How Toyota Dodged The Chip Shortage
Bloomberg Businessweek|April 12, 2021
As rivals shutter plants, the automaker’s close monitoring of its supply chain gives it an edge
River Davis

When the Tohoku earthquake triggered a tsunami that struck Japan’s northeastern coastline in March 2011, killing more than 15,000 people, Toyota Motor Corp. spent half a year struggling to get back on its feet. One of the biggest hurdles: Tokyo-based Renesas Electronics Corp., a major producer of chips for the automotive industry, saw its main plant knocked offline for three months after the tsunami, sparking a supply squeeze that rippled through the industry.

As Toyota scrambled to repair its facilities and procure missing parts, it also pored over its supply chain to identify the most at-risk items in the hope of preventing a similar disruption in the future. The automaker came up with a list of about 1,500 parts it deemed necessary to secure alternatives for or to stockpile. The company also put in place an intricate system to monitor the vast network of suppliers that produce those items— and the smaller companies those suppliers buy materials from—to develop an early-warning system for shortages.

A decade later, that deep contingency planning is being put to the test. The world’s automakers have for months been grappling with a pandemic-induced shortage of semiconductors that threatens to knock about $60 billion off the industry’s global sales this year. On March 19 the situation got even worse when a fire broke out at a giant Renesas chip plant in Hitachinaka. The damaged factory, which could take at least 100 days to get back to normal production, accounts for about 6% of global automotive semiconductor output, according to Barclays Plc. Toyota is one of Renesas’ largest customers.

During the industry crisis this time, however, Toyota’s bolstered inventories and steadier control over its supply chain mean it’s better positioned than many of its rivals. Toyota is in the process of gauging the extent to which its output will be affected by the fire but for now says it doesn’t see an immediate need to halt production.

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