In strategic management and logistics courses, we used to talk about Toyota’s JIT method of sourcing its own parts as a sound strategy and an example, but in reality it was a double-edged sword with another edge:
In March 2011, the Tohoku earthquake and tsunami in Japan exposed the fundamental challenges of Toyota’s JIT system. Designed to reduce warehousing costs and increase efficiency, the system was extremely vulnerable to the crisis due to its heavy dependence on a limited number of suppliers and their geographic concentration in the affected areas. The destruction of key factories such as Renesas Electronics (which supplies 40% of the world’s automotive chips) caused monthly production stops at 50 Toyota plants and a 70% drop in production volume. JIT, which was based on “just-in-time supply,” could not prevent the production chain from stopping in the absence of emergency stocks or alternative suppliers.
The most important challenges of JIT in this crisis included the fragility of an over-optimized supply chain, its inflexibility to external shocks, and its critical dependence on parts produced in one region. Designed for normal conditions, this system not only increased the costs of production downtime when faced with unexpected disruptions, but also delayed recovery due to the time it took to identify new suppliers and set up alternative production lines.
Learning from the crisis, Toyota implemented significant structural reforms. These included creating strategic reserves of critical components (such as chips), diversifying suppliers geographically (collaborating with countries such as Thailand, China, and the United States), and strengthening early warning systems to monitor crises. In addition, the company increased the resilience of suppliers to natural disasters by training and providing financial support. These changes created a model combining JIT efficiency and flexibility that allowed for rapid response to future disruptions.
This experience is recognized as a turning point in Toyota’s supply chain management. Today, the company emphasizes not only “cost reduction” but also a balance between efficiency and resilience. Planning for crisis scenarios (such as pandemics or climate change), diversifying supply sources, and investing in disaster monitoring technologies are among the key lessons of this crisis that have made Toyota a global model in supply chain management.
In strategic management and logistics courses, we used to talk about Toyota’s JIT method of sourcing its own parts as a sound strategy and an example, but in reality it was a double-edged sword with another edge:
In March 2011, the Tohoku earthquake and tsunami in Japan exposed the fundamental challenges of Toyota’s JIT system. Designed to reduce warehousing costs and increase efficiency, the system was extremely vulnerable to the crisis due to its heavy dependence on a limited number of suppliers and their geographic concentration in the affected areas. The destruction of key factories such as Renesas Electronics (which supplies 40% of the world’s automotive chips) caused monthly production stops at 50 Toyota plants and a 70% drop in production volume. JIT, which was based on “just-in-time supply,” could not prevent the production chain from stopping in the absence of emergency stocks or alternative suppliers.
The most important challenges of JIT in this crisis included the fragility of an over-optimized supply chain, its inflexibility to external shocks, and its critical dependence on parts produced in one region. Designed for normal conditions, this system not only increased the costs of production downtime when faced with unexpected disruptions, but also delayed recovery due to the time it took to identify new suppliers and set up alternative production lines.
Learning from the crisis, Toyota implemented significant structural reforms. These included creating strategic reserves of critical components (such as chips), diversifying suppliers geographically (collaborating with countries such as Thailand, China, and the United States), and strengthening early warning systems to monitor crises. In addition, the company increased the resilience of suppliers to natural disasters by training and providing financial support. These changes created a model combining JIT efficiency and flexibility that allowed for rapid response to future disruptions.
This experience is recognized as a turning point in Toyota’s supply chain management. Today, the company emphasizes not only “cost reduction” but also a balance between efficiency and resilience. Planning for crisis scenarios (such as pandemics or climate change), diversifying supply sources, and investing in disaster monitoring technologies are among the key lessons of this crisis that have made Toyota a global model in supply chain management.