At the beginning of last month, in a sprawling factory on the highway connecting Hanoi to the Vietnamese coastal city of Haiphong, a worker tested positive for coronavirus. This coincided with the rapid spread of the delta strain of COVID-19 in Vietnam. Then regional officials suspended work at the plant, which is run by a parts manufacturer for auto.
The plant is operated by a major supplier of Toyota, which is one of the largest manufacturers of cables for connecting the internal systems of the auto in Vietnam, and with the spread of infections in the facility, Toyota’s stocks have grown. Since July, the Japanese automaker has been checking its suppliers in the region, which has become a hot spot for the spread of the Corona outbreak, on a daily basis to gauge things.
In the end, Toyota was not in able to guarantee a number of parts, including cables from Vietnam and chips from Malaysia, and the number one carmaker in the world shocked the market by announcing that it would cut production of auto in September of 40% compared to the previous production plans.
“The important thing is that operations can continue in Southeast Asia,” said Toyota Motor purchasing manager Kazunari Kumakura, noting that Malaysia and Vietnam would not be in able to continue operations.
Toyota now faces the challenge of securing spare parts and restoring lost production in time to meet the exhaustion level of global vehicle inventory demand. But on a larger scale, the crises that ultimately overthrew one of the world’s best supply chains have raised deeper questions as to whether the auto industry’s strategies to prioritize efficiency and maintain minimal inventory will persist. in a world post-pandemic.
Carmakers globally have lost revenue due to production shortages, with India’s largest carmaker, Maruti Suzuki India Ltd., saying volume is expected to drop to around 40% of the normal rate this month.
On Wednesday, Tata Motors Ltd. blamed “the recent arrests in East Asia “for having worsened the supply situation. China’s Nio also had problems with partners in Malaysia. All time in Japan, Suzuki Motor Corp. will reduce production of auto 20% in September, while in Europe, Renault plans to close its assembly plants in Spain up to 61 days before the end of the year.
Howard Yu, professor of management at the Institute of Management Development based in Switzerland said the auto industry is used to much lower profit margins than big tech companies enjoy, even after decades of trying to cut costs.
He added that automakers are trying to tighten margins, reduce redundancy and operate outside regional centers because they are more efficient. “But to be resilient, you need some iteration … the delta mutant outbreak reveals that this system is indeed vulnerable to external shocks.”
Over the past decade, Japanese carmakers have invested heavily in Southeast Asia, viewing the region as a source of cheap labor and to complement their operations. in China in amid trade tensions with the United States, where Thailand is a major manufacturing center for Toyota and Mitsubishi Motors. Honda Motor Co. and Nissan Motor Co. dealers account for approximately half of the vehicle production capacity in Thailand and export a number of products to neighboring countries. Toyota works alone with suppliers who have more than 400 located factories in Malaysia and Vietnam, according to data compiled by Bloomberg and seen by Al Arabiya.net.
Vietnam is Japan’s largest wire exporter, with many Japanese component manufacturers operating factories in Vietnam.
Likewise, Malaysia has emerged in recent years as a major hub for packaging end-stage wafers, the smallest and least profitable component of the semiconductor manufacturing process. The rise in coronavirus cases has also forced major suppliers of auto STMicroelectronics NV and Infineon Technologies AG to close manufacturing plants, exacerbating a chip shortage that has been hurting car manufacturers for months.
Currently, the suppliers of auto of countries are showing signs of recovery. According to the prefecture’s official television station, most of the employees at Sumitomo Electric’s Hai Duong wire manufacturing plant returned to work around the second week of August. As of last week, Malaysian chip makers have basically returned to normal operating levels and Toyota said it plans to start restoring lost production in October.
The remaining question is whether this disruption in the supply chain will lead to a long-term transformation of the operations of Toyota and other manufacturers. Toyota pioneered “Production Over Time” or JIT, a manufacturing workflow methodology designed to reduce flow times and costs by keeping inventory at low levels.
Komakura acknowledged last month that because the production of some widely used parts is concentrated in Southeast Asia, the outage in the region could extend to a ‘area much wider geographical area. In the future, he said, Toyota “will look at how to allocate production and diversify risks in so as not to focus on onearea specific”.
“We will think about this knowledge and use it to strengthen ourselves even more,” he added.
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