Risk and reward: Toyota's close ties to home

Fri Apr 22, 2016 6:32am EDT
 
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By Naomi Tajitsu

TOKYO (Reuters) - Toyota Motor's (7203.T: Quote) close ties to its "keiretsu" - or family of affiliates and suppliers - have helped it become the world's top automaker. But two major production stoppages this year highlight the risks, too.

The car maker's reliance on Aisin Seiki Co 7259.T, an affiliate, for door and engine parts forced Toyota to halt much of its production at virtually all its plants in Japan this week after an earthquake damaged Aisin plants in the south.

The stoppage follows another week-long production halt in February after a fire at another affiliate, Aichi Steel 5482.T and could initially cost Toyota up to 90,000 vehicles and 30 billion yen ($275 million) in profit, by some estimates.

Toyota says it will restart production at most of its assembly plants in Japan next week.

Nonetheless, the two incidents at the two affiliates illustrate the delicate balance for manufacturers like Toyota to disaster-proof the supply chain - a crucial part of the 'Just in Time' production system it pioneered over half a century ago to improve efficiency and reduce wastage.

"Just in Time works when everything's running smoothly," said CLSA analyst Christopher Richter. "But if you balance the cost (of holding more inventory) for however long you have between these disruptive events, it would probably be worth sticking with the system."

And that's what Toyota is doing.

"The Just in Time system is to ensure we receive supply as we need and only in amounts required at the time. We have no plans to change this policy," a company spokesman told Reuters.   Continued...

 
Factory workers assemble Toyota 86 rear-wheel-drive sports cars at Fuji Heavy Industries Ltd's Gunma Main Plant in Ota, Gunma prefecture in this March 16, 2012 file photo.   REUTERS/Toru Hanai/File Photo