Toyota Supply Chain Lacked Risk Management Oversight

For Toyota, the bad news just keeps coming.

Now, ABC News is reporting that U.S. regulators are reviewing more than 60 complaints that the fixes made on Toyota cars recalled for unintended acceleration have not solved the problem.

Toyota says a partial review of these complaints has found no evidence of failure in the electronic throttle system or in the repairs. The company also says it hasn't found problems in the brake override system.

Still, there's no doubt that news like this is making a very bad situation even worse. As Toyota technology chief Takeshi Uchiyamada told ABC News, "The Toyota brand is in a deep crisis."

How did we get to this point, where long-revered Toyota supply chain management strategies are now a cautionary tale? What lessons can be learned from this devastating series of global safety-related recalls?

The Economist offers a fantastic recap in its recent article, "The machine that ran too hot."

According to the article, Toyota's woes stem from an overstretched supply chain, which in turn was a consequence of the carmaker's breakneck expansion that started in 2002. The company became increasingly dependent on suppliers outside Japan, seemingly downplaying the fundamentals of collaboration and perhaps discounting the difficulty of aligning manufacturers scattered across the world. Plus, Toyota not only continued to trust in its sole-sourcing approach, it pushed the concept even further, gaining unprecedented economies of scale by using single suppliers for entire ranges of its cars.

In short, Toyota took its single source strategy to risky extremes without proper risk management oversight, and we now know that the company needed much closer monitoring of the critical supply-base, particularly tier-two and tier three suppliers. (CTS Corporation, the throttle-pedal manufacturer identified as one of the causes of "unintended acceleration" in some Toyota vehicles, is a tier-two Toyota supplier.)

This entire debacle is sure to become a text book example of the types of problems that can be avoided through comprehensive risk management oversight. Generally, companies pay the most attention to tier-one suppliers, but as the Toyota example illustrates, relationships with tier-two or tier-three suppliers can also be extremely critical.

TAGS: Finance
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