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Car manufacturers retire from 50 years of production of ‘Just in Time’



TOKYO— Toyota Motor Corp.

stores up to four months of some parts. Volkswagen AG

builds six factories so it can get its own batteries. And in shades of Henry Ford, Tesla Inc.

trying to lock access to raw materials.

The hyper-efficient auto supply chain symbolized by the words “just in time” is undergoing its greatest transformation in more than half a century, accelerated by the problems carmakers have suffered during the pandemic. After sudden fluctuations in demand, bad weather and a series of accidents, they are reassessing their basic assumption that they could always get the parts they needed when they needed them.

“The just-in-time model is designed for the supply chain̵

7;s efficiency and economies of scale,” said Ashwani Gupta, Nissan Motor Co.’s Chief Operating Officer. “The aftermath of an unprecedented crisis like Covid highlights the fragility of our supply chain model.”

Consider Ford Motor Co.

and its F-150 pickup, the best-selling vehicle in the United States. The latest version is packed with technology, including a hybrid gas-electric drive and automatic Tesla-style software updates.

When vaccinations began to hit Covid-19 back, customers bought about 200,000 F-150s in the first quarter of this year, the best retail start in 13 years. But now the supply is short. Truck factories were closed or had limited production throughout April, and the downturn is likely to continue through at least mid-May. Hit to profit before tax is as much as $ 2.5 billion.

New Ford F-150 pickups could not be sold due to the global shortage of semiconductor chips.


Photo:

Jim West / Zuma Press

The basic idea of ​​just in time is to avoid waste. By having suppliers deliver parts to the assembly line a few hours or days before they go in a vehicle, automakers do not pay for what they do not use. They save on stocks and the people to manage them.

But as supply chains become more global and automakers increasingly rely on a single supplier, the system has become brittle. Crises are more frequent.

A catastrophic snowstorm in Texas in mid-February closed a refinery that feeds the production of 85% of resins produced in the United States. These resins go in components from car bumpers to steering wheel. They are some of the cheapest commodities in a car, but they go in seat foam and dealers can not sell a car without seats.

In late March, Toyota shut down production at several U.S. factories due to the shortage, according to a schedule seen by The Wall Street Journal, and hit production of some of its bestsellers, including the RAV4 sports tool.

Some suppliers fly in resin to the United States from Europe, said Sheldon Klein, a lawyer at the firm Butzel Long, which advises suppliers. “It’s just financially devastating,” he said. “At best, you have very sharp elbow discussions with your customer about passing on some of the cost.”

Managers say they do not want to replace completely on time because the savings are too great. But they move to regret it to some degree and focus on areas with the greatest vulnerability. They try to store more critical parts, especially if they are light and relatively inexpensive, yet irreplaceable as semiconductors.

Ford CEO Jim Farley said he was looking at keeping more stock.

“Most other industries use safety stock for critical components such as chips,” he said at an event hosted by Automotive News. “And many of these companies pay for chips in advance, year in and year out ahead of capacity requirements.”

Three decades in the automotive industry had not prepared Mr. Farley this year. “It is shocking to me how much I have learned about the supply base,” he said.

The shift to electric cars is increasing the pressure on automakers to reconsider half a century of automotive history because these vehicles use heavy parts in the shortest supply, including lithium-ion batteries and semiconductors.

General Motors Co.

and partner LG Chem Ltd.

builds a factory of 2.3 billion. dollars in Ohio and scouts a location for another factory for the purpose of producing enough batteries for hundreds of thousands of electric vehicles a year. Volkswagen says with its plans for six joint venture battery factories that they will order an additional $ 14 billion in batteries by 2030.

The companies take a page from Tesla’s playbook, which in turn was influenced by Silicon Valley. Tesla builds a $ 5 billion battery factory called Gigafactory in the Nevada desert with Panasonic Corp.

Of course, ensuring a direct battery supply does not solve every problem in the supply chain. Even the most futuristic EV still needs plastic for floor mats, rubber for tires and leather or cloth for the seats.

Still, Tesla is trying to identify the most strategic materials and procure them on its own, a job that was left to suppliers during traditional just-in-time production. In September, it signed an agreement that would give it access to lithium from a North Carolina mine under development.

Tesla boss Elon Musk said last year that he also wanted to buy nickel directly. “Tesla will give you a huge contract for a long time if you extract nickel efficiently and in an environmentally sensitive way,” he said.

Mr. Musk’s push into raw materials brings the automotive industry back a century, to the days when Henry Ford’s assembly line was a forerunner in manufacturing techniques.

Work continues at Renault’s plant in Flins-sur-Seine, France last year.


Photo:

martin bureau / Agence France-Presse / Getty Images

In the 1920s, the latest in Ford was vertical integration or control of all the things needed to make a car. Its Rouge River plant in Dearborn, Mich., Made not only cars but steel for the cars, which were forged from the production of Ford’s iron mines.

After Henry Ford died, the company sold its docks and steelmakers. It was more efficient, the car manufacturers decided to leave the company steel, rubber and shipping to the companies that knew these companies best. Making a car became more about buying the right parts and materials and assembling them.

Toyota was groundbreaking for the next step. One day in 1950, Toyota director Taiichi Ohno visited an American supermarket and wondered how the shelves were refilled when they were emptied, as Jeffrey Lik tells in his book “The Toyota Way.” Shoppers were kept happy even though the supermarket only had small storage spaces. It was the polar opposite of the automotive industry, where stocks were kept full of sheet metal and tires to ensure the assembly line was never shut down.

Supermarkets had little choice as they could not store bananas for several months. Sir. Ohno still reasoned that their practice eliminated waste and reduced costs. Toyota would only pay for what it needed to produce cars for a day. This meant that they could manage with smaller factories and warehouses.

Thus, the system later emerged known as just in time. Every day, a stream of trucks pulled up to Toyota’s factories and clawed just enough to cover a day’s production.

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It was easier for Toyota to pull out thanks to the coterie of loyal suppliers known as its keiretsu clustered around its factories. U.S. competitors were cautious at first, but the system proved so effective that every automaker from Detroit to Wolfsburg adopted a version. Ford created the Ford Production System to match what is named after Toyota. Top suppliers did the same, for their own suppliers lowered the pyramid.

The idea spread through other industries. Apple Inc.,

McDonald’s Corp.

franchises and large box stores like Target Corp.

everyone uses some form of timely to keep inventory low.

A sisterhood to just in time was the use of individual suppliers in many parts. These suppliers were able to master the daily delivery dance, reduce costs through volume and serve the global factory networks operated by the major automakers.

Carlos Tavares, CEO of Chrysler parent company Stellantis, said the company estimated it bought about 400,000 parts for the 100 models in the lineup of Chrsyler, Ram, Fiat,

Peugeot and other brands. He said about 95% of these parts come from a single source.

“It’s the norm in the automotive industry,” Mr. Tavares.

From time to time, events such as the 9/11 terrorist attacks would lift the system, but the industry mostly shrugged and continued because the rewards were too great.

The tide began to turn with the global financial crisis. At least 50 car suppliers went bankrupt and caught carmakers surprisingly. When vendors like Visteon Corp.

, a manufacturer of air conditioners, radios and other components, declared bankruptcy, leading to fears that car factories relying on Visteon could not work either.

Another shock led to a rethink of just in time at the company where it started. The 2011 earthquake in northern Japan hit Toyota suppliers, including chip maker Renesas Electronics Corp.

Camry vehicle wheels move down a conveyor belt at Toyota’s production facility in Georgetown, Ken., In 2019.


Photo:

Luke Sharrett / Bloomberg News

Spokeswoman Shino Yamada said that after the earthquake, the automaker pushed its suppliers to disclose who sells them their components – not a holding in the automotive industry, where suppliers tend to protect their own supply chains if automakers use it to push for price reductions. . Over time, Toyota built a database that it says covers about 400,000 items and reaches as far as ten layers down.

For certain components, Toyota asked its suppliers to store parts, as opposed to just in time. The inventory at Toyota’s largest supplier, Denso Corp.

increased to about 50 days of delivery in the year ending March 2020, up from 38 days in 2011 according to the economic archives. Denso declined to comment on stock figures, but said it has begun storing emergency storage of parts, especially semiconductors.

Toyota’s efforts have helped it withstand this year’s lack of semiconductors better than many of its rivals, even if it was not perfect. The same Renesas factory that was hit a decade ago by the earthquake closed for a month after a fire in a clean room in March. Despite the help of thousands of employees from Toyota, Nissan and others, the factory will not fully recover until around July.

Now, just as they once imitated just in time, many automakers are trying to match Toyota’s understanding of its network to capture hidden chokepoints.

“This is where procurement has honestly lost the ball,” said Bindiya Vakil, CEO of software maker Resilinc, which helps manufacturers monitor supply chain shortages. “Time and time again, the things that bring us to our knees are not the expensive things, they are the little things that we do not manage closely.”

Write to Sean McLain at sean.mclain@wsj.com

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