Buy American

In our last class we learned firsthand how a company successfully forecasts demand and maintains the proper inventory to ensure that costs are minimized.  Toyota, the  long time high volume automobile retailer was faced last year with two major setbacks that completely disrupted its just-in-time (JIT) supply chain.  The Japanese worldwide industry leader felt the blows from both the earthquake and tsunami on its native soil and also the floods in Thailand later in the year.  Toyota utilizes the JIT inventory method and from this it benefits largely in the bottomline of itsbalance sheet and income statment because of the advantage of more cash on hand.   When the supply chain is disrupted, however, the results are astonishing.  Just as you would imagine from the results of our in class activity, when demand is neither known or constant opportunity costs rise and could quickly set a company behind.  Toyota has been praised for its prized forecasting abilities but when these natural disasters set them back for months they were not able to recover in time. 

 Toyota looks to quickly forget about the problems that it faced last year, the year brought them the aforementioned supply issues in addition to many recalls and an overall slump in automobile sales.  The article notes that the manyfacturer is now building 400,000 less cars that in 2007.  If you think about how this trickles down that is the output equivalent of one plant per year.  Toyota looks to rebound and take back the market share it lost to American rivals but it will be an uphill battle with the likes of Ford and GM recovering strong from their recession woes.

What do you think about Toyota’s mishap? Could it have been avoided or handled differently?  Should Toyota and others do away with just-in-time inventory?

The above post was derived from this article:

 http://www.forbes.com/sites/michelinemaynard/2012/01/20/more-proof-that-toyota-faces-a-tough-climb-back/

6 thoughts on “Buy American

  1. I believe that it is very difficult to have a just-in-time inventory because like you mentioned anything could happen. Like we know today, anything is possible, so it is important that these companies “hope for the best, but plan for the worst.” Yes, the just-in-time inventory is very cost efficient, but when something like a natural disaster or something occurs, you find yourself in a corner. It is critical to be prepared for anything at anytime.

  2. Toyota’s just-in-time inventory was bound to fail eventually, as terrible as it sounds. With natural disasters happening all the more often you can’t rely on one method. You always have to have a back up plan, a plan B. I thought all companies had an alternative method. But I am sure that they learned their lesson this time.

  3. I agree that the Just-in-time inventory method can be very tricky, especially with companies like Toyota which are based in a part of the world that is prone to natural disasters. I think Toyota should do away with just-in-time inventory for that exact reason and to avoid the issues of the past. This article is very interesting and I would like to research the inventory methods of other car companies such as Honda, or even US companies such as Ford.

  4. The JIT inventory method is utilized by some of the most highly thought of auto companies including BMW, Volkswagen, and Mercedes. The reason these auto companies utilize the JIT method is because their risk models provide for very low probabilities of such events occurring. Toyota’s risk models must have put very minimal risk on such a disruption occurring. While Toyota’s mishap was problematic, the company is handling the situation well. There is no doubt that short-term problems were meaningful, but the long-term benefits of JIT outweigh the cost Toyota incurred, at least in my opinion.

  5. In my opinion a company as large as Toyota could have avoided this by creating a backup plan as mentioned by maggies301, every company should consider PEST analysis , ( political , economical , social and technological ) I recall from my previous class we took the case of Hong Kong Disney land and how the management ignored the social aspect. Moreover such aspects are crucial to any global business. In case of Toyota Natural disasters should be always under consideration as the history of Japan and the neighboring countries faced such cases before. Maybe consider to operate ( mainly ) from other countries yet again the cost factor will play a role here.

  6. Just in time is very valuable. Any system has its flaws and disadvantages but for Toyota and its corporate goals just in time works. Toyota’s tps system is valuable for what it wants to accomplish. Natural disasters such as earthquakes can cause significant impacts to a business such as Toyota in Japan, and it has recently. However, this does not mean that they should just drop just in time. They should review what issues they currently face with a just in time system and work to mitigate the future risk of natural disasters on their system.

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