per day destined for the Middle East. When we went to war, that demand fell to around 3 vehicles per day. Normally, Toyota would order parts from Japan only off a firm order, but in this situation they had already released 3 days of orders that were still only forecasted. The ordering system is a whole ‘nother story (stay tuned…it will be coming). So, we were ordering at a rate of 70/day, but when the order firmed up it went to 3/day. I can only distinctly remember a couple of parts that came from Japan for this vehicle, the first being the bumper, a rather large part, and the other being the airbag. Airbags are classified as an explosive device, meaning specially constructed containers, and only a few per module. specifically, 15 in a module that was 8’x2.5’x3ft. The size of the module is probably wrong, but the point is still the same, a few airbags in a large amount of space.

CUT THEM OFF

I immediately contacted my coordinator to request to stop the supply chain. He said “No, we cannot do that, we must work with them to see what they can do”. I was aghast, seriously? what are we going to do with all these parts? And remember these are BIG parts. So, the supplier said we can cut back from 70/day to 45/day. Oh ya, did I tell you that we were only using 3/day? And the next month, which is a 70% firm month (once again my since of recall may be off, but it is the concept we are drilling to) they would supply 25/day, oh wait we have another month that is 50% firm, but they will cut back to 10/day, uh, did I tell you that we were only producing 3 per day. Rough numbers, we ordered about 1500 parts to many.

Protect Your Suppliers

My coordinator also imparted on me that if we just cut the supplier off, they may go out of business, they ordered a lot of material based on the forecast and expect to be able to supply to us at the rates that we communicated to them. Becoming a Toyota Supplier is not an easy thing, and I am not well versed on this, but I do know that they have several gates to get through prior to being approved, including things like running at rate for a specific amount of time, and having certain quality checks in place to ensure constant, uninterrupted supply to Toyota. For this reason, they want to make sure their suppliers will stay viable.

It’s a Two Way Street

This is not something that can be implemented overnight. Shoot, in your system something like this may never be able to be implemented, but possibly you can get closer by not jacking around your suppliers. Give them a firm order and pull to your commitment. Pre-qualifying suppliers to make sure that they have surge capacity, and the ability to do what you require. I have a mentor that always told me it is a two way street, you have to treat your suppliers well, and they will do anything required to keep themselves in your good graces. Not because you threaten to take business away if they do not meet the new cost reduction targets, but because they know that you will have their back through bad times as well as good.

It will be interesting to see how we come out of all this. Have fun and stay safe.