TOKYO – Toyota Motor Corp.
accumulates up to four months some parts. Volkswagen AG
builds six factories to be able to get its own batteries. And in shades of Henry Ford, Tesla Inc.
trying to lock access to raw materials.
The hyper-efficient car supply chain, symbolized by the words ‘just in time’, is undergoing its greatest transformation in more than half a century, accelerated by the troubles that carmakers have suffered during the pandemic. After sudden changes in demand, crazy time and a series of incidents, they overestimate their basic assumption that they could always get the parts they needed when they needed them.
“The model is designed just in time for supply chain efficiency and economies of scale,”
Think Ford Motor Co.
and its F-150 pickup, the best-selling car in the United States. The latest version is full of technology, including a hybrid gas-electric drive and automatic Tesla-style software updates.
With vaccinations that began to repel Covid-19, customers purchased about 200,000 F-150s in the first quarter of this year, the best retail start in 13 years. Still, the supply is small. Truck factories were closed or had limited production throughout April, and the delay is likely to continue until at least mid-May. The impact on pre-tax profits is as much as $ 2.5 billion.
The main idea for just in time is to avoid waste. By forcing suppliers to deliver parts to the assembly line a few hours or days before entering a vehicle, car manufacturers do not pay for what they do not use. They save on warehouses and the people who manage them.
But as supply chains become more global and carmakers increasingly rely on single suppliers, the system has become fragile. Crises are more common.
An ugly snowstorm in Texas in mid-February closed a refinery that feeds 85 percent of the resin produced in the United States. These resins come in components from car bumpers to steering wheels. They are one of the cheapest raw materials in the car, but they become foam for seats and dealers cannot sell a car without seats.
In late March, Toyota halted production at several U.S. plants due to shortages, according to a schedule seen by The Wall Street Journal, hitting production at some of its best-selling vehicles, including the sporty RAV4.
Some suppliers are flying resin to the United States from Europe, said Sheldon Klein, a lawyer at Butzel Long, which advises suppliers. “It’s just economically crushing,” he said. “At best, you have very sharp conversations with your customers to cover some of the costs.”
Managers say they do not want to replace it entirely on time because the savings are too great. But they continue to undo it to some extent, focusing on areas of greatest vulnerability. They tend to store more important parts, especially if they are light and relatively cheap, but indispensable as semiconductors.
Ford CEO Jim Farley said he was looking to maintain more inventory.
“Most other industries use safety stocks for critical components such as chips,” he said at an event hosted by Automotive News. “And many of these companies pay for chips in advance, years and years before capacity requirements.”
Three decades in the automotive business had not prepared Mr. Farley for this year. “It’s shocking to me how much I’ve learned about the supply base,” he said.
The shift to electric vehicles adds pressure on carmakers to rethink half a century of automotive history, as these vehicles use parts, including lithium-ion batteries and semiconductors, in the shortest possible time.
General Motors Co.
and partner LG Chem Ltd.
they are building a $ 2.3 billion factory in Ohio and looking for a place for a second factory in order to produce enough batteries for hundreds of thousands of electric vehicles a year. Volkswagen, with plans for six battery factories, says it will order an additional $ 14 billion in batteries by 2030.
The companies take a page from Tesla’s game book, which in turn is influenced by Silicon Valley. Tesla builds $ 5 billion battery factory called Gigafactory in the Nevada desert with Panasonic Corp.
Of course, providing direct battery power does not solve every supply chain problem. Even the most futuristic EV will still need plastic for pads, rubber for tires and leather or fabric for the seats.
Still, Tesla is trying to identify the most strategic materials and procure them on its own, a job that was left to suppliers in traditional just-in-time production. In September, he signed a contract that would give him access to lithium from a mine in North Carolina under development.
Last year, Tesla boss Elon Musk said he wanted to buy nickel directly. “Tesla will give you a giant contract for a long time if you extract nickel efficiently and environmentally,” he said.
Mr. Musk’s drive for raw materials takes the automotive industry back a century, to the days when Henry Ford’s production line was a forerunner in manufacturing techniques.
In the 1920s, the state of the art at Ford was the vertical integration or control of all the things needed to make a car. His Rouge River plant in Dearborn, Michigan, produces not only cars but also steel for cars, which was forged from Ford’s iron mines.
After Henry Ford’s death, the company sold off its docks and steel smithies. It is more efficient, car manufacturers have decided, to leave the steel, rubber and shipping business to the companies that knew the business best. Making a car was more about buying the right parts and materials and assembling them.
Toyota is a pioneer in the next step. One day in 1950, Toyota CEO Taiichi Ohno visited an American supermarket and wondered how the shelves were used to empty them, as Jeffrey Liker describes in his book The Road to Toyota. Buyers were happy, although the supermarket had only small warehouses. This was the polar opposite of the automotive industry, where warehouses were filled with sheet metal and tires to ensure that the production line never stopped.
Supermarkets did not have much choice, as they could not store bananas for months. However, Mr Ono argues that their practices eliminate waste and reduce costs. Toyota would only pay for what it needed to produce cars for one day. This meant that they could handle smaller factories and warehouses.
This is how the system later known as just in time came into being. Every day, a stream of trucks would reach Toyota’s plants and scatter enough to cover daily production.
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It was easier for Toyota to withdraw, thanks to the coaches of loyal suppliers known as their keiretsu, clustered around their factories. Initially, American competitors were cautious, but the system proved so effective that every carmaker from Detroit to Wolfsburg adopted a version. Ford created Ford’s production system to match that of Toyota. The best suppliers also did, as their own suppliers down the pyramid.
The idea spread to other industries. Apple Inc.,
Mac Donalds Corp.
franchises and big stores like Target Corp.
everyone uses some form just in time to keep stocks low.
A sister idea was just in time to use single suppliers for many parts. These suppliers can master the daily dance of supply, reduce costs through volume, and service the global factory networks that the best car manufacturers work with.
Carlos Tavares, CEO of Chrysler parent Stellantis, said the company estimated it had bought about 400,000 parts for 100 models from Chrsyler, Ram, Fiat,,
Peugeot and other brands. He said about 95% of these parts come from one source.
“This is the norm in the car industry,” Mr Tavares said.
From time to time, events such as the 9/11 terrorist attacks disrupt the system, but the industry shrugs the most and continues because the rewards are too great.
The tide began to reverse with the global financial crisis. At least 50 car suppliers went bankrupt, surprising car manufacturers. When suppliers like Visteon Corp.
, a manufacturer of air conditioners, radios and other components, declared bankruptcy, which led to fears that car factories relying on Visteon would also not be able to operate.
A different shock caused a rethinking just in time in the company where it started. The 2011 earthquake in northern Japan affected Toyota suppliers, including chip maker Renesas Electronics Corp.
Spokeswoman Shino Yamada said that after the quake, the carmaker urged its suppliers to find out who was selling their components – without any feat in the automotive industry, where suppliers are willing to keep their own supply chains in case carmakers use it. to insist on price reductions. Over time, Toyota has built a database that it estimates covers about 400,000 items and reaches 10 layers down.
For some components, Toyota has asked its suppliers to store parts, which is the opposite in time. Available inventories held by Toyota’s largest supplier, Denso Corp.
, increased to about 50 days of delivery in the year ended March 2020, compared to 38 days in 2011, according to financial documents. Denso declined to comment on inventory data, but said it has begun maintaining emergency warehouses for parts, especially semiconductors.
Toyota’s efforts have helped it overcome this year’s semiconductor shortage better than many of its rivals, although it was not perfect. The same factory in Renaissance, which was affected by the earthquake a decade ago, stopped for a month after a fire in a clean room in March. Despite the help of thousands of employees from Toyota, Nissan and others, the factory will be fully restored by about July.
Now, just as they once imitated just in time, many carmakers are trying to deal with Toyota’s understanding of its network to catch hidden points of suffocation.
“Here, orders have frankly dropped the ball,” said Bindia Vakil, chief executive of software maker Resilinc, which helps manufacturers monitor supply chain shortages. “Again and again, the things that bring us to our knees are not the expensive things, but the little things that we don’t do up close.”
“Mike Collias of Detroit and Nick Kostov of Paris contributed to this article.”
Write to Sean McLain at firstname.lastname@example.org
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