Lean Production: Another Casualty of the Japanese Quake?

Last Updated Mar 15, 2011 8:19 AM EDT

As the full, grim scope of the massive earthquake and tsunami that struck Japan emerges, it's becoming clear the country's auto industry is going to endure a rough ride, for at least a week and possibly longer. Edmunds Inside Line used the word "indefinitely" to describe how long it could be before Japan's automakers resume normal operations. Ironically, it's the manufacturing practices that have enabled Japan to influence the world that are a big part of the problem right now.

The quake and tsunami have affected all the Japanese carmakers, but I'll focus on Toyota (TM) as a representative of challenges that the country now faces. Toyota has reportedly shut down the 12 plants it operates in Japan, effectively stalling production of almost all of its Lexus and Scion vehicles. Toyota operated facilities in Japan's north, so the lack of electricity, damage to roadways, not to mention the ongoing full-on search for survivors, is going to have an impact.

The pluses and minuses of lean manufacturing
A disaster of this magnitude destroys or undermines all kinds of advanced-economy systems. Automakers are no longer self-contained enterprises that build all the things that go into a car themselves. They are instead the prime movers of complex supply chains. In Japan, much of Toyota's is now either inoperable, damaged, or understandably distracted.

Toyota -- already reeling from the Great Recall of 2010, a recent management shakeup, and the loss of global market share to rivals -- can ill-afford to endure this situation for long. This is not a company that stockpiles inventory. Supply-chain management is the secret to its success. It's the legendary "lean" manufacturing model that Toyota perfected and then exported to the rest of the world.

When complex systems break down, they really break down
The old model of having a plentiful supply of components on hand was costly and inefficient, but it had one big plus: It made it easier to recover quickly from an economic downturn or a natural disaster that disrupted business. In a nutshell, it was durable, if dumb.

The lean model allows for an automaker like Toyota to produce better cars and adjust more nimbly to fluctuations in demand. But because it's accordingly more complex and required more brain- and communications power to operate correctly, it's vulnerable to the type of catastrophic breakdown we're now witnessing in Japan.

Will the power of lean manufacturing survive?
Once Toyota restores idled capacity in Japan, a big question will be whether it adjusts the management of its overall supply chain to be better prepared for natural disaster. Obviously, as the country's largest automaker, any decision it makes will have repercussions for other car companies.

Fortunately, Toyota has diversified manufacturing operations. It's been building cars in the United States for many years, so a massive tragedy at home won't shut it down completely -- nor totally starve one of its biggest markets, North America, of product. In fact, this may be the most important lesson that other automakers can draw from the Japanese quake. If they're able, they should attempt to base manufacturing operations in multiple markets.

This has numerous advantages. Imagine if Toyota were still only a Japanese company. The complete loss of a shipping port in its homeland -- which is what evidently happened at Sendai -- would greatly curtail exports of its vehicles. As it stands, Toyota may have trouble satisfying demand for Lexuses for a few months, but at least it can continue to sell U.S.-made Camrys and Corollas. Nevertheless, the crisis that Japan is currently faces may compel Toyota to make major changes to the way it does business.

Related:
Photo: Toyota Media
  • Matthew DeBord

Comments

Market Data

Market News

Stock Watchlist