toyota incident case study

Resilience Tested: Toyota Crisis Management Case Study

Crisis management is organization’s ability to navigate through challenging times. 

The renowned Japanese automaker Toyota faced such challenge which shook the automotive industry and put a dent in the previously pristine reputation of the brand.

The Toyota crisis, characterized by sudden acceleration issues in some of its vehicles, serves as a compelling case study for examining the importance of effective crisis management. 

Toyota crisis management case study gives background of the crisis, analyze Toyota’s initial response, explore their crisis management strategy, evaluate its effectiveness, and draw valuable lessons from this pivotal event. 

By understanding how Toyota tackled this crisis, we can glean insights that will help organizations better prepare for and respond to similar challenges in the future.

Let’s start reading

Brief history of Toyota as a company

Toyota, one of the world’s largest automobile manufacturers, has a rich history that spans over eight decades. The company was founded by Kiichiro Toyoda in 1937 as a spinoff of his father’s textile machinery business. 

Initially, Toyota focused on producing automatic looms, but Kiichiro had a vision to expand into the automotive industry. Inspired by a trip to the United States and Europe, he saw the potential for automobiles to transform society and decided to steer the company in that direction.

In 1936, Toyota built its first prototype car, the A1, and in 1937, they officially established the Toyota Motor Corporation. The company faced numerous challenges in its early years, including the disruption caused by World War II, which halted production.

However, Toyota persisted and resumed operations after the war, embarking on a journey that would eventually lead to global recognition.

Toyota’s breakthrough came in the 1960s with the introduction of the compact and affordable Toyota Corolla, which quickly gained popularity worldwide. This success laid the foundation for Toyota’s reputation for producing reliable, fuel-efficient, and high-quality vehicles.

Throughout the following decades, Toyota expanded its product lineup, launching models like the Camry, Prius (the world’s first mass-produced hybrid car), and the Land Cruiser, among others.

Toyota’s commitment to continuous improvement and efficiency led to the development and implementation of the Toyota Production System (TPS), often referred to as “lean manufacturing.” TPS revolutionized the automotive industry by minimizing waste, improving productivity, and enhancing quality.

Over the years, Toyota successfully implemented many change initiatives.

By the turn of the 21st century, Toyota had firmly established itself as a global automotive powerhouse, consistently ranking among the top automakers in terms of sales volume.

However, the company would soon face a significant challenge in the form of the sudden acceleration crisis, which tested Toyota’s crisis management capabilities and had far-reaching implications for the brand.

Description of the sudden acceleration crisis

The sudden acceleration crisis was a pivotal event in Toyota’s history, which unfolded in the late 2000s and early 2010s. It involved a series of incidents where Toyota vehicles experienced unintended acceleration, leading to accidents, injuries, and even fatalities. Reports emerged of vehicles accelerating uncontrollably, despite drivers attempting to apply the brakes or shift into neutral.

The crisis gained significant media attention and scrutiny , as it posed serious safety concerns for Toyota customers and raised questions about the company’s manufacturing processes and quality control. The issue affected a wide range of Toyota models, including popular ones such as the Camry, Corolla, and Prius.

Investigations revealed that the unintended acceleration was attributed to various factors. One prominent cause was a design flaw in the accelerator pedal assembly, where the pedals could become trapped or stuck in a partially depressed position. Additionally, electronic throttle control systems were also identified as potential contributors to the issue.

The sudden acceleration crisis had severe consequences for Toyota. It tarnished the company’s reputation for reliability and safety, and public trust in the brand was significantly eroded. Toyota faced a wave of lawsuits, regulatory investigations, and recalls, as it scrambled to address the issue and restore consumer confidence.

The crisis prompted Toyota to launch one of the largest recalls in automotive history, affecting millions of vehicles worldwide. The company took steps to redesign and replace the faulty accelerator pedals and improve the electronic throttle control systems to prevent future incidents. Toyota also faced criticism for its initial response, with accusations of a lack of transparency and timely communication with the public.

The sudden acceleration crisis served as a wake-up call for Toyota, highlighting the importance of effective crisis management and the need for proactive measures to address safety concerns promptly.

Toyota crisis management case study helps us to understand how company’s respond to this crisis and set a precedent for handling future challenges in the years to come.

Timeline of events leading up to the crisis

To understand the timeline of events leading up to the sudden acceleration crisis at Toyota, let’s explore the key milestones:

• Early 2000s: Reports of unintended acceleration incidents begin to surface, with some drivers claiming their Toyota vehicles experienced sudden and uncontrolled acceleration. These incidents, although relatively isolated, raised concerns among consumers.
• August 2009: A tragic incident occurs in California when a Lexus ES 350, a Toyota brand, accelerates uncontrollably, resulting in a high-speed crash that claims the lives of four people. The incident receives significant media attention, highlighting the potential dangers of unintended acceleration.
• September 2009: The National Highway Traffic Safety Administration (NHTSA) launches an investigation into the sudden acceleration issue in Toyota vehicles. The probe focuses on floor mat entrapment as a possible cause.
• November 2009: Toyota announces a voluntary recall of approximately 4.2 million vehicles due to the risk of floor mat entrapment causing unintended acceleration. The recall affects several popular models, including the Camry and Prius.
• January 2010: Toyota expands the recall to an additional 2.3 million vehicles, citing concerns over sticking accelerator pedals. This brings the total number of recalled vehicles to nearly 6 million.
• February 2010: In a highly publicized event, Toyota halts sales of eight of its models affected by the accelerator pedal recall, causing a significant disruption to its production and sales.
• February 2010: The U.S. government launches a formal investigation into the safety issues related to unintended acceleration in Toyota vehicles. Congressional hearings are held, during which Toyota executives are questioned about the company’s handling of the crisis.
• April 2010: Toyota faces a $16.4 million fine from the NHTSA for failing to promptly notify the agency about the accelerator pedal defect, violating federal safety regulations.
• Late 2010 and 2011: Toyota faces a wave of lawsuits from affected customers seeking compensation for injuries, deaths, and vehicle damages caused by unintended acceleration incidents.
• 2012 onwards: Toyota continues to address the sudden acceleration crisis by implementing various measures, including improving quality control processes, enhancing communication with regulators and customers, and establishing an independent quality advisory panel. 

Toyota’s initial denial and dismissal of the problem

During the early stages of the sudden acceleration crisis, one notable aspect was Toyota’s initial response, which involved a degree of denial and dismissal of the problem. This response contributed to the escalation of the crisis and further eroded public trust in the company. Let’s delve into Toyota’s initial reaction to the issue:

• Downplaying the Problem: In the initial stages, Toyota downplayed the reports of unintended acceleration incidents, attributing them to driver error or mechanical issues. The company maintained that their vehicles were safe and reliable, asserting that the incidents were isolated and not indicative of a systemic problem.
• Lack of Transparency: Toyota faced criticism for its perceived lack of transparency regarding the issue. The company was accused of withholding information and failing to disclose potential safety risks to the public and regulatory agencies promptly. This lack of transparency fueled suspicions and raised questions about the company’s commitment to addressing the problem.
• Slow Response: Toyota’s response to the growing concerns regarding unintended acceleration was relatively slow, leading to accusations of negligence. Critics argued that the company should have acted more swiftly and decisively to investigate and address the issue before it escalated into a full-blown crisis.
• Reluctance to Acknowledge Defects: Initially, Toyota resisted the notion that there were inherent defects in their vehicles that could lead to unintended acceleration. The company’s reluctance to accept responsibility and acknowledge the problem further strained its relationship with consumers, regulators, and the media.
• Impact on Customer Trust: Toyota’s initial denial and dismissal of the problem had a significant impact on customer trust. As more incidents were reported and investigations progressed, customers began to question the integrity of the brand and its commitment to safety. This led to a decline in sales and a tarnishing of Toyota’s once-sterling reputation for reliability.

Lack of transparency and communication with the public

One critical aspect of Toyota’s initial response to the sudden acceleration crisis was the perceived lack of transparency and ineffective communication with the public. This deficiency in open and timely communication further intensified the crisis and eroded trust in the company. Let’s explore the key issues related to transparency and communication:

• Delayed Public Announcement: Toyota faced criticism for the delay in publicly acknowledging the safety concerns surrounding unintended acceleration. As reports of incidents surfaced and investigations commenced, there was a perception that Toyota withheld information and failed to promptly address the issue. This lack of transparency fueled public skepticism and eroded confidence in the company.
• Insufficient Explanation: When Toyota did address the sudden acceleration issue, their explanations and communications were often vague and lacking in detail. Customers and the public were left with unanswered questions and a sense that the company was not providing comprehensive information about the problem and its resolution.
• Ineffective Recall Communication: Toyota’s communication regarding the recalls linked to unintended acceleration was criticized for its inadequacy. Some customers reported confusion and frustration with the recall process, including unclear instructions and delays in obtaining necessary repairs. This lack of clarity and efficiency in communicating recall information further strained the company’s relationship with its customers.
• Limited Engagement with Stakeholders: Toyota’s engagement with key stakeholders, such as regulatory bodies, industry experts, and affected customers, was perceived as insufficient. The company’s communication efforts were criticized for being reactive rather than proactive, lacking a comprehensive plan to engage stakeholders and address their concerns promptly.
• Perception of Cover-up: The lack of transparency and ineffective communication led to a perception that Toyota was attempting to cover up the severity of the sudden acceleration issue. This perception further damaged the company’s credibility and fueled public skepticism about the company’s commitment to consumer safety.

Impact on the company’s reputation and customer trust

The sudden acceleration crisis had a profound impact on Toyota’s reputation and customer trust, which were previously regarded as key strengths of the company. Let’s explore the repercussions of the crisis on these crucial aspects:

• Reputation Damage: Toyota’s reputation as a manufacturer of reliable and safe vehicles took a significant hit due to the sudden acceleration crisis. The widespread media coverage of incidents and recalls associated with unintended acceleration eroded the perception of Toyota’s quality and reliability. The crisis challenged the long-standing perception of Toyota as a leader in automotive excellence.
• Loss of Customer Trust: The crisis shattered the trust that customers had placed in Toyota. The incidents of unintended acceleration and the subsequent recalls created doubts about the safety of Toyota vehicles. Customers who had been loyal to the brand for years felt betrayed and concerned about the potential risks associated with owning or purchasing a Toyota vehicle.
• Sales Decline: The erosion of customer trust and the negative publicity surrounding the sudden acceleration crisis resulted in a significant decline in sales for Toyota. Consumers were hesitant to buy Toyota vehicles, leading to a loss of market share. Competitors seized the opportunity to capitalize on Toyota’s weakened position and gain a foothold in the market.
• Legal Consequences: Toyota faced a wave of lawsuits from individuals and families affected by incidents related to unintended acceleration. These lawsuits not only had financial implications but also further damaged the company’s reputation as it faced allegations of negligence and failure to ensure the safety of its vehicles.
• Regulatory Scrutiny: The sudden acceleration crisis brought increased regulatory scrutiny upon Toyota. Government agencies, such as the National Highway Traffic Safety Administration (NHTSA), conducted investigations into the issue, which further dented the company’s reputation. Toyota had to cooperate with regulatory bodies and demonstrate its commitment to rectifying the problems to restore trust.
• Long-Term Brand Perception: The sudden acceleration crisis left a lasting impression on how Toyota is perceived by consumers. Despite the company’s efforts to address the issue and improve safety measures, the crisis served as a reminder that even renowned brands can face significant challenges. It highlighted the importance of transparency, accountability, and a proactive approach to crisis management.

Recognition and acceptance of the crisis

In the face of mounting evidence and public scrutiny, Toyota eventually recognized and accepted the severity of the sudden acceleration crisis. The company’s acknowledgment of the crisis marked a significant turning point in their approach to addressing the issue. Let’s explore how Toyota recognized and accepted the crisis:

• Admitting the Problem: As the number of reported incidents increased and investigations progressed, Toyota eventually acknowledged that there was a problem with unintended acceleration in some of their vehicles. This admission was a crucial step towards recognizing the crisis and accepting the need for immediate action.
• Apology and Responsibility: Toyota’s top executives, including the company’s President at the time, issued public apologies for the safety issues and the negative impact on customers. The company took responsibility for the unintended acceleration problem, acknowledging that there were defects in their vehicles and accepting accountability for the consequences.
• Collaboration with Authorities: Toyota actively collaborated with regulatory bodies, such as the NHTSA, and other government agencies involved in investigating the sudden acceleration issue. This collaboration demonstrated a commitment to resolving the crisis and addressing the concerns of the authorities.
• Openness to Independent Investigation: In an effort to ensure transparency and unbiased assessment of the crisis, Toyota welcomed independent investigations into the unintended acceleration incidents. The company engaged external experts and formed advisory panels to evaluate their manufacturing processes, safety systems, and quality control measures.
• Recall and Repair Initiatives: Toyota initiated a massive recall campaign to address the safety issues associated with unintended acceleration. The company implemented comprehensive repair programs aimed at fixing the defects and improving the safety features in affected vehicles. These initiatives were crucial in demonstrating Toyota’s commitment to rectifying the problems and ensuring customer safety.
• Internal Process Evaluation : Toyota conducted internal evaluations and reviews of their manufacturing processes and quality control systems. They identified areas for improvement and implemented changes to prevent similar issues from arising in the future. This internal introspection showed a dedication to learning from the crisis and strengthening their processes.

Appointment of crisis management team

In response to the sudden acceleration crisis, Toyota recognized the need for a dedicated crisis management team to effectively handle the situation. The appointment of such a team was crucial in coordinating the company’s response, managing communications, and implementing appropriate strategies to address the crisis.

Toyota appointed experienced and senior executives to lead the crisis management team. These individuals had a deep understanding of the company’s operations, values, and stakeholder relationships. They were entrusted with making critical decisions and guiding the organization through the crisis.

The crisis management team comprised representatives from various functions and departments within Toyota, ensuring a comprehensive approach to addressing the crisis. Members included executives from engineering, manufacturing, quality control, legal, public relations, and other relevant areas. This cross-functional representation facilitated a holistic understanding of the issues and enabled effective collaboration.

Implementation of recall and repair programs

In response to the sudden acceleration crisis, Toyota implemented extensive recall and repair programs to address the safety concerns associated with unintended acceleration. These programs aimed to rectify the defects, enhance the safety features, and restore customer confidence.

Toyota identified the models and production years that were potentially affected by unintended acceleration issues. This involved a thorough examination of reported incidents, investigations, and collaboration with regulatory agencies. By pinpointing the specific vehicles at risk, Toyota could direct their efforts towards addressing the problem efficiently.

Toyota launched a comprehensive communication campaign to reach out to affected customers. The company sent notifications via mail, email, and other channels to inform them about the recall and repair programs. The communication highlighted the potential risks, steps to take, and the importance of addressing the issue promptly.

Toyota actively engaged its dealership network to support the recall and repair initiatives. Dealerships were provided with detailed information, training, and necessary resources to assist customers in scheduling appointments, conducting inspections, and performing the required repairs. This collaboration between the company and its dealerships aimed to ensure a seamless and efficient recall process.

Toyota developed a structured repair process to address the unintended acceleration issue in the affected vehicles. This involved inspecting and, if necessary, replacing or modifying components such as the accelerator pedals, floor mats, or electronic control systems. The company ensured an adequate supply of replacement parts to minimize delays and facilitate timely repairs.

Collaboration with regulatory bodies and industry experts

During the sudden acceleration crisis, Toyota recognized the importance of collaborating with regulatory bodies and industry experts to address the safety concerns and restore confidence in their vehicles. This collaboration involved working closely with relevant agencies and seeking external expertise to investigate the issue and implement necessary improvements.

Let’s delve into Toyota’s collaboration with regulatory bodies and industry experts:

• Regulatory Engagement: Toyota actively engaged with regulatory bodies, such as the National Highway Traffic Safety Administration (NHTSA) in the United States and other similar agencies globally. The company cooperated with these organizations by providing them with relevant data, participating in investigations, and adhering to their guidelines and recommendations. This collaboration aimed to ensure a thorough and unbiased assessment of the sudden acceleration issue.
• Joint Investigations: Toyota collaborated with regulatory bodies in conducting joint investigations into the unintended acceleration incidents. These investigations involved sharing data, conducting extensive testing, and evaluating potential causes and contributing factors. By working together with the regulatory authorities, Toyota aimed to gain a comprehensive understanding of the problem and find effective solutions.
• Advisory Panels and External Experts: Toyota sought the expertise of external industry experts and formed advisory panels to provide independent assessments of the sudden acceleration issue. These panels consisted of experienced engineers, scientists, and safety specialists who analyzed the data, evaluated the vehicle systems, and offered recommendations for improvement. Their insights and recommendations helped guide Toyota’s response and ensure a thorough and impartial evaluation.
• Safety Standards Compliance: Toyota collaborated with regulatory bodies to ensure compliance with safety standards and regulations. The company actively participated in discussions and consultations to contribute to the development of robust safety standards for the automotive industry. By actively engaging with regulatory bodies, Toyota aimed to demonstrate its commitment to maintaining high safety standards and fostering an environment of continuous improvement.
• Sharing Best Practices: Toyota collaborated with industry peers and participated in industry forums and conferences to share best practices and learn from others’ experiences. By engaging with other automotive manufacturers, Toyota aimed to gain insights into safety practices, quality control measures, and crisis management strategies. This exchange of knowledge and collaboration helped Toyota strengthen their approach to safety and crisis management.

Final Words 

Toyota crisis management case study serves as a valuable reminder to all automobiles companies on managing crisis. The sudden acceleration crisis presented a significant challenge for Toyota, testing the company’s crisis management capabilities and resilience. While Toyota demonstrated strengths in their crisis management strategy, such as a swift response, transparent communication, and a customer-focused approach, they also faced weaknesses and shortcomings. Initial denial, lack of transparency, and communication issues hampered their crisis response.

The crisis had profound financial consequences for Toyota, including costs associated with recalls, repairs, legal settlements, fines, and a decline in market value. Legal settlements were reached to address claims from affected customers, shareholders, and other stakeholders seeking compensation for damages and losses. The crisis also resulted in reputation damage that required significant efforts to rebuild trust and restore the company’s standing.

About The Author

Tahir Abbas

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What Really Makes Toyota’s Production System Resilient

• Willy C. Shih

“Just-in-time” only works as part of a comprehensive suite of strategies.

Toyota has fared better than many of its competitors in riding out the supply chain disruptions of recent years. But focusing on how Toyota had stockpiled semiconductors and the problems of other manufacturers, some observers jumped to the conclusion that the era of the vaunted Toyota Production System was over. Not the case, say Toyota executives. TPS is alive and well and is a key reason Toyota has outperformed rivals.

The supply chain disruptions triggered by the Covid-19 pandemic caused major headaches for manufacturers around the world. Nowhere was this felt more acutely than in the auto industry, which faced severe shortages of semiconductor chips and other components. This led many people to argue that just-in-time and lean production methods were dead and being superseded by “just-in-case” stocking of more inventory.

• Willy C. Shih is a Baker Foundation Professor of Management Practice at Harvard Business School.

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Unintended Acceleration: Toyota's Recall Crisis

By: David Austen-Smith, Daniel Diermeier, Eitan Zemel

In late 2009 Toyota became the subject of media and U.S. government scrutiny after multiple deaths and injuries were attributed to accidents resulting from the unintended and uncontrolled…

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In late 2009 Toyota became the subject of media and U.S. government scrutiny after multiple deaths and injuries were attributed to accidents resulting from the unintended and uncontrolled acceleration of its cars. Despite Toyota's voluntary recall of 4.2 million vehicles for floor mats that could jam the accelerator pedal and a later recall to increase the space between the gas pedal and the floor, the company insisted there was no underlying defect and defended itself against media reports and regulatory statements that said otherwise. As the crisis escalated, Toyota was further criticized for its unwillingness to share information from its data recorders about possible problems with electronic throttle controls and sticky accelerator pedals, as well as about braking problems with the Prius. By the time Toyota Motor Company president Akio Toyoda apologized in his testimony to the U.S. Congress, Toyota's stock price had declined, in just over a month, by 20 percent-a $35 billion loss of market value.

Learning Objectives

Understand the strategic and reputational nature of crises Recognize the challenges of managing a crisis Learn the requirements for building trust in a crisis Understand the challenges of managing a crisis that may not be the company's fault Identify the strategic business problem in a crisis Understand how corporate structure may help or hinder effective crisis management Understand the media landscape and its impact on crisis management

Jan 1, 2012

Discipline:

Organizational Behavior

Geographies:

United States

Industries:

Automotive industry

Kellogg School of Management

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Case Study: How Toyota Crashed Its Brand

Editor’s Note: This case study was originally published in “ Masters of Disaster ,” an excellent new book about crisis communications. This is one of several case studies the authors highlight in the book.

In January 2009, Toyota officially surpassed GM to become the world’s number one auto company.

Toyota’s success was decades in the making and directly attributable to the commitment of the Toyoda family (the company’s founders) to building one of the world’s most trusted consumer brands.

A number of surveys over the years documented that the carmaker’s brand was among the best in the world, and this was grounded in consumer perceptions of Toyota vehicles as safe, high-quality automobiles. Consumers trusted the Toyota brand so much that the company had developed a significant competitive advantage on the basis of its customer loyalty. If you bought one Toyota, there was a good chance you would have a long-term relationship with the carmaker.

In late August 2009—the same year the company became the world’s number one auto brand—an off-duty California policeman was driving a Toyota Lexus that accelerated in excess of one hundred miles per hour and crashed, killing the officer and his family. The incident received news coverage that featured a recorded cell phone call to 911 documenting that the acceleration was uncontrolled, and the driver had no part in the sudden acceleration. In part because of the novel, TV-friendly existence of the 911 cell phone recording, this became a story in the electronic media and spiked existing concerns about whether Toyota vehicles suffered from an electronic defect that caused uncontrolled acceleration—in turn putting pressure on federal safety regulators responsible for protecting the public.

The subsequent events provide key lessons in damage control careening out of control.

At the time of the fatal accident, Toyota was well aware of quality and safety questions about unintended accelerations. The trail of evidence included data from the NHTSA (the National Highway Traffic Safety Administration—the government agency empowered to ensure automotive safety) from 2004 indicating that Toyota vehicles accounted for 20 percent of all uncontrolled acceleration accidents (compared to 4 percent in 2000); the company’s own 2009 analysis into these accidents, which suggested that the cause of the uncontrolled acceleration was due to floor mats obstructing gas pedals; and an early October 2009 recall of 3.8 million cars to address concerns that the floor mats could be obstructing the gas pedal.

However, the story ratcheted up even further when in October 2009, the Los Angeles Times launched an investigative series examining Toyota’s safety and quality practices.

Over the course of several months, the paper reported that:

• Toyota’s acceleration issues dated back to 2002, when the company began installing drive-by-wire systems in its vehicles.
• The company had received 1,200 complaints of unintended accelerations, and the uncontrolled accelerations continued even when the floor mats in question were removed.
• Toyota sought to prevent making available the data collected by onboard recorders of vehicles that had experienced uncontrolled acceleration.
• And more people had died from uncontrolled accelerations involving Toyota cars than from all the other car companies put together.

In the face of these articles and other media coverage, Toyota continued to insist that there was no defect and that the floor mats were the root cause of the uncontrolled accelerations. The company even sent a letter to its customers at the end of October 2009 explicitly stating, “no defect exists.”

A few days later, the NHTSA took the highly unusual action of issuing an especially harsh response to Toyota’s “no defect” letter, calling it “inaccurate” and “misleading,” and adding that the recall of the floor mats “does not correct the underlying defect.”

The rebuke by the feds turned what was a big story into an even bigger story.

The controversy continued to escalate and Toyota issued a press release denying media reports about the defects. However, by late November, Toyota dealers were being instructed to remove and replace gas pedals and update the onboard computers on some vehicle models.

But the accidents continued.

On the day after Christmas 2009, a Toyota Avalon carrying four passengers accelerated and crashed into a Texas lake, killing everybody on board.

By December 31, 2009, Toyota had accounted for 33 percent of all uncontrolled acceleration complaints that year.

On January 16, 2010, Toyota stated that a supplier was responsible for the gas pedals that may have had a dangerous “sticking” defect.

Then five days later Toyota announced a recall for 2.3 million cars to fix sticky pedals.

And the problems for Toyota grew still worse.

On January 26, 2010, the company suspended the sale of eight models and announced that beginning the following week it would temporarily shut down five North American assembly plants. The company did not make public that it took these steps at the direction of the federal government, but the next day, Department of Transportation secretary Ray LaHood effectively called Toyota on the carpet by publicly stating that his agency had directed Toyota to suspend its operations—a statement that Toyota had to confirm.

On February 5, Toyota president Akio Toyoda finally appeared at a press conference. Facing the media, he apologized and announced a task force involving outside experts. But by now—after multiple explanations—the damage had been done.

Toyota temporarily shut down its manufacturing plants at a cost of $54 million a day; monthly car sales dropped below 100,000 for the first time in more than a decade; Toyota’s U.S. market share fell to its lowest level since January 2006; the company’s stock dropped 16 percent; Consumer Reports removed its “buy recommendation” on eight Toyota models; the Department of Justice and the Securities and Exchange Commission initiated investigations; and Congress opened up its own inquiry, complete with public hearings.

By 2011, two years after ascending to the top, Toyota was passed by GM as the number one carmaker in the world.

And even though a subsequent NHTSA study came out generally supporting Toyota’s claim that there were no defects in the technical sense, and Toyota has since worked to claw its way back to its previous position in the public eye, Toyoda acknowledged that Toyota’s crisis response, like the warden and prisoners in Cool Hand Luke, suffered from a failure to communicate:

“We came to realize the problem was rather with communications.”

Masters of Disaster is available in hardcover here and for the Kindle here .

Copyright © Christopher Lehane, Mark Fabiani, and Bill Guttentag, 2012.

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The Toyota Recall Crisis: Media Impact on Toyota's Corporate Brand Reputation

• Original Article
• Published: 12 April 2013
• Volume 16 , pages 99–117, ( 2013 )

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• David Fan 1 ,
• David Geddes 2 &
• Felix Flory 3  

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The time trend of public opinion about carmaker Toyota dropped precipitously in early 2010 following a series of quality issues and recalls. The mathematical model of ideodynamics could predict the fall and subsequent rise in Toyota's reputation from coverage of Toyota in blogs, in Internet forums, in print news, and in news websites from 1 January, 2009 through 31 March, 2011. Internet forums represented crowd sourcing in social media. The model performance was high for all these types of media with R 2 values in the range of 0.7–0.8. Information favorable to Toyota was about twice as persuasive as information unfavorable to the company. Blogs had negative coverage of Toyota in the fall of 2009 before other media types but had limited effects on opinion. Impressions of Toyota only showed a notable drop after recall information hit the majority of the other media. The good predictions showed that all the media studied moved in reasonable synchrony, so all could represent the information shaping public opinion even though the messages did not include advertising or broadcast content.

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Fan, D., Geddes, D. & Flory, F. The Toyota Recall Crisis: Media Impact on Toyota's Corporate Brand Reputation. Corp Reputation Rev 16 , 99–117 (2013). https://doi.org/10.1057/crr.2013.6

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The Toyota Group and the Aisin Fire

• Business Models

The Japanese model of long-term collaborative partnerships between firms and their suppliers has attracted much attention from business researchers and practitioners. Several U.S. and European auto-makers have attempted to establish similar partnerships of their own, seeking to reduce their supplier base and cultivate relationships with their best suppliers. 1 As a result, the early involvement of suppliers in product-development and cost-reduction efforts is becoming standard practice in the automotive industry and beyond. 2

A recent crisis involving Toyota and its supplier network suggests, however, that the Japanese model — or at least the Toyota model — involves more than a set of long-term relationships between a firm and a few select suppliers. As the Toyota group’s collaborative response to the sudden destruction of a key supplier’s plant suggests, the relationships among a firm’s suppliers are equally important. More generally, a complex mix of institutions permits self-organization during times of crisis with little need for a leader’s direct control. 3 These strong relationships among many firms along with the steady but largely invisible control of a leader promote flexible and coordinated responses to crises. In addition, they foster long-term competitiveness through decentral- ized, groupwide efforts to solve day-to-day problems and improve performance.

On February 1, 1997, a fire at one of Aisin Seiki’s plants threatened to halt Toyota-group operations for weeks. Aisin Seiki, one of Toyota’s most trusted suppliers, was the sole source for proportioning valves (or P-valves, in the industry parlance), a small but crucial brake-related part used in all Toyota vehicles. 4 Because of Toyota’s and Aisin’s dedication to the principles of just-in-time (JIT) production, only two or three days’ worth of stock was on hand. A shutdown of Toyota-group plants (including those of several hundred suppliers) seemed unavoidable.

The timing could not have been worse. Toyota plants were operating at full capacity with levels of overtime and use of temporary workers unheard of in years, in anticipation of a last-minute boom in automobile sales prior to the 2 percent consumption sales tax increase slated for April 1. Every day lost meant potentially huge and irretrievable losses in sales and profits for Toyota and related firms. 5

Yet, remarkably, disaster was averted, and assembly plants were reopened after only two days of shutdown. The recovery was accomplished through an immediate and largely self-organized effort by firms, mostly from within but also from outside the Toyota group, to set up alternative production sites outside of Aisin. 6 Within days, firms with little experience with P-valves were manufacturing and delivering the parts to Aisin, where they were assembled and inspected before being sent to Toyota’s and other clients’ assembly plants. The collaborative effort, which which involved more than 200 firms (of which approximately sixty-two took direct responsibility for P-valve production), was orchestrated with very limited direct control from Toyota and with no haggling over technical proprietary rights or financial compensation.

The Toyota group demonstrated its cohesion and resiliency at a time when many observers were discussing the weakening of traditional ties among group members. Based on data collected through in-depth interviews with key players in the incident, we describe what took place during the Aisin Seiki crisis and how individual firms came together to orchestrate the recovery effort. 7 We believe that the episode holds lessons for businesses adopting the Japanese model of long-term supplier partnerships as well as for businesses moving away from that model. Of course, competition for future contracts and the pressure to maintain their reputations motivated the suppliers to cooperate with each other. Nevertheless, we argue, it was the various capabilities developed through institutionalized problem-solving activities within the Toyota group that ensured the effectiveness and rapidity of the suppliers’ collaborative effort. For businesses of many kinds, the capabilities developed through committed partnerships can enhance competitiveness, driving participants to respond effectively to emergencies and to pursue continuous improvement on a daily basis. 8

The Aisin Seiki Crisis

At 4:18 a.m. on Saturday, February 1, 1997, a fire erupted in Aisin’s Kariya plant number one. By 8:52 a.m., the lines dedicated to P-valves and to two other brake-related parts (clutch master cylinders and tandem master cylinders) were almost completely destroyed, along with special-purpose machinery and drills that could take months to reorder. The near destruction of the P-valve lines was potentially disastrous for Toyota; nearly all of its vehicles used Aisin P-valves manufactured exclusively at the Kariya plant, which turned out 32,500 P-valves a day for Toyota and other Toyota-group assemblers such as Hino and Daihatsu as well as for Mitsubishi, Suzuki, and Isuzu.

Used in all vehicles, P-valves control pressure on rear brakes to help prevent skidding. About the size of a pack of cigarettes, the part is mass-produced using dedicated transfer lines, which keeps costs down and ensures high productivity and reliability. Although structurally simple and inexpensive, costing only between ¥770 and ¥1,400 apiece, P-valves require complex, high-precision machining to ensure the reliability and durability essential to the safety of any brake system.

That Aisin was the sole supplier of this small but critical part was surprising to many in Japan. To reduce the risk of the very kind of disruption it was now confronting, Toyota had increased parallel sourcing. Its relationship with Aisin was distinctive, however. 9 Aisin was one of Toyota’s closest suppliers in sales, personnel, and financial linkages; its outstanding cost, quality, and delivery performance record made it difficult to replace. 10

Toyota suddenly found itself in crisis. As a result of JIT operations, only one day’s worth of P-valves were in immediate stock. Predictably, on Monday, February 3, when assembly lines were still running, Toyota announced the following days’ shutdown of twenty of its thirty assembly lines (including those of Toyota’s contract assemblers); from Tuesday, February 4, to Wednesday, February 5, practically all of Toyota’s and most of its related firms’ plants were closed, bringing to a halt almost the entire Toyota group. 11 As a result, hundreds of tiered suppliers who would have to wait for the reopening of their clients’ plants to resume deliveries were also affected, as were local electricity, gas, and transportation companies. Such is the fragility of JIT: a surprise event can paralyze entire networks and even industries. 12

Indeed, Toyota was facing one of the worst crises in its history. 13 But on Tuesday, February 4, only three days after the fire, the first alternative volume P-valves (as opposed to prototype P-valves that had been delivered one day earlier) were rolling off temporary lines hastily set up by an Aisin supplier, Koritsu Sangyo, marking the beginning of the recovery process. As a result of this and many other firms’ efforts, by Thursday, February 6, Toyota’s Tahara and Hino’s Hamura plants were reopened, followed by the other car assembly plants affected the next day on a single-shift basis. By Monday, February 10, a little more than one week after the plant fire, all Toyota-group assembly plants were back to normal with production volumes of 13,000 to 14,000 vehicles per day. After another week, the plants were in full operation at the previously planned production volumes of 15,500 vehicles per day. At that time, the proportion of P-valves produced by Aisin itself was less than 10 percent of the total amount necessary; it gradually increased, however, reaching 60 percent by March 14 and almost 100 percent by the end of March. The bulk of the P-valve production was taking place at approximately sixty-two firms, including Koritsu Sangyo, which gave full priority to the restoration of P-valve production and often worked double shifts through weekends.

In total, the fire cost Aisin ¥7.8 billion and Toyota about 70,000 vehicles and ¥160 billion in revenues. 14 Although Toyota officials claim to have recouped most of the lost vehicle production through increased overtime and holiday shifts, losses in the range of ¥20 billion to ¥30 billion were unavoidable, mainly because the creation of alternative P-valve sites was costly. 15 In the end, however, Toyota and Aisin could only be grateful that group members achieved a rapid and effective recovery and averted what could have been a much more devastating incident.

The Recovery Effort

How could alternative P-valve production sites be organized and the delivery of the required 32,500 P-valves a day be resumed so quickly? We describe the roles played in the recovery by six firms, which we visited during our field research: Toyota, Aisin Seiki, Denso, Taiho Kogyo, Kayaba Industry, and Koritsu Sangyo. While these firms differ in size, areas of specialization, position in the value chain, and financial linkages to Toyota, they share several characteristics: a commitment to, and capabilities for, JIT production and the ability to solve problems at their source. 16

From the beginning, it was clear that until Aisin could rebuild its previous capacity, outside help would be indispensable. It was decided then that firms from both inside and outside the Toyota group would be asked to set up alternative P-valve production sites as soon as possible, with Aisin providing technical assistance, design drawings, jigs (e.g., specialized drills), machine tools, and raw materials (e.g., cast iron) salvaged from the fire. 17 Aisin was to immediately begin setting up alternative production sites in its other plants as well.

Sixty-two firms responded to Aisin’s call and immediately began preparations to manufacture P-valves. Responding firms included twenty-two of Aisin’s own suppliers (e.g., Koritsu Sangyo); Toyota itself; thirty-six of Toyota’s regular suppliers (e.g., Toyota keiretsu firms such as Denso and Taiho Kogyo, independent suppliers such as Kayaba Industry and Akebono Brake Industry, and firms belonging to other keiretsu such as Sumitomo Electric Industries); and four non-regular suppliers (e.g., Nabco).

Along with these firms were about 150 others, including seventy machine-tool makers that were involved indirectly in the recovery process, since machinery, drills, fixtures, and gauges had to be found to replace the ones destroyed in the fire. Aisin asked machinery makers in Japan and beyond to gather every available machine on hand, including exhibition models taken from showrooms and equipment already promised to other clients. For the sake of fast recovery, both regular and nonregular suppliers of machinery to Aisin were called on. The cooperation of these suppliers was crucial to the success of the recovery effort; undoubtedly, many were hoping to increase sales to Toyota in the future.

Firms were asked to machine the needed parts using Aisin’s design drawings and forged blocks and to deliver them to Aisin. Then Aisin would be responsible for final assembly, quality control, and delivery to Toyota and other customers. A few firms such as Nabco, Sumitomo Electric Industries, and Akebono Brake Industry already produced P-valves of different types, but most had no experience with this particular part. One firm, the sewing-machine manufacturer Brother Industries, had never made car parts. 18 Although the technology and skills involved in manufacturing P-valves are relatively simple, their numerous and complex orifices require highly precise machining. Without the dedicated equipment used by Aisin (which was largely destroyed in the fire), P-valve production would be slow and arduous.

The situation was discouraging: the suppliers recruited lacked sufficient tools, were mostly unfamiliar with P-valve production, and were inexperienced in responding to crises of this magnitude. The problem-solving capabilities developed through long-term collaboration and the flexible deployment of resources enabled the firms to overcome these obstacles and ensured a rapid recovery of P-valve production and of Toyota’s assembly plants.

Preparations

The first step involved the establishment at 5:30 a.m. on Saturday, February 1 (while the P-valve lines were still on fire), of an “emergency response unit” at Aisin to centralize and coordinate efforts to deal with the crisis in an orderly and organized manner. At 6:30 a.m., the unit was reorganized and divided into four teams, dealing respectively with production (for example, the setting up of alternative production sites), materials handling (for example, the delivery of materials to those sites), liaison with customers (for example, Toyota, which was immediately contacted), and general affairs (e.g., negotiations with Aisin’s union). The unit’s first meeting was held at noon; twenty-seven meetings subsequently took place until February 21. The second step involved contacting potential collaborators and deciding who would do what, since many kinds of P-valves were needed (there are more than 100 main types of P-valves) and available equipment and capacity differed from firm to firm. After consulting its clients on which P-valves should be given priority, Aisin started as early as Sunday, February 2 (the day after the fire), to fax design drawings to various firms that had already voluntarily offered their help (e.g., Taiho Kogyo, which had contacted Aisin on hearing about the fire on the radio) or had agreed to the request of Aisin or its clients (for example, Kayaba, which was asked for help on the day of the fire by Mitsubishi Motors and the next day by Toyota and Aisin).

In many respects, of course, the firms that “voluntarily” offered their help were forced to cooperate with Aisin and Toyota. Failure to do so might have jeopardized future business relations with Toyota-group firms; moreover, because of JIT, most suppliers were losing millions of yen every day that Toyota plants remained shut down. Still, cooperation worked both ways. For example, Toyota chose not to put pressure on Aisin to give priority to its own models to the detriment of Aisin’s other clients, such as Mitsubishi, even though it could have easily done so given Aisin’s financial and commercial dependence on Toyota. Pressuring Aisin would have yielded Toyota short-term gains, but in the long run, the parties concerned would remember such actions and possibly retaliate in some fashion.

After reviewing the faxed design drawings, its equipment availability, and its pertinent technical capabilities, each firm had to notify Aisin of its decision on whether to participate in the recovery effort. The process was not easy because most of the firms had never produced P-valves and knew little about the technical implications of P-valve production. Moreover, the design drawings they received lacked necessary technical details for first-timers and needed to be decoded into something more readily understandable.

To make matters worse, P-valve production had to be organized without Aisin’s special-purpose machines and drills because these were seriously damaged in the fire. As noted earlier, P-valves require highly precise machining, and to manufacture more than 30,000 of them a day requires highly customized jigs, drills, and transfer machines. Instead, firms would have to rely on general-purpose machines such as machining centers to manufacture P-valves, which most firms already possessed. This method would mean much higher labor content and lower productivity than usual.

Compounding the problem, Aisin’s know-how was largely restricted to the special-purpose transfer machines, making it difficult for Aisin to instruct firms on how to manufacture P-valves by other means. Furthermore, although a few drills were salvaged from the fire, there were only enough to allocate one drill per firm, which slowed down production because the drill had to be used with extra caution to avoid breaking. Moreover, not one but many different drills were needed, and the scarce ones received from Aisin were not a perfect match for machining centers.

Yet another problem was the difficulty in controlling quality without Aisin’s special-purpose gauges. To ensure the reliability and durability of the brake system, quality control is very strict, involving at least seventy inspection steps per piece. Even though Aisin was to double-check every incoming P-valve, firms had to conduct some form of quality control before delivery, using general-purpose gauges.

Finally, in the first few days of the crisis, Aisin was in a state of chaos and was difficult to contact. Indeed, so confused were conditions at Aisin that during the evening of the first day of the fire, Taiho Kogyo’s director of production control was wrongly informed that master cylinders, not P-valves, were the main problem for Aisin. Within days, Aisin installed 250 additional fixed phones and 300 mobile phones in an attempt to accommodate skyrocketing inquiries. The magnitude of incoming calls, however, overwhelmed Aisin’s capacity to respond.

Because Aisin lacked sufficient resources to provide direct assistance to every firm at once, collaborating firms had to figure out by themselves how to program their machining centers for P-valve production and find or make appropriate drills. For example, Denso scrambled for drills from all over Japan and even sourced some special ones from a U.S. maker arranged for by Denso’s Tennessee plant. Although Aisin supported these efforts as much as it could by setting up a “drill center” to coordinate drill purchases and by organizing meetings to discuss technical problems and solutions, firms had to rely largely on their own capabilities to begin P-valve production.

For all these reasons, many firms declined to help at all, judging their equipment and capabilities insufficient to manufacture P-valves. But many accepted, including Denso, Taiho, Kayaba, and Toyota, which agreed to manufacture between two and five types of P-valves each. These and other firms then immediately started preparations for P-valve production.

At this point, significant differences in the firms’ approaches to P-valve production emerged. Denso gave full priority to in-house P-valve production, and some of Denso’s other processes were temporarily outsourced to make room for P-valves. In all, about forty machining centers were made available at Denso for P-valve production. Taiho met with thirty of its suppliers the day after the fire to plan an appropriate division of labor, eventually involving eleven suppliers in the effort, with Taiho itself taking charge of the final processes. Fifty machining centers were made available at two of the firm’s three local plants.

Toyota set up temporary production sites in its Honsha plant, entrusting P-valve production to the division responsible for experimental prototype production and machinery maintenance, whose engineers and operators possessed considerable knowhow in setting up machines for new models and preparing the transition to volume production. Kayaba’s approach involved outsourcing P-valves to three of its suppliers, with no actual P-valve production taking place in any of its own factories. It chose three prototype specialists, the largest with 110 employees and the others with only sixteen and six employees, respectively. Originally Kayaba had contacted about ten suppliers, of which three were chosen on the basis of equipment availability and technical capabilities.

At this stage, the collaborating firms established their own “emergency response units” to coordinate P-valve production activities. A challenge for many firms was to ensure close collaboration among usually remotely related units. Kayaba set up a special team, under the direction of Kayaba’s director of production engineering, to centralize control and coordinate activities with the suppliers concerned; the team was composed of sixteen employees from the quality assurance, production engineering, and purchasing departments. Three salespeople were also dispatched to Aisin to obtain real-time information and feedback. At Toyota, the production control department was put in charge of coordinating in-house P-valve production and direct assistance to Aisin.

Production Begins

The next step involved each firm completing its first prototype to send to Aisin for approval before volume production. It was a tiny second-tier supplier, Koritsu Sangyo, that first delivered its prototype on Monday, February 3, only two days after the fire. 19 Denso, the largest and most famous supplier in Toyota’s group, was the second to deliver a prototype on the early morning of February 5, followed by Toyota and Taiho Kogyo later that day. Kayaba’s first prototype was ready on February 6, delivered from the sixteen-employee supplier, followed by those from the 110-employee and the six-employee suppliers on February 7 and February 8, respectively.

The operational speed of the firms reflected their familiarity with Aisin or with brake-related parts and their technical capabilities with machining centers and prototype making. In all cases, however, work was complicated by such difficulties as the lack of details in Aisin’s design drawings, appropriate equipment, and direct assistance from Aisin. As a result, in making many of the production decisions, firms had to experiment and exercise judgment, which explains the variety of methods used to manufacture P-valves; Taiho used two drills; Toyota used only one for a similar task. At Kayaba, two of the three suppliers, including the six-employee firm, ended up making their own drills.

Once the prototypes were approved, each firm moved to volume production. Koritsu Sangyo began volume production on February 4. Denso started volume production on the evening of February 5, with production volumes of 1,600 units a day (raised to 2,200 on February 11 under pressure from Toyota). Taiho started volume production the next day, beginning with low batches of about fifty units and gradually moving toward volumes of 2,000 units a day. Kayaba started on February 7 with a daily production volume of 520 units. Toyota began volume production on February 6.

Solving Technical Problems

The next step involved solving the technical problems that emerged during volume production. Since Aisin was unfamiliar with P-valve production by machining centers, it was unable to provide solutions on its own. A testimony to the firm’s impressive technical capabilities, Denso assumed an important role, with its engineers quickly solving one problem after another. Denso’s solutions were then disseminated to other participating firms during special problem-solving meetings organized by Aisin. Denso also modified Aisin’s design drawings and process instructions to make them more appropriate for machining centers, which Aisin passed on to other firms.

These problem-solving capabilities are the hallmark of firms ingrained with the principles of the Toyota Production System (TPS), or lean production. The capacity to disseminate solutions quickly is also characteristic of Toyota-group firms; they regularly do benchmarking studies and set up problem-solving study groups in Toyota’s supplier association, the Kyohokai, or as part of jishuken (voluntary study group) activities, usually in the presence, and sometimes under the supervision, of consultants sent free of charge by Toyota. These efforts, along with the meetings of company presidents, the training programs and internships held for lower-tiered suppliers’ employees, and the constant flow of employees among firms, permit rapid horizontal and vertical diffusion of best practices.

Despite these efforts to disseminate the newly found best practices and to standardize P-valve production, the diversity in practices persisted as some firms preferred to stick to their own methods. For example, Taiho declined five out of six design modifications proposed by Aisin because they created discrepancy problems with Taiho’s existing equipment.

Once the major technical problems were solved, the firms devoted their efforts to raising productivity and increasing volume through kaizen activities. Again, years of training in TPS principles ensured that the appropriate capabilities and routines were already in place. At Toyota, for example, cycle time was reduced from more than two minutes to one minute, twenty seconds, within a few weeks, by minimizing changeover times through the presetting of the machining centers (P-valve production was still relatively slow because of limits to increasing productivity in the absence of Aisin’s special-purpose transfer machines). The results of these efforts were then recorded on video to be stocked as “organizational memory” should the need to manufacture P-valves emerge again.

The ability of Toyota and the other firms to move quickly toward shortening set-up times and to resume full JIT production demonstrates how deeply ingrained the TPS is in these firms. For example, at Taiho, which used kanban to make P-valves and delivered them to Aisin in eight batches per day, managers stressed that this was the only way they knew how to do it.

Flexible employee deployment and procedures, which are also associated with Toyota and many other Japanese firms, were evident throughout the effort as well. At Aisin, with union cooperation, the majority of employees were mobilized for the recovery effort, which involved, for example, white-collar staff from public relations and accounting departments helping with plant operations. At Toyota, the situation often dictated that managers and workers make decisions and take action immediately without necessarily following normal procedures or obtaining permission from superiors or bookkeepers. Employees, after all, were thrown into exceptional circumstances that required overcoming the usual departmental divisions and relaxing many bureaucratic procedures (for example, regarding orders for machinery and materials without proper invoices or changing shifts of workers without prescribed prior notice).

The flow of employees also occurred among firms. For example, at least 300 Toyota employees from production control, maintenance, production engineering, purchasing, quality control, and materials handling could be seen at Aisin at any time during the first three weeks, helping Aisin set up more permanent P-valve assembly lines, among other tasks; other automakers sent about forty people to Aisin. Toyota employees (in particular from the maintenance department) were also sent to Denso to assist in the P-valve production process, staying until they observed that everything was in order; they also visited the machine-tool makers to help them repair Aisin’s damaged transfer machines, an effort that was completed by mid-March. Within the Aisin group, various flows of personnel also took place, for example, from Aisin suppliers to Aisin (about 250 people). In total, more than 500 employees from Aisin’s customers and suppliers as well as Toyota-group firms were on site at Aisin during the peak days of the crisis.

As these examples demonstrate, the P-valve recovery effort involved more than just individual initiatives to set up temporary production sites and increase productivity. The flow of employees within and among firms, the meetings organized to discuss and disseminate solutions to technical problems, and the group-level coordination efforts exerted by Aisin’s “emergency response unit” and Toyota’s production control department all contributed to a successful outcome that was more than just the sum of individual efforts. These capabilities for groupwide coordination and organizational learning were revealed once again several months after the incident, when Aisin Seiki published a booklet on how to organize the rapid recovery of production following a disaster such as a factory fire.20 Based on lessons learned during the crisis, the booklet was distributed to 500 firms, including all those that had joined the recovery effort and all remaining Kyohokai members. The gesture was a way of thanking the firms for their support and ensuring that mistakes would not be repeated. The lessons from the Aisin incident were thus recorded as organizational memory for all cooperating firms to use should the need ever arise. 21

Settling Compensation

P-valve production continued until March 10 for Denso, until March 6 for Taiho (with one small-volume item lasting until the end of March), until April 10 for Kayaba, until mid-March for Koritsu, and until March 15 for Toyota. Considerable expenses were incurred during the recovery process, including labor costs (which were particularly high because of the lack of specialized machinery and experience in P-valve production and because much of the work included overtime) and machinery and tooling costs. 22

Firms including Denso and Kayaba had begun production of P-valves without making any explicit agreements with Toyota or Aisin on eventual compensation for their expenses. There was neither time nor reason to do so. Eventually it was agreed that Aisin would fully reimburse all firms for the expenses incurred in P-valve production, including labor costs. For example, Denso would be compensated by Aisin for the more than ¥300 million in labor, equipment, special-purpose oil, and other costs. The arrangement addressed only direct expenses, however. More important were the losses in output during the closure of assembly plants incurred by Toyota and all the suppliers involved.

Toyota settled the issue in a surprising manner: it announced that all its first-tier suppliers would receive a payment equivalent to 1 percent of their respective sales to Toyota from January to March 1997. This amounted to overall payments of more than ¥15 billion, with Denso, for example, to receive ¥1.5 billion. Many of the firms viewed the offer as a reward for cooperation rather than as compensation. 23

Toyota’s decision was then replicated throughout the network, as most of the first-tier suppliers announced in turn that they would pass on most of these payments to their own (second-tier) suppliers, and some of these then announced their intention to compensate their own (third-tier) suppliers in the same manner.

Lessons from the Toyota Group

What lessons can be drawn from the Toyota group’s organized effort to recover from the Aisin fire? While the incident underscores the risk of single sourcing in a JIT setting, the chances of such an event recurring are low. 24 Furthermore, apart from natural disasters or fires, there is usually little need for coordinated responses of the magnitude we have described here. (Strikes pose different problems because the setting up of alternative sites at other firms would be viewed as interference and would generally be unacceptable to trade unions). More significant for our purposes are the implications of the recovery effort for everyday situations.

We believe that this episode demonstrates the benefits of clustered firm networks of the kind that Toyota and its partners have constructed. The Aisin incident reveals the capacity of these networks not only for self-organized, flexible responses to a crisis but also for routine problem solving that leads to incremental improvements in firm and group performance. In other words, the capabilities that made possible the reopening of Toyota-group plants in a few days instead of months are the same ones that have made Toyota and its suppliers among the most competitive in Japan and the world under normal circumstances.

A variety of institutionalized practices foster these capabilities. For example, JIT has the effect of immediately revealing bottlenecks, forcing workers and managers to continuously strive to detect and rapidly solve emerging problems. During the recovery effort, JIT made it easier to locate bottlenecks and improve the productivity of the emergency P-valve production sites. In a JIT environment, workers and managers gradually acquire capabilities for effective and pragmatic problem solving, enhancing their ability over time to deal with emerging problems. As the Aisin episode reveals, these capabilities are shared not only by Toyota and its group of first-tier suppliers (for example, Denso and Kayaba) but also by many second-tier suppliers. 25

These mechanisms also work at the interfirm level and help foster groupwide problem-solving capabilities. Because orders from Toyota would be severely curtailed until P-valve production could be restored, it was impossible for firms such as Denso or even Kayaba to ignore Toyota’s and Aisin’s troubles. Just as Toyota encourages its assembly-line operators to stop the line whenever a serious problem arises to promote rapid problem-solving at the source, so, in this case, Toyota “pulled the cord” and stopped the entire value chain, from raw materials providers to assembly plants, forcing everyone to deal immediately with the problem. The Aisin incident revealed the extent of Toyota-group firms’ capabilities for dealing effectively with such problems, which were the product of years of working in an environment where interfirm coordination and collaboration were crucial to keeping operations running smoothly.

Given the increased competition within Japanese keiretsu, it is likely that Toyota suppliers cooperated to the extent they did in the hopes of being rewarded by increased business opportunities in the future. We believe that such incentives to cooperate were insufficient, however; the necessary capabilities to cooperate effectively had to be in place as well.

Many outside observers believed that the Aisin incident revealed the vulnerability of JIT environments, arguing at the time that any unexpected problem quickly leads to the breakdown of the system. Yet neither Toyota nor any other firm that we interviewed was considering abandoning JIT. With each vehicle containing more than 30,000 parts, it is just too costly to keep security buffers for each component; indeed, any production system is vulnerable to unexpected crises such as a plant fire.

Although crises are impossible to predict, the capabilities required to overcome them effectively and rapidly can be developed in advance. The constraints imposed by JIT ensure that firms gradually make the necessary preparations, since even routine problems can become “minicrises” whose resolution leads to new learning experiences. In other words, because of its inherent fragility, firms value JIT for the role it plays in fostering problem-solving and continuous improvement capabilities, at the individual firm and overall group levels and for both routine and major problems.

Several practices institutionalized within the Toyota group support the firms in their quest to develop these capabilities: information and know-how sharing in the Kyohokai and jishuken , regular transfers of employees among group firms, and other practices involving face-to-face contact. 26 These practices facilitate organizational learning, encourage teamwork, and foster a set of common “codes” and understandings among group members regarding technology, management, and the “rules of the game.” Thus they provide the basis for coordination and ease of communication during times of crisis and routine alike, as tacit agreements and understandings ensure that information is transmitted without having to explain everything. 27

Although the mutual dependence imposed by JIT, the competition for future contracts, and peer pressure to conform to group norms would seem to compel cooperative behavior, in reality, cooperation comes “naturally” in a network where firms have deep and intimate knowledge of each other. Trust was manifested throughout the recovery effort, as firms simply assumed that compensation for their efforts would be forthcoming and fair and that other firms would not take advantage of the situation to steal proprietary secrets or new contracts. 28 Incidents such as the Aisin fire further strengthen these sentiments, as trust and reciprocity are deepened each time a crisis occurs.

Cooperation is also promoted by Toyota; as the recognized leader, it controls the general direction of the group. Toyota’s financial resources and control over the design process make it the natural leader, but in the long run, it is Toyota’s performance record that ensures that suppliers follow its suggestions and initiatives. 29 Firms know that it pays to follow this particular leader, as suggested by Toyota suppliers’ consistently above-average profits. 30 Moreover, suppliers accept the constant pressure to improve performance because various practices ensure that firms are not left alone to develop capabilities and that Toyota does not demand anything that it could not do itself. Toyota’s demands (e.g., cost-reduction targets) are based on rational calculations and indisputable evidence that Toyota is invariably able to offer.

Toyota’s leadership is undisputed and omnipresent, but at the same time, it is largely decentralized and often invisible. Rather than give direct and detailed orders to its group firms, Toyota disseminates general approaches, or “recipes,” giving firms the tools to self-organize in times of crisis and deal autonomously with emerging problems. These tools are disseminated to first-tier suppliers, which are then responsible for disseminating them to their own network of second- and third-tier suppliers. In this way, similar patterns of behavior are replicated throughout the network without any explicit orders from Toyota (as exemplified by the replication of Toyota’s 1 percent compensatory bonus policy throughout the group). An advantage of this approach is that responses may be differentiated and flexibly adapted to each firm’s particular situation, as the “recipe” leaves considerable room for discretion.

One might wonder, then, why all firms do not adopt Toyota-group practices, if the benefits are so great. The answer is that emulating Toyota’s model is not easy; it is the product of decades of investments in supplier capabilities and in trust and commitment. Even in Japan, many firms are unable to replicate either the structure or the performance of the Toyota group. Nevertheless, we believe that the Toyota model offers an excellent goal for firms to strive toward. Through earnest and persistent efforts to build supplier capabilities and promote horizontal knowledge sharing among suppliers, firms can reap substantial gains in long-term competitive performance. These efforts should be the next step for the many firms that have already begun the work of restructuring supplier relations in the direction of the partnership model. Moreover, Japanese firms currently under pressure to rationalize their supply base and adopt more market-oriented supplier management practices could also learn from Toyota. Its approach toward supply chain management gives it both flexibility and continuous cost reductions and has proved to be effective even in the current domestic recession.

About the Authors

Toshihiro Nishiguchi is professor of management at Hitotsubashi University, Institute of Innovation Research.Alexandre Beaudet is research adviser, Transnational Consulting Department, Mitsubishi Research Institute.

1. J.H. Dyer, “How Chrysler Created an American Keiretsu,” Harvard Business Review, volume 74, July–August 1996, pp. 42–56;

S.R. Helper and M. Sako, “Supplier Relations in Japan and the United States: Are They Converging?,” Sloan Management Review, volume 36, Spring 1995, pp. 77–84; and

T. Nishiguchi, Strategic Industrial Sourcing: The Japanese Advantage (New York: Oxford University Press, 1994).

2. J.P. Womack and D.T. Jones, Lean Thinking: Banish Waste and Create Wealth in Your Corporation (New York: Simon & Schuster, 1996).

3. H. Ulrich and G.J.B. Probst, eds., Self-Organization and Management of Social Systems (Berlin: Springer-Verlag, 1984).

4. Although, in Japanese, the company’s name is pronounced “Aishin Seiki,” we use the registered English name “Aisin Seiki” in this article. Sales to Toyota currently account for 65 percent of Aisin’s total sales.

5. Another interpretation might suggest that the crisis occurred at a relatively good time, that is, when Toyota profits were at their third-highest level ever due to booming sales in Japan, the recent depreciation of the yen, and cost-saving efforts in product development and other areas that have saved Toyota nearly $2.5 billion. See:

B. Bremmer, L. Armstrong, K. Kerwin, and K. Naughton, “Toyota’s Crusade,” Business Week, 7 April 1997, pp. 44–50.

6. In this article, the term “Toyota group” refers to Toyota’s network of core suppliers, including affiliates (e.g., Aisin Seiki), independents (e.g., Kayaba Industry), and affiliated vehicle assemblers (e.g., Hino Motors). Toyota itself distinguishes the Toyota group, composed of fourteen of its closest affiliates, from the rest of its suppliers. All Toyota-group affiliates and many of Toyota’s important suppliers belong to the automaker’s supplier association, the Kyohokai (245 members); for more details, see:

M. Sako, “Suppliers’ Associations in the Japanese Automobile Industry: Collective Action for Technology Diffusion,” Cambridge Journal of Economics, volume 20, November 1996, pp. 651–671. Within this association is a core group of about sixty firms that account for 80 percent of Toyota’s total parts purchasing costs.

7. Interviews were conducted on March 24, 25, and 26, 1997, with managers of Toyota Motor Corporation, Aisin Seiki Co., Ltd., Koritsu Sangyo, Ltd., Taiho Kogyo Co., Ltd., Kayaba Industry Co., Ltd., and Denso Corporation (formerly, Nippondenso Co., Ltd.).

8. Because the Japanese model of assembler-supplier relationships is already well documented, we do not detail them in this article; interested readers might benefit from consulting:

J.H. Dyer and W.G. Ouchi, “Japanese-Style Partnerships: Giving Companies a Competitive Edge,” Sloan Management Review, volume 35, Fall 1993, pp. 51–63;

Nishiguchi (1994);

T. Nishiguchi and J. Brookfield, “The Evolution of Japanese Subcontracting,” Sloan Management Review, volume 38, Fall 1997, pp. 89–101; and

J.P. Womack, D.T. Jones, and D. Roos, The Machine That Changed the World (New York: Rawson Associates, 1990).

9. Single sourcing is less common in Japan than is usually thought, as many Japanese automakers use “parallel sourcing”; see:

J. Richardson, “Parallel Sourcing and Supplier Performance in the Japanese Automobile Industry,” Strategic Management Journal, volume 14, July 1993, pp. 339–350.

Although a particular model’s parts may be sourced to a single supplier, slightly different versions are often sourced to a competing supplier, enabling the assembler to compare each firm’s performance and promote long-term competition between the suppliers. Single sourcing is usually adopted by smaller assemblers in Japan.

10. Like Denso Corp., Aisin Seiki was originally a department within Toyota before it was spun off as a subsidiary in 1949. Toyota presently owns approximately 20 percent of Aisin shares, and several of Aisin’s executives were originally Toyota managers, including Aisin’s current president Toyoda Kanshiro (the son of Toyoda Eiji, Toyota’s former president and current honorary chairman). But these formal and informal linkages are not sufficient to explain Toyota’s high reliance on Aisin. The supplier’s high performance and reliability must also be considered.

11. Toyota vehicles are assembled not only in Toyota’s own assembly plants but also in plants of Toyota keiretsu firms such as Toyota Auto Body, Araco, Kanto Auto Works, Toyoda Automatic Loom Works, Central Motors, Gifu Auto Body, Hino Motors, and Daihatsu Motor Co. On Tuesday, February 4, only Daihatsu’s Ikeda plant was kept open. Mitsubishi, which also used Aisin P-valves and had only about two days’ worth of stock, had to close some assembly lines on February 5. Isuzu and Suzuki were not affected, however, because they were able to prioritize production schedules for models not using Aisin P-valves and because they had five days’ and three or four days’ worth of P-valves in stock, respectively.

12. The Ministry of International Trade and Industry’s estimates of the loss in output during February 1997 caused by the fire were 8.3 percent for the entire transportation equipment industry and 1 percent for all metal-related industries.

13. As a consequence of the Kobe earthquake in January 1995, production was curtailed for several days, but not as severely as in the aftermath of the fire. Most production equipment (e.g., jigs and fixtures, machine tools, transfer machines) of the affected Toyota supplier plants (Sumitomo Electric and Fujitsu-Ten) was salvaged intact or repaired quickly, resulting in only minor disruptions for Toyota’s assembly plants and only for a few models. In contrast, Aisin P-valves, which are used in almost every Toyota model, and their assembly lines were burned down, with three transfer machines seriously damaged. After the earthquake, no temporary production sites outside the affected suppliers were set up, since Toyota assisted them at the suppliers’ own facilities.

14. “Sales, Profits Rise at Toyota Affiliates,” Nikkei Weekly, 19 May 1997, p. 7.

15. V. Reitman, “To the Rescue: Toyota’s Fast Rebound after Fire at Supplier Shows Why It Is Tough,” Wall Street Journal, 8 May 1997, pp. A1 and A16.

16. Toyota (69,000 employees) is the world’s third-largest automaker and Japan’s largest firm in terms of sales. Both Aisin Seiki (11,100 employees) and Denso (56,500 employees) are part of what Toyota defines as the Toyota group. Aisin and Denso sell, respectively, 65 percent and 50 percent of their output to Toyota and are, respectively, 20 percent and 23 percent owned by Toyota. Like many Toyota suppliers nowadays, their clients include every Japanese automaker as well as many other automakers in the world. Aisin specializes in brake-related parts (and its subsidiary, Warner-Aisin, in transmissions); Denso specializes in electric and electronic auto components and is now the world’s fourth-largest automotive parts supplier. Taiho Kogyo (1,350 employees), although not nominally part of the Toyota group, sells 74 percent of its output to group firms (59 percent to Toyota itself), is 58 percent owned by Toyota, and has many former Toyota managers occupying key positions, including Taiho’s chairman (in contrast, Denso has only one Toyota-bred executive). Its main products are engine bearings, aluminum die-cast products, and dies. Kayaba is considered to be an independent supplier in the Japanese auto industry, with both Toyota and Nissan owning approximately the same number of its shares (8.5 percent and 8.1 percent, respectively). Its clientele is diversified, with Toyota accounting for about 25 percent of sales and Mitsubishi and Nissan accounting for 16 percent and 12 percent, respectively. Kayaba specializes in shock absorbers and hydraulic equipment and has 47 percent of Japanese and 22 percent of world market share for shock absorbers. Koritsu Sangyo (320 employees) is a second-tier supplier highly dedicated to Aisin Seiki. It specializes in transmission-related parts.

17. Mainly P-valve production was to be out-sourced in this way. Existing capacity to produce clutch master and tandem master cylinders in-house was deemed sufficient; these parts were not manufactured solely at Aisin’s Kariya plant, whereas P-valves were. Only five firms were needed to assist Aisin with the production of the clutch master and tandem master cylinders.

18. Wall Street Journal, 8 May 1997.

19. Koritsu Sangyo is perhaps an exceptional case.Its president heads Aisin’s supplier association. It is one of Aisin’s best-performing suppliers, the winner of several awards for quality. It is highly dedicated to Aisin (the supplier’s president wished he had had thirty hours per day instead of just twenty-four to help Aisin during this incident), the result of decades of continuous and stable relationships involving not only business transactions but also know-how exchange and capability-upgrading activities.

20. Kinkyu seisan fukkyu kodo gaido (Action guide for the emergency recovery of production), Aisin Seiki Co., Ltd., 30 September 1997. The booklet was edited by Aisin’s Corporate Planning Office, following the Aisin president’s directive that the office record everything that happened from day one of the incident so that its lessons could be compiled for later use.

21. The booklet contained: (1) a list of the major difficulties encountered during the crisis, including those caused by Aisin’s mistakes (e.g., distributing drills made for special-purpose machinery that could not be found); (2) guidelines for organizing an emergency response (e.g., how to set up an “emergency response unit” and various teams); (3) key points on what made the rapid recovery possible; (4) a flow chart describing Aisin’s efforts from the beginning to the end of the crisis; (5) a flow chart describing each team’s function; and (6) detailed guidelines for each team’s activities (including examples of checklists and order forms used during the crisis).

22. Hundreds of Denso employees were involved daily in P-valve production, working double shifts and weekends for the first two weeks. At Taiho, about seventy people were directly involved in the emergency production effort, including fifty-five people fully dedicated to P-valve production. At Toyota, twenty-five employees were directly involved in in-house P-valve production, while hundreds more were sent to Aisin and other firms to assist in the recovery effort.

23. It should be noted that Toyota could afford such payments at the time because profits were higher than expected, mainly as a result of the continued depreciation of the yen. The compensation scheme can also be interpreted as having the objective of spreading the unexpected gains from the lower yen and thus averting criticisms that Toyota was monopolizing them.

24. Suggestions proposed for alleviating the risk of interruptions caused by such disasters included (1) reducing variety of parts, among other reasons because excessive variety of P-valves complicated the setting up of alternative production sites after the fire; (2) dispersing production facilities; (3) increasing education efforts toward fire and accident prevention; and (4) increasing parallel sourcing. Regarding P-valves, however, unconfirmed reports suggest that Toyota will probably continue to rely almost exclusively on Aisin for P-valves, indicating a reluctance to forfeit the many benefits of single sourcing, e.g., possibility of important cost reductions through exploitation of scale economies; simplification of parts procurement and quality-control activities, and building of trusted relationships with a reduced number of suppliers.

25. The examples of 320-employee Koritsu Sangyo being the first to complete a P-valve after the fire or of Kayaba’s six-employee prototype specialist that made its own drills for P-valve use are telling in this regard.

26. A. Beaudet, “Knowledge Diffusion in the Japanese Automotive Industry: The Role of Kyoryokukai and Jishuken” (Hitotsubashi University, Graduate School of Economics, unpublished master’s thesis).

27. I. Nonaka, “The Knowledge-Creating Company,” Harvard Business Review, volume 69, November–December 1991, pp. 96–104;

I. Nonaka and H. Takeuchi, The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation (New York: Oxford University Press, 1995).

28. It should be noted that P-valves are relatively mature products and that Aisin’s technology was not particularly advanced or of a proprietary kind.

29. T. Nishiguchi and E. Anderson, “Supplier and Buyer Networks,” in E.H. Bowman and B.M. Kogut, eds., Redesigning the Firm (New York: Oxford University Press, 1995), pp. 65–84.

30. J.H. Dyer, “Specialized Supplier Networks as a Source of Competitive Advantage: Evidence from the Auto Industry,” Strategic Management Journal, volume 17, April 1996, pp. 271–291.

Acknowledgments

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What happened when Israel attacked Rafah?

Israel has attacked twice since Sunday, killing tens of people in horrific circumstances.

Thirteen out of 21 people killed by Israel in an air strike on the so-called “safe area” of al-Mawasi were civilian women and girls, Al Jazeera’s Hind Khoudary reported on Tuesday.

This was the second attack since Sunday, with a horrifying strike on Sunday night setting displaced people’s shelters ablaze not too far from Tuesday’s strike.

Keep reading

Rafah residents face further danger as israel hits city’s two hospitals rafah residents face further danger as ..., global protests condemn israel’s attack on rafah global protests condemn israel’s attack ..., rafah’s main hospital shuts as israel attacks again rafah’s main hospital shuts as israel ....

The world had watched, aghast, on Monday as displaced Palestinians were forced to dig through smouldering remains with their bare hands – looking for bodies, or injured people, or in some cases, a few scraps of food they could salvage to keep their families going a bit longer.

As reports further clarify what happened on Tuesday, here are the details of Sunday’s attack:

When and where was this attack?

The attack happened at night on May 26.

It was inflicted on an encampment of makeshift shelters just north of Rafah city, in an area called Tal as-Sultan

It came after United States President Joe Biden said a “major offensive” by Israel on Rafah would be a red line.

What happened in the attack?

Many shelters burst into flames with their occupants still inside.

The Gaza Government Media Office said Israel dropped seven 900kg (2,000-pound) bombs as well as missiles on the displacement camp.

The Israeli army said it targeted Rafah with “precision munitions”, and that a nearby fuel tank led to the subsequent fire.

Horrific videos emerged of the aftermath – the most notable was of a man holding up the corpse of a young child without a head.

Al Jazeera’s Sanad Verification Agency was able to obtain images of fragments believed to be of the weaponry used in this attack. The photos the agency obtained show the tail of a GBU-39/B small-diameter bomb, which is made by Boeing. The GBU-39/B includes a jet engine taken from the M26 unguided missile.

Who were the people killed?

Thousands of civilians had been sheltering in the Tal as-Sultan area, seeking some minimal protection from the continuous Israeli attacks across Gaza.

The Israeli government had not issued any orders to evacuate the area before it attacked.

How many people died?

Israel killed at least 45 people in the offensive.

The total number of injured people is hard to determine, as the hospital where casualties were taken has closed after a subsequent Israeli drone attack on its entrance that killed two members of staff.

How did they die?

Some people died from the impact of the bomb.

Some people “reportedly burned to death”, according to Philippe Lazzarini, commissioner-general of the United Nations Relief and Works Agency for Palestine Refugees (UNRWA).

What were they doing when they died?

Accounts from Rafah say that many of the dead were preparing to go to sleep when the attack occurred.

Why is Israel doing this?

Initially, the Israeli army claimed it had struck “a Hamas compound in Rafah in which significant Hamas terrorists were operating”.

It added it was “aware of reports indicating that as a result of the strike and fire that was ignited several civilians in the area were harmed”.

Israeli Prime Minister Benjamin Netanyahu has since said the attack was “a tragic mistake.”

“Despite our best effort not to harm those not involved, unfortunately a tragic error happened last night. We are investigating the case,” Netanyahu said.

The attack came two days after the ICJ ordered Israel to halt its offensive on Rafah.

Is the international community going to do anything?

The United Nations Security Council (UNSC) is set to convene an emergency meeting over the attack on Rafah.

To date, the United States has vetoed every UNSC proposal aimed at holding Israel accountable.

Kelly Rowland Says ‘I Stood My Ground’ in Clash With Cannes Red Carpet Usher: Other Women ‘Who Didn’t Quite Look Like Me Didn’t Get Scolded or Pushed Off’

By Zack Sharf

Digital News Director

• Viggo Mortensen Asked Peter Jackson if He Could Use Aragorn’s Sword in a New Movie, Says He’d Star in New ‘Lord of the Rings’ Movie Only ‘If I Was Right for the Character’ 3 days ago
• Lucasfilm Boss Kathleen Kennedy Says ‘A Lot of Women’ in ‘Star Wars’ Struggle With Fan Attacks ‘Because of the Fan Base Being So Male Dominated’ 3 days ago
• Bill Skarsgård Says ‘It’ Studio Was ‘Kind of Mean’ to Release First Pennywise Photo Before Filming as It Ignited Fan Backlash and ‘So Many Hateful Opinions’ 3 days ago

Kelly Rowland is speaking out about being “scolded” by an usher on the Cannes Film Festival red carpet. The “Destiny’s Child” alum made headlines out of Cannes earlier this week when she appeared to clash with a red carpet usher at the premiere of “Marcello Mio.” Speaking to the Associated Press at the amfAR gala a couple days later, Rowland confirmed she was “told to get off” the carpet.

Popular on Variety

The Cannes Film Festival is known for its strict red carpet policies. It does not allow attendees walking the red carpet to take selfies or use their cameras. Ushers often hurry guests into the theater and don’t allow them to linger on the carpet. The festival also once had a notorious dress code policy that banned women who weren’t wearing heels from walking the red carpet, although the policy was changed after the festival received backlash during its 2015 edition.

Watch Rowland’s full comments to the Associated Press in the post below.

"I stood my ground." Kelly Rowland says "I have a boundary" after video of her argument with a red carpet security guard at the Cannes Film Festival went viral this week. pic.twitter.com/Z5UZMF56SA — AP Entertainment (@APEntertainment) May 23, 2024

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