It was 2021, and the world was deep into the crisis of the COVID-19 (Corona Virus...

 
 

Transcribed Image Text:

It was 2021, and the world was deep into the crisis of the COVID-19 (Corona Virus Disease) pandemic which had triggered a variety of challenges for organizations worldwide. Earlier in the year, a very large proportion of new cases emerged in Asia where the delta variant of the virus was wreaking havoc. Against this backdrop, even Toyota's supply chain, long admired as an industry benchmark for efficiency and effectiveness, was unable to supply critical parts to replenish inventory in its plants. Southeast Asia, where Toyota sourced many auto components, was particularly hard hit. Consumer demand patterns started to shift across the globe. When the virus first hit, consumer demand dropped precipitously, and even the leading car rental companies were scaling down their vehicle portfolios and sold off a sizable proportion of their cars. However, as the Western world was showing signs of a recovery due to the vaccination effort in the latter half of 2021, consumers rushed to buy new cars. As demand for automobiles surged, a critical shortage of microchips forced Toyota and other automakers to shut down some of their assembly lines. In Germany, Opel, Ford, BMW, and Mercedes Benz had all announced that they were idling some of their plants as a result of the chip shortage. Opel said that it found itself "in an exceptional situation due to the continuing pandemic and the worldwide shortage of semiconductors." Across the Atlantic, GM announced that it was idling production at eight North American plants "driven by the continued parts shortages caused by semiconductor supply constraints from international markets experiencing COVID-19-related restrictions." Toyota announced that it would shut down 40% of its global production saying that the decision "for the production adjustment include[s] a decline in operations at several local suppliers due to the prolonged spread of COVID-19 in Southeast Asia and the impact of tighter semiconductor supplies." Interestingly, Toyota was the last of the major global automakers to cut production during the challenging COVID-19 era. It had withstood many disruptions in the past and had shown a higher level of supply chain resilience in recent years. COVID-19 was the type of challenge that left even the best performers overwhelmed. Toyota made several changes to increase supply chain resilience after recovering from the Fukushima earthquake and tsunami in 2011. The magnitude 9.1 earthquake had disrupted supplier operations that were vital to Toyota's plants, and the company was faced with a serious supply chain challenge that had to be addressed quickly. As part of the series of changes that Toyota undertook in responding to the disruption, it increased inventory buffer stocks for critical parts and also increased their supply chain visibility to all tiers of suppliers. Although these changes helped them during 2020, the shortages of microchips forced the company to reduce production. The auto industry had never experienced a multi-year parts shortage. This was different from prior natural disasters and plant fires. In those cases, Toyota and its suppliers could rebuild their plants. Components needed to replenish assembly lines could be sourced from other geographies. The chip shortage was affecting all automakers. Assembly lines were shut down as engineers scrambled for technical workarounds. Would the company need to change its Toyota Production System (TPS) and supply chain practices in a post-COVID-19 world? How long would Toyota have to wait before it received enough chips to resume full production? What could the company do to prepare for this kind of crippling perfect storm It was 2021, and the world was deep into the crisis of the COVID-19 (Corona Virus Disease) pandemic which had triggered a variety of challenges for organizations worldwide. Earlier in the year, a very large proportion of new cases emerged in Asia where the delta variant of the virus was wreaking havoc. Against this backdrop, even Toyota's supply chain, long admired as an industry benchmark for efficiency and effectiveness, was unable to supply critical parts to replenish inventory in its plants. Southeast Asia, where Toyota sourced many auto components, was particularly hard hit. Consumer demand patterns started to shift across the globe. When the virus first hit, consumer demand dropped precipitously, and even the leading car rental companies were scaling down their vehicle portfolios and sold off a sizable proportion of their cars. However, as the Western world was showing signs of a recovery due to the vaccination effort in the latter half of 2021, consumers rushed to buy new cars. As demand for automobiles surged, a critical shortage of microchips forced Toyota and other automakers to shut down some of their assembly lines. In Germany, Opel, Ford, BMW, and Mercedes Benz had all announced that they were idling some of their plants as a result of the chip shortage. Opel said that it found itself "in an exceptional situation due to the continuing pandemic and the worldwide shortage of semiconductors." Across the Atlantic, GM announced that it was idling production at eight North American plants "driven by the continued parts shortages caused by semiconductor supply constraints from international markets experiencing COVID-19-related restrictions." Toyota announced that it would shut down 40% of its global production saying that the decision "for the production adjustment include[s] a decline in operations at several local suppliers due to the prolonged spread of COVID-19 in Southeast Asia and the impact of tighter semiconductor supplies." Interestingly, Toyota was the last of the major global automakers to cut production during the challenging COVID-19 era. It had withstood many disruptions in the past and had shown a higher level of supply chain resilience in recent years. COVID-19 was the type of challenge that left even the best performers overwhelmed. Toyota made several changes to increase supply chain resilience after recovering from the Fukushima earthquake and tsunami in 2011. The magnitude 9.1 earthquake had disrupted supplier operations that were vital to Toyota's plants, and the company was faced with a serious supply chain challenge that had to be addressed quickly. As part of the series of changes that Toyota undertook in responding to the disruption, it increased inventory buffer stocks for critical parts and also increased their supply chain visibility to all tiers of suppliers. Although these changes helped them during 2020, the shortages of microchips forced the company to reduce production. The auto industry had never experienced a multi-year parts shortage. This was different from prior natural disasters and plant fires. In those cases, Toyota and its suppliers could rebuild their plants. Components needed to replenish assembly lines could be sourced from other geographies. The chip shortage was affecting all automakers. Assembly lines were shut down as engineers scrambled for technical workarounds. Would the company need to change its Toyota Production System (TPS) and supply chain practices in a post-COVID-19 world? How long would Toyota have to wait before it received enough chips to resume full production? What could the company do to prepare for this kind of crippling perfect storm