Postponement and importing cars

If you buy a Japanese built Toyota, where would you expect the final bit of assembly to be done? Would you believe Newark?

The New York Times had an article on the process of receiving imported cars (Far From the Factory, Adding Final Touches, Sep 25). What is unsurprising is that car makers have processes in place to check for and repair any damage that occurred during shipment. What is a little unexpected is that they do some additional work to customize cars such as installing Bluetooth systems or putting on roof racks (see the picture at left).

Toyota’s 98-acre operation at Newark’s port is something of a scaled-down assembly plant, though the work — adding a range of so-called port-installed options into 21 different models — is done largely by hand using simple tools, not by industrial robots controlled by computers. About 185 employees work in Toyota’s car wash, quality control center and five production shops here.

By adding items like floormats and GPS systems at its distribution centers instead of at its factories, Toyota gives customers a chance to tinker with their orders until just two days before the vehicles dock in Newark. And it gives dealers a way to stand apart from their competitors.

“We want to tailor the vehicle to what the customer wants,” said Bill Barrett, the national logistics manager at the Newark location. “We build the car they want.” …

The work would grind to a halt without Rui Sousa, whose job it is to order accessories daily from suppliers, based on expected needs in two days’ time. The key, he said, is limiting the volume of accessories for unpopular cars or those that are undergoing model changes, while keeping enough on hand for more popular cars.

“We’re trying to find the right balance,” said Mr. Sousa, who has honed his orders so finely that the amount of just-in-time inventory has been cut by about two-thirds during the last four years.

This is a really nice example of a postponement strategy, delaying the differentiation of a product until demand is, if not known, at least more certain. Doing the fit and finish in Newark buys dealers several weeks to determine whether they really want fancy wheels or a GPS on a vehicle.

The alternative to doing the work at the port would be having dealer installed accessories, which certainly exist. However, the central location should have an advantage over dealerships. First, you should get more consistent work. This may not matter much for electronic items that are just plug and play but could make a difference when physical modifications are needed such when roof racks are bolted to the car. Second, centralizing the pool of components would require less inventory. The single pile in Newark would be bigger than you would have at one dealership but significantly less than would be needed if you to have a pile at each dealership.