So…What Happens When Requirements Change? A story about the Toyota Production System

This is the 3rd in the series (maybe only the second, but you should still read all 3), I feel like I’m writing a mini series…only it is a mini mini series, and in my best Donald Trump impersonation…small…very small…definitely the smallest mini series that I know. And that is as close to politics as I will get. During the first one, OMG…IT’S DEVASTATING, which you can go back and read, we talked about the supply chain and how important it is to protect. It does not say it directly but it implies that, starting at the OEM, and going back through the supply chain, the consumer of the goods needs to keep the supplier of the goods viable. Even, in times of disruption, such as we are currently going through. The relationship between consumer and supplier, needs to be a two way street in which both parties are progressing towards their goals. The 2nd article, How Deep is Your Production System?, refers to the production system and how deep they go. Are they superficial? If the team members can outlast the management, it will go back to the way it was. Or, is there a depth to the production system that is driven by the team members that do the job, and goes throughout the organization, including, but not limited to, engineering, purchasing and scheduling. Really it is about doing what you say you are going to do. I come at this from a point of view of a specialist with Toyota, and how you treat your suppliers when unexpected things happen.

Where We Left Off

We were talking about the first gulf war. How when we went to war, vehicles that were destined for the middle east dropped from a daily rate of 70 down to 3. If you remember, the “vanning” of components occurred 5 weeks prior to usage at the plant. Also remember that the best order to place to our suppliers was off a firm order. We always tried to avoid ordering off a forecast, and this is why. At this point of time, we had ordered 3 days off of a forecast (70/day), and when the schedule firmed it was 3/day. When trying to cut the order, it was not something that we could do, because of the potential damage that it could cause to the supply chain by just cutting off a supplier.

Seldom do things like this happen, and so when they do happen, they tend to stand out in your mind. This one happened when Desert Storm happened. We were supplying vehicles to the middle east at a rate of about 70/day. These vehicles had some components that were specifically for this vehicle. Since they were a fairly low volume vehicle, the parts were still sourced from Japan. We had ordered 3 days off a forecast. When the order firmed, it went to 3/day for the middle east. So we had ordered about 200 vehicles over the firm order. We will still produce the vehicles that we had forecasted to produce and deliver, but we will reduce that number in 5 weeks when those vehicles are scheduled to be produced.

 Two Months Inventory, Is That All?

Some will say, not that big of deal. But, wait, these tended to be big parts. The two that I distinctly remember are the bumpers and the airbags. The bumpers because they were big, and 200 extra bumpers would take up a lot of space. The airbags, because they were considered an explosive, and got packed in special wooden boxes, 5 to a box and 3 boxes to a module. The module measured about 8’x3’x4’, these would also take up a lot of space. At least the airbags stacked well, bumpers not so much so.

And of course, these parts were my responsibility. I immediately met with my Japanese coordinator and requested that we shut off the pipeline, and stop ordering these components. And he immediately said to me “NO” (said in my best Japanese coordinator firmly saying no voice. Those that have heard it know precisely what I am referring to). In those 3 days we had ordered enough to last us over two months at the new requirements. To many of you, two months of inventory may not seam like a lot, but at Toyota it is extreme.

Keeping Them Viable

My coordinator explained to me that if we just stop the supplier, they could go out of business, and if they went out of business, we would have to find a new supplier. It is no easy task to become a supplier to Toyota. We will request from the supplier that they reduce the quantity that they send. A little different methodology from other OEMs and suppliers that I have worked with that have no qualms about saying…”I know we said we were going to take so much this month, but we just took an inventory and discovered that we had more inventory then we thought so we won’t be needing any this month…and probably not next month either.”

I have never been directly involved in the qualification of suppliers at Toyota, but I do remember things like 3 separate run at rate requirements, that had an increasing demand each time, and quality plans and systems in place that eliminated the need for Toyota to do any inspection of the vast majority of incoming parts. So needless to say, it would only benefit us short term to cut off the supply chain, but it would be to our detriment long term.

Another point about the frozen period

As I indicated earlier, the amount of frozen time period in the system was between 5 and 9 weeks. They also had a forecasted period of time. It was something like, the month directly following the firm month was 70% firm and the month following that would be 50% firm (once again, no nitpicking my numbers). It was primarily on things like interior color and seat material, because these were longer lead time items and the supplier is procuring raw based off of your forecast, but other items also…including airbags.

So we worked the suppliers…interesting concept

We contacted the supplier, and they indicated that they could cut the current months shipments from 70/day to 50/day. The following month they could take it to 35/day and the month after that down to 20/day. After that we would take the supply to 0. So after three months we ordered enough components to last us over 2 years. And over the next 2 years, we slowly used up all those components that we had committed to through firm orders and forecasted quantities.

Two Lessons I Learned

The first lesson is that you have to form relationships, whether business or personal. I would rather have a person that is working for me want to do something rather than have to do it. This usually occurs because of the relationship you have with them. It is the same with suppliers, if you treat them well, they will look out for you also. At times, it may also cost you money, but relationships should be long term, and over time you both need to benefit.

The second lesson I learned, is that even though something looks daunting (over two years of inventory), you just have to start and take it step by step, celebrate the milestones you achieve…YAY, WE ARE DOWN TO 18 MONTHS SUPPLY, but take the lessons that are learned from these hardships and put changes into play to make sure that they do not happen again…or don’t do anything, and accept the consequences when similiar things happen again, because you all know, that they will happen again.

As a follow up to the above story, I do not ever recall Toyota ordering off of a forecasted order again. We looked at the time that it would take parts to get from Japan to Ky, and examined how we could remove a day here or a day there so that we would not have to order off the forecast. Ultimately, did we fly parts? yes we did, and did we occasionally become train robbers by stopping trains in their tracks and pulling parts out of containers? yes, we did that also…but that is also a story for another time.

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