Toyota’s recent woes serve as a cautionary tale for supply chain professionals, says a former company insider.

One of the biggest lessons, says Joel Sutherland, now the managing director of the Center for Value Chain Research at Lehigh University in Bethlehem, Penn., is that nothing in the manufacturing and distribution process should trump safety or quality.

“You can’t take your eye off the ball when it comes to quality,” he told Logistics Magazine. “You can’t blink. And, unfortunately, I think that’s what happened here.”

Sutherland teaches supply chain management at Lehigh University but also runs a research centre to help companies increase their knowledge of important supply chain issues as well as improve their supply chain performance. He is uniquely qualified to discuss supply chain issues at Toyota, having once been the highest ranking American working for Denso, Toyota’s largest global supplier.

Ultimately, he says, the quality concerns now being blamed for scores of deaths worldwide may stem from complacency that set in well after Toyota earned a sterling reputation for quality.

“In this case, it looks like somebody failed to ensure the quality was there throughout the process,” he says. “They assumed it was there. They assumed that, because it was a Toyota-engineered product, the specs were right, and nothing would go wrong.”

But things did go wrong. In the U.S. alone, some 34 deaths are being blamed on uncontrolled acceleration in various Toyota models. Subsequent investigations have looked at the design of the floor mats, the configuration of the floor, and the engineering of the pedal itself. It’s a peeling of the onion skin, as Sutherland describes, that has revealed other concerns, halted production for weeks, and led to a recall of over 8 million vehicles for repairs.

It’s a massive blow for Toyota, who recently took GM’s position as the world’s largest automaker. And in its travails are a number of lessons for supply chain professionals, Sutherland believes.

1. Choose your partners carefully

Sutherland says Toyota and its Japanese suppliers were under pressure to increase their domestic (U.S.) content soon after they started operating in the United States. So the importance of getting the right domestic company, rather than the right quality, could have played a part in their coming problems.

Toyota has a reputation for working very closely with its supply chain partners.

“Denso’s headquarters were just down the road from Toyota’s headquarters, so any time there was a design issue, any type of a hint of a quality problem, we were able to meet, either at Toyota or at Denso in a room, using a white board or a black board to work through all the details of the problem and how it affected everybody involved, not just from a manufacturing aspect but from a human resources perspective, everything that would be involved to not just solve the problem, but make the system better so it wouldn’t happen again.”

Finding partners that fit was not always easy, however.

“It was a rigorous process, and I would say a struggle, to find secondary suppliers, that could make components as well as we could because they didn’t have the culture, the Toyota Way they called it. They would try but they really didn’t have it.”

He says Toyota and Denso officials made frequent site visits to ensure they had the right quality processes in place.

Supply chain professionals point out that Toyota has long been associated with the most advanced concepts in lean manufacturing. So it begs the question did the system fail Toyota or did Toyota fail the system?

“I don’t think there’s anything wrong with the Toyota processes,” says Ken Bradley, president of Ottawa-based consultancy Lytica Inc. “They may have failed to follow their own processes. That’s my opinion.”

Bradley, whose company helps identify and mitigate supply chain risks, says outsourcing involves a degree of risk since you have to rely on others outside of the company to maintain the quality standards you’ve established.

“If the Toyota of 10 years ago had been outsourcing, they would have done it better, and they probably would have caught the quality issue sooner,” he says.

“Toyota grew very, very fast in North America and maybe that is part of the problem,” says Philippe Wierczorek, a lean logistics expert and director of operation performance improvements for The Createch Group in Montreal.

He says Toyota’s past performance shows that its supply chain works, but rapid growth could well have strained the limits of its product design.

“They tend to put a lot of new products into market and, yes, the production system can keep up the speed, but the design has to be done in a certain way, and proper testing has to be done, and all of that takes time,” he says. “When you reduce that time, you risk overlooking key factors in the product design.”

Bradley also says Toyota’s problems could be related to growth.

“Change can be a problem and if you’re not managing change right, you can get caught and mistakes can float through,” he says. “Or, to use my language, they were in an environment of change that their business processes just wasn’t able to accommodate. Their growth rate was just too high. It doesn’t mean their business processes are bad. It doesn’t mean they won’t fix it. And it doesn’t mean they don’t make good cars.”

Toyota’s growth in North America was carefully planned, says Sutherland, but the challenges of incrementally improving their global market share were likely a distraction from their core competencies.

“It could be part of the problem,” he says. “I don’t know that it was rapid expansion so much as steady expansion. They had a goal in place when I was there that defined how much global market share they wanted in what time frame. I was amazed at the amount of strategic thinking that went into this. So they were not reckless in their expansion. They were thoughtful and strategic about it. But that’s not to say that someone didn’t blink. Somebody blinked here. It could have been in the American management. It could have been in Japan. But someone took their eye off the ball just a little bit.”

3. Realize the scope of your chain

“From a big picture perspective, I would say one of the big lessons learned is the impact that something like this has on the global supply chain,” says Sutherland.

He points out that there are suppliers around the world suffering because of the situation at Toyota.

“Inventory is building up, employees are not working, companies are experiencing costs, national economies are being impacted. This situation will be measured in the billions of dollars,” he says. “Warehousing and transportation service providers are suffering too. They have facilities and assets that are idle right now. This is a complete supply chain problem, involving everyone right back to the raw materials.”

Failures take on a new dimension when you consider the implications on other businesses and industries.

“Your supply chain is important, not just to your company but to many others,” he says, “so you’ve got to get it right.”

Wierczorek says Toyota’s brand reputation is now very much at risk.

“The lesson for the supply chain industry is that anyone can fail,” he says. “Everyone in the automotive industry is going to have recalls. But Toyota had this reputation for quality. It was the one that wasn’t supposed to fail so profoundly. They were the shining example of quality.”

Bradley agrees the Toyota brand has been damaged and the company may have to forego the premium it used to be able to command for its products. But he also believes the company has the right business processes and the right mindset to rebuild its reputation.

“They’ll fix their problems and get back on track really quickly,” he predicts. “I would still rank Toyota as one of the great companies in the world. I think they’ll recover nicely.”