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How a single COVID-19 case in Vietnam led to 40% production cut at Toyota

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Toyota has suppliers spread over 400 plants in Vietnam and Malaysia alone. The Japanese giant expects to recover lost production by October but it will look at allocating production and diversifying risks in the future.

How a single COVID-19 case in Vietnam led to 40% production cut at Toyota
Toyota Motor Corp, the world’s No. 1 automaker, shockingly announced it will cut its production by 40 percent. The inability to secure crucial parts from its vendors spread across Vietnam and Malaysia was cited as the reason. The automaker sources wire harnesses from Vietnam while chips are manufactured in Malaysia and its assembly plant is in another country.
According to Bloomberg, when a Vietnamese worker tested positive for COVID-19 in one of their supplier’s plants, their government suspended work at the factory. This resulted in a cascading effect for Toyota Motors. As Toyota’s inventories grew thin over the weeks, the company was forced to make cuts in its production plans. Other auto majors across the world too have been affected.
In India, Maruti Suzuki has also announced cutting down its production to about 40 percent of its normal volumes this month while Tata Motors blamed the recent lockdowns in Southeast Asia to its production woes. China’s Nio Inc too was affected as its suppliers were shut down in Malaysia. Japan’s Suzuki Motors announced a 20 percent cut in production, while in Europe, Renault SA is planning to stop its assembly plants in Spain for 61 days before the end of December.
Even as growing demand precedes the supply of parts, several markets are wondering whether global companies should continue to operate in Southeast Asia. Vietnam, Malaysia, and Thailand have thousands of suppliers catering to major automakers across the world. Unprecedented lockdowns and government restrictions have hurt auto majors.
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In the past decade or so, the Japanese majors have preferred to invest in Southeast Asia, especially, Thailand, Vietnam, and Malaysia. Thailand hosts thousands of supplier manufacturers for Toyota, Mitsubishi Motors Corp, Honda Motor Co and Nissan Motor Co, to name a few while, Bloomberg’s data shows that Toyota alone has suppliers spread across 400 plants located in Malaysia and Vietnam.
Even as these auto majors continue to struggle, Toyota is now seeking out suppliers who can supply parts to get production back on track. In Vietnam’s Sumitomo Electric’s Hai Duong wire harness plant, the staff has returned to work while chipmakers in Malaysia have resumed manufacturing.
The Japanese giant expects to recover lost production by October but its Toyota Motor Corp Chief Purchasing Group Officer Kazunari Kumakura said the company will look at allocating production and diversifying risks in the future.
Howard Yu, Professor of Management at the Switzerland-based Institute for Management Development says, for one to be resilient, one needs a bit of redundancy. The pandemic has exposed the well-oiled system is vulnerable to any external shocks.
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