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Toyota may have pioneered the just-in-time manufacturing strategy, but when it comes to chips, its decision to stock what have become key components in cars dates back a decade before the Fukushima disaster.
After the catastrophe broke Toyota’s supply chains on March 11, 2011, the world’s largest automaker realized that the lead time for semiconductors was too long to cope with devastating shocks such as disasters. natural.
That’s why Toyota came up with a business continuity plan (BCP) that required suppliers to stock two to six months of chips for the Japanese automaker, depending on how long it takes from order to delivery, four sources said.
And that’s why Toyota has so far emerged largely unscathed from the global semiconductor shortage following a surge in demand for electrical products under coronavirus lockdowns that has forced many rival automakers to suspend production, the companies said. sources.
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“Toyota was, as far as we know, the only automaker properly equipped to deal with the chip shortage,” said a person familiar with Harman International, which specializes in car audio systems, displays and driver assistance technology.
Two of the sources who spoke to Reuters are Toyota engineers and the others are from companies involved in the chip business.
Toyota surprised rivals and investors last month when it said its production would not be significantly affected by the chip shortage, even as Volkswagen, General Motors, Ford, Honda and Stellantis, among others, have been forced to cut or suspend parts. of the production.
Meanwhile, Toyota has increased its vehicle production for the fiscal year ending this month and increased its full-year profit forecast by 54 percent.
CLASSIC LEAN SOLUTION
The source familiar with Harman said the company, part of South Korea’s Samsung Electronics, was experiencing shortages of central processing units (CPUs) and power management integrated circuits in early November last year.
While Harman does not make chips, due to its continuity agreement with Toyota, it was forced to prioritize the automaker and make sure it had enough semiconductors to maintain supplies of its digital systems for four months or more, the source said.
Chips that are especially in short supply now are microcontroller units (MCUs) that control a number of functions such as braking, acceleration, steering, ignition, combustion, tire pressure gauges and rain sensors, they said. the four sources to Reuters.
However, Toyota changed the way it buys MCUs and other microchips after the 2011 earthquake, which triggered a tsunami that killed more than 22,000 people and caused a deadly collapse at the Fukushima nuclear power plant.
READ: Japanese children from the 2011 tsunami shaped by the tragedy
After the earthquake, Toyota estimated that its procurement of more than 1,200 parts and materials could be affected and drew up a list of 500 priority items that would need a secure supply in the future, including semiconductors made by key Japanese chip supplier Renesas. Electronics. .
The repercussions of the disaster were so severe that Toyota took six months to bring production outside of Japan back to normal levels, having done so at home two months earlier.
It was a huge shock to Toyota’s just-in-time system because a smooth flow of components from suppliers to factories and assembly lines, as well as tight inventories, were critical to its emergence as an industry leader in efficiency and quality. .
At a time when supply chain risk is now front and center in nearly every industry, the move shows how Toyota was poised to launch its own rule book when it came to semiconductors, and is reaping the rewards.
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A Toyota spokesperson said one of the goals of its lean inventory strategy was to become sensitive to inefficiencies and risks in supply chains, identify the most potentially damaging bottlenecks and figure out how to avoid them.
“For us, the BCP was a classic lean solution,” he said.
NO BLACK BOXES
Toyota pays for its storage agreement with chip vendors by paying back a portion of the cost cuts it requires of them each year over the life cycle of any car model under so-called annual cost-cutting programs, the sources said.
MCU chip inventories, which often combine multiple technologies, CPUs, flash memory, and other devices, are held for Toyota by parts suppliers such as Denso, which is partially owned by the Toyota Group, chipmakers such as Renesas, and Taiwan Semiconductor Manufacturing, and chip merchants. .
While there are different types of MCUs, the ones in short supply now are not cutting-edge chips but more conventional ones with semiconductor nodes ranging from 28 to 40 nanometers, the sources said.
Toyota’s continuity plans for chips have also protected it from the impact of natural disasters exacerbated by climate change, such as fiercer typhoons and rainstorms that often cause flooding and landslides across Japan, including the manufacturing hub of the southern region of Kyushu, where Renesas also makes chips.
One of the sources involved in the supply of semiconductors said that Toyota and its affiliates had become “more risk averse and sensitive” to the impact of climate change. But natural disasters are not the only threat on the horizon.
Automakers fear there will be more disruptions to chip supply due to growing demand as cars become more digital and electric, as well as fierce rivalry for chips, from smartphone makers to computers. industrial airplanes and robots.
Sources said Toyota has another advantage over some rivals when it comes to chips thanks to its long-standing policy of ensuring it understands all the technology used in its cars, rather than relying on suppliers to provide “black boxes.” .
“This basic approach sets us apart,” said one of the sources, a Toyota engineer.
“From the causes of semiconductor failures to the gory details about the production processes, like what gases and chemicals are used to make the process work, we understand technology inside and out. It’s a different level of knowledge that You can’t just get it if ‘we just buy those technologies.’
“LOSE OUR GRIP?”
This century has seen an explosion in the use of semiconductors and digital technologies by automakers thanks to the rise of hybrid and all-electric vehicles, as well as autonomous driving and connected car functions.
Those innovations require even more computing power and use in part a new category of semiconductors called a system on a chip, or SoC, which loosely combines multiple CPUs on a logic board.
The technology is so new and specialized that many automakers have let the large parts suppliers manage the risks.
However, in keeping with its no-black-box approach, Toyota developed a deep internal understanding of semiconductors to prepare for the launch of its successful hybrid Prius in 1997.
Years earlier, he stole engineering talent from the chip industry and opened a semiconductor plant in 1989 to help design and manufacture MCUs used to control Prius powertrain systems.
Toyota designed and manufactured its own MCUs and other chips for three decades until it transferred its chip manufacturing plant to Denso in 2019 to consolidate the supplier’s operations.
All four sources said Toyota’s initial drive to develop a deep understanding of semiconductor design and manufacturing processes was one of the main reasons it has managed to avoid shortages in addition to its continuity contracts.
However, two of the sources said they were concerned that the Denso deal could indicate that Toyota was finally willing to ditch its no-black-box approach, even though the supplier is part of the broader Toyota Group.
“We were fine this time, but who knows what lies ahead for us in the future?” said a source. “We may be losing our grip on technology in the name of efficient technology development.”
