So how many different radiator models does a global car company need? Clearly it needs enough to accommodate different sized engines and cars. A big pick up with an over-sized cylinder eight-engine is going to need something different from a subcompact with an under-sized four-cylinder engine. But does that translate to twenty-something radiator designs or ninety-something?
Bloomberg reports Toyota has been thinking about this question for radiators and other car parts (Toyota Airbag Cuts Create Opening for Overseas Suppliers, Jun 10).
In one of President Akio Toyoda’s biggest initiatives since taking over in 2009, the carmaker is winnowing the number of parts it uses and increasing common components across models. The plan will cut both the time and cost for creating new models by as much as 30 percent, according to estimates from Toyota. …
In the past, Toyota focused on developing custom parts. It needed 50 types of knee-level airbags because seats for various models had different profiles. By standardizing “hip heights,” as the automaker calls it, across models, Toyota says it can reduce knee airbag variants by 80 percent.
As of last year, the automaker had slashed radiators to 21 models from about 100, according to Shinichi Sasaki, Toyota’s global purchasing chief. And the company is reducing the number of cylinder sizes in its engines to six from more than 18 by 2016, the Nikkan Kogyo newspaper reported June 4. Toyota declined to comment on the report.
“From now on, Toyota will seek the compatibility of certain parts it uses with standard parts used by many automakers globally,” the company said in a statement outlining its Toyota New Global Architecture, or TNGA, in March.
Some of the anticipated benefits here are fairly obvious. For example, the article mentions that standardizing parts like radiators that customers don’t care much about (beyond knowing that the car has one) will free up engineering time to work on body or cockpit design that customers do care about. Similarly, many of the implementation challenges (such as standardizing hip height) are fairly clear. Customers may not care about knee-level airbags per se, but standardizing those means standardizing some aspect of the interior design. Customer may or may not notice.
The most interesting part of this to me is its implications for supply chain risk. Basically there are two countervailing considerations, and Toyota has had to deal with both in recent years. On the benefit side is that standardizing parts allows for global sourcing in the sense that there is more than one place that radiator can come from.
Toyota and other (primarily Japanese) automakers got burned by sourcing from a limited set of geographically concentrated facilities when Japan got hit by an earthquake and tsunami in 2011. If all parts can be produced in half a dozen different plants in four different locations, an automaker is somewhat insulated from a natural disaster or other disruption in one particular place.
I say somewhat because if Toyota is using many of the same parts as other big automakers, its suppliers’ plants can’t have tons of excess capacity. If, say, a supplier’s Thai factory closes because of flooding, it can shift production for Toyota to a different location but that presumably has to displace some other automaker’s parts. That is, one firm’s successfully executed hedge is going to be someone else’s supply disruption. Given its size, Toyota will probably be taken care of, but this move will also make them more dependent on large global suppliers and Toyota cannot be assured of being the top customer for any crucial supplier.
The second aspect of risk here is what happens when there is a problem with some part. More common parts means more correlation across models when something goes wrong.
For Toyota, the shift increases the risk of multimillion-vehicle recalls, said Hiroshi Ataka, an analyst at researcher IHS Automotive in Tokyo. Faulty brakes used in multiple models, for instance, would require a recall of far more vehicles than a problem with brakes found simply in, say, the Corolla or Prius. Toyota recalled more than 10 million vehicles in 2009 and 2010 after reports of unintended acceleration.
The question is how real the risk of large recalls is. It strikes me as being somewhat second order. Given that Toyota sells such a high volume of some models (like the Corolla), it is exposed to large recalls if it uses the same part over multiple years. Further, to the extent that Toyota seeks “the compatibility of certain parts it uses with standard parts used by many automakers globally,” if things go bad for them, they will go bad for lots of automakers. That may provide some strength in numbers so that a Toyota recall may not stand out across the industry.