YORK TOWNSHIP, Mich. -- As North American production rises to record levels, Toyota Motor Corp. is taking steps to prevent production glitches among its suppliers.
Bob Young, the automaker's North American purchasing chief, is providing assistance to 50 suppliers that are struggling to keep up with Toyota's production needs.
Toyota suppliers in Japan also are transferring production to North America -- part of an effort to shorten supply lines and reduce exposure to currency fluctuations.
Young described his plans during a July 25 interview with Special Correspondent David Sedgwick at the Toyota Technical Center near Ann Arbor, Mich.
Q: How many vehicles will Toyota produce in North America this year?
A: For the last two years, we've set North American production records, and we anticipate doing so this year. [But] we are well over 90 percent of our North American capacity today, so we don't have a lot of upside.
What will Toyota do if North American sales continue to grow?
If the market grows quickly, we'll supplement North America with our overseas plants. We'd have to make an incremental investment in North America to increase production. Today, we are capacity constrained.
Is Toyota investing in more production?
From 2013 through 2015, we are adding 195,000 units of production in North America. We are also adding [North American] production of 350,000 engines and 240,000 transmissions.
Are there concerns that supplier bottlenecks may occur?
Suppliers are running so tight that the margin for error that we used to have no longer exists today. If suppliers had a tooling crash or quality issue, they used to catch up on Saturday and Sunday. Now, they no longer can do that. Instead, I have to rebuild my internal pipeline [of components] over the next month. Our assumption is that nothing else will go wrong that month.
So there's no room for error?
Everybody is running at a level where they almost have to run perfectly. So that's a high-risk environment.
Does that make you nervous?
What is Toyota doing to help suppliers keep pace?
We used to give our suppliers a two-year production forecast. Now, we provide rolling three-year forecasts in January and July. We also give them a rolling five-month forecast and a 90-day forecast.
When did five-month forecasts start?
Last year. We were getting a lot of feedback from suppliers who were concerned about capacity. All of their customers were asking for more, more, more.
How many suppliers is Toyota worried about?
We've got 50 suppliers where we have some concern. In almost all cases, [possible production bottlenecks] are 12 to 36 months out.
What kind of mishap puts a supplier on the watch list?
We've got indicators. [For example], if they have to run six days a week -- but only for five weeks a year -- we're not concerned. But if they're running six or six and a half days a week for 75 percent of the year, we'd be concerned.
What do you do then?
A [purchasing staffer] visits the supplier to understand the situation. In 50 percent of the cases, by focusing on the shop floor and streamlining production, we can get them out of the red zone. In other cases, they may need more tooling or capital investment.
A while ago, Toyota asked its Japanese suppliers to move more production to North America. Has there been progress?
We've made significant strides. We studied every major commodity -- every part coming from Japan. In many cases, we can't localize that part as a running change, but we can do it during a full model change. If it's a powertrain part, you have to do it during a major redesign.
What's the local content of Toyota's North American vehicles?
Most of our next-generation vehicles will have 90 percent local content for outsourced parts. There are a few vehicles where we have challenges, like the Corolla. Its transmission is a [continuously variable transmission], and we haven't been able to make the business case to transfer production.
Are there any other exceptions to the target of 90 percent North American content?
Another exception would be hybrid vehicles. They are very specialized, with a huge investment and technology that changes rapidly.
How much shipping time is saved by having suppliers in North America?
The pipeline [from Japan] is at least four weeks. For [supplier] plants in North America, it's often less than a day. It's a huge difference.
Are there other reasons for Japanese suppliers to move production to North America?
[If a supplier is shipping from Japan], you have a lot of money tied up in inventory on the water. And if you have a problem, it costs a fortune to react.