Toyota’s recall of millions of vehicles in North America, Europe and China because of accelerator pedals that may stick is a complex and expensive logistics operation, with expedited replacements and repair parts shipped to factories and dealers. But logistics might be the least of Toyota’s supply chain management problems, as researchers have suggested that the recall reveals potential problems in Toyota’s supply chain visibility.
In recalls of this scale, manufacturers worry more about damage to their reputation than logistics cost, but that does not mean the costs are insignificant. For the Bridgestone/Firestone tyre recalls a decade ago, Ford faced a significant cost in handling replacements for customers, as well as keeping factories running. The total costs of the recalls for each company reached into billions of dollars.
PSA Peugeot-Citroën’s recall of just 100,000 vehicles in Europe, which it built together with Toyota in the Czech Republic using the same pedal assembly, will cost around €4.5m ($6.3m), according to a Morgan Stanley estimate. Toyota’s recall covers more than 4.5m vehicles, and nearly 8m when taken together with a recall for floor mats that may jam the accelerator.
Toyota, which stopped sales and production of eight models in the US last week, has said in statements that it is currently shipping repair parts, including a reinforcing bar, to dealers in the US and Europe, while the supplier, Indiana’s CTS, is ramping up production of redesigned parts to reach assembly lines in North America. Production of the pedals had already been adjusted in Europe in August 2009.
The repair parts will be delivered to a complex network of thousands of dealers and service centres, and must also reach vehicles in transit at compounds, ports or staging yards. “I could envision Toyota doing the servicing at these locations in the supply chain,” said Will McNeill, an aftermarket researcher at AMR Research. “If the vehicles have already been sold, then Toyota will probably just ship them forward and expedite the [repair] part afterwards.”
According to McNeill, the cost of the recall will be significant in the short term, but less of a factor in the long term. He suggested that it could lead Toyota to increase the amount of money that it sets aside for warranty claims, estimating a rise of about $20 per vehicle. The impact on sales, however, remains to be determined, with Toyota estimating it lost 20,000 sales in the US in the last week of January alone following the recall.
As Toyota has acknowledged that the fault was the result of a design flaw it supplied to CTS, it is likely that the carmaker will bear all related costs of the recall. Toyota did not respond to queries regarding logistics cost, however in a statement the company stood by CTS and said it “takes responsibility for the quality of its vehicles.”
McNeill told Automotive Logistics News that Toyota was likely to use the 3PL networks it already had in place for the repair deliveries. Companies that are known to work with the carmaker, such as Ryder Systems and Ceva Logistics, declined to comment.
A deeper problem in supply chain management
But AMR also suggests that the accelerator recall could be symptomatic of larger problems in Toyota’s supply chain management. Firstly, the recall exposes some of the risks that accompany a global platform approach, where cars across the world are built with the same parts and processes, often from only one supplier. But McNeill said that the efficiency benefits of such a strategy almost certainly outweigh the risks.
What is more worrying could be a problem in Toyota's lack of supply chain visibility and monitoring, which appears to have lost some vigour in the company’s global expansion. Toyota has slipped in recent surveys on supplier relations, as well as in AMR’s annual ranking of the top 25 supply chain management companies, dropping from 5th in 2007 to 7th in 2008 and 10th in 2009.
“AMR had already suspected that there was a problem with Toyota supply chain management,” said McNeill. “It started to loosen the tight manufacturing processes it held on to for so long.”
Toyota has denied knowing about the problem with pedals until late October 2009, after it had already recalled cars for the faulty floor mats. But there has been discussion over when the problem was or should have been identified. According to a December study of Consumer Reports, Toyota models accounted for 41% of sudden acceleration complaints in the US. One auto safety consultancy, Safety Research & Strategies, has tallied more than 2,000 such incidents with Toyotas since 1999.
Toyota has denied the problems were related, but different actions in Europe suggest at the very least a lack of coordination within the supply chain. Production and sales in Europe have not been stopped because Toyota says that it replaced the pedal during production in August 2009 following what it called a “quality improvement” over findings that the pedal did not return to its idle position as swiftly as it should.
It said in a statement that the production change in Europe was the result of findings that were “different but related” to the pedal problems. “Since the implementation of this change, Toyota became aware of new, different, but related cases of the pedal sticking. This led to further investigations and as a consequence, a safety recall has been implemented,” said the company.
Meanwhile, the US Department of Transportation is reportedly expanding its own investigation to include whether the acceleration problems might include electronic problems besides the pedal and floor mat, according to an unnamed Transportation official in Automotive News. Toyota has denied finding any evidence of electronic problems.
Whatever the circumstances, this confusing, uneven action and response in the supply chain in different regions is a source of concern. McNeill suggested that Toyota and its suppliers should become more vigorous in monitoring all the channels in its supply chain, including more collaboration with its suppliers, as well as national safety boards and independent safety research firms. He recommended Toyota use analytic software to help better aggregate the information concerning its supply chain.
He also pointed to social media and news outlets on the web as a crucial area for carmakers and suppliers to monitor for problems in advance, and react in the supply chain. Ford, for example, reacted quickly in China to reports and rumours of the potential pedal problem and halted production (resuming it several days later when analysis revealed the pedal design was unique to Toyota).
