How Toyota Recovered from a
Wall Street Journal 8 May 1997 Page A-1 by Valerie Reitman staff reporter
KARIYA, Japan -- No one knows what sparked the fire that roared through Aisin Seiki Co.'s Factory No. 1 here before dawn on Saturday, Feb. 1, leveling the huge auto-parts plant. But one thing is clear: The crisis-control efforts that followed it dramatically illustrate one reason Toyota Motor Corp. is among the world's most admired and feared manufacturers.
The fire incinerated the main source of a crucial brake valve that Toyota buys from Aisin and uses in most of its cars. Most Toyota plants kept only a four-hour supply of the $5 valve; without it, Toyota had to shut down its 20 auto plants in Japan, which build 14,000 cars a day. Some experts thought Toyota couldn't recover for weeks.
But five days after the fire, its car factories started up again. Only recently have Toyota and its suppliers revealed how they did it.
Model of Cooperation
The secret lay in Toyota's close-knit family of parts suppliers. In the corporate equivalent of an Amish barn-raising, suppliers and local companies rushed to the rescue. Within hours, they had begun taking blueprints for the valve, improvising tooling systems and setting up makeshift production lines.
By the following Thursday, the 36 suppliers, aided by more than 150 other subcontractors, had nearly 50 separate lines producing small batches of the brake valve. In one case, a sewing-machine maker that had never made car parts spent about 500 man-hours refitting a milling machine to make just 40 valves a day.
"Toyota's quick recovery," says Yoshio Yunokawa, general manager of Toyoda Machine Works Ltd., a Toyota-group maker of machine tools and steering systems, "is attributable to the power of the group, which handled it without thinking about money or business contracts."
That is a common approach in Japan's keiretsu, the almost tribal groups of companies that supply and support behemoths such as Toyota. Japanese auto makers' blood pacts with their suppliers largely explain how they can slash their costs to the bone and stay globally competitive.
No Foreign Help Required
And the fealty the parts makers paid to Toyota during its crisis helps indicate why Japan's auto companies return the loyalty -- often to the detriment of U.S. and other foreign parts makers seeking market share here. Toyota and Aisin didn't bother to approach any foreign companies during the crisis, a Toyota spokesman says, because "there were no foreign suppliers in a position to help us."
Aisin (pronounced "eye-sheen") is an archetypal supplier in Toyota's group. Founded during World War II to make aircraft engines, it is based in Kariya, an industrial warren occupied by many other big Toyota suppliers. Toyota holds 23% of Aisin's stock. Aisin's president is Kanshiro Toyoda, scion of the Toyoda family that founded the auto maker.
Long a supplier of engine and brake parts, 80% of which it sells to Toyota, Aisin has won almost all of Toyota's contracts for brake-fluid-proportioning valves -- "P-valves" in industry parlance. The fist-sized valves control pressure on rear brakes and help prevent skidding.
For most parts, Toyota has at least two suppliers. But over the years, it turned to Aisin to produce all but 1% of its P-valves because of Aisin's high quality and low cost. The supplier shipped parts to Toyota plants under a just-in-time inventory system: several times a day, just enough valves for a few hours of production.
Depending on a single source and holding essentially no inventory is a calculated risk, concedes Kiyoshi Kinoshita, Toyota's general manager of production control. But it also is what keeps Toyota's production lean; Aisin gets major economies of scale that it passes on to Toyota in lower prices.
Toyota acknowledges that it didn't figure in the risk of fire. Aisin executives speculate that sparks from a broken drill bit may have ignited wooden platforms. Just after 4 that morning, flames swept through an air duct and ignited the roof. Graveyard-shift workers escaped as 36 fire engines arrived, mostly from nearby Toyota-group companies.
Even as the fire burned, Aisin officials organized a committee to assess the damage, notify customers and labor unions and, following Japanese custom, visit neighbors to apologize. A subcommittee ordered 320 cellular phones, 230 extra phone lines and several dozen sleeping bags for executives who were expected to live at headquarters in the coming days.
At 8 a.m., Aisin asked Toyota to help. Kosuke Ikebuchi, a Toyota senior managing director, was tracked down at a golf-course clubhouse; he left his wife there and rushed to Toyota headquarters to help set up a "war room" to direct the damage-control operation. Toyota quickly sent more than 400 engineers to Aisin. In reacting to such a crisis, Mr. Kinoshita says, "we're like the U.S. military."
When the last embers died just before 9 a.m., the damage at Factory No. 1 began to grow clear -- along with an apparent Achilles' heel in Toyota's lean corporate physique. Most of the factory's 506 highly specialized machines, which make other brake parts as well as P-valves, were charred and useless. Toyota estimated that more than two weeks would be needed just to restore a few milling machines to partial production, and six months to order new machines. That was too long: Auto plants were on overdrive to meet strong domestic demand and serve the brisk-selling U.S. market.
Moreover, a Toyota shutdown would damage local economies. Firms supplying the 20,000 parts in the average Toyota, along with hundreds of businesses such as utilities and trucking companies, would be hurt without Toyota orders. Each day Toyota is down, a state agency calculates, cuts Japan's annual industrial output by 0.1 percentage point.
Prospects for a quick comeback seemed to dim as the Saturday wore on. Toyota production officials were dismayed to learn they needed 200 P-valve variations. And chances that anyone else would quickly take up production looked distant: The valves have many complex tapered orifices that require highly customized jigs and drills. The production department told Toyota President Hiroshi Okuda, who was in the Middle East, that they would close most plants from Monday until at least Thursday -- the longest suspension in company history.
On Saturday afternoon, Toyota and Aisin summoned officials from some of the major parts suppliers to a second war room, at Aisin headquarters. It quickly became a hectic scene, with officials shouting out for copies of the blueprints of different P-valves while Toyota executives divvied up valve-making assignments, recalls Osamu Natsume, sales division head at Toyoda Machine Works. "It was chaos," he says.
Then the parts makers had to assemble the tools, dies, drills and other fixtures for machining systems that would normally take several months to perfect. "We had to work, no matter how hard," says Tetsuro Yamakage, production-engineering manager at Toyoda Machine. He immediately raced to find the 30 kinds of cutters, knives and special drills needed to make the valves.
But there still weren't enough suppliers. So Toyota purchasing officials called more parts makers to a Sunday-afternoon meeting. These officials, like those that had met on Saturday, were like family-people who work closely with Toyota from the start of a car's design. "It was crucial because we knew each other, we knew the face of the people," Mr. Ikebuchi says.
One familiar face was Masakazu Ishikawa, a former Toyota manager whose division had designed Toyota P-valves and who now is executive vice president of Somic Ishikawa Inc., a supplier of brake parts and suspension ball joints. Mr. Ishikawa called Somic's top production engineers from his cellular phone on the two-hour ride home from Aisin and asked them to meet at the office at 8 p.m. Sunday. They stayed there until after midnight to plot strategy: They would farm out some of their current factory work to free up machines to make the Toyota parts.
A New Undertaking
At 6 a.m. Monday, Somic's four designers began an eight-stage design process. "We'd literally never done anything like this before," says Isoo Suzuki, production-engineering director. Staying up 40 hours, Mr. Suzuki and his engineers designed jigs. Then they called in some chits from Somic's chain of suppliers. For example, Somic got a machine-tool maker, Meiko Machinery Co., to turn down other orders and put 30 workers on round-the-clock shifts to make the jigs it needed.
Somic drafted technical and administrative staffers to help man the machines. On Feb. 6, right on schedule, it delivered its first P-valves to Toyota.
So many suppliers were rushing to please Toyota that they sparked an unofficial race. Taiho Kogyo Co. would have been first, says Nobuo Fukuma, a vice president of the bearing maker, if it hadn't had to search nationwide for special machine tools. Taiho was forced to alter imported tools, he complains, because "the toolmakers didn't give us priority" and shipped to bigger parts makers instead. Although Taiho's first batch of 500 P-valves was ready on Thursday, less than a day behind two bigger Toyota affiliates, Mr. Fukuma was despondent. "We had wanted to be first," he says.
Adapting a Machine
Others were delighted just to have been called on. Brother Industries Ltd., which usually makes things like sewing and fax machines, got calls Sunday night from Aisin and Toyota. A sense of panic at Toyota had inspired it to go far afield, and Toyota knew Brother had a small machine-tools unit.
Brother cobbled together a P-valve production line by adapting a computerized milling machine that usually makes sewing-machine and typewriter parts. Each valve took Brother 10 minutes to make and five minutes to inspect -- hardly a cost-effective use of its resources. The firm helped out, says Yoshihiko Tsuzuki, a general manager, "because it was an emergency."
Early in the week after the fire, even Toyota's Mr. Ikebuchi had doubts about the goal of resuming production in all plants by Friday. But the supplier group came through. Trucks bearing the first 1,000 usable P-valves rolled in late Wednesday. On Thursday, 3,000 more arrived, and on Friday, 5,000. Slowly, Toyota's assembly lines started up again.
All told, Toyota lost production of 72,000 vehicles. But with overtime and extra shifts, Toyota officials say, it has already nearly recouped the lost output.
The Right System
The fire and its aftermath have left Toyota executives convinced that they have the right balance of efficiency and risk. "Many people say you might need to scatter production to different suppliers and plants, but then you have to think of the costs" of setting up expensive milling machines at each site, Mr. Ikebuchi says. "We relearned that our system works."
In fact, the fire may have made the system even more efficient. Nisshin Kogyo Co., which was making the other 1% of Toyota's P-valves, says that during the crisis it raised production efficiency 30% by speeding up production.
Mr. Kinoshita says the fire spurred Toyota to begin an effort to trim the number of its parts variations, a project that should eventually cut costs. And sole-source suppliers are moving quickly to build fail-safe mechanisms. Somic, which makes all of Toyota's steering linkages, is revamping its system so it can easily shift to another site if disaster strikes.
Suppliers never asked Toyota or Aisin what they would be paid for rushing out the valves, says Somic's Mr. Ishikawa. "We trusted them."
Indeed, as the first valves arrived at Toyota factories, Aisin told the suppliers it would pay for everything, from drills and overtime pay to lost revenue and depreciation. And Toyota promised the suppliers a bonus totaling about $100 million "as a token of our appreciation," says Mr. Okuda, its president. He adds that the auto maker will certainly remember the companies that pitched in during its crisis.