Case Study the Toyota Group and the Aisin Fire
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Case Study The Toyota Group and the Aisin Fire 49 Toshihiro Nishiguchi -Alexandre Baaudet Together, suppli- ers organized to sai^e Toyota from a devastating crisis that threatened to halt operations for weeks. Toshihiro Nistiigtichi is TIK-JLipune.•^c' iiUJtlcl ot k)nt;-tci[ii colkiho- the Japanese nindcl ^ or at least tlie professor of management lutivL- piirtiKTshipM hL-twcL-ii iimi.^ aiul 'Ibyota niodel — iii\'olve,s more than a ,set at Hitotsubashi Universitv. tlK-ii .sLippllLTS IKIS attiLK'tL-ti nuieli att^'ii- of loni^-lerni relation.ship.s between a lirni Institute of Innovatioti tion tiDin husinu.s-s IVM.':UV1IL'I^ and piULti- ;inti a tew .select suppliers. As the Toyota Research. tioncis. Sc\'cr;il U,S. LIIKI l-iiiiopcan mito- gi'oLip'.s cc)llab(.;rati\'e re.spon.se to the .sud- Alexandte Beaudet is liiLikeis hiivc- :UtL'nipt(.-cl to cstiihli.^li sliiiikir den tiestriiction of a key .supplier's plant research adviser. partnt'isliips ut their cn\n. .seeking tn suggests, the relationships among a firms Transnational Consjlting iL'cluLL* tliL'ir sLijiiilicT Ixi.sc and cLiltixate .suppliers are equally important. More Department. Mitsubishi fL'lation.ship.s uitli their he.'it sLippliei^.' As generally, a complex mix of institutions Rasearcb Instiltile. a re.sult. the cafly invnhcnient of .suppli- permits self-organization during titnes of ers in prodLict-dcvclopnicnt and cost- crisis with little need for a leaders direct rctluciion etTort.s i,s lieconiing .standard control,' These strong relationships among practice in the aiitonKMiw iiidu.stn" and many firms along with the steady but beyond.- largei)' in\'isiblc control of a leader pro- mote tlexible and coordinated tesponses A recent cri.si.s involving Toytna and its to crises. In addition, they foster long- .supplier network suj^ge.st.s. ho\ve\er. that term competiti\'eness through decentral- Sloan Management Review Nishigucfai • Beaudet Fall19gB group members. Based on data collected through in- A fire at one of Aisin Seiki's plants depth inten'iews v\ith key player.s in the incident, we de.scribc what took place during the Aisin Seiki crisis threatened to halt Toyota-group and how itidividiial firms came together to orches- trate the recoverv' effort." We believe that the episode operations for weeks. holds lessons for busine.sses adopting the Japatiese model of long-term supplier partnerships as v\'ell as izetl. groLijiwide efforts to solve day-to-day problems for businesses moving away from that model. Of and improve |')erformatice. course, competition for future contracts anti the pres- sure to maintain their I'cjiutations tnotivatetl the sup- 50 On 1-ebruaiy 1. 1W7. a fire at one of .-Vi.sin Seiki's pliers to cooperate with each other. Nevertheless, we plants threatened to halt Toyota-group tjperaiions for argue, it was the various capabilities developetl weeks. Aisin Seiki, one of Toyota's tnost tru.sted sup- through institutionalizetl problem-soh'ing activities pliet.s, was the sole source for proportioning valves within the Toyota group that ensuretl the effective- (or I'-valve.s, in the industry parlance), a small but ness Lind rapitiity of the suppliers" collaborative effort. cruciLil brake-related part used in all Toyota \'ehicles.' For businesses of niLiny kintls, the capabilities de\'el- IJecause of Toyota's and Aisin's dedication to the opeti through comtiiitted partnerships CLUI enhance principles tjf just-in-time (Jl'l') production, only two competitivene.s.s. tlriving participants to responti effec- or thtee tlays' worth of .stock was on hand, A shut- tively to emergencies Lind to pursue continuous down of Toyota-group plants (including those of se\- imprt^vement on a daily bLisis."" eral hundred suppliers) seemed una\'oidable. 'I'he timing could not have been worse. Toyota plants The Aisin Seiki Crisis were operating at full capacity with le\'els of over- At -1:18 a,m. on Saturday. I'ebruaiy 1. 1W7. a fire time and use of temporaty workers unheard of in erupted in Aisin's Kariyii plant number one. Hy H:S2 years, in anticijiation of a last-minuie boom in auto- a.m., the lines dedicated to P-VLil\'es and to two other tnobile sales prior to the 2 percent consumption sales brake-related parts (clutch master cylinders Lind tan- tax increase slated ftir April 1. K\'eiy day lost meant dem master cylinders) were almost completelv' potentially huge and irretrievable losses in .sales and destroyed. Lilong with special-purpose machinei">' and profits for Toyota and rehited firms/ tirills that could take months lo reorder. The near tiestrLiction ofthe P-valve lines was potentially disas- Vet. remarkably, di.saster was averted, and assembly trous for Toyota; nearly all of its vehicles used Aisin plants were reopened after only two days of shut- P-valves manLiI'Lictured exclusively at the KLiriya phint. down. The recoveiy was accomplished through an w liich turneti out 32.SOO I*-VLih'es a day for Toyota immediate and largely self-organized effort by firms. and other Toyota-group assemblers such as Mino Lintl mostly from within but also from outside tiie Toyota Dailiat.su as well as for Mit.subishi, Suzuki, and Isu/.u. group, to set up alternative production sites outside of Aisiti." Within days, firms with little experience LLsed in all vehicles, P-vaI\es cotitrol pressute on iVLir with P-\^alves were manufacturing and deli\'ering the brakes to help pre\'ent skidding. About the size of a parts to Aisin. v\here they were a.s.sembled and in- [lack of cigarettes, the part is mass-producetl using S|-)ected before being sent to Toyota's and other dedicated tcinsfer lines, which keeps costs down Lintl clietits' assembly plants. The collaborative effort, which ensLires high productivity and reliLibility, Although which in\'ol\'ed more than 200 firtiis (of which ap- strLictLirally simple Lind inexpensive, costing only j^roxiinately .sixty-two took direct responsihility betv\'een ¥770 and Vl.^iOO apiece, P-valves rec]Liire tor P-valve production), was orchestrated with vety complex, high-precision mac'hining lo ensure the reli- limited direct control from Toyota and with no hag- ability anti durability essential to the SLifety of Liny gling o\-er technical proprietary rights or financial brake sj'stem. com|5ensation. That Aisin was the sole supplier of this small hiit crit- The Toyota group detiionstrated its cohesion and ical pan was surprising to many in jLipan. To reduce resiliency at a time when many observer.s were dis- the risk of the \'eiy kinti oi' tiisruption it was now- cussing the weakening of traditional ties among confronting, ToyotLi had increased parLillel sourcing. Nuhiguchi • Beiudet Sloan Management Review Fall 1999 Its relationship with Aisin v\as distinctive, however,'' gradually increLised. however, reaching 60 percent by Aisin was one of Toyota's ck)sest sujipliers in sLiles. MLirch U and almost 100 percent by the end of personnel, and financial linkages: its outstanding co.st, March, The bulk of the P-valve pi'oduction was tak- quality, and delivety performLince record matie it tiif- ing place Lit LipproxitiiLitely sixty-two firms, including ficult to replace.'" Korit.su Sangyo. which gave full priority to the restocition of P-valve production and often worked Toyt)ia sLidtienly found itself in crisis. As Li resiilt of tlouble shifts through weekends. JIT operations, only one day's worth of I'-valves were in immediLite stock. PredictLibly, oti Monckiy. In total, the fire cosi Aisin V7,8 billion lind Toyota Februar\" 3. when assetiibly lines v\ere still riinning. about 70.000 vehicles and V16U bilHon in revenues," Toyota announced the following days' shuttlown Although Toyota t)fficials claim to have recoiiped 51 of twenty of its thiny assembly lines (including those nujst ofthe lost vehicle production throiigh increased of Toyota's contrLict assemblers); from TiiesdLiy. oveniiiie Lintl holiday shifts, losses in the range of Februarv- -i, to WednesdLiy, I-ebruLity S. pnicticLilly all V20 billion to V.^0 billion were umivoidable. mainly of ToyotLi's and most of its rekitetl firms' plants v\'ere because the creatit)n of alternativ e P-valve sites was dtised. bringing to a halt almost the entire Toyoia costly.'' In the end. however. Toyota and Aisin coiild group." As a re.sult, hundreds t)f tiered .suppliers who only he gratefiil that group members achieved a woiiltl liLive to wait for the reopening of their clients' rapid and effective recovery and averted wliLit could plants to resume deliveries wei'e Lilso Littectetl, as liLive been Li much more devListLitlng incitient. were local electricity, gas, anti transponation compa- nies. Such is the fragility of JIT: a surprise event CLin pLiralyze entire networks and even industrles.'- The Recovery Effort How could alternative P-\"Lilve pi-odiiction sites be oi-ganized and the deliverv- of the ret|uired 32,SOO P- How could alternative P-valve produc- valves a dLiy be resumed so tjLiickly? We describe the roles pkayed in the rect)very by six firms, which we tion sites be organized and the delivery visited during our fieltl research: Toyota, Aisin Seiki. of the required 32,500 P-valves a day he Denst), TLiiho Kogyo, Kav'aba Industrv". and Koritsu SLingyo. W'liile these firms differ in size, areLis of spe- resumed so quickly? ciLilizaiion. ptisition in the value chain, and financial linkages to Toyota, they share several characteristics: a commitment to. and capabilities for. JIT production Indeed. Toyoui was facing one of the worst crises in and the ability to .solve prohlems at their .source."' Its hi,stoiy.'" Hut on Tuesthiy, February i, only three days after the fire, the first alternative vokime P- Fi-om the lieginning.