How one COVID case upended Toyota’s just-in-time supply chain

Early last month at a sprawling factory on the highway connecting Hanoi to the port city of Haiphong, a single worker tested positive for COVID-19. The delta variant was spreading swiftly through the Southeast Asian nation at the time, and on Aug. 4, provincial officials suspended work at the auto-parts manufacturer.

An ocean away, Toyota Motor Corp. Chief Purchasing Group Officer Kazunari Kumakura was watching intently. The plant is operated by a key Toyota supplier and is one of Vietnam’s biggest assemblers of wire harnesses — a basic but essential yoke for cables that holds the inner workings of an automobile together. As the infection at the facility disrupted operations, Toyota’s inventories grew thin. Since July, the Japanese automaker had been examining its suppliers in the region, which has become a COVID hotspot, on a daily basis to assess how dire things were getting.

Eventually, unable to secure a number of parts, including the wire harnesses from Vietnam and chips from Malaysia, Toyota succumbed. The world’s No. 1 automaker shocked the market by announcing it would slash its output of cars in September by 40 percent compared to previous production plans. 

“The big thing was whether operations could continue in Southeast Asia,” Kumakura said in a late afternoon address to reporters on Aug. 19. But lockdowns, growing COVID clusters and government-imposed restrictions on production made it clear that auto suppliers, particularly in Malaysia and Vietnam, wouldn’t be able to continue operations, he said. It “tangled up our parts” and “happened rapidly.”

Toyota is now faced with the challenge of securing substitute parts and recovering lost output in time to meet an inventory-depleting level of global demand for cars. But more broadly, the snarls that finally toppled one of the world’s best-maintained supply chains have sparked deeper questions about whether the auto industry’s strategies to prioritize efficiency and maintain minimal inventory will endure in the post-pandemic world.

Carmakers globally have lost revenue because shortages have slammed output. India’s largest automaker by deliveries, Maruti Suzuki India Ltd., said volume would likely drop to about 40 percent of normal this month and Tata Motors Ltd. on Wednesday blamed “the recent lockdowns in east Asia” for worsening the supply situation. China’s Nio Inc. has struggled with partners in Malaysia. Also in Japan, Suzuki Motor Corp. will cut vehicle production by 20 percent in September while in Europe, Renault SA plans to halt assembly plants in Spain for as long as 61 days before the end of the year.

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