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Better Supply Chain Relations Give Toyota Edge in Global Chip Shortage

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2021 Toyota Highlander Platinum Hybrid AWD (toyota badge)
Photo: Toyota

As the global shortage continues to affect tech companies, automakers, and other manufacturers that rely on semiconductor chips, Toyota is faring better than others.

The Japanese automaker reported record June sales and it even managed to outsell General Motors in the last quarter. That’s the first time since 1998 that GM has been booted from the top spot in the United States car market.

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GM says that by improving its supplier relations, it has managed to mitigate the impact of the global chip shortage — but experts believe GM and other major Detroit automakers could learn from Toyota, which has been consistently ahead of the curve when it comes to maintaining a strong supply chain.

In the latest Working Relations Index Study, Toyota ranked first ahead of second-place Honda and third-place GM. In fact, Toyota has topped the rankings every year since the study began in 2012 while also showing the greatest improvement over the past nine years.

According to Steve Melnyk, professor of supply chain management at Michigan State University, the 2011 tsunami caused by the Tohoku earthquake was the catalyst that motivated Toyota to become a global leader in supply-chain relations.

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“The auto industry is getting better at managing their first-tier suppliers, but they figure, ‘If I do a good job at managing my first tier, everyone else will fall into place,’” Melnyki told the Detroit Free Press. “What Toyota learned in the 2011 tsunami is that you have to cover the critical elements of your supply chain and that’s the second and third, the lower tiers of the supply chain.”

Melnyk says that after the tsunami, from which Toyota needed six months to recover, the automaker learned how to leverage its strong supplier relations to monitor even small suppliers, identify valuable parts it needs to stockpile, and anticipate and address shortages before they occur.

Christopher Tang, a supply-chain expert who teaches at the University of California, suggests that Toyota also has a cultural edge. “Japan is a resilient country and people help each other out in terms of sharing resources. The suppliers and Toyota are like a conglomerate and will even send engineers to help each other,” Tang says. “Toyota knows, ‘I am suffering now, but if I cancel, you’ll suffer, so we’ll share the suffering.’ It’s about commitment. So the suppliers, as a result, give Toyota a high priority.”