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How Toyota Recovered from a

Major Fire in Less Than a Week


A factory supplying brake fluid proportioning ("P") valves to Toyota's 20 automobile plants in
Japan had a major fire early Saturday February 1, 1997. Toyota's Japanese plants produce
about 14,000 cars a day and were operating on Just-in-Time inventories of about 4 hours. The
Wall Street Journal article below details the methods used to recover production in 5 days. A
side note, the fire occurred on the weekend prior to the Tokyo Boat Show where they
announced their entry into the boating industry. Here comes a real competitor!

Wall Street Journal


8 May 1997
Page A-1
by Valerie Reitman staff reporter

Toyota Motor Shows Its Mettle


After Fire Destroys Parts Plant
KARIYA, Japan -- No one knows what sparked the fire that roared through
Aisin Seiki Co.'s Factory No. 1 here before dawn on Saturday, Feb. 1, leveling
the huge auto-parts plant. But one thing is clear: The crisis-control efforts that
followed it dramatically illustrate one reason Toyota Motor Corp. is
among the world's most admired and feared manufacturers.
The fire incinerated the main source of a crucial brake valve that Toyota buys
from Aisin and uses in most of its cars. Most Toyota plants kept only a fourhour supply of the $5 valve; without it, Toyota had to shut down its 20 auto
plants in Japan, which build 14,000 cars a day. Some experts thought Toyota
couldn't recover for weeks.
But five days after the fire, its car factories started up again. Only recently
have Toyota and its suppliers revealed how they did it.
Model of Cooperation
The secret lay in Toyota's close-knit family of parts suppliers. In the corporate
equivalent of an Amish barn-raising, suppliers and local companies rushed to
the rescue. Within hours, they had begun taking blueprints for the valve,
improvising tooling systems and setting up makeshift production lines.

By the following Thursday, the 36 suppliers, aided by more than 150


other subcontractors, had nearly 50 separate lines producing small
batches of the brake valve. In one case, a sewing-machine maker that had
never made car parts spent about 500 man-hours refitting a milling machine to
make just 40 valves a day.
"Toyota's quick recovery," says Yoshio Yunokawa, general manager of
Toyoda Machine Works Ltd., a Toyota-group maker of machine tools and
steering systems, "is attributable to the power of the group, which handled it
without thinking about money or business contracts."
That is a common approach in Japan's keiretsu, the almost tribal groups of
companies that supply and support behemoths such as Toyota. Japanese
auto makers' blood pacts with their suppliers largely explain how they can
slash their costs to the bone and stay globally competitive.
No Foreign Help Required
And the fealty the parts makers paid to Toyota during its crisis helps indicate
why Japan's auto companies return the loyalty -- often to the detriment of U.S.
and other foreign parts makers seeking market share here. Toyota and Aisin
didn't bother to approach any foreign companies during the crisis, a Toyota
spokesman says, because "there were no foreign suppliers in a position to
help us."
Aisin (pronounced "eye-sheen") is an archetypal supplier in Toyota's group.
Founded during World War II to make aircraft engines, it is based in Kariya,
an industrial warren occupied by many other big Toyota suppliers. Toyota
holds 23% of Aisin's stock. Aisin's president is Kanshiro Toyoda, scion of the
Toyoda family that founded the auto maker.
Long a supplier of engine and brake parts, 80% of which it sells to Toyota,
Aisin has won almost all of Toyota's contracts for brake-fluid-proportioning
valves -- "P-valves" in industry parlance. The fist-sized valves control pressure
on rear brakes and help prevent skidding.
For most parts, Toyota has at least two suppliers. But over the years, it turned
to Aisin to produce all but 1% of its P-valves because of Aisin's high quality
and low cost. The supplier shipped parts to Toyota plants under a just-in-time
inventory system: several times a day, just enough valves for a few hours of
production.

Calculated Risk
Depending on a single source and holding essentially no inventory is a
calculated risk, concedes Kiyoshi Kinoshita, Toyota's general manager of
production control. But it also is what keeps Toyota's production lean; Aisin
gets major economies of scale that it passes on to Toyota in lower prices.
Toyota acknowledges that it didn't figure in the risk of fire. Aisin executives
speculate that sparks from a broken drill bit may have ignited wooden
platforms. Just after 4 that morning, flames swept through an air duct and
ignited the roof. Graveyard-shift workers escaped as 36 fire engines arrived,
mostly from nearby Toyota-group companies.
Even as the fire burned, Aisin officials organized a committee to assess
the damage, notify customers and labor unions and, following Japanese
custom, visit neighbors to apologize. A subcommittee ordered 320
cellular phones, 230 extra phone lines and several dozen sleeping bags
for executives who were expected to live at headquarters in the coming
days.
At 8 a.m., Aisin asked Toyota to help. Kosuke Ikebuchi, a Toyota senior
managing director, was tracked down at a golf-course clubhouse; he left his
wife there and rushed to Toyota headquarters to help set up a "war room" to
direct the damage-control operation. Toyota quickly sent more than 400
engineers to Aisin. In reacting to such a crisis, Mr. Kinoshita says, "we're like
the U.S. military."
When the last embers died just before 9 a.m., the damage at Factory No. 1
began to grow clear -- along with an apparent Achilles' heel in Toyota's lean
corporate physique. Most of the factory's 506 highly specialized machines,
which make other brake parts as well as P-valves, were charred and useless.
Toyota estimated that more than two weeks would be needed just to restore a
few milling machines to partial production, and six months to order new
machines. That was too long: Auto plants were on overdrive to meet strong
domestic demand and serve the brisk-selling U.S. market.
Moreover, a Toyota shutdown would damage local economies. Firms
supplying the 20,000 parts in the average Toyota, along with hundreds of
businesses such as utilities and trucking companies, would be hurt without
Toyota orders. Each day Toyota is down, a state agency calculates, cuts
Japan's annual industrial output by 0.1 percentage point.

Prospects for a quick comeback seemed to dim as the Saturday wore


on. Toyota production officials were dismayed to learn they needed 200
P-valve variations. And chances that anyone else would quickly take up
production looked distant: The valves have many complex tapered orifices
that require highly customized jigs and drills. The production department told
Toyota President Hiroshi Okuda, who was in the Middle East, that they would
close most plants from Monday until at least Thursday -- the longest
suspension in company history.
Hectic Scene
On Saturday afternoon, Toyota and Aisin summoned officials from some of
the major parts suppliers to a second war room, at Aisin headquarters. It
quickly became a hectic scene, with officials shouting out for copies of the
blueprints of different P-valves while Toyota executives divvied up valvemaking assignments, recalls Osamu Natsume, sales division head at Toyoda
Machine Works. "It was chaos," he says.
Then the parts makers had to assemble the tools, dies, drills and other
fixtures for machining systems that would normally take several months to
perfect. "We had to work, no matter how hard," says Tetsuro Yamakage,
production-engineering manager at Toyoda Machine. He immediately raced to
find the 30 kinds of cutters, knives and special drills needed to make the
valves.
But there still weren't enough suppliers. So Toyota purchasing officials called
more parts makers to a Sunday-afternoon meeting. These officials, like those
that had met on Saturday, were like family-people who work closely with
Toyota from the start of a car's design. "It was crucial because we knew each
other, we knew the face of the people," Mr. Ikebuchi says.
One familiar face was Masakazu Ishikawa, a former Toyota manager whose
division had designed Toyota P-valves and who now is executive vice
president of Somic Ishikawa Inc., a supplier of brake parts and suspension
ball joints. Mr. Ishikawa called Somic's top production engineers from his
cellular phone on the two-hour ride home from Aisin and asked them to meet
at the office at 8 p.m. Sunday. They stayed there until after midnight to plot
strategy: They would farm out some of their current factory work to free up
machines to make the Toyota parts.
A New Undertaking

At 6 a.m. Monday, Somic's four designers began an eight-stage design


process. "We'd literally never done anything like this before," says Isoo Suzuki,
production-engineering director. Staying up 40 hours, Mr. Suzuki and his
engineers designed jigs. Then they called in some chits from Somic's chain of
suppliers. For example, Somic got a machine-tool maker, Meiko Machinery
Co., to turn down other orders and put 30 workers on round-the-clock shifts to
make the jigs it needed.
Somic drafted technical and administrative staffers to help man the machines.
On Feb. 6, right on schedule, it delivered its first P-valves to Toyota.
So many suppliers were rushing to please Toyota that they sparked an
unofficial race. Taiho Kogyo Co. would have been first, says Nobuo Fukuma,
a vice president of the bearing maker, if it hadn't had to search nationwide for
special machine tools. Taiho was forced to alter imported tools, he complains,
because "the toolmakers didn't give us priority" and shipped to bigger parts
makers instead. Although Taiho's first batch of 500 P-valves was ready on
Thursday, less than a day behind two bigger Toyota affiliates, Mr. Fukuma
was despondent. "We had wanted to be first," he says.
Adapting a Machine
Others were delighted just to have been called on. Brother Industries Ltd.,
which usually makes things like sewing and fax machines, got calls Sunday
night from Aisin and Toyota. A sense of panic at Toyota had inspired it to go
far afield, and Toyota knew Brother had a small machine-tools unit.
Brother cobbled together a P-valve production line by adapting a
computerized milling machine that usually makes sewing-machine and
typewriter parts. Each valve took Brother 10 minutes to make and five minutes
to inspect -- hardly a cost-effective use of its resources. The firm helped out,
says Yoshihiko Tsuzuki, a general manager, "because it was an emergency."
Early in the week after the fire, even Toyota's Mr. Ikebuchi had doubts about
the goal of resuming production in all plants by Friday. But the supplier group
came through. Trucks bearing the first 1,000 usable P-valves rolled in late
Wednesday. On Thursday, 3,000 more arrived, and on Friday, 5,000. Slowly,
Toyota's assembly lines started up again.
All told, Toyota lost production of 72,000 vehicles. But with overtime and extra
shifts, Toyota officials say, it has already nearly recouped the lost output.

The Right System


The fire and its aftermath have left Toyota executives convinced that they
have the right balance of efficiency and risk. "Many people say you might
need to scatter production to different suppliers and plants, but then you have
to think of the costs" of setting up expensive milling machines at each site, Mr.
Ikebuchi says. "We relearned that our system works."
In fact, the fire may have made the system even more efficient. Nisshin Kogyo
Co., which was making the other 1% of Toyota's P-valves, says that during
the crisis it raised production efficiency 30% by speeding up production.
Mr. Kinoshita says the fire spurred Toyota to begin an effort to trim the
number of its parts variations, a project that should eventually cut costs. And
sole-source suppliers are moving quickly to build fail-safe mechanisms. Somic,
which makes all of Toyota's steering linkages, is revamping its system so it
can easily shift to another site if disaster strikes.
Suppliers never asked Toyota or Aisin what they would be paid for rushing out
the valves, says Somic's Mr. Ishikawa. "We trusted them."
Indeed, as the first valves arrived at Toyota factories, Aisin told the suppliers it
would pay for everything, from drills and overtime pay to lost revenue and
depreciation. And Toyota promised the suppliers a bonus totaling about $100
million "as a token of our appreciation," says Mr. Okuda, its president. He
adds that the auto maker will certainly remember the companies that pitched
in during its crisis.

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