Since becoming vice president of purchasing for Toyota Motor Corp.'s North American operations early last year, Robert Young has been tested repeatedly by world events. That year brought the March earthquake and tsunami in Japan and, months later, the floods in Thailand.
Since just last month, Young and his staff, along with others around the world, have been coping with an explosion at a German factory owned by Evonik Industries AG. The accident has shut down the industry's key source of a heat-resistant nylon compound, PA-12.
From his office at Toyota Motor Engineering & Manufacturing North America Inc., or TEMA, in Erlanger, Ky., Young, 45, manages a supply chain of about 500 direct suppliers. He spoke with Staff Reporter Lindsay Chappell.
Q: How much will Toyota's North American purchasing operation spend this year?
A: We'll come in at around $25 billion. That's obviously up from last year, when our production was severely impacted by the earthquake and tsunami. We're anticipating that our vehicle production will be up by more than 20 percent this year -- and potentially more, if the market continues going up the way it has for the past few months.
What's your top concern now?
We're continuing to work through the issue with the interruption in PA-12 nylon supply. We don't anticipate any impact to our production, but many suppliers are going to be affected as we enact countermeasures over the next few months and transition to other materials.
How serious is the problem for you?
After last year's disasters in the earthquake and then the floods in Thailand, we're getting pretty good at crisis management here. It's easy for us to say we don't anticipate being impacted, but frankly, behind the scenes, it's taking incredible collaboration among all of our internal functions to achieve that. We're burning up the phone lines to determine who's affected and who isn't, and when are the earliest run-out dates. We're working with impacted suppliers to develop countermeasures and solutions. Each application is unique.
How many of your suppliers are directly affected by this?
Off the top of my head, 31. That's in North America. On a global basis, it's much more.
What was the biggest lesson Toyota learned from the supply line interruptions after last year's natural disasters in Asia?
It was remarkable to see the amount of collaboration internally and externally we could achieve. People here and at the suppliers really worked together, dropping their day-to-day activities to pull together and keep production going. The suppliers were the true heroes because they had to find alternative supply lines.
We also discovered that we're capable of moving much quicker than our norm. We hear sometimes from suppliers that we move slowly at Toyota, and that our decision-making can be cumbersome. The crisis proved to us that we can move faster when we need to. So we're now asking how we can take that lesson and speed up our decision-making in future collaborations.
A third lesson we learned is that nobody -- not us or anyone else -- has good visibility of their subtier suppliers. We know who our Tier 1s are, and we know what their shop floor looks like. But the subtiers are a big unknown.
Our parent company has started to work with Japanese-affiliated suppliers to better visualize their subtiers. And we're trying to develop a methodology for how to do that here in North America.
What's the challenge?
When you take a single vehicle and you drill down to the subtiers, you're talking about hundreds of thousands of individual line items and impact points. That's big. And then, how do you make sure your information is accurate? And how do you manage it? When we source something, the supplier's supply chain isn't fully fixed yet. It changes throughout the development process.
So we're still thinking through this. But we have asked our suppliers to look through their own supply chains and try to understand the potential pinch points. For some of their commodities, alternative parts are readily available. For others, they're using parts that require very long lead times for development and validation. In those cases, we're asking suppliers to consider contingency plans and maybe qualify two suppliers or two different components.
Did Toyota have to change its North American supply chain as a result of the Asian disasters?
We had one short-term change in supply that lasted for only six months, but then we changed back.
Our standard approach is to solve problems with our existing supplier. We took that approach last year, and there was only one case where we had to switch to a supplier's competitor for a short time. As you can imagine, we had a lot of discussion with their senior management about how long we were talking about.
As the industry tries to cut vehicle weight, is that a big part of your purchasing work?
Of course. Based on the coming CAFE requirements, mass reduction is going to be important for all automakers. On a commodity level, especially big bulky commodities, we establish weight reduction targets. And through the development process, we and the supplier are trying to achieve those targets.
We have a material engineering division in both Japan and in York Township, Mich., that's working on advanced development of ultra-high-strength steel and next generation materials to assist in weight reductions. That's going to be a priority for the next decade or so.
Did the weight-reduction effort prompt Toyota's plan to add engineers in Michigan?
That wasn't mass-driven. It's driven more by the desire to move more and more vehicle development closer to our customers. Proximity to your customer base leads to better vehicles. You'll see our technical center take on more vehicle responsibility over time. That's great news for TEMA's purchasing and great news for local suppliers. It's easier to collaborate about new ideas and technologies in York than in Japan.
With growth expected in the next few years, will you add suppliers?
Most of it is incremental volume and doesn't require additional suppliers. On a macro level, we have roughly 500 direct suppliers and I don't expect that number changing dramatically. There is always the chance of turnover and things do change. But we have a good core group of suppliers.
How many suppliers did you lose during the economic downturn?
We lost fewer than 10 suppliers. And most of them disappeared -- they went out of business. Other than that, we didn't have any significant change in our supply base.
A more significant outcome of that period is that we are much more diligent in our risk management activities today. We're better able to model our suppliers' financial condition and we're better prepared for a significant downturn like that.
How is the high value of the yen affecting your mission?
We're localizing more North American production. We've made four announcements so far this year where we're expanding North American production either in the vehicle, engine or transmission area. That's four-cylinder engines, six-speed automatic transmissions, more Highlanders in Indiana, and our RAV4 out of Canada. Over the next year and a half we're going to boost capacity here, and I hope that's perceived as great news for the supply chain.
We have benefitted from bridge production in the past, where the situation might be that we produce 100,000 of something here while Toyota in Japan produces 30,000. In the coming year, to limit our yen exposure on high volume engines and transmissions and vehicles, most of that bridge production will come here to North America.
A lot of people were surprised that last year's floods in Thailand endangered supply chains here in North America. How were you affected?
We canceled overtime at our facilities for a week. That was the total impact.
Most of our suppliers are global and they have global supply chains. It just so happened that electrical subcomponents are being produced in Thailand and shipped globally -- which was not just a Toyota issue. Another commodity was small rubber subcomponents.
I was also not aware of our exposure to Thailand. I would read something about flooding from a Bangkok newspaper on Sunday, and the next day, you'd hear that a huge industrial park of 200 suppliers had just been flooded and was now off-line. It was awful, but we were able to react quickly. I was in Japan when it happened and we dispatched people to Thailand to help. But you know when you're diving for tools, you've got a problem.