Toyota Recall: Lessons for All Extended Supply Chains

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AutoLineA friend and MOJO reader alerted me to a piece that ran on NPR last night titled "Toyota Recall Highlights Supplier Issues." Its push is that automotive OEMs - not just Toyota - engage a complex, extended supply chain to collaborate on design and engineering of parts and components to build their cars. What's both helpful and troubling, says NPR and analysts interviewed for the story, is that current sourcing strategies in automotive are built around "commonization" - the use of the same component among multiple models and even manufacturers. It's pointed out in the article that on the heels of the announced recall and suspension of lines by Toyota, Ford announced it would move production of some trucks since it was getting the same parts from the same company that supplied Toyota with the faulty parts.

But what is more compelling is the lesson this brings to ANY spend, procurement or sourcing outfit in ANY industry about managing and mitigating risk in an extended supply chain. Yes, there are short-term price advantages by outsourcing to distant, low-cost countries. But when manufacturing is segregated from a company's design/engineering core and its customer base, or the design/engineering responsibilities are abdicated to suppliers that are farther and farther removed from the intellectual culture, those benefits can be quickly and efficiently obliterated.

It would be hard to imagine that Toyota - or any large manufacturer - considered the potential cost that was inherent in the pursuit of low-price. Toyota will loose extraordinary sums of money to repair these cars and its reputation in the years to come. I wonder if the investment will have been worth it.

There are other companies that have recently reassessed their extended supply chains and found that the hidden costs of sourcing too far from their core were greater than the savings in price. Sauder. Steiff. There are others. And now you can add Ford to the growing list. The ramifications of extended supply chains can ripple throughout an enterprise with great force - for good, or bad.

This isn't about China at all - it's about expanding supply chains at a velocity and proximity that makes maintaining quality and responsibility extremely difficult. And this event is likely to become the Alamo of supply chain reassessment and the realization of where the real value of outsourcing lies within board rooms around the world.

(Hat Tip: CM)

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