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What Role Did Toyota’s Supply Chain and Keiretsu Structure Play in the Recalls?

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Q1: what role did Toyota’s supply chain and keiretsu structure play in the recalls?

Toyota has been always known in the industry for its quality, reliability but it has to recall millions of cars due to sudden acceleration problems. The company was responding to the recalls of faulty cars very slowly and the attitude of top management was also very irresponsible.

One of the major problems faced by the Toyota was mainly due to its organizational structure (keiretsu). The company had classified its suppliers according to 3-tier system. Tier one supplied large parts where as the tier-3 and tier -3supplied individual parts. The structure was centralized and has vital decision making in hands of executives in Japan only. Although the company had a vast no. of centers but it did not have a US headquarter. From complicated tasks of gathering of information, analyzing, fixing them, also the reporting, all were done in Japan by Toyota subsidiaries. Moreover some of the subsidiaries were also against the recall strategy and tried to minimize them, even though when the numbers of accidents were increasing. The interactions between the subsidiaries heads were also very limited, and all the crucial decisions even for US market were made in japan. US only handle unreal decisions like marketing and sales whereas all technical issues were handled by japan subsidiaries.

The company was too busy in pursuing global growth strategy only that supply chain became much stretched. Company began to depend on suppliers that were outside of japan, and also outside from the keiretsu structure, non-Japanese suppliers with which company have no prior experience. Toyota couldn’t find enough engineers to monitor the new suppliers so they leaned more on using single suppliers for entire ranges of its cars across multiple markets. Due to single supplier, although they achieved economies of scale but recalls respondence was still slow.

This structure, together with the supply chain had let to delay in recalls as no real decision making was being made in US which led to the enhancement of the recall issue in the US market.

Q2. Did Porter have Toyota in mind when he said that Japanese firms rarely have strategies because operational excellence is not strategy? You may agree or disagree.

Yes I go with the statement, Porter had Japanese firms in his mind while making the statement that these firms rarely have strategies. Toyota didn’t have good strategy but they became operationally excellent by being efficient in their operations. In start they did beat their rivals and became largest automobile manufacturer in the world, but later they got trapped in problem of their own making. Toyota had joint ventures in USA, as a result every production facility was having its own president. Major decision making took place in japan and USA only had sales and marketing department to handle. Having different subsidiaries had led the company to achieve operational excellence but not strategy because these subsidiaries were hardly working together. Other than that the structure company was having and the type of decision making they pursued with, the single supplier problems, all led to slow responding to recalls. The engines oil sludge and acceleration problems resulted in company falling margins and declining sales because rejected claims of oil sludge initially were in USA not in japan but hey were being handled there. So the delayed response because

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